SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

Compass Bancshares, Inc.

(Exact name of registrant as specified in its charter)

15 South 20^th 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:

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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

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

As of June 30, 2004, the aggregate market value of voting and non-voting common equity held by non-affiliates was $5,038,132.

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

COMPASS BANCSHARES, INC.

TABLE OF CONTENTS

FORM 10-K

DECEMBER 31, 2004

PART I

      The term “Company” is used throughout this Annual Report on Form 10-K to refer to Compass Bancshares, Inc. and its subsidiaries. The term “Parent Company” is used to refer to Compass Bancshares, Inc. wherever a distinction between Compass Bancshares, Inc. and its subsidiaries aids in the understanding of this Annual Report on Form 10-K.

General Development of the Company

      The Company is a financial services company with its principal place of business in Birmingham, Alabama. The Parent Company was organized in 1970 as “Central Bancshares of the South, Inc.” The Company has two bank subsidiaries. The Company’s principal bank subsidiary is Compass Bank, an Alabama banking corporation headquartered in Birmingham, Alabama. Compass Bank currently operates in Alabama, Arizona, Texas, Colorado, Florida and New Mexico. The Company’s other bank subsidiary is Central Bank of the South, an Alabama banking corporation headquartered in Anniston, Alabama. Central Bank of the South has limited activities. The bank subsidiaries of the company are referred to collectively as the “Subsidiary Banks.”

Parent Company

      The principal role of the Parent Company is to supervise and coordinate the activities of its subsidiaries and to provide them with capital and services of various kinds. The Parent Company derives substantially all of its income from dividends from its subsidiaries. These dividends are determined on an individual basis, generally in relation to each subsidiary’s earnings and capital position.

Subsidiary Banks

      Compass Bank conducts a general commercial banking and trust business at 382 banking centers, including 139 in Texas, 89 in Alabama, 73 in Arizona, 41 in Florida, 30 in Colorado, and 10 in New Mexico. In addition, Compass Bank operates loan production offices in Georgia and Maryland. Compass Bank performs banking services customary for full service banks of similar size and character. Such services include receiving demand and time deposits, making personal and commercial loans and furnishing personal and commercial checking accounts. Compass Bank, through its Wealth Management segment and wholly owned subsidiaries, St. Johns Investment Management Company and Stavis, Margolis Advisory Services, Inc., offers its customers a variety of fiduciary services, including portfolio management and administration and investment services to estates, trusts and employee benefit plans. Compass Bank, through its wholly owned subsidiary, Compass Insurance Agency, Inc., makes available to its customers and others, as agent for a variety of insurance companies, term life insurance, fixed-rate annuities, property and casualty insurance and other insurance products. Compass Mortgage Corporation and Arizona Financial Products, Inc., wholly owned subsidiaries of Compass Bank, provide loans and related products to consumers and investor advisory services to Compass Bank and others.

      Compass Bank provides correspondent banking services, including educational seminars and operational and investment services, to approximately 850 financial institutions located throughout the United States. Through the Correspondent and Investment Services Division, Compass Bank distributes or makes available a variety of investment services and products to institutional and individual investors, including institutional sales, bond accounting, safekeeping and interest rate risk analysis services. Through its wholly owned subsidiary Compass Brokerage, Inc., Compass Bank also provides discount brokerage services, mutual funds and variable annuities to individuals and businesses. Compass Bank provides lease financing services to individuals and businesses through its wholly owned subsidiary Compass Financial Corporation.

Lines of Business

      The Company is currently organized along lines of business. Each line of business is a strategic unit that serves a particular group of customers that have certain common characteristics through various products and services. The Company’s primary operating segments are Corporate Banking, Retail Banking, Wealth Management and Treasury.

      The Corporate Banking segment is responsible for providing a full array of banking and investment services to business banking, commercial banking and other institutional clients in each of the Company’s major metropolitan markets. The Corporate Banking segment also includes a National Industries unit that is responsible for serving larger national accounts, principally in targeted industries. In addition to traditional credit and deposit products, the Corporate Banking segment also supports its customers with capabilities in treasury management, leasing, accounts receivable purchasing, asset-based lending, international services, insurance, interest rate protection and investment products.

      The Retail Banking segment serves the Company’s consumer customers through its 382 full-service banking centers and through the use of alternative delivery channels such as personal computer, internet and telephone banking. The Retail Banking segment provides individuals with comprehensive products and services, including home mortgages, credit cards, deposit accounts, mutual funds and brokerage. In addition, Retail Banking serves the Company’s small business customers and the Company’s indirect automobile portfolio.

      The Wealth Management segment provides specialized investment portfolio management, traditional credit products, financial counseling and customized services to the Company’s private clients and foundations, as well as investment management and retirement services to companies and their employees.

      The Treasury segment’s primary function is to manage the investment securities portfolio, public entity deposits, the interest rate sensitivity of the Company’s balance sheet and the liquidity and funding positions of the Company.

      Activities that are not directly attributable to the reportable operating segments, for example, the activities of the Parent Company and support functions, including accounting, loan review and the elimination of intercompany transactions, are presented under Corporate Support and Other.

      For financial information regarding the Company’s segments, which are presented by line of business, as of and for the years ended December 31, 2004, 2003 and 2002, see Note 19, Segment Information, in the Notes to Consolidated Financial Statements.

Business Combinations and Divestitures

      The Company may seek to combine with or acquire other financial services companies, banks and banking offices should suitable opportunities arise. Discussions are held from time to time with institutions about their possible affiliation with the Company. It is impossible to predict accurately whether any discussions will lead to agreement. Any agreement for the acquisition of additional banks or other entities is subject to approval by appropriate regulatory authorities. Refer to “Supervision and Regulation” below for a discussion of certain aspects of the regulatory environment in which the Company operates. Since 1987, the Company has combined with approximately 50 financial institutions, 8 insurance agencies, 2 investment advisory firms and engaged in numerous asset and deposit purchase and sale transactions.

