Despite 34 years of history in its home state of Alabama, Compass Bancshares is bent on building a future in Texas.

For a decade $14.5 billion-asset Compass has been quietly amassing a string of offices across the Lone Star State, from the fast-growing Dallas metropolitan area to energy-rich Houston and beyond.

Now, after completing 12 Texas acquisitions since 1996, Compass has pushed its assets in the state to 40% of the company's total and has expanded its branches there to 117. Another deal, announced Thursday, will bring the total to 121. Birmingham-based Compass has just 88 offices in its home state.

As far as Compass chairman and chief executive officer D. Paul Jones Jr. is concerned, Texas is the land of opportunity.

"Our core market in Alabama is not growing fast enough to sustain the growth we need," Mr. Jones said in a recent interview. "Florida has been picked over for 30 years. There is more opportunity for expansion in Texas."

More Texas deals are coming soon. Company executives said they want to nearly double the bank's presence in both Dallas and Houston quickly, and they are pushing for more penetration of Corpus Christi and the Rio Grande Valley.

Compass officials said they hope to get a series of Texas deals locked up this year so integration of those banks can be completed before the end of 1999.

Compass is also pursuing attractive acquisition candidates in Florida, a market it first entered in 1991. The company has 42 offices there, mostly in Jacksonville and northwest Florida.

But Texas acquisitions are increasingly defining the company's internal direction.

For example, after acquiring $184 million-asset Equitable Bankshares of Dallas in 1996, Compass seized upon Equitable's track record in small- business lending and began acquiring other Texas banks that did small- business lending aggressively. As a result, Compass was the eighth-most- active Small Business Administration bank lender in the nation last year, jumping up the rankings from 128th in 1996.

Similarly, the 1991 purchase of River Oaks Bancshares, Houston, gave Compass a personal trust and private banking shop that provided access to a large base of affluent customers. River Oaks became the foundation of Compass' asset management group, a key fee-income generator .

Charles E. McMahen, chairman and CEO of Compass' Texas bank and the point man for all of the company's acquisitions, said he looks for deals that would add locations in high-population areas and augment Compass' middle-market corporate banking strengths. His most recent deal, for example, the acquisition of a $108 million-asset Austin bank, will add four offices to the 10 that Compass already operates in the city, which Compass calls a "booming high-technology manufacturing center."

"We are not trying to be all things to all people," said Mr. McMahen. "We're identifying those lines where we can do a better job than anybody else and focusing on them."

All this activity in Texas distinguishes Compass from its Birmingham brethren - Amsouth Bancorp., SouthTrust Corp., and Regions Financial Corp. - which have elected to expand in Florida, Georgia, and other fast-growing southeastern states.

But Compass' decision to branch out in Texas has helped make its stock more attractive, analysts said. Texas gives Compass good opportunities for revenue growth, and the company's added bulk enhances its desirability as a takeover candidate.

"The uniqueness of Compass relative to those other guys in Birmingham is Texas," said Christopher T. Kelley of Morgan Keegan & Co. "That is something nobody else in Birmingham has. And Texas has been awfully strong the last few years. It has been a big, big source of growth and profitability for Compass."

Michael L. Mayo, an analyst at Credit Suisse First Boston, said Compass' stock price is starting to reflect a takeover premium. Companies formerly interested in buying BankAmerica Corp.'s Texas operations, a divestiture decision the San Francisco company recently rescinded because of its merger agreement with NationsBank Corp., may now take a harder look at Compass, he said.

While the Texas expansion continues, Compass executives are also seeking to nurture internal growth by bolstering fee income. Compass is working to increase its ratio of noninterest income as a percentage of total revenues from 26.81% to 30%.

To get there, it is relying in large part on the efforts of former NationsBank executive D. Stevenson Ferguson Jr. Mr. Ferguson joined Compass 18 months ago as executive vice president in charge of asset management. He is now overseeing a restructuring of Compass' trust and investment management operations.

After years of relying on systems and strategies that varied from market to market, Compass has made a series of changes to conform all asset management operations to one standard.

Among the changes: conversion of an accounting system used in Alabama to one used in Texas; a move of all operational support functions from Texas to Alabama, which reduced staff; and the dumping of three outside money management firms in favor of an in-house team acquired with River Oaks. This team now handles all equity investment work for Compass as part of a newly expanded group of in-house, fixed-income investment managers working in Birmingham.

"In the past Alabama, Texas, and Florida all operated differently with different names, different investment strategies, and uncommon management," said Mr. Ferguson. "Everyone was doing their own thing. We have refocused the energy of our company on some specific customer markets with some specific services we want to provide."

In that vein, Compass is now pursuing customers who own privately held businesses that have $10 million to $150 million of annual sales. The strategy seems to be working. In 1996 Compass' average new piece of investment or trust business was about $600,000. Last year the average was $2.7 million.

Mr. Ferguson said Compass expects asset management to contribute a 35% increase to this year's net income.

All in all, Mr. Jones seems pleased. Mr. Ferguson "is off to a good start," he said. "Growth of fee income is critical not only for our bank but for everybody in this business."

Improving customer service is also crucial, Mr. Jones said. With all of Compass' acquisition activity, 40% of the company's 5,600 employees have been on board for fewer than three years, which makes consistent service to customers difficult.

To remedy this, Compass is examining how it deals with routine procedures such as opening checking accounts or originating commercial loans.

Analysts are rewarding Compass for all its efforts at self-improvement by recommending the stock. The praise comes despite financial performance that lacks some of the sizzle found at other large regional banking companies, where return on equity and earnings per share are higher.

At Compass, ROE has fluctuated between 15.4% and 17.3% since 1990, but return on assets has risen steadily, to 1.23% at the end of last year. Since 1992 Compass' earnings have grown at a compounded average annual rate of 12.1%.

"Compass could have been generating much higher EPS growth if they were a little tighter on expense control," said Darren R. Short, an analyst at Robinson-Humphrey Co., "but their volatility would be higher. For the most part, management eats their own cooking. They all own a lot of stock, and their interests are firmly in line with shareholders'."

Mr. Jones, who owns millions of dollars worth of Compass stock, agreed. He acknowledged that Compass may not be first in market share or on the leading edge of new initiatives.

But "our No. 1 goal is to provide an adequate return to shareholders," he said. "We're very stockholder-oriented." He cited the company's annual earnings per share growth of 10% to 15% and its respectable ROE of 17.06% in this year's first quarter.

"It's not Yahoo," said Mr. Jones. "But it's pretty darn good for a bank."

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