Compass Bancshares, Inc.

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Compass Bancshares, Inc.

15 S. 20th Street
Birmingham, Alabama 35233
Telephone: (205) 297-3000
Toll Free: (800) 266-7277
Fax: (205) 297-7363
Web site:

Public Company
1964 as Central Bank and Trust Company
Employees: 7,832
Total Assets: $28.18 billion (2004)
Stock Exchanges: NASDAQ
Ticker Symbol: CBSS
NAIC: 522110 Commercial Banking; 551111 Offices of Bank Holding Companies

Compass Bancshares, Inc. is the holding company for Compass Bank, which operates primarily in Alabama, Arizona, Colorado, Florida, New Mexico, and Texas. The company expanded outside of Alabama by way of acquisitions, beginning in the late 1980s. With few desirable banks available for purchase at the onset of the 21st century, Compass turned towards internal growth and product diversification.

Alabama Bound: 1960s80s

Compass Bancshares, Inc.'s roots lie in Birmingham, Alabama, where Central Bank and Trust Company was founded in 1964. Central Bank was the first new bank to open in the city for nearly two decades. As the 1970s began Central Bancshares of the South was formed as a holding company. In the 1980s, Central merged ten affiliate banks, creating the first statewide as well as the largest bank in the state.

Compass Bank, a spinoff of Central Bank of the South, was created in 1987 with the acquisition of First National Bank of Crosby, located in a rural Houston, Texas suburb. The purchase of the $8 million asset bank came during a troubled period in Texas banking. The Texas economy had been flattened by the collapse of oil prices and real estate, Kenneth Cline wrote for American Banker.

Between 1985 and 1991, the state's banking assets fell from $220 billion to $170 billion and the number of banks dropped to 1,200 from 2,000. A trend toward out-of-state ownership took hold during the period. Compass, according to the Dallas Business Journal, was positioning itself between the larger banks and single-location independents with a mix of healthy, failed, and newly established banks.

Going against common practice, Compass worked to retain the management of the banks it acquired. Employees benefited with a greater sense of security during the transition period. The practice was appealing to those bankers interested in a healthy future of the business they had established.

The bank concentrated on four loan areas: individuals, small-to-medium corporations, home mortgage lending, and income-producing real estate. Demographically, Compass had set its sites on banks serving wealthier individuals. The bank also emphasized its desire to build personal relationships with those customers.

Some on the local banking scene took a wait and see attitude regarding Compass's plan, questioning whether the drive for growth would override the more benevolent aspirations of the company.

Westward Ho: 1990s

From mid-1990 to mid-1992 Compass acquired 14 banks in Texas with combined assets of $1.5 billion. Its network of 18 banks in the state now totaled nearly $1.8 billion. Charles McMahen, chairman and CEO of Compass Bancshares, Inc. and a veteran Texas banker, directed the growth.

The largest single acquisition, $427 million asset River Oaks Bancshares, Inc., came in March 1991. The independent bank was located in Houston's ritziest neighborhood, according to the Houston Business Journal.

McMahen was pleased with the purchase, telling Jim Grier, "It was such a well known and respected and coveted property." The bank's trust business was especially desirable to Compass.

Prior to the River Oaks acquisition, Compass's largest purchase was an $82 million asset bank in upscale Plano. Compass was set to buy a $239 million asset bank in a wealthy area of Dallas and interested in expanding into other prime locations in Texas.

Central Bancshares, with about $6 billion in total assets, had seen its stock price rise to $34.38, or some 145 percent from December 1990 to June 1992. Compass used Central Bancshares stock to pay for all its acquisitions in the first half of 1992, an enticement to the sellers.

D. Paul Jones, Jr., successor to Harry B. Brock, Jr., as chairman and CEO of Central Bancshares of the South, faced a challenging environment in 1993. Net interest margins were shrinking and loan demand was weak.

But American Banker reported the $7.1 billion asset bank had some strengths from which to draw: a quarter of its assets were going toward expansion in the fast growing Texas and Florida markets; its overhead was below most in its peer group, allowing for competitive pricing; and its $700 million indirect auto loan portfolio was expected to help out income during slow economic times.

Central Bancshares of the South changed its name in November 1993 to Compass Bancshares Inc. The company, for the time being, planned to limit its acquisitions to Florida, primarily the panhandle area; and Houston and Dallas, likely the source of greatest future earnings growth.

Just about 40 percent of Compass was internally held in the early 1990s, and one of the insiders thought a new direction was necessary. Brock, a founder as well as ex-leader of Compass, tried to take control again in 1994. Brock wanted the bank holding company to accept a $30.71 per share offer by First Union Corp. Jones, who had been handpicked by Brock, opposed the sale. Brock failed to earn enough votes in the proxy election and Jones stayed at the helm.

Earnings were driven down the first half of 1995 by proxy related expenses. But the company's shares climbed in the wake of other bank deals being played out. Compass headed further west in the late 1990s, buying $805 million asset Arizona Bank toward the end of 1998. Competition in the Southeast had heated up while the region's economic growth cooled off.

Backtracking: 200005

In January 2000, Compass acquired Western Bancshares Inc. of Albuquerque, New Mexico. Now at $19 billion in assets, Compass moved into Colorado in April. Denver's MegaBank Financial Corp. held $300 million in assets and had nine branch offices. In September, Compass announced a deal to buy privately held Denver-based Firstier Corp. for $127 million in stock.