      On January 7, 2005, the Company completed the acquisition of Stavis, Margolis Advisory Services, Inc. (“SMA”), a Houston, Texas based investment advisory firm with approximately $500 million in assets under management. SMA specializes in providing independent financial planning advisory services including investment, estate, retirement and business succession planning for high net worth individuals, corporate executives, business owners and professionals.

      On January 5, 2005, the Company completed the acquisition of Warren Benefits Group, LP, a Houston, Texas based full-line general insurance brokerage firm, which specializes in providing broad-based group health and welfare plans as well as health and life insurance products.

      On October 4, 2004, the Company completed the acquisition of Sevier Insurance Agency (“Sevier”), a Birmingham, Alabama based full-line general insurance brokerage firm, which services commercial and retail customers in the southeastern United States. Sevier specializes in providing property and casualty insurance, personal insurance, life insurance and surety products.

      On July 2, 2003, the Company completed the acquisition of Apogee Holdings, Inc., a Houston, Texas based compensation and benefits consulting company, which specializes in providing health and welfare plans,

qualified retirement plan services, executive benefits and compensation consulting to corporate clients, as well as personal wealth transfer planning to high net worth individuals.

      On March 10, 2003, the Company completed the acquisition of Maxson-Mahoney-Turner, Inc. (“MM&T”), a Dallas, Texas based full-line general insurance brokerage firm, which services commercial and retail customers in the Dallas/Ft. Worth metroplex and the southwestern United States. MM&T specializes in providing property and casualty insurance, personal insurance, employee benefit plans and surety products.

      On March 3, 2003, the Company completed the acquisition of Mueller & Associates, Inc. (“Mueller”), a Tucson, Arizona based full-line general insurance brokerage firm, which services commercial and retail customers in Tucson and throughout the state of Arizona. Mueller specializes in providing property and casualty insurance, personal insurance, life insurance and surety products.

      On December 2, 2002, the Company completed the acquisition of St. Johns Investment Management Company, a Jacksonville, Florida based investment advisory firm, which specializes in providing comprehensive wealth management for high net worth individuals, families, not-for-profit organizations, trusts, 401(k) plans, retirement and pension plans, corporations, endowments and foundations.

      On July 10, 2002, the Company completed the acquisition of Schaefer-Smith-Ankeney Insurance Agency, Inc., a Phoenix, Arizona based full-line general insurance brokerage firm, which services commercial and retail customers in the Phoenix metropolitan area.

      On May 30, 2002, the Company completed the acquisition of Olson & Olson, Ltd. (“Olson & Olson”), a Denver, Colorado based full-line general insurance brokerage firm, which services commercial and retail customers in the Denver metropolitan area. Olson & Olson specializes in providing property and casualty insurance, personal insurance, employee benefit plans and surety products.

      On January 4, 2002, the Company completed the acquisition of Horizons Insurance Group, Inc. (“Horizons”), a Dallas, Texas based full-line general insurance brokerage firm, which services commercial and retail customers in the Dallas/Fort Worth metroplex and the southwestern United States. Horizons specializes in providing property and casualty insurance, personal insurance, employee benefit plans and financial planning for businesses and individuals.

      Several of the acquisition agreements include contingent consideration provisions. These provisions are generally based upon future revenue or earnings goals for a period of typically three years. At December 31, 2004, the maximum potential amount of future undiscounted payments the Company could be required to make under outstanding contingent payment provisions is approximately $20 million, primarily in the form of stock.

      During 2003, the Company completed the sale of two non-strategic banking centers in Nebraska. A gain of $2.1 million was realized on the sale and is included in other income in the Consolidated Statements of Income for the year ended December 31, 2003.

Competition

      The Company encounters intense competition in its businesses, generally from other banks located in Alabama, Arizona, Colorado, Florida, New Mexico, Texas and adjoining states. The Company competes for interest bearing funds with other banks, mutual funds and many non-bank issuers of commercial paper and other securities. In most of the markets served by the Company, it encounters intense competition from other financial institutions, many of which are substantially larger in terms of assets and deposits. Competition for the correspondent banking and securities sales business also exists from commercial and investment banks and brokerage firms. In the case of larger customers, competition exists with financial institutions in major metropolitan areas in the United States, many of which are larger in terms of capital, resources and personnel. Increasingly, in the conduct of certain aspects of its businesses, the Company competes with finance companies, savings and loan associations, credit unions, mutual funds, factors, insurance companies and similar financial institutions.

      The Company believes that intense competition for banking business among bank holding companies with operations in Alabama, Arizona, Colorado, Florida, New Mexico and Texas will continue. During 2005,

the competition may further intensify if additional financial services companies enter these states through the acquisition of local financial institutions.

Employees

      At December 31, 2004, the Company had 7,832 full-time equivalent employees.

Government Monetary Policy

      The Parent Company and the Subsidiary Banks are affected by the credit policies of monetary authorities including the Board of Governors of the Federal Reserve System (“Federal Reserve”). An important function of the Federal Reserve is to regulate the national supply of bank credit. Among the instruments of monetary policy used by the Federal Reserve to implement these objectives are open market operations in United States Government securities, changes in the discount rate, reserve requirements on member bank deposits and funds availability regulations. These instruments are used in varying combinations to influence the overall growth of bank loans, investments and deposits and may also affect interest rates charged on loans or paid on deposits.

      The monetary policies of the Federal Reserve authorities have had a significant effect on the operating results of financial institutions in the past and will continue to do so in the future. Changing conditions in the national economy and money markets, as well as the effect of actions by monetary and fiscal authorities can have a significant impact on interest rates, deposit levels or loan demand, which in turn may have a significant effect on the business and income of the Parent Company and the Subsidiary Banks.

