<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Period Ended September 30, 1999 Commission File No. 0-6032
COMPASS BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 63-0593897
------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
15 SOUTH 20TH STREET
BIRMINGHAM, ALABAMA 35233
----------------------------------------
(Address of principal executive offices)
(205) 933-3000
-------------------------------
(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $2 par value
--------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1999
-------------------------- -------------------------------
Common Stock, $2 Par Value 113,657,635
The number of pages of this report is 26.
<PAGE> 2
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page
- ----------------------------------------------------------------------- ----
Item 1 Financial Statements
Consolidated Balance Sheets as of September 30, 1999 and
December 31, 1998 3
Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 1999 and 1998 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and 1998 5
Consolidated Statements of Comprehensive Income for the
Three and Nine Months Ended September 30, 1999 and 1998 7
Notes to Consolidated Financial Statements 8
Item 2 Management's Discussion and Analysis of Results of Operations
and Financial Condition 13
Item 3 Quantitative and Qualitative Disclosures About Market Risk 21
PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1 Legal Proceedings 22
Item 6 Exhibits and Reports on Form 8-K 22
-2-
<PAGE> 3
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 555,752 $ 831,614
Investment securities (fair value of
$1,506,505 and $1,923,938 for 1999 and
1998, respectively) 1,541,883 1,896,039
Investment securities available for sale 4,402,077 3,645,761
Trading account securities 70,389 127,671
Federal funds sold and securities purchased
under agreements to resell 57,178 27,786
Loans 10,283,018 10,101,285
Allowance for loan losses (139,878) (136,677)
------------ ------------
Net loans 10,143,140 9,964,608
Premises and equipment, net 383,619 353,009
Other assets 527,335 442,420
------------ ------------
Total assets $ 17,681,373 $ 17,288,908
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 2,580,528 $ 2,551,958
Interest bearing 10,163,987 9,461,488
------------ ------------
Total deposits 12,744,515 12,013,446
Federal funds purchased and securities
sold under agreements to repurchase 1,181,467 1,736,066
Other short-term borrowings 179,515 159,404
Accrued expenses and other liabilities 122,146 137,871
FHLB and other borrowings 2,151,061 1,945,980
Guaranteed preferred beneficial interests
in Company's junior subordinated
deferrable interest debentures (Note 3) 100,000 100,000
------------ ------------
Total liabilities 16,478,704 16,092,767
Shareholders' equity:
Preferred stock 11,500 28,750
Common stock of $2 par value:
Authorized--200,000,000 shares;
Issued--113,650,312 shares in 1999 and
75,567,333 shares in 1998 227,301 151,135
Surplus 131,505 126,813
Loans to finance stock purchases (1,662) (2,941)
Unearned restricted stock (3,121) (3,472)
Accumulated other comprehensive
income (loss) (64,085) 10,555
Retained earnings 901,231 885,301
------------ ------------
Total shareholders' equity 1,202,669 1,196,141
------------ ------------
Total liabilities and shareholders'
equity $ 17,681,373 $ 17,288,908
============ ============
</TABLE>
-3-
<PAGE> 4
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $219,938 $212,824 $631,043 $635,661
Interest on investment
securities 26,567 28,135 85,584 61,956
Interest on investment
securities available
for sale 68,981 46,392 199,382 131,552
Interest on trading account
securities 854 1,738 3,499 4,625
Interest on federal funds
sold and securities
purchased under agreements
to resell 743 802 1,908 4,193
-------- -------- -------- --------
Total interest income 317,083 289,891 921,416 837,987
INTEREST EXPENSE:
Interest on deposits 106,685 100,942 305,451 299,076
Interest on federal funds
purchased and securities
sold under agreements to
repurchase 12,126 17,310 48,466 42,101
Interest on other short
-term borrowings 1,985 2,613 5,913 6,976
Interest on FHLB and other
borrowings 30,906 19,420 79,166 55,846
Interest on guaranteed preferred
beneficial interests in
Company's junior subordinated
deferrable interest debentures 2,058 2,058 6,173 6,173
-------- -------- -------- --------
Total interest expense 153,760 142,343 445,169 410,172
-------- -------- -------- --------
Net interest income 163,323 147,548 476,247 427,815
Provision for loan losses 7,984 8,532 22,808 25,127
-------- -------- -------- --------
Net interest income
after provision for
loan losses 155,339 139,016 453,439 402,688
NONINTEREST INCOME:
Service charges on deposit
accounts 26,662 22,606 73,985 64,688
Asset management fees 4,480 3,746 13,820 12,256
Trading account profits and
commissions 2,157 3,210 8,054 10,370
Retail investment sales 5,674 5,240 16,679 14,703
Investment securities
gains, net -- 1,915 2,098 4,234
Gain on sale of securitized
loans -- -- -- 4,264
Other 20,147 19,210 60,048 55,659
-------- -------- -------- --------
Total noninterest income 59,120 55,927 174,684 166,174
NONINTEREST EXPENSE:
Salaries, benefits and
commissions 67,585 63,725 197,410 185,153
Net occupancy expense 9,989 9,256 28,799 26,686
Equipment expense 10,783 9,887 31,343 28,033
Professional services 9,496 9,163 27,810 26,745
Merger and integration 1,342 3,749 4,272 7,502
Other 32,225 26,392 92,441 81,143
-------- -------- -------- --------
Total noninterest expense 131,420 122,172 382,075 355,262
-------- -------- -------- --------
Net income before income
tax expense 83,039 72,771 246,048 213,600
Income tax expense 28,018 24,389 84,332 72,074
-------- -------- -------- --------
NET INCOME $ 55,021 $ 48,382 $161,716 $141,526
======== ======== ======== ========
BASIC EARNINGS PER SHARE $ 0.48 $ 0.43 $ 1.41 $ 1.26
Basic weighted average shares
outstanding 113,388 110,956 113,309 110,789
DILUTED EARNINGS PER SHARE $ 0.48 $ 0.42 $ 1.40 $ 1.23
Diluted weighted average shares
outstanding 114,586 113,765 114,447 113,794
Dividends per share $ 0.20 $ 0.175 $ 0.60 $ 0.525
</TABLE>
-4-
<PAGE> 5
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 161,716 $ 141,526
Adjustments to reconcile net income to
cash provided by operations:
Depreciation and amortization 44,186 35,393
Accretion of discount and loan fees (6,046) (11,296)
Provision for loan losses 22,808 25,127
Net change in trading account securities 57,282 29,420
Net change in mortgage loans held
for sale 26,957 (17,150)
Gain on sale of securitized loans -- (4,264)
Gain on sale of securities available for sale (2,098) (4,234)
(Gain) loss on sale of premises and equipment (282) 127
Increase in other assets (26,850) (2,205)
Increase (decrease) in other payables 31,557 (1,437)
----------- -----------
Net cash provided by operating activities 309,230 191,007
INVESTING ACTIVITIES:
Proceeds from maturities of investment
securities 356,476 494,751
Purchases of investment securities -- (1,446,073)
Proceeds from sales of securities
available for sale 324,744 680,357
Proceeds from maturities of
securities available for sale 785,702 652,698
