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, 2003		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)

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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act): Yes þ No o

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.


Class		Outstanding at October 31, 2003

Common Stock, $2 Par Value		121,727,329

The number of pages of this report is 35.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	Item 1 — Financial Statements
		Consolidated Balance Sheets
		Consolidated Statements of Income
		Consolidated Statements of Shareholders’ Equity
		Consolidated Statements of Cash Flows
		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
EX-31.1 302 CERTIFICATION
EX-31.2 302 CERTIFICATION
EX-32.1 906 CERTIFICATION
EX-32.2 906 CERTIFICATION

COMPASS BANCSHARES, INC. AND SUBSIDIARIES

INDEX


		Page

PART I. FINANCIAL INFORMATION
Item 1	Financial Statements
	Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002		3
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2003 and 2002		4
	Consolidated Statements of Shareholders’ Equity for the Nine Months Ended September 30, 2003 and 2002		5
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2002		6
	Notes to Consolidated Financial Statements		8
Item 2	Management’s Discussion and Analysis of Results of Operations and Financial Condition		22
Item 3	Quantitative and Qualitative Disclosures About Market Risk		30
Item 4	Controls and Procedures		31
PART II. OTHER INFORMATION
Item 1	Legal Proceedings		32
Item 6	Exhibits and Reports on Form 8-K		32

- 2 -

PART I. FINANCIAL INFORMATION

Item 1 – Financial Statements

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


					September 30, 2003			December 31, 2002

Assets
Cash and due from banks					$	778,890		$	734,540
Federal funds sold and securities purchased under agreements to resell						32,642			24,822
Trading account securities						31,252			22,710
Investment securities available for sale						4,076,258			4,783,696
Investment securities held to maturity (fair value of $2,801,137 and $490,518 for 2003 and 2002, respectively)						2,785,882			475,445
Loans						17,027,525			16,481,320
Allowance for loan losses						(239,971	)		(232,830	)

			Net loans			16,787,554			16,248,490
Premises and equipment, net						522,520			491,884
Goodwill						296,115			283,835
Other assets						845,805			819,287

				Total assets	$	26,156,918		$	23,884,709

Liabilities and Shareholders’ Equity
Deposits:
	Noninterest bearing				$	4,610,702		$	3,964,471
	Interest bearing					10,504,643			11,170,916

			Total deposits			15,115,345			15,135,387
Federal funds purchased and securities sold under agreements to repurchase						3,873,312			1,343,200
Other short-term borrowings						125,964			290,939
FHLB and other borrowings						4,452,365			4,438,416
Guaranteed preferred beneficial interests in Company’s junior subordinated deferrable interest debentures						444,398			461,716
Accrued expenses and other liabilities						232,194			283,549

				Total liabilities		24,243,578			21,953,207
Shareholders’ equity:
	Preferred stock (25,000,000 shares authorized; Issued – none)					—			—
	Common stock of $2 par value:
		Authorized — 300,000,000 shares;
		Issued — 131,398,605 shares in 2003 and 130,412,173 shares in 2002				262,797			260,824
	Treasury stock, at cost (7,203,980 shares in 2003 and 4,295,758 shares in 2002)					(233,700	)		(129,415	)
	Surplus					221,486			199,907
	Loans to finance stock purchases					(835	)		(1,563	)
	Unearned restricted stock					(6,639	)		(2,877	)
	Accumulated other comprehensive income					52,615			136,109
	Retained earnings					1,617,616			1,468,517

				Total shareholders’ equity		1,913,340			1,931,502

				Total liabilities and shareholders’ equity	$	26,156,918		$	23,884,709

- 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

			2003		2002			2003		2002

Interest income:
	Interest and fees on loans		$	236,525	$	264,845		$	743,668	$	773,183
	Interest on investment securities available for sale			54,816		74,339			181,288		241,694
	Interest on investment securities held to maturity			25,292		9,632			35,132		33,620
	Interest on federal funds sold and securities purchased under agreements to resell			100		123			318		359
	Interest on trading account securities			133		200			380		660