SUPERVISION AND REGULATION

The Company

      During 2000, the Parent Company filed a declaration with the Federal Reserve to be certified as a financial holding company (“FHC”) under the Gramm-Leach-Bliley Financial Modernization Act of 1999 (“GLB Act”). As a bank holding company, the Parent Company is required to file with the Federal Reserve an annual report and such additional information as the Federal Reserve may require pursuant to the Bank Holding Company Act of 1956 (“BHC Act”). The Federal Reserve also may make examinations of the Parent Company and each of its subsidiaries. In addition, certain financial activities of the Company that are permitted by the GLB Act are subject to functional regulation by other state and federal regulatory authorities as described below.

      The GLB Act was enacted on November 12, 1999. The GLB Act permits bank holding companies meeting certain management, capital and community reinvestment standards to engage in a substantially broader range of non-banking activities than were permitted previously, including insurance underwriting and merchant banking activities. The Parent Company has certified that it meets these criteria. The GLB Act repealed sections 20 and 32 of the Glass Steagall Act, permitting affiliations of banks with securities firms and registered investment companies. The GLB Act permits banks to be under common control with securities firms, insurance companies, investment companies and other financial interests if these companies are subsidiaries of an FHC. Some of these affiliations are also permissible for bank subsidiaries. The GLB Act gives the Federal Reserve broad authority to regulate FHCs, but provides for functional regulation of subsidiary activities by the Securities and Exchange Commission, the Federal Trade Commission, state insurance and securities authorities and similar regulatory agencies.

      The GLB Act includes significant provisions regarding the privacy of financial information. These financial privacy provisions generally require a financial institution to adopt a privacy policy regarding its practices for sharing nonpublic personal information and to disclose that policy to its customers, both at the time the customer relationship is established and at least annually during the relationship. These provisions also prohibit the Company from disclosing nonpublic personal financial information to third parties unless customers have the opportunity to opt out of the disclosure.

      The Company continues to be regulated by the BHC Act which requires an FHC to obtain the prior approval of the Federal Reserve before it may acquire substantially all the assets of any bank or ownership or control of any voting shares of any bank if, after such acquisition, it would own or control, directly or indirectly, more than five percent of the voting shares of any such bank. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (“Interstate Act”) facilitates branching and the establishment of agency relationships across state lines and permits bank holding companies to acquire banks located in any state without regard to whether the transaction is prohibited under any state law, subject to certain state provisions, including the establishment by states of a minimum age of their local banks subject to interstate acquisition by out-of-state companies. The minimum age of local banks subject to interstate acquisition is limited to a maximum of five years.

      The states of Alabama, Arizona, Colorado, Florida, New Mexico and Texas, where the Company currently operates banking centers, each have laws relating specifically to acquisitions of banks, bank holding companies and other types of financial institutions organized in those states. The laws of each of these states currently permit out-of-state bank holding companies to acquire banks in Alabama, Arizona, Colorado, Florida, New Mexico and Texas, regardless of where the acquiror is based, subject to the satisfaction of various provisions of state law, including the requirement that the bank to be acquired has been in existence at least five years in Alabama, Arizona, Colorado, New Mexico and Texas and three years in Florida.

      The Federal Reserve Act generally imposes certain limitations on extensions of credit and other transactions by and between banks that are members of the Federal Reserve and other affiliates (which includes any holding company of which a bank is a subsidiary and any other non-bank subsidiary of such holding company). Banks that are not members of the Federal Reserve are also subject to these limitations. Further, federal law prohibits a bank holding company and its subsidiaries from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property or the furnishing of services.

      In December 1991, the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) was enacted. This act recapitalized the Bank Insurance Fund, of which the Subsidiary Banks are members, and the Savings Association Insurance Fund, which insures certain of the Subsidiary Banks’ deposits; substantially revised statutory provisions regarding capital standards; restricted certain powers of state banks; gave regulators the authority to limit officer and director compensation; and required holding companies to guarantee the capital compliance of their banks in certain instances. Among other things, FDICIA requires the federal banking agencies to take “prompt corrective action” with respect to banks that do not meet minimum capital requirements. FDICIA established five capital tiers: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized,” as defined by regulations adopted by the Federal Reserve, the Federal Deposit Insurance Corporation (“FDIC”) and the other federal depository institution regulatory agencies. A depository institution is well capitalized if it significantly exceeds the minimum level required by regulation for each relevant capital measure, adequately capitalized if it meets such measure, undercapitalized if it fails to meet any such measure, significantly undercapitalized if it is significantly below such measure and critically undercapitalized if it fails to meet any critical capital level set forth in the regulations. The critical capital level must be a level of tangible equity capital equal to the greater of 2 percent of total tangible assets or 65 percent of the minimum leverage ratio to be prescribed by regulation. An institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it receives an unsatisfactory examination rating.

      If a depository institution fails to meet regulatory capital requirements, the regulatory agencies can require submission and funding of a capital restoration plan by the institution, place limits on its activities, require the raising of additional capital and, ultimately, require the appointment of a conservator or receiver for the institution. The obligation of a controlling FHC under FDICIA to fund a capital restoration plan is limited to the lesser of five percent of an undercapitalized subsidiary’s assets or the amount required to meet regulatory capital requirements. If the controlling FHC fails to fulfill its obligations under FDICIA and files

(or has filed against it) a petition under the Federal Bankruptcy Code, the FDIC’s claim may be entitled to a priority in such bankruptcy proceeding over third party creditors of the bank holding company.

      An insured depository institution may not pay management fees to any person having control of the institution nor may an institution, except under certain circumstances and with prior regulatory approval, make any capital distribution (including the payment of dividends) if, after making such payment or distribution, the institution would be undercapitalized. FDICIA also restricts the acceptance of brokered deposits by insured depository institutions and contains a number of consumer banking provisions, including disclosure requirements and substantive contractual limitations with respect to deposit accounts.

      At December 31, 2004, the Subsidiary Banks were “well capitalized” and were not subject to any of the foregoing restrictions. The Subsidiary Banks do not rely upon brokered deposits as a primary source of deposit funding.