Purchases of securities available for sale (963,432) (1,113,582)
Net (increase) decrease in federal funds
sold and securities purchased
under agreements to resell (29,392) 43,318
Net increase in loan portfolio (1,158,692) (837,147)
Sale of securitized loans -- 359,680
Purchase of branches 209,664 --
Purchases of premises and equipment (51,048) (45,868)
Proceeds from sales of other
real estate owned 5,743 3,377
----------- -----------
Net cash used by investing activities (520,235) (1,208,489)
</TABLE>
-5-
<PAGE> 6
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
--------------------------
1999 1998
------------ -----------
<S> <C> <C>
FINANCING ACTIVITIES:
Net increase in deposits $ 348,415 $ 402,031
Net increase (decrease) in federal funds
purchased and securities sold
under agreements to repurchase (554,599) 323,831
Net increase in short-term
borrowings 20,111 9,277
Issuance of FHLB advances and
other borrowings 1,055,814 196,000
Repayment of FHLB advances and
other borrowings (851,696) (107,707)
Common dividends paid (68,149) (55,405)
Preferred stock dividends (1,299) (2,300)
Retirement of preferred stock (17,768) --
Common dividends paid by pooled
entities prior to acquisition -- (1,597)
Exercise of stock options of acquired
entities prior to acquisition -- 599
Repayment of loans to finance stock
purchases 2,780 4,606
Proceeds from exercise of stock options 1,534 2,417
----------- -----------
Net cash provided (used) by
financing activities (64,857) 771,752
----------- -----------
Net decrease in cash and due from banks (275,862) (245,730)
Cash and due from banks at beginning of period 831,614 793,812
----------- -----------
Cash and due from banks at end of period $ 555,752 $ 548,082
=========== ===========
SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Loans to finance stock purchases $ 1,501 $ 2,630
Purchases of securities, not yet settled -- 102,616
Tax benefit realized upon exercise
of stock options 363 432
Issuance of restricted stock 2,122 3,113
Assets retained in loan securitizations 1,020,883 521,143
Change in unrealized gain/loss on available-
for-sale securities (121,674) 31,969
Acquisition of branches:
Liabilities assumed $ 382,769 $ --
Assets acquired 173,105 --
----------- -----------
Net liabilities assumed $ 209,664 $ --
=========== ===========
</TABLE>
-6-
<PAGE> 7
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
(Unaudited)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET INCOME $ 55,021 $ 48,382 $ 161,716 $ 141,526
OTHER COMPREHENSIVE INCOME (LOSS),
BEFORE TAX:
Unrealized holding gain (loss)
on securities available for
sale, net (16,552) 25,383 (116,266) 36,427
Less reclassification adjustment
for gains (losses) on securities
available for sale -- 1,915 2,098 4,234
--------- --------- --------- ---------
Total other comprehensive
income (loss), before tax (16,552) 23,468 (118,364) 32,193
INCOME TAX EXPENSE (BENEFIT) RELATED
TO OTHER COMPREHENSIVE INCOME:
Unrealized holding gain (loss)
on securities available for
sale, net (5,243) 8,876 (42,935) 12,931
Less reclassification adjustment
for gains (losses) on securities
available for sale -- 733 789 1,592
--------- --------- --------- ---------
Total income tax expense
(benefit) related to other
comprehensive income (5,243) 8,143 (43,724) 11,339
--------- --------- --------- ---------
Total other comprehensive
income (loss), net of tax (11,309) 15,325 (74,640) 20,854
--------- --------- --------- ---------
TOTAL COMPREHENSIVE INCOME $ 43,712 $ 63,707 $ 87,076 $ 162,380
========= ========= ========= =========
</TABLE>
-7-
<PAGE> 8
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL
The consolidated financial statements of Compass Bancshares, Inc. (the
"Company") in this report have not been audited. In the opinion of management,
all adjustments necessary to present fairly the financial position and the
results of operations for the interim periods have been made. All such
adjustments are of a normal recurring nature. The results of operations of
interim periods are not necessarily indicative of the results of operations for
the full year or any other interim periods. For further information, refer to
the consolidated financial statements and notes included in the Company's annual
report on Form 10-K for the year ended December 31, 1998.
NOTE 2 - BUSINESS COMBINATIONS
On April 19, 1999, the Company completed the purchase of 15 branches in
Arizona from Wells Fargo Bank, N.A. These branches, primarily in the Phoenix
area, added approximately $400 million in deposits. The transaction was
accounted for under the purchase method of accounting. Intangible assets
resulting from the purchase totaled $73 million.
On October 20, 1999, the Company completed the acquisition of Hartland
Bank, N.A. in Austin, Texas, with assets of approximately $304 million and
deposits of approximately $270 million. The Company acquired all of the
outstanding shares of Hartland Bank in exchange for approximately $88 million in
cash. The transaction was accounted for under the purchase method of accounting.
Intangible assets resulting from the purchase totaled $65 million.
On July 26, 1999, the Company signed a definitive agreement to merge
with Western Bancshares, Inc. in Albuquerque, New Mexico, with assets of $285
million and equity of $34 million. Based on the Company's closing stock price on
the date prior to the signing of the definitive agreement, the merger is valued
at approximately $88 million. It is anticipated that the transaction will close
during the first quarter of 2000 and will be accounted for under the
pooling-of-interests method of accounting.
On November 4, 1999, the Company signed a definitive agreement to merge
with MegaBank Financial Corporation in Denver, Colorado, with assets of $298
million and equity of $33 million. The Company will acquire all of the
outstanding stock of MegaBank Financial Corporation in exchange for up to
approximately 3.4 million shares of the Company's Common Stock. Based on the
Company's closing stock price on the date prior to the signing of the
definitive agreement, the merger is valued at approximately $94 million. It is
anticipated that the transaction will close during the second quarter of 2000
and will be accounted for under the pooling-of-interests method of accounting.
NOTE 3 - CAPITAL SECURITIES
In January 1997, the Company formed a wholly owned Delaware statutory
business trust, Compass Trust I, which issued $100 million of guaranteed
preferred beneficial interests in the Company's junior subordinated deferrable
interest debentures ("Capital Securities") that qualify as Tier I capital under
Federal Reserve Board guidelines. All of the common securities of Compass Trust
I are owned by the Company. The proceeds from the issuance of the Capital
Securities ($100 million) and common securities ($3.1 million) were used by
Compass Trust I to purchase $103.1 million of junior subordinated deferrable
interest debentures of the Company which carry an interest rate of 8.23 percent.
The debentures represent the sole asset of Compass Trust I. The debentures and
related income statement effects are eliminated in the Company's financial
statements.
