COMPASS BANCSHARES INC - 10-Q Quarterly Report

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, 2002		Commission File No. 0-6032

(Compass Bancshares, Inc. Logo)
(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) 297-3000

(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 þ No o

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, 2002

Common Stock, $2 Par Value		128,192,155

The number of pages of this report is 33.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	Item 1 Financial Statements
		Consolidated Statements of Income
		Consolidated Statements of Cash Flows
		Consolidated Statements of Comprehensive Income
		Notes to the Consolidated Financial Statements
	Item 2 Management’s Discussion and Analysis of Results of Operations and Financial Condition
	Item 3 Quantitative and Qualitative Disclosures About Market Risk
	Item 4 Controls and Procedures
PART II. OTHER INFORMATION
	Item 1 Legal Proceedings
	Item 6 Exhibits and Reports on Form 8-K
SIGNATURES

COMPASS BANCSHARES, INC. AND SUBSIDIARIES

INDEX


PART I.	FINANCIAL INFORMATION		Page

Item 1	Financial Statements




	Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001			3




	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2002			4




		and 2001




	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and			5




		2001




	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended			7




		September 30, 2002 and 2001




	Notes to Consolidated Financial Statements			8




Item 2	Management’s Discussion and Analysis of Results of Operations and Financial Condition			19




Item 3	Quantitative and Qualitative Disclosures About Market Risk			26




Item 4	Controls and Procedures			27




PART II.	OTHER INFORMATION

Item 1	Legal Proceedings			28




Item 6	Exhibits and Reports on Form 8-K			28

- 2 -

PART I. FINANCIAL INFORMATION

Item 1 Financial Statements

COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands)
(Unaudited)


					September 30, 2002			December 31, 2001

Assets




Cash and due from banks					$	743,217		$	715,991




Federal funds sold and securities purchased under agreements to resell						44,938			19,201




Trading account securities						26,692			21,331




Investment securities available for sale						5,082,127			6,563,705




Investment securities held to maturity (fair value of $659,101 and $718,694 for 2002 and 2001, respectively)						640,487			707,524




Loans						15,767,132			13,707,286




Allowance for loan losses						(221,947	)		(191,393	)

			Net loans			15,545,185			13,515,893




Premises and equipment, net						484,918			459,901




Other assets						1,166,648			1,011,454

				Total assets	$	23,734,212		$	23,015,000

Liabilities and Shareholders’ Equity




Deposits:




	Noninterest bearing				$	3,804,544		$	3,576,289




	Interest bearing					10,524,232			10,158,956

			Total deposits			14,328,776			13,735,245




Federal funds purchased and securities sold under agreements to repurchase						1,945,043			2,922,802




Other short-term borrowings						315,752			551,307




FHLB and other borrowings						4,439,495			3,708,143




Guaranteed preferred beneficial interests in Company’s junior subordinated deferrable interest debentures						458,656			129,307




Accrued expenses and other liabilities						264,818			252,555

				Total liabilities		21,752,540			21,299,359




Shareholders’ equity:




	Preferred stock (25,000,000 shares authorized; Issued – none)					—			—




	Common stock of $2 par value:




		Authorized — 300,000,000 shares; Issued — 130,318,611 shares in 2002 and 128,759,887 shares in 2001				260,637			257,520




	Surplus					198,461			160,441




	Loans to finance stock purchases					(2,616	)		(3,399	)




	Unearned restricted stock					(3,428	)		(2,314	)




	Accumulated other comprehensive income					150,926			69,938




	Treasury stock, at cost (2002 — 1,478,756 shares and 2001 — 1,959,000 shares)					(41,720	)		(50,146	)




	Retained earnings					1,419,412			1,283,601

				Total shareholders’ equity		1,981,672			1,715,641

				Total liabilities and shareholders’ equity	$	23,734,212		$	23,015,000

- 3 -

COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In Thousands Except Per Share Data)
(Unaudited)


				Three Months Ended						Nine Months Ended
				September 30						September 30

				2002			2001			2002		2001

Interest income:




	Interest and fees on loans			$	264,845		$	263,534		$	773,183	$	811,054




	Interest on investment securities available for sale				74,339			97,141			241,694		295,150




	Interest on investment securities held to maturity				9,632			13,924			33,620		45,273




	Interest on federal funds sold and securities purchased under agreements to resell				123			129			359		618