The Subsidiary Banks

      In general, federal and state banking laws and regulations govern all areas of the operations of the Subsidiary Banks, including reserves, loans, mortgages, capital, issuances of securities, payment of dividends and establishment of banking centers. Federal and state banking regulatory agencies also have the general authority to limit the dividends paid by insured banks and bank holding companies if such payments may be deemed to constitute an unsafe and unsound practice. Federal and state banking agencies also have authority to impose penalties, initiate civil and administrative actions and take other steps to prevent banks from engaging in unsafe or unsound practices.

      Compass Bank, organized under the laws of the State of Alabama, is a member of the Federal Reserve. As such, it is supervised, regulated and regularly examined by the Alabama State Banking Department and the Federal Reserve. The Subsidiary Banks are also subject to the provisions of the Federal Deposit Insurance Act and to examination by and regulations of the FDIC.

      Compass Bank is governed by Alabama laws restricting the declaration and payment of dividends to 90 percent of annual net income until its surplus funds equal at least 20 percent of capital stock. Compass Bank has surplus in excess of this amount. As a member of the Federal Reserve, Compass Bank is subject to dividend limitations imposed by the Federal Reserve that are similar to those applicable to national banks.

      Federal law further provides that no insured depository institution may make any capital distribution, including a cash dividend if, after making the distribution, the institution would not satisfy one or more of its minimum capital requirements. Moreover, the federal bank regulatory agencies also have the general authority to limit the dividends paid by insured banks if such payments may be deemed to constitute an unsafe and unsound practice. Insured banks are prohibited from paying dividends on their capital stock while in default in the payment of any assessment due to the FDIC except in those cases where the amount of the assessment is in dispute and the insured bank has deposited satisfactory security for the payment thereof.

      The Community Reinvestment Act of 1977 (“CRA”) and the regulations of the Federal Reserve and the FDIC implementing that act are intended to encourage regulated financial institutions to help meet the credit needs of their local community or communities, including low and moderate income neighborhoods, consistent with the safe and sound operation of such financial institutions. The CRA and its implementing regulations provide that the appropriate regulatory authority will assess the records of regulated financial institutions in satisfying their continuing and affirmative obligations to help meet the credit needs of their local communities as part of their regulatory examination of the institution. The results of such examinations are made public and are taken into account upon the filing of any application to establish a domestic branch or to merge or to acquire the assets or assume the liabilities of a bank. In the case of a bank holding company, the CRA performance record of the banks involved in the transaction are reviewed in connection with the filing of an application to acquire ownership or control of shares or assets of a bank or to merge with any other bank holding company. An unsatisfactory record can substantially delay or block the transaction.

      The Company is subject to review and examination from various tax authorities. The Company is currently under examination by a number of states and has received notices of proposed adjustments related to state income taxes due for prior years. Management intends to challenge the proposed adjustments and expects that the final resolution of the examinations will not have a material impact on the Company’s financial position.

      The USA Patriot Act, which is designed to address potential terrorist threats, requires the Company to establish an anti-money laundering program, including customer identification programs and establish due diligence requirements with respect to its private banking operations. The Bank Secrecy Act requires the filing of currency transaction reports and suspicious activity reports with appropriate governmental authorities identifying possible criminal activity conducted through depository institutions.

      If the Company fails to comply with these or other applicable laws and regulations, it may be subject to civil monetary penalties, imposition of cease and desist orders or other written directives, removal of management and in certain circumstances criminal penalties.

STATISTICAL DISCLOSURE

Website Availability of Reports Filed with the Securities and Exchange Commission

      The Company maintains an Internet website located at www.compassweb.com on which, among other things, the Company makes available, free of charge, various reports that it files with, or furnishes to the Securities and Exchange Commission, including its Annual Report on Form 10-K, quarterly reports on Form  10-Q, current reports on Form 8-K and amendments to those reports. These reports are made available as soon as reasonably practicable after these reports are filed with, or furnished to the Securities and Exchange Commission. To access these reports directly, users may visit the following Internet address: http://ir.shareholder.com/cbss/sec.cfm.

      The Company owns or leases buildings that are used in the normal course of business. The principal executive office is owned by the Company and is located at 15 South 20th Street, Birmingham, Alabama, in a 289,000 square-foot office building. The Company owns a 322,000 square-foot administrative headquarters facility located in Birmingham, Alabama. The Company owns or leases various other offices and facilities in Alabama, Arizona, Colorado, Florida, New Mexico and Texas.

      The Parent Company and its subsidiaries are defendants in legal proceedings arising in the ordinary course of business. Based upon the advice of legal counsel, management is of the opinion that the ultimate resolution of these legal proceedings will not have a material adverse effect on the Company’s financial condition or results of operations.

      None

Executive Officers of the Registrant

      The names, ages and positions held by the executive officers of the Company on December 31, 2004 are set forth in the following table. All of the persons listed are officers of Compass Bank and, where specifically indicated, are also officers of Compass Bancshares, Inc.

      All of the above named Executive Officers, except William C. Helms, have been employed by the Company in their present position for more than five years.

PART II

Market Information

      The primary market for the Parent Company’s common stock is the National Association of Securities Dealers, Inc. Automated Quotation National Market System (the “NASDAQ”). The Parent Company’s common stock is quoted under the symbol of “CBSS.” The following table sets forth the high and low sales prices and the end-of-quarter closing price of the common stock of the Parent Company as reported through the NASDAQ and the per-share dividends paid thereon during the periods indicated.

Dividends

      The payment of dividends on the Parent Company’s common stock is subject to determination and declaration by the Board of Directors of the Parent Company. In making the determination whether to and in what amount to declare dividends, the Parent Company’s Board of Directors considers a number of factors, including general economic conditions, regulatory limitations on the payment of dividends, the Company’s capital requirements, the results of operations and financial condition of the Company and tax considerations. There is no assurance that dividends will be declared or, if declared, what the amount of dividends will be, or whether such dividends will continue.

Holders

      As of January 31, 2005, there were approximately 5,200 stockholders of record of the Parent Company’s common stock.