-8-
<PAGE> 9
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 3 - CAPITAL SECURITIES - CONTINUED
The Capital Securities accrue and pay distributions semiannually at a
rate of 8.23 percent per annum of the stated liquidation value of $1,000 per
capital security. The Company has entered into contractual arrangements which,
taken collectively, fully and unconditionally guarantee payment of: (i) accrued
and unpaid distributions required to be paid on the Capital Securities; (ii) the
redemption price with respect to any Capital Securities called for redemption by
Compass Trust I; and (iii) payments due upon a voluntary or involuntary
liquidation, winding-up or termination of Compass Trust I.
The Capital Securities are mandatorily redeemable upon the maturity of
the debentures on January 15, 2027, or upon earlier redemption as provided in
the indenture. The Company has the right to redeem the debentures purchased by
Compass Trust I: (i) in whole or in part, on or after January 15, 2007, and (ii)
in whole (but not in part) at any time within 90 days following the occurrence
and during the continuation of a tax event or capital treatment event (as
defined in the offering circular and indenture). As specified in the indenture,
if the debentures are redeemed prior to maturity, the redemption price will be
the principal amount, any accrued but unpaid interest, plus a premium ranging
from 4.12 percent in 2007 to 0.41 percent in 2016.
NOTE 4 - STOCK SPLIT
On February 16, 1999, the Company announced a three-for-two stock split
that was effected in the form of a 50 percent stock dividend on April 2, 1999,
to shareholders of record as of March 15, 1999. Stockholders' equity at
September 30, 1999, as presented in the Consolidated Balance Sheets, reflects
the issuance of 37,836,300 shares of the Company's common stock on April 2,
1999. Per share information for all periods has been restated to reflect the
stock split in accordance with generally accepted accounting principles.
NOTE 5 - RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Statement No. 133, Accounting for Derivative Instruments
and Hedging Activities, ("FAS133"). FAS133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
FAS133 will significantly change the accounting treatment of derivative
instruments and, depending upon the underlying risk management strategy, these
accounting changes could affect future earnings, assets, liabilities, and
shareholders' equity. As a result, the Company may reconsider its risk
management strategies since the new standard would not reflect the results of
many of those strategies in the same manner as current accounting practice. The
Company is presently evaluating the impact of FAS133 on its computer systems and
accounting policies and is also closely monitoring the deliberations of the
FASB's derivative implementation task force. With the issuance of Financial
Accounting Statement No. 137, Accounting for Derivative Instruments and Hedging
Activities- Deferral of the Effective Date of FASB Statement No. 133, which
delayed the effective date of FAS133, the Company will be required to adopt
FAS133 on January 1, 2001. Presently, the Company has not yet quantified the
impact that the adoption will have on the consolidated financial statements of
the Company.
-9-
<PAGE> 10
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 6 - EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
(In Thousands Except Per Share Data)
(Unaudited)
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Net income $ 55,021 $ 48,382 $161,716 $141,526
Less: Dividends on non-
convertible and convertible
preferred stock and
redemption premium 340 768 1,892 2,301
-------- -------- -------- --------
Net income available to
common shareholders $ 54,681 $ 47,614 $159,824 $139,225
======== ======== ======== ========
Weighted average shares
outstanding 113,388 110,956 113,309 110,789
======== ======== ======== ========
Basic earnings per share $ 0.48 $ 0.43 $ 1.41 $ 1.26
======== ======== ======== ========
DILUTED EARNINGS PER SHARE:
Net income $ 55,021 $ 48,382 $161,716 $141,526
Less: Dividends on non-
convertible preferred
stock and redemption premium 340 696 1,892 2,087
-------- -------- -------- --------
Net income available to
common shareholders
and assumed conversions $ 54,681 $ 47,686 $159,824 $139,439
======== ======== ======== ========
Weighted average shares
outstanding 113,388 110,956 113,309 110,789
Net effect of the assumed
exercise of stock options
and nonvested restricted
stock - based on the treasury
stock method using average
market price for the period 1,198 1,156 1,138 1,328
Assumed conversion of
preferred stock -- 1,653 -- 1,677
-------- -------- -------- --------
Total weighted average
shares and common stock
equivalents outstanding 114,586 113,765 114,447 113,794
======== ======== ======== ========
Diluted earnings per share $ 0.48 $ 0.42 $ 1.40 $ 1.23
======== ======== ======== ========
</TABLE>
-10-
<PAGE> 11
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 7 - SEGMENT INFORMATION
The following tables present the segment information for the Company's
segments as of and for the periods ended September 30, 1999 and 1998. Due to
impracticality, prior period information has not been restated to reflect the
transfer of assets retained in securitizations from other segments,
predominantly the Retail Banking segment, to the Treasury segment. For a
discussion of the Company's segments, refer to Note 16 of the "Notes to the
Consolidated Financial Statements" as presented in the Company's 1998 Form 10-K.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(In Thousands)
(Unaudited)
CORPORATE
CORPORATE COMMUNITY RETAIL ASSET SUPPORT
BANKING BANKING BANKING MANAGEMENT TREASURY AND OTHER CONSOLIDATED
---------- ---------- ---------- ---------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Net interest income $ 147,588 $ 63,665 $137,795 $ 20,099 $ 72,677 $ 34,423 $ 476,247
Noninterest income 28,101 28,280 91,287 15,901 8,572 2,543 174,684
Noninterest expense 57,451 36,785 126,826 16,208 4,722 140,083 382,075
---------- ---------- ---------- ---------- --------- ---------- ------------
Segment net income 118,238 55,160 102,256 19,792 76,527 (103,117) 268,856
Provision for loan losses 22,808
------------
Net income before income
tax expense 246,048
Income tax expense 84,332
------------
Net income $ 161,716
===========
BALANCE SHEET
Average total assets $5,220,482 $1,185,860 $1,066,714 $361,844 $8,883,402 $ 681,559 $17,399,861
Average total loans 5,063,705 1,116,119 972,009 354,153 1,375,568 1,259,548 10,141,102
Average total deposits 2,069,688 2,964,079 6,162,530 704,694 1,292,240 (783,025) 12,410,206
</TABLE>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
CORPORATE
CORPORATE COMMUNITY RETAIL ASSET SUPPORT
BANKING BANKING BANKING MANAGEMENT TREASURY AND OTHER CONSOLIDATED
---------- ---------- ---------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Net interest income $ 128,977 $ 66,229 $ 112,549 $ 19,093 $ 76,197 $ 24,770 $ 427,815
Noninterest income 28,477 26,725 74,533 13,943 12,886 9,610 166,174
Noninterest expense 53,672 36,890 104,054 15,556 3,575 141,515 355,262
--------- --------- ---------- ----------- ------------- ----------- -----------
Segment net income 103,782 56,064 83,028 17,480 85,508 (107,135) 238,727
Provision for loan losses 25,127
------------
Net income before income
tax expense 213,600
Income tax expense 72,074
------------
Net income $ 141,526
============
BALANCE SHEET
Average total assets $4,590,786 $1,257,717 $ 992,504 $388,717 $6,387,666 $1,441,054 $15,058,444
Average total loans 4,402,593 1,178,007 907,624 378,493 1,150,624 1,669,551 9,686,892