Jones told American Banker, "The deal 'is consistent with our strategy of acquiring well-managed, profitable banks in high-growth, high opportunity markets.' " Firstier had $880 million in assets, with 17 of its 19 branches in or around Denver.

In the summer of 2000 Compass added to its Arizona holdings with the acquisition of the Founders Bank in Phoenix. Competition in the West was similar to that of Texas and included much larger competitors Bank of America Corp., Wells Fargo & Co., and Bank One Corp.

Western Bancshares experienced a slump in business its first six months under Compass ownership. Market share and deposits dropped off further in 2001. The trend was reversed in 2002, and Compass brought in a local banker to head the New Mexico operation in January 2003.

The parent company posted record earnings and earnings per share for the 15th consecutive year in 2002, according to the Albuquerque Journal. Net income was up 16 percent to $314.4 million and earnings per share of $2.42 marked a 15 percent increase over the previous year. Compass's assets had climbed to $23.9 billion.

Acquisitions outside its home state helped Compass climb to the position as the 31st largest bank in the country. In 1990, just 10 percent of its investments were outside of Alabama, by 2003 that percentage had risen to 70. But a dearth of banks on the selling block forced Compass to shift its growth strategy, turning instead to bricks and mortar.

David Boraks wrote for American Banker in December 2003, "Since announcing the branch-building plan early last year, Compass has built 37 branches, including 11 in the Dallas/Fort Worth area, nine in Phoenix, and four in Houston. Among the 23 remaining to be built, six will be in Phoenix and seven in Denver." Compass's last acquisition was in 2000.

Despite the prospects of a strengthening economy, Compass faced a period of depressed growth relative to its peer group. Todd Davenport explained in a March 2004 American Banker, "Several years ago Compass presciently added interest rate sways to guard against rate declines. But the historic period of low rates has outlasted the swaps, which now are rolling off the books."

Moreover, other business lines such as insurance and brokerage were not yet supplying any significant source of earnings. Compass had moved to increase product diversification during 2002, buying insurance agencies in Dallas, Denver, and Phoenix and a wealth management firm in Jacksonville.

As merger mania resurfaced, Compass once again became grist for the buyout rumor mill. Its Texas market of $6.4 billion of deposits in 129 branches was Compass's largest and sparked the interest of other companies wishing to enter the state.

Company Perspectives:

On March 2, 1964, we opened our first branch in Birmingham, Alabama, as Central Bank & Trust Company. Customers soon discovered we were different, better. We were more innovative, more willing to serve people in ways that other banks wouldn't. And that's the story of our growth.

Wachovia Corp. reportedly was one of them. Wachovia had tried to buy Compass in 1994 when it was operating under the name First Union Corp. Wachovia did buy a Birmingham-based bank, in June 2004, not Compass but SouthTrust Corp. Regions Financial Corp. was also in a merger deal, and AmSouth Bancorp, another large Birmingham bank, was considered a prime buyout target.

In the spring of 2005, analysts were predicting a slowdown in growth for some midsize banks, including Compass. The company continued to see stiff competition in its six-state market, driving further speculation as to its future.

Principal Subsidiaries

Compass Bank.

Principal Competitors

AmSouth Bancorporation; Regions Financial Corporation.

Key Dates:

Central Bank and Trust Company opens in Birmingham, Alabama.
Parent company is organized as Central Bancshares of the South, Inc.
State National Bank is acquired.
Company implements repositioning strategy, enters Texas market.
Total assets top $10 billion.
Company establishes presence in Southwest with purchase of an Arizona bank.
Company enters Colorado and New Mexico markets.
Company is added to S&P 500 index and the Dow Jones Select Dividend Index.

Further Reading

Boraks, David, "Compass, AmSouth, SunTrust Seen Takeover Targets," American Banker, September 30, 2004, p. 20.

, "Compass' New Direction in Southwestern Market," American Banker, December 2, 2003, p. 1.

, "Without Potential Suitor, Compass' Stock May Slip," American Banker, June 29, 2004, p. 18.

Cline, Kenneth, "Alabama's Compass Holds Course in Rough Sea," American Banker, October 25, 1993, pp. 4+.

"Compass Proxy Rivals Keep Slugging After the Bell," American Banker, August 25, 1995, p. 4.

Davenport, Todd, "Heat's On, But Compass Is Still Playing It Cool," American Banker, March 2, 2004, p. 1.

Frames, Robin, "Newcomer Compass Is Settling In," Albuquerque Journal, August 25, 2003, p. 3.

Greer, Jim, "Compass Launches Bank Buying Blitz: Explosive Growth in Houston, Dallas Turns Small Bank into State Powerhouse," Houston Business Journal, June 8, 1992, pp. 1+.

Kulikowski, Laurie, "Sovereign, TCF, Compass Seen Hitting Profit Wall," American Banker, May 11, 2005, p. 18.

Lallier, Rob, "A Different Direction: Compass Bancshares Charts a New Course in Metroplex by Acquiring Solvent Banks," Dallas Business Journal, April 12, 1991, pp. 15+.

Moyer, Liz, "Compass' Denver Push Continues with Firstier: Fast-Growth Market Drive, Through Acquisition," American Banker, September 6, 2000, p. 1.

Kathleen Peippo