Issuer Purchases of Equity Securities

      The following table sets forth selected financial data for the last five years.

      The following is a summary of the results of operations for each quarter of 2004 and 2003.

      The purpose of this discussion is to focus on significant changes in the financial condition and results of operations of the Company during the past three years. The discussion and analysis are intended to supplement and highlight information contained in the accompanying consolidated financial statements and the selected financial data presented elsewhere in this Annual Report on Form 10-K. Financial institutions acquired by the Company during the past three years and accounted for as purchases are reflected in the financial position and results of operations of the Company since the date of their acquisition.

Forward-Looking Statements

      This Annual Report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements are typically identified by words or phrases such as “believe,” “expect,” “anticipate,” “intend,” “estimate,” “may increase,” “may fluctuate,” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” and “could.” Forward-looking statements are subject to numerous assumptions, estimates, risks and uncertainties that could cause actual

conditions, events or results to differ materially from those stated or implied by such forward-looking statements.

      A variety of factors may affect the operations, performance, business strategy and results of the Company including, but not limited to: financial market volatility including the level of interest rates and effects of such interest rates on derivative contracts; the strength of the US economy in general and the strength of the local economies in which Compass operates may be different than expected resulting in deteriorating credit quality, a reduced demand for credit or a weakened ability to generate deposits; the impact of changes in financial services’ laws and regulations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; technological changes; unfavorable judicial or regulatory proceedings or rulings; the impact of changes in accounting principles and practices; actions and initiatives by current and potential competitors; the ability to retain key personnel; the failure of assumptions underlying the establishment of reserves for loan losses; and significant delay in or inability to execute strategic initiatives designed to grow revenues and/or control expenses.

      If the Company’s assumptions and estimates are incorrect, or if the Company or the Subsidiary Banks become subject to significant limitations as the result of litigation or regulatory action, then the Company’s actual results could vary materially from the forward-looking statements made herein. Investors are cautioned not to place undue reliance on any forward-looking statements and to read this Annual Report on Form 10-K in conjunction with the Company’s other filings with the Securities and Exchange Commission, which are available on the Commission’s website, http://www.sec.gov, as well as on the Company’s website, http://ir.shareholder.com/cbss/sec.cfm. The Company disclaims any obligation to update any such forward-looking statements.

Critical Accounting Policies

      The accounting principles followed by the Company and the methods of applying these principles conform with generally accepted accounting principles in the United States and with general practices within the banking industry. The Company’s critical accounting policies relate to (1) the allowance for loan losses, (2) the assessment of hedge effectiveness of derivatives and other hedging instruments, (3) the transfer of financial assets and the determination of when special purpose vehicles should be included in the Consolidated Balance Sheets and Consolidated Statements of Income, (4) income taxes and (5) goodwill impairment. These critical accounting policies require the use of estimates, assumptions and judgments which are based on information available as of the date of the financial statements. Accordingly, as this information changes, future financial statements could reflect the use of different estimates, assumptions and judgments. Certain determinations inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported.

      Allowance for Loan Losses: Management’s evaluation process to determine the adequacy of the allowance for loan losses combines four factors which involve the use of estimates, assumptions and judgments: historical loss experience derived from analytical models, current trends, economic conditions and reasonably foreseeable events. Since current economic conditions can change and future events are inherently difficult to predict, the anticipated amount of estimated loan losses, and therefore the adequacy of the allowance, could change and these estimates may not reflect actual losses. Management believes the allowance for loan losses is adequate and properly recorded in the financial statements. For further discussion of the allowance for loan losses, see Provisions for Loan Losses, Net Charge-Offs and Allowance for Loan Losses in the Management Discussion and Analysis section of this report.

      Derivative Instruments: In various segments of its business, the Company uses derivative financial instruments to reduce exposure to changes in interest rates and market prices for financial instruments. The application of the hedge accounting policy requires judgment in the assessment of hedge effectiveness, identification of similar hedged item groupings and measurement of changes in the fair value of hedged items. The Company believes that its methods for addressing these judgmental areas are in accordance with generally accepted accounting principles in the United States and are in line with industry practices in assessing hedge effectiveness. However, if in the future the derivative financial instruments used by the Company no longer qualify for hedge accounting treatment and, consequently, the change in fair value of hedged items could not be recognized in earnings, the impact on the consolidated results of operations and

reported earnings could be significant. Management believes hedge effectiveness is evaluated properly in preparation of the financial statements. All of the derivative financial instruments used by the Company have active markets and indications of fair value can be readily obtained.

      Consolidation: The Company utilizes certain financing arrangements to meet its balance sheet management, funding, liquidity and market or credit risk management needs. The majority of these activities are basic term or revolving securitization vehicles. Because these financing arrangements are made with separate legal entities, they are not consolidated in the Company’s Consolidated Balance Sheets. The Company evaluates whether these entities should be consolidated by applying various generally accepted accounting principles and interpretations. In determining whether the financing entity should be consolidated, the Company considers whether the entity is a Qualifying Special Purpose Entity (“QSPE”) as defined in Statement of Financial Accounting Standards (“SFAS”) No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities. For nonconsolidation, SFAS No. 140 requires the financing entity to be legally isolated, bankruptcy remote and beyond the control of the seller. Management believes these financing entities which qualify as QSPEs fulfill the nonconsolidation requirements specified in SFAS No. 140.

      Income Taxes: The calculation of the Company’s income tax provision is complex and requires the use of estimates and judgments in its determination. As part of the Company’s evaluation and implementation of business strategies, consideration is given to the regulations and tax laws that apply to the specific facts and circumstances for any transaction under evaluation. This analysis includes the amount and timing of the realization of income tax liabilities or benefits. Management closely monitors tax developments in order to evaluate the effect they may have on the Company’s overall tax position. Management believes the income tax provision is adequate and properly recorded in the financial statements.