Average total deposits 1,719,652 2,816,612 5,115,627 554,632 703,054 248,724 11,158,301
</TABLE>
-11-
<PAGE> 12
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 7 - SEGMENT INFORMATION - CONTINUED
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
CORPORATE
CORPORATE COMMUNITY RETAIL ASSET SUPPORT
BANKING BANKING BANKING MANAGEMENT TREASURY AND OTHER CONSOLIDATED
---------- ---------- ---------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Net interest income $ 49,932 $ 22,038 $ 49,300 $ 6,882 $ 22,066 $ 13,105 $ 163,323
Noninterest income 8,364 9,858 32,678 5,258 2,371 591 59,120
Noninterest expense 19,027 12,175 44,964 5,314 1,844 48,096 131,420
---------- ---------- --------- ---------- --------- ----------- -----------
Segment net income 39,269 19,721 37,014 6,826 22,593 (34,400) 91,023
Provision for loan losses 7,984
-----------
Net income before income
tax expense 83,039
Income tax expense 28,018
-----------
Net income $ 55,021
===========
BALANCE SHEET
Average total assets $5,361,380 $1,185,319 $1,162,483 $363,322 $9,023,871 $ 575,116 $17,671,491
Average total loans 5,230,355 1,130,872 1,053,090 355,579 1,441,103 1,199,056 10,410,055
Average total deposits 2,151,770 2,971,444 6,285,161 710,641 1,687,775 (993,341) 12,813,450
</TABLE>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
CORPORATE
CORPORATE COMMUNITY RETAIL ASSET SUPPORT
BANKING BANKING BANKING MANAGEMENT TREASURY AND OTHER CONSOLIDATED
---------- ---------- ---------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Net interest income $ 45,647 $ 22,050 $ 36,691 $ 6,739 $ 32,707 $ 3,714 $ 147,548
Noninterest income 9,512 9,218 25,637 4,234 4,865 2,461 55,927
Noninterest expense 18,165 12,065 35,388 5,387 1,132 50,035 122,172
---------- ---------- ---------- ---------- ---------- ----------- -----------
Segment net income 36,994 19,203 26,940 5,586 36,440 (43,860) 81,303
Provision for loan losses 8,532
-----------
Net income before income
tax expense 72,771
Income tax expense 24,389
-----------
Net income $ 48,382
===========
BALANCE SHEET
Average total assets $4,862,540 $1,305,056 $ 910,595 $419,876 $7,036,049 $1,012,340 $15,546,456
Average total loans 4,664,205 1,220,341 842,077 409,930 1,082,457 1,442,630 9,661,640
Average total deposits 1,843,745 2,837,965 5,076,602 579,633 906,970 46,407 11,291,322
</TABLE>
-12-
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION
This report may contain forward-looking statements which are subject to
numerous assumptions, risks and uncertainties. Statements pertaining to future
periods are subject to uncertainty because of the possibility of changes in
underlying factors and assumptions. Actual results could differ materially from
those contained in or implied by such forward-looking statements for a variety
of reasons including: sharp and/or rapid changes in interest rates; significant
changes in the economic scenario from the current anticipated scenario which
could materially change anticipated credit quality trends and the ability to
generate loans; significant delay in or inability to execute strategic
initiatives designed to grow revenues and/or control expenses; unforeseen
business risks related to Year 2000 computer systems issues; and significant
changes in accounting, tax, or regulatory practices or requirements.
OVERVIEW
Net income for the quarter ended September 30, 1999, increased 14 percent to
$55.0 million while diluted earnings per share increased 14 percent to $0.48 per
share. Net interest income increased 11 percent to $163.3 million from the third
quarter of 1998. Noninterest income increased 6 percent to $59.1 million while
noninterest expense increased 8 percent to $131.4 million.
For the first nine months of 1999, net income increased 14 percent to $161.7
million and diluted earnings per share increased 14 percent to $1.40 per share.
Net interest income for the nine months grew to $476.2 million, an increase of
11 percent, while noninterest income and noninterest expense increased 5 percent
and 8 percent, respectively.
NET INTEREST INCOME
Net interest income for the quarter ended September 30, 1999, increased
$15.8 million over the third quarter of 1998 to $163.3 million with interest
income and interest expense increasing $27.2 million and $11.4 million,
respectively. The increase in interest income was primarily due to an increase
in average earning assets of $2.1 billion, or 15 percent, partially offset by a
38 basis point decrease in the average yield on earning assets from 8.09 percent
to 7.71 percent. Average loans, excluding the impact of branch purchases and
securitizations, grew 20 percent from the third quarter of 1998. On a reported
basis, average loans increased 8 percent from the third quarter of 1998. The
average balance of investment securities available for sale increased 52
percent, or $1.5 billion, due principally to retained securitized loans. The 8
percent increase in interest expense during the quarter was a result of a $1.8
billion increase in average interest bearing liabilities, primarily savings
accounts and FHLB and other borrowings, offset by a 29 basis point decrease in
the rate paid on interest bearing liabilities.
For the first nine months of 1999, net interest income increased 11 percent,
or $48.4 million, to $476.2 million consisting of an $83.4 million increase in
interest income and a $35.0 million increase in interest expense. The increase
in interest income was due to a 17 percent increase in average earning assets
partially offset by a decline in the yield on earning assets of 47 basis points,
to 7.69 percent from 8.16 percent. The average balance of investment securities
available for sale for the first nine months of 1999 increased $1.4 billion over
the comparable 1998 period due to the factors discussed previously. A $2.0
billion increase in average interest bearing liabilities combined with a 35
basis point decline in the rate paid on interest bearing liabilities resulted in
a 9 percent increase in interest expense.
-13-
<PAGE> 14
NET INTEREST MARGIN
Net interest margin, stated as a percentage, is the yield on average earning
assets obtained by dividing the difference between the overall interest income
on earning assets and the interest expense paid on all funding sources by
average earning assets. For the third quarter of 1999, the net interest margin,
on a tax-equivalent basis, was 3.99 percent compared to 4.13 percent for the
same period in 1998. For the nine months ended September 30, 1999, net interest
margin decreased 19 basis points from 4.18 percent in the prior year to 3.99
percent. These decreases resulted from the changes in rates and volumes of
earning assets and the corresponding funding sources noted previously. The yield
on interest earning assets for the third quarter decreased 38 basis points,
including a 35 basis point decrease in the yield on loans, while the cost on
interest bearing liabilities decreased 29 basis points. Similarly, a 46 basis
point decrease in the yield on loans contributed to a 47 basis point decline in
the yield on interest earning assets for the first nine months of 1999 while the
cost of interest bearing liabilities decreased 35 basis points.
During the third quarter of 1999, the Company's net interest margin was
positively impacted by the Company's use of interest rate contracts, increasing
taxable equivalent net interest margin by 9 basis points as compared to a 6
basis point impact for the same period in 1998. For the nine months ended
September 30, 1999, the Company's use of interest rate contracts increased the
Company's net interest margin by 9 basis points, up slightly from 7 basis points
during the first nine months of 1998.