		Total interest income		316,866		349,139			960,786		1,049,516
Interest expense:
	Interest on deposits			35,714		61,485			127,882		187,572
	Interest on federal funds purchased and securities sold under agreements to repurchase			8,468		8,019			20,241		31,130
	Interest on other short-term borrowings			247		520			758		2,176
	Interest on FHLB and other borrowings			38,633		44,115			118,703		125,075
	Interest on guaranteed preferred beneficial interests in Company’s junior subordinated deferrable interest debentures			3,546		4,195			12,370		10,430

		Total interest expense		86,608		118,334			279,954		356,383

		Net interest income		230,258		230,805			680,832		693,133
Provision for loan losses				30,354		34,606			88,042		99,705

		Net interest income after provision for loan losses		199,904		196,199			592,790		593,428
Noninterest income:
	Service charges on deposit accounts			63,907		49,701			175,418		139,388
	Credit card service charges and fees			13,520		11,741			40,106		32,687
	Insurance commissions			11,601		8,106			32,456		13,290
	Corporate and correspondent investment sales			7,740		8,345			23,220		18,033
	Retail investment sales			6,736		6,374			21,220		19,704
	Asset management fees			5,475		4,908			16,273		15,237
	Bank owned life insurance			4,066		4,678			12,984		14,218
	Investment securities gains (losses), net			3		(81	)		3		3,891
	Other			20,964		21,452			67,412		63,659

		Total noninterest income		134,012		115,224			389,092		320,107
Noninterest expense:
	Salaries, benefits and commissions			108,580		98,665			323,257		286,596
	Equipment expense			17,778		16,314			53,977		48,800
	Net occupancy expense			15,857		15,092			45,676		42,855
	Professional services			14,260		13,552			41,260		37,467
	Marketing expense			8,019		6,179			24,169		21,459
	Communications expense			8,085		6,070			20,387		16,779
	Amortization of intangibles			1,841		2,359			5,467		6,814
	Merger and integration			343		799			1,264		2,246
	Other			27,917		30,519			78,853		94,781

		Total noninterest expense		202,680		189,549			594,310		557,797

		Net income before income tax expense		131,236		121,874			387,572		355,738
Income tax expense				44,679		41,865			131,882		121,068

		Net income	$	86,557	$	80,009		$	255,690	$	234,670

Basic earnings per share			$	0.70	$	0.62		$	2.04	$	1.84
Basic weighted average shares outstanding				124,869		128,516			125,538		127,639
Diluted earnings per share			$	0.68	$	0.61		$	2.00	$	1.80
Diluted weighted average shares outstanding				127,566		130,872			127,986		129,982
Dividends per share			$	0.28	$	0.25		$	0.84	$	0.75

- 4 -

COMPASS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity
For the Nine Months Ended September 30, 2003 and 2002
(In Thousands)
(Unaudited)


												Accumulated
												Other					Total
		Common		Treasury					Retained			Comprehensive					Shareholders'			Comprehensive
		Stock		Stock			Surplus		Earnings			Income (Loss)		Other			Equity			Income

Balance, December 31, 2001		$	257,520	$	(50,146	)	$	160,441	$	1,283,601		$	69,938	$	(5,713	)	$	1,715,641




	Net income		—		—			—		234,670			—		—			234,670		$	234,670




	Change in unrealized holding gains on securities available for sale, net of tax		—		—			—		—			77,097		—			77,097			77,097




	Change in accumulated gains on cash-flow hedging instruments, net of tax		—		—			—		—			3,891		—			3,891			3,891

	Comprehensive income																			$	315,658

	Common dividends declared ($0.75 per share)		—		—			—		(96,141	)		—		—			(96,141	)




	Exercise of stock options and other issuances		2,925		—			30,251		(1,544	)		—		—			31,632




	Issuance of restricted stock		192		—			2,572		—			—		(2,764	)		—




	Repayments of loans to finance stock purchases, net of advances		—		—			—		—			—		783			783




	Issuance of treasury stock for acquisitions and employee benefit plans		—		41,187			5,197		—			—		—			46,384

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