      Goodwill Impairment: Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. The Company tests goodwill on an annual basis, or more frequently if events or circumstances indicate that there may have been impairment. The goodwill impairment test estimates the fair value of each reporting unit, through the use of a discounted cash flows model, and compares this fair value to the reporting unit’s carrying value. The goodwill impairment test requires management to make judgments in determining the assumptions used in the calculations. Management believes goodwill is not impaired and is properly recorded in the financial statements.

Net Income and Earnings Per Share

      In 2004, the Company reported record net income of $369.8 million, an eight percent increase over net income of $341.9 million in 2003, which represented a nine percent increase from 2002 levels. Basic earnings per share for 2004 were $3.02, also a record, compared with $2.74 per share in 2003 and $2.46 per share in 2002, representing a 10 percent increase in 2004 and an 11 percent increase in 2003. Diluted earnings per share increased to $2.95 in 2004, a 10 percent increase from $2.69 per share in 2003. Diluted earnings per share in 2003 increased 11 percent over 2002 levels. Pretax income for 2004 increased $37.1 million, or seven percent, over 2003 levels while income tax expense increased five percent over the same period. The effective tax rate was 33.4 percent for 2004 and 34.0 percent for 2003.

Earning Assets

      Average earning assets in 2004 increased 11 percent over 2003 levels due principally to a 21 percent increase in investment securities, including both held to maturity and available for sale, and a 7 percent increase in total loans. The average earning asset mix in 2004 changed slightly from 2003 with loans comprising 71 percent and 73 percent of earning assets for 2004 and 2003, respectively, while total investment securities accounted for the remaining 29 percent and 27 percent for 2004 and 2003, respectively. The mix of earning assets is monitored on a continuous basis in order to place the Company in a position to react to interest rate movements and to maximize the return on earning assets.

Loans

      Total loans outstanding at year-end 2004 increased nine percent over previous year-end levels. Real estate construction loans increased 22 percent, equity lines of credit increased 25 percent, consumer installment indirect loans increased 18 percent and consumer installment direct loans increased 11 percent. The increase in real estate construction loans and equity lines of credit is due to a favorable interest rate environment, which resulted in strong demand. The increases in consumer installment indirect loans, which are primarily automobile loans, and consumer installment direct loans are a result of favorable interest rates and targeted growth in these markets. Residential real estate mortgage loans decreased five percent compared to 2003 levels. The decrease in residential real estate mortgage loans reflects a securitization in the amount of $589 million in 2004. On a managed loan basis, which includes loans that have been securitized, residential real estate mortgage loans increased seven percent over prior year levels. For additional information, see Note 4, Managed Loans, in the Notes to Consolidated Financial Statements.

      Total loans outstanding at December 31, 2003 increased five percent over 2002 year-end levels. Commercial real estate mortgage loans increased 22 percent, equity lines of credit increased 15 percent and consumer installment indirect loans increased 23 percent. The increase in commercial real estate mortgage loans and equity lines of credit was due to favorable interest rates and targeted growth. Equity loans decreased 21 percent compared to 2002 levels and residential real estate mortgage loans decreased 2 percent compared to 2002 levels. The decrease in equity loans and residential real estate mortgages reflect securitizations in the amount of $750 million and $373 million, respectively, in 2003. Excluding the effect of the securitizations, equity loans increased 17 percent and residential real estate mortgage loans decreased 3 percent over 2002 year-end levels. For additional information regarding the Company’s loan portfolio, see Note 3, Loans and Allowance for Loan Losses, in the Notes to Consolidated Financial Statements.

      The Loan Portfolio table presents the classifications of loans by major category at December 31, 2004, and for each of the preceding four years. The table on the following page presents maturities of certain loan classifications at December 31, 2004, and an analysis of the rate structure for such loans with maturities greater than one year.

Loan Portfolio

Selected Loan Maturity and Interest Rate Sensitivity

      Managed loans include loans recorded on the balance sheet and loans that have been securitized and sold or retained as investment securities, in either the held to maturity or available for sale portfolios. A detailed discussion of securitization transactions utilized by the Company is included in Note 4, Managed Loans, in the Notes to Consolidated Financial Statements.

      At December 31, 2004, managed loans totaled $20.4 billion, compared to $18.9 billion at December 31, 2003 and $17.6 billion at December 31, 2002. The growth and change in mix of the Company’s managed loan portfolio is consistent with the discussion of loans recorded on the balance sheet.

Managed Loan Portfolio

Investment Securities

      The composition of the Company’s investment securities portfolio reflects the Company’s investment strategy of maximizing portfolio yields commensurate with risk and liquidity considerations. The primary objectives of the Company’s investment strategy are to maintain an appropriate level of liquidity and provide a tool to assist in controlling the Company’s interest rate sensitivity position while at the same time producing adequate levels of interest income. The Company’s investment securities are classified into one of three categories based upon management’s intent to hold the investment securities: (i) trading account assets and

liabilities, (ii) investment securities held to maturity or (iii) investment securities available for sale. Investment securities held in a trading account are required to be reported at fair value, with unrealized gains and losses included in earnings. Investment securities designated to be held to maturity are reported at cost, adjusted for amortization of premiums and accretion of discounts, with such amortization and accretion being determined by the interest method. The Company has the ability, and it is management’s intention, to hold such securities to maturity. Management of the maturity of the portfolio is necessary to provide liquidity and control interest rate risk. Investment securities available for sale are recorded at fair value. Increases and decreases in the net unrealized gain or loss on the portfolio of investment securities available for sale are reflected as adjustments to the carrying value of the portfolio and as an adjustment net of tax to accumulated other comprehensive income.

      Fair values of trading account assets and liabilities, investment securities held to maturity and investment securities available for sale are based primarily on quoted or other independent market prices. If quoted market prices are not available, then fair values are estimated using pricing models, quoted prices of instruments with similar characteristics or discounted cash flows. Fair values for trading account derivatives are estimated using pricing models.