The following tables detail the components of the changes in net interest
income (on a tax-equivalent basis) by major category of interest earning assets
and interest bearing liabilities for the nine month and three month periods
ended September 30, 1999, as compared to the comparable periods of 1998 (in
thousands):
-14-
<PAGE> 15
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1999
------------------------------------------------
Change
1998 Attributed to
to -----------------------------------
1999 Volume Rate Mix
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Loans $ (4,671) $ 29,823 $ (32,949) $ (1,545)
Investment securities 23,267 27,163 (2,736) (1,160)
Investment securities available
for sale 68,663 69,200 (352) (185)
Trading account securities (1,142) (1,025) (148) 31
Fed funds and resale agreements (2,285) (2,095) (380) 190
--------- --------- --------- ---------
Increase in interest income $ 83,832 $ 123,066 $ (36,565) $ (2,669)
========= ========= ========= =========
Interest expense:
Deposits $ 6,375 $ 34,234 $ (27,036) $ (823)
Fed funds purchased and repos 6,365 13,005 (5,073) (1,567)
Other short-term borrowings (1,063) (286) (811) 34
FHLB and other borrowings* 23,320 29,608 (4,257) (2,031)
--------- --------- --------- ---------
Increase in interest expense $ 34,997 $ 76,561 $ (37,177) $ (4,387)
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
September 30, 1999
--------------------------------------------
Change
1998 Attributed to
to ----------------------------------
1999 Volume Rate Mix
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Loans $ 7,100 $ 16,494 $ (8,719) $ (675)
Investment securities (1,680) (828) (877) 25
Investment securities available
for sale 22,902 24,403 (986) (515)
Trading account securities (885) (929) 99 (55)
Fed funds and resale agreements (59) (35) (26) 2
-------- -------- -------- --------
Increase in interest income $ 27,378 $ 39,105 $(10,509) $ (1,218)
======== ======== ======== ========
Interest expense:
Deposits $ 5,743 $ 14,349 $ (8,226) $ (380)
Fed funds purchased and repos (5,184) (4,125) (1,390) 331
Other short-term borrowings (628) (334) (338) 44
FHLB and other borrowings* 11,486 13,277 (1,105) (686)
-------- -------- -------- --------
Increase in interest expense $ 11,417 $ 23,167 $(11,059) $ (691)
======== ======== ======== ========
</TABLE>
* Includes Capital Securities.
-15-
<PAGE> 16
NONINTEREST INCOME AND NONINTEREST EXPENSE
During the third quarter of 1999, noninterest income increased $3.2 million,
or 6 percent, to $59.1 million, due primarily to a $4.1 million increase in
service charges on deposit accounts offset by a $1.1 million decrease in trading
account profits and commissions and a $1.9 million decrease in securities gains.
Noninterest income for the first nine months of 1999 increased $8.5 million, or
5 percent, to $174.7 million as a result of a 14 percent increase in service
charges on deposit accounts, a 13 percent increase in retail investment sales
income, and an 8 percent increase in other noninterest income offset by a 22
percent decrease in trading account profits and commissions, a 50 percent
decrease in securities gains, and a $4.3 million gain that was realized in the
second quarter of 1998 with the securitization and sale of indirect automobile
loans. The increase in service charges on deposit accounts was due to the
increase in deposits while the increase in other noninterest income was due to
increased credit card fees and servicing income related to the Company's loan
securitizations.
Noninterest expense increased $9.2 million, or 8 percent, during the third
quarter and $26.8 million, or 8 percent, during the first nine months of 1999,
primarily due to increased salaries, benefits and commissions expense, equipment
expense, and other noninterest expense. Salaries, benefits and commissions
expense increased during the third quarter and first nine months of the year by
6 percent and 7 percent, respectively, due in part to an increase in personnel
related to the Company's branch acquisition in April 1999. Equipment expense
increased during the third quarter and first nine months of the year by 9
percent and 12 percent, respectively, due to increased computer equipment
depreciation and software amortization. Other noninterest expense increased 22
percent during the third quarter of 1999 and 14 percent during the first nine
months of the year due in part to additional amortization of intangibles
associated with the Company's branch acquisition in April 1999. During the first
nine months of 1999 the Company completed the acquisition of 15 branches
compared to the four mergers completed during the same period for 1998. The
result was a decrease in mergers and integration costs, down $3 million or 43
percent, during the first nine months of 1999.
INCOME TAXES
Income tax expense increased by $12.3 million, or 17 percent, during the
first nine months of 1999 compared to the same period in 1998 as pretax income
increased 15 percent. The effective tax rate for the first nine months of 1999
was 34.3 percent, up from the 33.7 percent effective tax rate for the same
period in 1998.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses for the nine months ended September 30, 1999,
decreased $2.3 million from the same period in 1998. Net loan charge-offs
expressed as an annualized percentage of average loans for the first nine months
of 1999 were 0.28 percent, down from 0.34 percent for the first nine months of
1998. Management considers changes in the size and character of the loan
portfolio, changes in nonperforming and past due loans, historical loan loss
experience, the existing risk of individual loans, concentrations of loans to
specific borrowers or industries and existing and prospective economic
conditions when determining the adequacy of the loan loss allowance. The
allowance for loan losses at September 30, 1999, was $139.9 million. The ratio
of the allowance for loan losses to loans outstanding was 1.36 percent at
September 30, 1999, up slightly from 1.35 percent at December 31, 1998.
NONPERFORMING ASSETS AND PAST DUE LOANS
Nonperforming assets, comprised of nonaccrual loans, renegotiated loans and
other real estate owned, totaled $56.1 million at September 30, 1999, relatively
unchanged from December 31, 1998, as nonaccrual loans increased $1.6 million, or
3 percent. At September 30, 1999, the allowance for loan losses as a percentage
of nonperforming loans was 279 percent, unchanged from December 31, 1998. The
allowance for loan losses as a percentage of nonperforming assets increased from
246 percent at December 31, 1998, to 249 percent at September 30, 1999.
Nonperforming assets as a percentage of total loans and other real estate
owned remained unchanged at 0.55 percent at September 30, 1999 from December 31,
1998. The amount recorded in other repossessed assets at September 30, 1999, was
$1.3 million, down 25 percent from $1.8 million at
-16-
<PAGE> 17
December 31, 1998. Loans past due ninety days or more but still accruing
interest increased 37 percent from $8.7 million at December 31, 1998, to $12.0
million at September 30, 1999. The increase in the level of loans past due
ninety days or more was concentrated in the commercial and consumer portfolios.
As discussed in the Company's 1998 Form 10-K, approximately three percent of
the Company's loan portfolio is represented by loans to energy-related companies
that are dependent on oil and natural gas production as a source of repayment.
The low level of energy prices during the latter half of 1998 adversely impacted
this segment of the Company's portfolio. While energy prices have rebounded
during the first nine months of 1999, this segment of the portfolio continues to
experience considerable stress as a result of an extended period of depressed
oil prices.
