Safe and Sound

Compass Bank

Birmingham, AL
3
Star Rating
Started in 1964, Compass Bank is an FDIC-insured bank based in Birmingham, AL. As of December 31, 2017, the bank had equity of $12.12 billion on $86.50 billion in assets.

Thanks to the work of 10,065 full-time employees in 647 offices in multiple states, the bank currently holds loans and leases worth $60.85 billion, including $30.40 billion worth of real estate loans. U.S. bank customers currently have $69.60 billion in deposits with the bank.

Overall, Bankrate believes that, as of December 31, 2017, Compass Bank exhibited a generally satisfactory condition, earning 3 out of 5 stars for safety and soundness. Here's a look at how the bank did on the three key criteria Bankrate used to evaluate U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital is a valuable measurement of an institution's financial fortitude. It acts as a buffer against losses and provides protection for depositors during periods of economic trouble for the bank. When looking at safety and soundness, the higher the capital, the better.

Compass Bank fell short of the national average of 13.13 on our test to measure the adequacy of a bank's capital, achieving a score of 8 out of a possible 30 points.

A bank's Tier 1 capital ratio is a commonly used measure of this buffer. Compass Bank's Tier 1 capital ratio was 10.88 percent, above the 6 percent level considered adequate by regulators, but less than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to stand up to financial downturns.

Overall, Compass Bank held equity amounting to 13.98 percent of its assets, which exceeded the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to estimate the effect of troubled assets, such as past-due mortgages, on the bank's reserves set aside to cover loan losses, as well as overall capitalization.

A bank with extensive holdings of these types of assets may eventually have to use capital to cover losses, cutting down on its buffer of equity. Many of those assets are also likely to be in non-accrual status and thus aren't earning money, pushing down earnings and increasing the chances of a failure in the future.

Compass Bank fell below the national average of 37.49 on Bankrate's test of asset quality, racking up 36 out of a possible 40 points .

A useful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 1.16 percent of Compass Bank's loans were noncurrent, meaning they were more than 90 days past due or were in non-accrual status. That's above the national average of 1.01 percent.

Banks keep a reserve to handle troubled assets known as an "allowance for loan and lease losses." Comparing how large that reserve is to the total amount of problematic loans can be a useful indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on Compass Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its safety and soundness. Earnings may be retained by the bank, expanding its capital cushion, or be used to address problematic loans, likely making the bank more resilient in tough times. Obviously, banks that are losing money are less able to do those things.

On Bankrate's test of earnings, Compass Bank scored 8 out of a possible 30, coming in below the national average of 15.12.

Return on equity, calculated by dividing net income (profit, basically) by total equity, is one widely used measure of a bank's earnings. Compass Bank's most recent annualized quarterly return on equity was 3.49 percent, below the national average of 8.10 percent.

For the twelve months ended December 31, 2017, the bank reported net income of $423.1 million on total equity of $12.12 billion. The bank reported an annualized return on average assets, or ROA, of 0.50 percent, below the 1 percent deemed satisfactory in accordance with industry standards and below the average for U.S. banks of 1.00 percent.

WHAT IS SAFE & SOUND?

Bankrate.com's Safe & Sound Ratings provide a star rating system to evaluate the current financial status of financial institutions. The information gathered about banks, credit unions and thrifts is updated as set forth in the Terms of Use of Safe & Sound Ratings and Reports. The Safe & Sound Ratings information is grouped by categories of banks, thrifts and credit unions.

Scoring methodology

Bankrate.com evaluates the financial condition of institutions and assigns a one- to five-star rating for each with five stars representing the highest rating. Institutions with satisfactory performance will generally receive a rating of three or more stars. The majority of institutions fall into the three- to four-star range. An institution with an "NR" rating may be too new to rate or may have limited the publicly available information in their regulatory filings. The "NR" is not an indication of financial strength or weakness. The Safe & Sound rating is believed to be reliable, but the information is not guaranteed. In addition, events since the information was collected may have altered the institution's financial condition.