      Interest earned on investment securities held to maturity, investment securities available for sale and trading account assets and liabilities is included in interest income in the Consolidated Statements of Income. Net gains and losses on the sale of investment securities available for sale, computed principally on the specific identification method, are shown separately in noninterest income in the Consolidated Statements of Income.

      For additional financial information regarding the Company’s investment securities, see Note 2, Investment Securities Held to Maturity and Investment Securities Available for Sale, in the Notes to Consolidated Financial Statements.

      Maturities of investment securities held to maturity in 2004, 2003 and 2002 were $736 million, $707 million and $428 million, respectively. In 2004, sales and maturities of investment securities available for sale were $814 million and $847 million, respectively, while sales and maturities of investment securities available for sale were $268 million and $2.2 billion, respectively, in 2003. In 2002, sales and maturities of investment securities available for sale were $582 million and $2.1 billion, respectively. Net gains realized on the sale of investment securities available for sale were $27.3 million for the year ended December 31, 2004. Net losses realized on the sale of investment securities available for sale were $43,000 in 2003 and net gains realized on the sale of investment securities available for sale were $4 million in 2002. Gross unrealized gains in the Company’s investment securities held to maturity portfolio at year-end 2004 totaled $21 million and gross unrealized losses totaled $20 million. At December 31, 2004, gross unrealized gains and losses in the investment securities available for sale portfolio were $16 million and $28 million, respectively, and recognized through other comprehensive income. For an analysis of unrealized gains and losses recognized in other comprehensive income, see Note 21, Comprehensive Income, in the Notes to Consolidated Financial Statements.

      Total average investment securities, including both held to maturity and available for sale, increased 21 percent in 2004 after remaining stable in 2003. The increase in 2004 was primarily due to the purchase of investment securities available for sale of $1.7 billion in 2004 and $4.2 throughout 2003, partially offset by proceeds from sales and maturities of available for sale securities of $1.7 billion in 2004 and $2.5 billion in 2003. Additionally during 2003, the Company transferred approximately $2.8 billion of investment securities available for sale to investment securities held to maturity. At the end of 2004, total investment securities, including both held to maturity and available for sale, decreased $146 million from the end of 2003, primarily due to a balance sheet repositioning in the third quarter of 2004 in which the Company prepaid approximately $900 million of FHLB advances and sold approximately $500 million investment securities available for sale. The following table reflects the carrying amount of the investment securities portfolio at the end of each of the last three years.

Investment Securities Held to Maturity and Available for Sale

      The maturities and weighted average yields of the investment securities held to maturity and investment securities available for sale portfolios at the end of 2004 are presented in the table on the following page using average expected lives including the effects of prepayments. The amounts and yields disclosed for investment securities available for sale reflect the amortized cost rather than the net carrying value (fair value) of these securities. Taxable equivalent adjustments, using a 35 percent tax rate, have been made in calculating yields on tax-exempt obligations.

Investment Securities Held to Maturity and Available for Sale Maturity Schedule

      While the weighted average stated maturities of total mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”) are 16.4 years and 16.1 years, respectively, the corresponding weighted average expected lives assumed in the above table are 4.4 years and 3.0 years, respectively. During a period of rising rates, prepayment speeds generally slow on MBS and CMOs with a resulting extension in average life, and vice versa during declining rates. At December 31, 2004, given a 100 basis point immediate and permanent parallel increase in rates, the expected average lives for MBS and CMOs would be 5.1 years and 3.5 years, respectively. Similarly, given a 100 basis point immediate and permanent parallel decrease in rates, the expected average lives for MBS and CMOs would be 2.8 and 1.4 years, respectively.

      The weighted average market prices as a percentage of par value for MBS and CMOs at December 31, 2004, were 100.3 and 99.9 percent, respectively. The market prices for MBS and CMOs generally decline in a rising rate environment due to the resulting increase in average life, the below market yield on fixed rate securities and the impact of annual and life rate caps on adjustable-rate securities. The opposite is generally true during a period of declining rates. At December 31, 2004, fixed-rate MBS and CMOs totaled $1.5 billion and $4.4 billion, respectively, with corresponding weighted average expected lives of 4.5 and 3.0 years. Adjustable-rate MBS and CMOs totaled $84 million and $334 million, respectively, with corresponding weighted average expected lives of 3.0 and 2.9 years. Substantially all adjustable-rate MBS and CMOs are subject to life rate caps, and MBS are also generally subject to a two percent annual cap. The weighted average life rate caps at December 31, 2004 were 10.9 and 11.3 percent for MBS and CMOs, respectively, and the corresponding weighted average coupon rates were 5.1 and 2.9 percent, respectively.

      At December 31, 2004, given a 100 basis point immediate and permanent parallel increase in rates, the estimated market prices for MBS and CMOs would be 96.7 and 97.0 percent, respectively, of their actual market price as of each date. Given a 100 basis point immediate and permanent parallel decrease in rates, the

estimated market prices for MBS and CMOs would be 102.8 and 101.6 percent, respectively, of their actual market price as of each date. For additional information regarding the Company’s investment securities, see Note  2, Investment Securities Held to Maturity and Investment Securities Available for Sale, in the Notes to Consolidated Financial Statements.

Trading Account Assets and Liabilities

      Securities carried in the Company’s trading account portfolio are primarily held for sale to institutional customers for their investment portfolios and generally are sold within 30 days of purchase. Interest rate floors, caps and swaps are sold to customers as protection against interest rate fluctuation. To mitigate the interest rate risk associated with these customer contracts, the Company enters into offsetting derivative contract positions. The Company manages its credit risk of default by its corporate customers through credit limit approval and monitoring procedures. Both the derivative contracts entered into with the Company’s customers and the offsetting derivative positions are recorded at their estimated fair value. Market value changes on these derivative instruments are recognized in noninterest income in the period of change. The volume of activity is directly related to general market conditions and reactions to the changes in the interest rate environment. The average balance in the trading account assets portfolio decreased 21 percent from $73 million for the year ended December 31, 2003 to $58 million for the year ended December 31, 2004. The average balance in the trading account assets portfolio increased $47 million to $73 million for the year ending December 31, 2003. The average balance in the trading account liabilities portfolio decreased 34 percent to $30 million for the year ended December 31, 2004 from $45 million for the year ended December 31, 2003. The average balance in the trading account liabilities portfolio increased $41 million to $45 million for the year ending December 31, 2003. See Note 10, Off-Balance Sheet Activities, Derivatives and Hedging, in the Notes to Consolidated Financial Statements, for a summary of interest rate contracts held in the trading account at December 31, 2004 and 2003.