The Company regularly monitors selected accruing loans for which general
economic conditions or changes within a particular industry could cause the
borrowers financial difficulties. This continuous monitoring of the loan
portfolio and the related identification of loans with a high degree of credit
risk are essential parts of the Company's credit management. Management
continues to emphasize maintaining a low level of nonperforming assets and
returning current nonperforming assets to an earning status.
YEAR 2000 ISSUES
The Company initiated a program in 1997 to review all of the computer
systems of the Company in order to determine whether the systems were Year 2000
compliant. This study not only involved identifying any required modifications
or replacements of certain hardware and software maintained by the Company, but
also receiving assurance from vendors that the appropriate actions have been
taken or are being taken by them to remedy their Year 2000 issues for computer
systems that the vendors are responsible for maintaining and that are relied
upon by the Company.
As a financial institution, the Company's compliance has been closely
monitored by federal regulatory agencies which have completed four regular
quarterly examinations of the Company and its Year 2000 readiness in the past
twelve months. The Company is not aware of any existing regulatory restrictions
imposed on it by the federal regulatory authorities as a result of the Company's
current plan and implementation.
The Company has identified its information technology ("IT") and non-IT
systems and has completed the assessment phase of each system's Year 2000
readiness. IT systems within the Company include mainframe computer
applications, including loan and deposit systems, while non-IT systems typically
include embedded technology, for example, microcontrollers in elevators. In
connection with the identification process, each system was classified as to its
importance within the Company with systems categorized in one of four
categories: mission critical, medium priority, low priority or immaterial.
Mission critical systems are those identified as vital to a core business
activity of the Company.
For each IT and non-IT system that was assessed as Year 2000 compliant,
testing was performed to confirm compliance while for each system that was found
to be not Year 2000 compliant, a three-step plan involving renovation,
validation and implementation was developed to bring the system into compliance.
Renovation is comprised of modifying or replacing hardware and software in order
to make the system compliant (the "Renovation Phase"). Validation involves
testing the system to determine compliance after modification (the "Validation
Phase"). Implementation entails bringing the compliant system into production
(the "Implementation Phase"). As of September 30, 1999, none of the Company's
mission critical systems were in the Renovation Phase or Validation Phase with
all mission critical systems in the Implementation Phase.
In addition, the Company is also taking appropriate actions to receive
assurance that its customers, principally commercial lending customers, are
taking necessary steps to address their Year 2000 issues due to the fact that
noncompliance could adversely effect their ability to repay borrowings to the
Company. The Company has evaluated the readiness of a majority of its commercial
lending customers as well as a substantial majority of its financial instrument
issuers, broker/dealer counterparties, and federal funds counterparties. Based
on these assessments, management currently believes that there is a low risk of
a material detrimental impact on the Company's results of operations and
financial position because of third party business disruptions or failures
related to Year 2000 events. The Company's
-17-
<PAGE> 18
assessment of these parties will be ongoing throughout 1999
in order to identify any changes in third party readiness that could
negatively impact the Company.
The Company expects to pay less than $25 million related to Year 2000
compliance and anticipates remaining additional payments of approximately
$1 million. A substantial portion of these costs have been or will be
capitalized in the installation of software and hardware and will be
amortized over the life of the related assets. There has been no material
increase in IT salaries expense due to Year 2000 compliance activities as
many of the system renovations have coincided with previously planned
system replacements or enhancements, the costs of which have been included
in the costs disclosed above. The deferral of certain other IT projects
in order to assure Year 2000 readiness has not had, and is not expected
to have, a material impact on the Company's financial condition and results
of operations.
While a failure to achieve Year 2000 compliance with regard to the
Company's IT and non-IT systems could have an adverse impact on the
Company's results of operations and financial condition due to inability
to perform normal lending, investing and deposit gathering functions,
the Company has essentially completed its Year 2000 readiness at September
30, 1999, and believes that any impact of failure to achieve Year 2000
compliance with any of the Company's systems will be immaterial.
The Company's contingency plans have concentrated on potential funding
needs that may arise if there are disruptions in the Company's normal
sources of funds as a result of Year 2000 events, including increased
withdrawals by depositors and the inability of corporate customers to
maintain their usual levels of deposits because of disruptions in their
business caused by Year 2000-related computer problems. The plan also
addresses the possibility that some of the Company's federal funds
counterparties may be unable to sell federal funds to the Company and
that some of the Company's downstream federal funds counterparties may
increase borrowing over normal levels. However, the Company's plan does
not address funding requirements arising from the systemic failure of
the financial system in the United States or globally. The Company's
plan also addresses other potential failures by third parties to fully
remedy their systems. This plan will be continually updated as more
information becomes available on the Year 2000 status of the Company's
funds providers and as additional, more diversified funding sources
are secured.
FINANCIAL CONDITION
OVERVIEW
Total assets at September 30, 1999, were $17.7 billion, up from $17.3 billion
at December 31, 1998, due primarily to the acquisition of branches in April
1999, which was accounted for under the purchase method of accounting. The
Company redeemed its outstanding Series F preferred stock of $17.3 million
during the first quarter of 1999. The Company plans to redeem its outstanding
Series E preferred stock of $11.5 million during the fourth quarter of 1999.
ASSETS AND FUNDING
At September 30, 1999, earning assets totaled $16.4 billion, up from
$15.8 billion at December 31, 1998. The mix of earning assets shifted
moderately toward investment securities with total investment securities
comprising 36 percent of total earning assets at September 30, 1999, up
from 35 percent at December 31, 1998, due primarily to assets retained in
loan securitizations. Increases in interest bearing deposits resulting from
the branch acquisition discussed previously and FHLB and other borrowings
during the first nine months of 1999 offset a decrease in federal funds
purchased and securities sold under agreements to repurchase. At September
30, 1999, deposits accounted for 72 percent of the Company's funding, up
from 69 percent at year-end.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $309 million for the
nine months ended September 30, 1999. Net cash used by investing activities
of $520 million consisted of $963 million in purchases of investment
securities available for sale and a $1.2 billion increase in loans outstanding
offset by proceeds from maturities of investment securities of $356 million,
proceeds from maturities of securities available for sale of $786 million,
proceeds from sales of securities available for sale of $325 million, and
$210 million received in connection with the purchase of branches. Net cash
used by financing activities of $65
-18-
<PAGE> 19
million consisted of a $348 million increase in deposits and a $204 million net
increase in FHLB and other borrowings reduced by a decrease in federal funds
purchased and securities sold under agreements to repurchase of $555 million,
the retirement of preferred stock as previously noted, and the payment of $69
million in common stock and preferred stock dividends.
Total shareholders' equity at September 30, 1999, was 6.80 percent of
total assets compared to 6.92 percent at December 31, 1998 due to a $75
million decrease in accumulated other comprehensive income. The leverage
ratio, defined as period-end common equity and the Capital Securities
adjusted for goodwill divided by average quarterly assets adjusted for
goodwill, was 6.85 percent at September 30, 1999 and 7.26 percent at
December 31, 1998. Similarly, the Company's tangible leverage ratio,
defined as period-end common equity and the Capital Securities adjusted
for all intangibles divided by average quarterly assets adjusted for all
intangibles, was 6.77 percent at September 30, 1999 compared to 7.16
percent at December 31, 1998.