	Interest on trading account securities				200			273			660		1,472

		Total interest income			349,139			375,001			1,049,516		1,153,567




Interest expense:




	Interest on deposits				61,485			96,332			187,572		340,315




	Interest on federal funds purchased and securities sold under agreements to repurchase				8,019			25,161			31,130		82,430




	Interest on other short-term borrowings				520			1,446			2,176		5,903




	Interest on FHLB and other borrowings				44,115			40,850			125,075		119,767




	Interest on guaranteed preferred beneficial interests in Company’s junior subordinated deferrable interest debentures				4,195			2,061			10,430		6,972

		Total interest expense			118,334			165,850			356,383		555,387

		Net interest income			230,805			209,151			693,133		598,180




Provision for loan losses					34,606			32,317			99,705		67,149

		Net interest income after provision for loan losses			196,199			176,834			593,428		531,031




Noninterest income:




	Service charges on deposit accounts				49,701			39,180			139,388		112,415




	Credit card service charges and fees				11,741			9,385			32,687		24,267




	Retail investment sales				6,374			7,763			19,704		17,500




	Corporate and correspondent investment sales				8,345			5,397			18,033		16,300




	Asset management fees				4,908			5,136			15,237		15,394




	Insurance sales income				8,106			915			13,290		3,079




	Investment securities gains (losses), net				(81	)		(13	)		3,891		7,578




	Other				26,130			29,551			77,877		80,632

			Total noninterest income		115,224			97,314			320,107		277,165




Noninterest expense:




	Salaries, benefits and commissions				98,665			88,073			286,596		256,316




	Equipment expense				16,314			15,408			48,800		44,934




	Net occupancy expense				15,092			13,088			42,855		39,227




	Professional services				13,552			11,152			37,467		33,334




	Marketing				6,179			5,093			21,459		15,051




	Merger and integration				799			901			2,246		6,249




	Other				39,573			36,791			120,249		111,159

			Total noninterest expense		190,174			170,506			559,672		506,270

			Net income before income tax expense		121,249			103,642			353,863		301,926




Income tax expense					41,631			34,932			120,367		103,681

			Net income	$	79,618		$	68,710		$	233,496	$	198,245

Basic earnings per share				$	0.62		$	0.53		$	1.83	$	1.56




Basic weighted average shares outstanding					128,516			127,991			127,639		127,810




Diluted earnings per share				$	0.61		$	0.53		$	1.80	$	1.55




Diluted weighted average shares outstanding					130,872			129,962			129,982		129,291




Dividends per share				$	0.25		$	0.23		$	0.75	$	0.69

- 4 -

COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)


		Nine Months Ended
		September 30

		2002			2001

Operating Activities:




Net income		$	233,496		$	198,245




Adjustments to reconcile net income to cash provided by operations:




Depreciation and amortization			90,598			70,317




Accretion of discount and loan fees			(20,767	)		(11,140	)




Provision for loan losses			99,705			67,149




Net change in trading account securities			(5,361	)		1,334




Gain on sale of investment securities available for sale			(3,891	)		(7,578	)




(Gain) loss on sale of premises and equipment			1,303			(1,472	)




Increase in other assets			(18,513	)		(90,034	)




Increase (decrease) in other liabilities			(61,107	)		76,031

	Net cash provided by operating activities		315,463			302,852




Investing Activities:




Proceeds from maturities of investment securities held to maturity			264,332			170,150




Purchases of investment securities held to maturity			(201,400	)		(31,318	)




Proceeds from sales of investment securities available for sale			565,682			755,223




Proceeds from maturities of investment securities available for sale			1,554,487			1,297,839




Purchases of investment securities available for sale			(544,368	)		(2,555,359	)




Net (increase) decrease in federal funds sold and securities purchased under agreements to resell			(25,737	)		157,685




Net increase in loan portfolio			(2,126,502	)		(1,585,177	)




Proceeds from sale of loans to third party conduit			—			500,000




Net cash paid in acquisitions			(5,017	)		—




Purchases of premises and equipment			(63,692	)		(25,760	)




Proceeds from sales of other real estate owned			14,052			5,260

	Net cash used by investing activities		(568,163	)		(1,311,457	)

- 5 -

COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows- Continued
(In Thousands)
(Unaudited)


				Nine Months Ended
				September 30

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