      The following table details the composition of the Company’s trading account assets and liabilities at December 31, 2004 and 2003.

Trading Account Assets and Liabilities

      Trading account liabilities related to interest rate floors, caps and swaps are classified as other liabilities and the short-sale transactions are classified as short-term borrowings in the Company’s Consolidated Balance Sheets. These short-sale transactions could result in losses to the extent the ultimate obligation exceeds the amount of the recorded liability. The amount of the ultimate obligation under such transactions will be affected by movements in the financial markets, which are not determinable until the point at which securities are purchased to cover the short sales. The short-sale transactions relate principally to United States

Government securities for which there is an active, liquid market. The Company does not expect the amount of losses, if any, on such transactions to be material because the short-sale transactions are used as a hedge against offsetting long positions in the trading account.

Deposits and Borrowed Funds

      Average deposits totaled $16 billion at December 31, 2004, a nine percent increase over prior year levels. The increase in deposits was primarily attributable to a 19 percent increase in noninterest bearing demand deposits, a 13 percent increase in time deposits and a 2 percent increase in interest bearing transaction accounts. As part of its overall funding strategy, the Company focuses on the mix of deposits and, in particular, maintaining an appropriate level of transaction accounts as a percentage of total deposits. During 2004, average transaction accounts made up 77 percent of total deposits. Average interest bearing deposits made up 56 percent of total average interest bearing liabilities in 2004, down from 58 percent in 2003 and 60 percent in 2002.

      The following table summarizes the maturities of certificates of deposit of $100,000 or more and other time deposits of $100,000 or more outstanding at December 31, 2004.

Maturities of Time Deposits

      While the Company continues to emphasize funding earning asset growth through internal deposit generation, average earning asset growth has exceeded deposit growth. As a result, the Company has relied more on borrowed funds as a supplemental source of funding. Borrowed funds consist of Federal Home Loan Bank (“FHLB”) advances, subordinated debentures, other borrowings and short-term borrowings, primarily in the form of federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings. Average borrowed funds increased $1.2 billion and $828 million in 2004 and 2003, respectively. Included in other short-term borrowings are trading account short sales and the commercial paper of the Company. For a discussion of interest rates and maturities of FHLB and other borrowings, refer to Note 8, FHLB and Other Borrowings, and Note 9, Capital Securities and Preferred Stock, in the Notes to Consolidated Financial Statements. For additional information about deposits, see Note 6, Deposits, in the Notes to Consolidated Financial Statements.

      The following table presents the distribution of the Company’s short-term borrowed funds and the weighted average interest rates thereon at the end of each of the last three years. Also provided are the maximum outstanding amounts of borrowings, the average amounts of borrowings and the average interest rates at year-end for the last three years. For additional information regarding the Company’s short-term borrowings, see Note 7, Short-Term Borrowings, in the Notes to Consolidated Financial Statements.

Short-Term Borrowings

Liquidity Management

      Liquidity is the ability of the Company to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities. Liquidity management involves maintaining the Company’s ability to meet the day-to-day cash flow requirements of its customers, whether they are depositors wishing to withdraw funds or borrowers requiring funds to meet their credit needs. Without proper liquidity management, the Company would not be able to perform the primary function of a financial intermediary and would, therefore, not be able to meet the needs of the communities it serves. Additionally, the Parent Company requires cash for various operating needs including: dividends to shareholders; business combinations; capital injections to its subsidiaries; the servicing of debt and the payment of general corporate expenses. The primary source of liquidity for the Parent Company is dividends from the Subsidiary Banks. At

December 31, 2004, the Subsidiary Banks could have paid additional dividends to the Parent Company of approximately $129 million while continuing to meet the capital requirements for “well-capitalized” banks. Also, the Company has access to various capital markets. The Company does not anticipate any liquidity requirements in the near future that it will not be able to meet.

      Asset and liability management functions not only serve to assure adequate liquidity in order to meet the needs of the Company’s customers, but also to maintain an appropriate balance between interest-sensitive assets and interest-sensitive liabilities so that the Company can earn a return that meets the investment requirements of its shareholders. Daily monitoring of the sources and uses of funds is necessary to maintain an acceptable cash position that meets both requirements.

      The asset portion of the balance sheet provides liquidity primarily through loan principal repayments, maturities of investment securities held to maturity and available for sale and, to a lesser extent, sales of investment securities available for sale and trading account assets. Other short-term investments such as federal funds sold, securities purchased under agreements to resell and maturing interest bearing deposits with other banks, are additional sources of liquidity funding.

      The liability portion of the balance sheet provides liquidity through various customers’ interest bearing and noninterest bearing deposit accounts. Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings are additional sources of liquidity and, basically, represent the Company’s incremental borrowing capacity. These sources of liquidity are short-term in nature and are used as necessary to fund asset growth and meet short-term liquidity needs.

      During 2004, the Company funded the $2.5 billion of growth in average interest earning assets through increases in federal funds purchased, noninterest bearing deposits and interest bearing deposits. Average federal funds purchased increased $1.4 billion, average noninterest bearing deposits increased $814 million and average interest bearing deposits increased $607 million. For additional information about possible liquidity uses, see Note 11, Commitments, Contingencies and Guarantees, in the Notes to Consolidated Financial Statements.

      The following tables present information about the Company’s contractual obligations and commitments at December 31, 2004.

Contractual Obligations

Commitments