Tier I capital and total qualifying capital (Tier I capital plus Tier
II capital), as defined by regulatory agencies, as of September 30, 1999,
exceeded the target ratios for well capitalized of 6.00 percent and 10.00
percent, respectively, under current regulations. The Tier I and total
qualifying capital ratios at September 30, 1999, were 8.24 percent and
11.64 percent, respectively, compared to 8.81 percent and 10.71 percent
at December 31, 1998. Tier II capital includes supplemental capital
components such as qualifying allowances for loan losses, certain qualifying
classes of preferred stock and qualifying subordinated debt. Increased
regulatory activity in the financial industry as a whole will continue to
impact the industry; however, management does not anticipate any negative
impact on the capital resources or operations of the Company.
-19-
<PAGE> 20
<TABLE>
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
ALLOWANCE FOR LOAN LOSSES/NONPERFORMING ASSETS
(In Thousands)
(Unaudited)
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of period $ 136,677 $ 135,225
Add: Provision charged to earnings 22,808 25,127
Allowance on acquisitions
(loan dispositions) 1,296 (3,212)
Deduct: Loans charged off 29,236 31,519
Loan recoveries (8,333) (6,599)
--------- ---------
Net charge-offs 20,903 24,920
--------- ---------
Balance at end of period $ 139,878 $ 132,220
========= =========
Net charge-offs as a percentage of
average loans (annualized) 0.28% 0.34%
Recoveries as a percentage of charge-offs 28.50% 20.94%
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------- ---------
<S> <C> <C>
NONPERFORMING ASSETS
Nonaccrual loans $ 49,836 $ 48,250
Renegotiated loans 297 665
--------- ---------
Total nonperforming loans 50,133 48,915
Other real estate 5,997 6,657
--------- ---------
Total nonperforming assets $ 56,130 $ 55,572
========= =========
Accruing loans ninety days or more past due $ 11,956 $ 8,699
Other repossessed assets 1,342 1,779
Allowance for loan losses 139,878 136,677
Allowance as a percentage of loans 1.36% 1.35%
Total nonperforming loans as a percentage
of loans 0.49% 0.48%
Total nonperforming assets as a percentage
of loans and ORE 0.55% 0.55%
Accruing loans ninety days or more past due as a
percentage of loans 0.12% 0.09%
Allowance for loan losses as a percentage of
nonperforming loans 279.01% 279.42%
Allowance for loan losses as a percentage of
nonperforming assets 249.20% 245.95%
</TABLE>
-20-
<PAGE> 21
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(In thousands)
(Unaudited)
The Company's interest rate risk management policies and practices, along
with the assumptions used in the net interest income sensitivity analysis,
are described on page 20 of its December 31, 1998 Form 10-K. Net interest
income sensitivities over a one-year time horizon as of September 30, 1999
and December 31, 1998 are shown below.
<TABLE>
<CAPTION>
Percentage
Increase/(Decrease)
in Interest Income/
Expense Given
Immediate and
Principal/Notional Sustained Parallel
Amount of Earning Interest Rate Shifts
Assets, Interest --------------------------
Bearing Liabilities Down 100 Up 100
and Swaps Basis Points Basis Points
-------------------- ------------ ------------
<S> <C> <C> <C>
SEPTEMBER 30, 1999:
Assets which reprice in:
One year or less $ 6,064,320 (8.81)% 7.77%
Over one year 10,290,225 (2.02) 1.73
------------
$ 16,354,545 (4.68) 4.09
============
Liabilities which reprice in:
One year or less $ 10,038,932 (13.42) 16.74
Over one year 3,737,099 (4.10) 5.34
------------
$ 13,776,031 (10.17) 12.77
============
Total net interest income sensitivity 0.84 (4.63)
DECEMBER 31, 1998:
Assets which reprice in:
One year or less $ 5,670,836 (10.75)% 10.49%
Over one year 10,127,706 (5.88) 2.87
------------
$ 15,798,542 (7.66) 5.65
============
Liabilities which reprice in:
One year or less $ 9,967,789 (14.28) 17.68
Over one year 3,435,149 (4.84) 9.23
------------
$ 13,402,938 (11.20) 14.92
============
Total net interest income sensitivity (4.34) (3.03)
</TABLE>
As shown in the table above, from December 31, 1998 to September 30, 1999
the net interest income sensitivity decreased in the down-rate scenario and
increased in the up-rate scenario. Both of these movements are due in large
part to the increase in the general level of interest rates during the course
of 1999. This increase in interest rates caused estimated prepayments on
mortgage loans and mortgage-backed securities, including CMOs, to slow.
Slower prepayments resulted in a smaller amount of cash flows requiring
reinvestment at lower rates in a down-rate scenario, thereby, decreasing
sensitivity to lower rates. However, slower prepayments also resulted in
smaller cash flows available to reinvest at higher rates in the up-rate
scenario, hence, increasing sensitivity to higher rates.
-21-
<PAGE> 22
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION Page
- ------------------------------------------------------------------------- ----
ITEM 1 LEGAL PROCEEDINGS
During the ordinary course of business, the Company is subject to legal
proceedings which involve claims for substantial monetary relief. However,
based upon the advice of legal counsel, management is of the opinion that
any legal proceedings, individually or in the aggregate, will not have a
material adverse effect on the Company's financial condition or results of
operations.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(10)(a) Compass Bancshares, Inc. 1982 Long Term Incentive Plan
(incorporated by reference to Exhibit 1 to the Company's
Registration Statement on Form S-8 filed June 15, 1983, with the
Securities and Exchange Commission)
(10)(b) Compass Bancshares, Inc. 1989 Long Term Incentive Plan
(incorporated by reference to Exhibit 28 to the Company's
Registration Statement on Form S-8 filed February 21, 1991, with
the Securities and Exchange Commission)
(10)(c) Compass Bancshares, Inc. 1996 Long Term Incentive Plan
(incorporated by reference to Exhibit 4(g) to the Company's
Registration Statement on Form S-8, Registration No. 333-15117,
filed October 30, 1996, with the Securities and Exchange
Commission)
(10)(d) Employment Agreement, dated December 14, 1994, between Compass
Bancshares, Inc. and D. Paul Jones, Jr. (incorporated by
reference to Exhibit 10(d) to the Company's Form 10-K for the
year ended December 31, 1994, filed February 27, 1995, with the
Securities and Exchange Commission)
(10)(e) Employment Agreement, dated December 14, 1994, between Compass
Bancshares, Inc. and Jerry W. Powell (incorporated by reference
to Exhibit 10(e) to the Company's Form 10-K for the year ended
December 31, 1994, filed February 27, 1995, with the Securities
and Exchange Commission)
(10)(f) Employment Agreement, dated December 14, 1994, between Compass
Bancshares, Inc. and Garrett R. Hegel (incorporated by reference
to Exhibit 10(f) to the Company's Form 10-K for the year ended
December 31, 1994, filed February 27, 1995, with the Securities
and Exchange Commission)
-22-
<PAGE> 23
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION Page
- ------------------------------------------------------------------------- ----
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
(10)(g) Employment Agreement, dated December 14, 1994, between Compass
Bancshares, Inc. and Charles E. McMahen (incorporated by
reference to Exhibit 10(h) to the Company's Form 10-K for the
year ended December 31, 1994, filed February 27, 1995, with the
Securities and Exchange Commission)
(10)(h) Employment Agreement, dated December 14, 1994, between Compass
Bancshares, Inc. and G. Ray Stone (incorporated by reference to
Exhibit 10(i) to the Company's Registration Statement on Form S-
4, Registration No. 333-15373, filed November 1, 1996, with the
Securities and Exchange Commission)
(10)(i) Compass Bancshares, Inc., Employee Stock Ownership Benefit
Restoration Plan, dated as of May 1, 1997 (incorporated by
reference to Exhibit 10(j) to the December 31, 1997 Form 10-K
filed with the Securities and Exchange Commission)
(10)(j) Compass Bancshares, Inc., Supplemental Retirement Plan, dated as of May
1, 1997 (incorporated by reference to Exhibit 10(k) to the December 31,
1997 Form 10-K filed with the Securities and Exchange Commission)
(10)(k) Deferred Compensation Plan for Compass Bancshares, Inc., dated as of
February 1, 1996 (incorporated by reference to Exhibit 10(l) to the
December 31, 1997 Form 10-K filed with the Securities and Exchange
Commission)
(10)(l) Compass Bancshares, Inc. Omnibus Incentive Compensation Plan
(incorporated by reference to Exhibit 10(a) to the Company's
Registration Statement on Form S-8, Registration No. 333-86455,
filed September 2, 1999, with the Securities and Exchange
Commission)
(12)(a) Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends 25
(12)(b) Ratio of Earnings to Fixed Charges 26
(27) Financial Data Schedule (Filed electronically only)
(b) Reports on Form 8-K
On August 23, 1999, the Company filed a Form 8-K disclosing a
change in accountants from KPMG Peat Marwick LLP to Arthur
Andersen LLP effective August 16, 1999.
-23-
<PAGE> 24
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
November 12, 1999 /s/ GARRETT R. HEGEL
- ----------------- ---------------------------
Date By Garrett R. Hegel, as its
Chief Financial Officer
-24-
<PAGE> 1
EXHIBIT (12)(a)
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
Pretax income $246,048 $213,600
Add fixed charges:
Interest on deposits 305,451 299,076
Interest on borrowings 139,718 111,096
Portion of rental expense
representing interest expense 4,760 4,398
-------- --------
Total fixed charges 449,929 414,570
-------- --------
Income before fixed charges $695,977 $628,170
======== ========
Total fixed charges $449,929 $414,570
Preferred stock dividends and
redemption premium 1,892 2,301
Tax effect of preferred stock dividends 987 1,172
-------- --------
Combined fixed charges and preferred
stock dividends $452,808 $418,043
======== ========
Pretax income $246,048 $213,600
Add fixed charges (excluding
interest on deposits):
Interest on borrowings 139,718 111,096
Portion of rental expense
representing interest expense 4,760 4,398
-------- --------
Total fixed charges 144,478 115,494
-------- --------
Income before fixed charges (excluding
interest on deposits) $390,526 $329,094
======== ========
Total fixed charges $144,478 $115,494
Preferred stock dividends and
redemption premium 1,892 2,301
Tax effect of preferred stock
dividends 987 1,172
-------- --------
Combined fixed charges and preferred
stock dividends $147,357 $118,967
======== ========
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS:
Including interest on deposits 1.54x 1.50x
Excluding interest on deposits 2.65x 2.77x
</TABLE>
-25-
<PAGE> 1
EXHIBIT (12)(b)
COMPASS BANCSHARES, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
Pretax income $246,048 $213,600
Add fixed charges:
Interest on deposits 305,451 299,076
Interest on borrowings 139,718 111,096
Portion of rental expense
representing interest expense 4,760 4,398
-------- --------
Total fixed charges 449,929 414,570
-------- --------
Income before fixed charges $695,977 $628,170
======== ========
Pretax income $246,048 $213,600
Add fixed charges (excluding
interest on deposits):
Interest on borrowings 139,718 111,096
Portion of rental expense
representing interest expense 4,760 4,398
-------- --------
Total fixed charges 144,478 115,494
-------- --------
Income before fixed charges
(excluding interest on deposits) $390,526 $329,094
======== ========
RATIO OF EARNINGS TO FIXED CHARGES:
Including interest on deposits 1.55x 1.52x
Excluding interest on deposits 2.70x 2.85x
</TABLE>
-26-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF INCOME AND RELATED SUPPLEMENTAL
SCHEDULES OF COMPASS BANCSHARES, INC. AS OF AND FOR THE PERIOD ENDED SEPTEMBER
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND RELATED SUPPLEMENTAL SCHEDULES.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 555,752
<INT-BEARING-DEPOSITS> 297
<FED-FUNDS-SOLD> 56,881
<TRADING-ASSETS> 70,389
<INVESTMENTS-HELD-FOR-SALE> 4,402,077
<INVESTMENTS-CARRYING> 1,541,883
<INVESTMENTS-MARKET> 1,506,505
<LOANS> 10,283,018
<ALLOWANCE> 139,878
<TOTAL-ASSETS> 17,681,373
<DEPOSITS> 12,744,515
<SHORT-TERM> 1,360,982
<LIABILITIES-OTHER> 122,146
<LONG-TERM> 2,251,061
0
11,500
<COMMON> 227,301
<OTHER-SE> 963,868
<TOTAL-LIABILITIES-AND-EQUITY> 17,681,373
<INTEREST-LOAN> 631,043
<INTEREST-INVEST> 284,966
<INTEREST-OTHER> 5,407
<INTEREST-TOTAL> 921,416
<INTEREST-DEPOSIT> 305,451
<INTEREST-EXPENSE> 445,169
<INTEREST-INCOME-NET> 476,247
<LOAN-LOSSES> 22,808
<SECURITIES-GAINS> 2,098
<EXPENSE-OTHER> 382,075
<INCOME-PRETAX> 246,048
<INCOME-PRE-EXTRAORDINARY> 161,716
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 161,716
<EPS-BASIC> 1.41
<EPS-DILUTED> 1.40
<YIELD-ACTUAL> 3.99
<LOANS-NON> 49,836
<LOANS-PAST> 11,956
<LOANS-TROUBLED> 297
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 136,677
<CHARGE-OFFS> 29,236
<RECOVERIES> 8,333
<ALLOWANCE-CLOSE> 139,878
<ALLOWANCE-DOMESTIC> 139,878
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
