<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, COMMISSION FILE NUMBER 1-7476
1996
AMSOUTH BANCORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 63-0591257
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
AMSOUTH--SONAT TOWER 35203
1900 5TH AVENUE NORTH (ZIP CODE)
BIRMINGHAM, ALABAMA
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
(205) 320-7151
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 periods that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
As of August 9, 1996 AmSouth Bancorporation had 56,499,248 shares of common
stock outstanding.
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<PAGE>
AMSOUTH BANCORPORATION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
----
<C> <C> <S> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statement of Condition--June 30, 1996,
December 31, 1995,
and June 30, 1995.................................. 3
Consolidated Statement of Earnings--Six months and
three months ended
June 30, 1996 and 1995............................. 4
Consolidated Statement of Shareholders' Equity--Six
months ended June 30, 1996.......................... 5
Consolidated Statement of Cash Flows--Six months
ended June 30, 1996 and 1995........................ 6
Notes to Consolidated Financial Statements.......... 7
Independent Accountants' Review Report.............. 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of
Operations......................................... 10
Part II. Other Information
Item 1. Legal Proceedings................................... 21
Item 6. Exhibits and Reports on Form 8-K.................... 21
Signatures............................................................. 22
Exhibit Index.......................................................... 23
</TABLE>
2
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
AMSOUTH BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31 JUNE 30
1996 1995 1995
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Cash and due from banks................. $ 553,049 $ 651,641 $ 684,354
Federal funds sold and securities
purchased under agreements to resell... 7,575 1,775 6,750
Trading securities...................... 3,603 2,978 2,193
Available-for-sale securities........... 2,514,195 2,479,813 433,480
Held-to-maturity securities (market
value of $2,737,124, $2,193,421 and
$3,217,044, respectively).............. 2,770,228 2,167,009 3,205,291
Mortgage loans held for sale............ 115,742 62,017 81,115
Loans................................... 11,613,277 11,819,809 11,989,032
Less:Allowance for loan losses.......... 178,724 178,451 179,002
Unearned income....................... 69,946 76,536 75,507
----------- ----------- -----------
Net loans............................. 11,364,607 11,564,822 11,734,523
Premises and equipment, net............. 287,489 276,426 276,768
Customers' acceptance liability......... 3,731 2,007 3,200
Accrued interest receivable and other
assets................................. 520,228 530,307 577,081
----------- ----------- -----------
$18,140,447 $17,738,795 $17,004,755
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits and interest-bearing
liabilities:
Deposits:
Noninterest-bearing demand............. $ 1,822,694 $ 1,834,853 $ 1,875,828
Interest-bearing demand................ 3,603,624 3,912,506 3,839,009
Savings................................ 1,035,475 1,005,099 968,136
Time................................... 5,637,413 5,661,130 5,906,759
Certificates of deposit of $100,000 or
more.................................. 849,113 995,243 881,504
----------- ----------- -----------
Total deposits........................ 12,948,319 13,408,831 13,471,236
Federal funds purchased and securities
sold under agreements to repurchase... 1,675,240 1,861,090 760,582
Other borrowed funds................... 1,227,425 490,192 908,827
Long-term debt......................... 709,858 440,899 321,100
----------- ----------- -----------
Total deposits and interest-bearing
liabilities.......................... 16,560,842 16,201,012 15,461,745
Acceptances outstanding................. 3,731 2,007 3,200
Accrued expenses and other liabilities.. 183,802 152,301 179,227
----------- ----------- -----------
Total liabilities..................... 16,748,375 16,355,320 15,644,172
----------- ----------- -----------
Shareholders' equity:
Preferred stock--no par value:
Authorized--2,000,000 shares;
Issued and outstanding--none........... -0- -0- -0-
Common stock--par value $1 a share:
Authorized--200,000,000 shares
Issued--60,028,607, 60,030,242 and
59,868,582 shares, respectively....... 60,029 60,030 59,869
Capital surplus........................ 589,184 590,882 586,952
Retained earnings...................... 838,846 788,170 739,811
Cost of common stock in treasury--
3,450,768, 2,765,000, and 1,500,000
shares, respectively.................. (101,267) (73,192) (24,173)
Deferred compensation on restricted
stock................................. (4,588) (4,120) (4,748)
Unrealized gains on available-for-sale
securities, net of deferred taxes..... 9,868 21,705 2,872
----------- ----------- -----------
Total shareholders' equity............ 1,392,072 1,383,475 1,360,583
----------- ----------- -----------
$18,140,447 $17,738,795 $17,004,755
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
AMSOUTH BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
ENDED JUNE 30 ENDED JUNE 30
------------------- -------------------
1996 1995 1996 1995
--------- --------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
REVENUE FROM EARNING ASSETS
Loans................................ $498,534 $497,901 $247,659 $253,967
Securities:
Trading securities.................. 89 253 48 100
Available-for-sale securities....... 79,384 18,507 40,912 8,608
Held-to-maturity securities......... 85,497 107,312 45,276 53,427
--------- --------- --------- ---------
Total securities.................... 164,970 126,072 86,236 62,135
Mortgage loans held for sale......... 3,414 3,073 2,008 1,349
Federal funds sold and securities
purchased under agreements to
resell.............................. 731 985 382 519
--------- --------- --------- ---------
Total revenue from earning assets... 667,649 628,031 336,285 317,970
--------- --------- --------- ---------
INTEREST EXPENSE
Interest-bearing demand deposits..... 59,407 74,959 29,051 36,849
Savings deposits..................... 13,581 13,885 6,899 7,178
Time deposits........................ 164,903 157,161 82,303 84,198
Certificates of deposit of $100,000
or more............................. 25,950 25,142 12,602 13,537
Federal funds purchased and
securities sold under agreements to
repurchase.......................... 44,278 32,887 22,473 14,518
Other borrowed funds................. 20,767 18,777 12,410 9,157
Long-term debt....................... 20,903 14,148 10,392 6,945
--------- --------- --------- ---------
Total interest expense.............. 349,789 336,959 176,130 172,382
--------- --------- --------- ---------
NET INTEREST INCOME.................. 317,860 291,072 160,155 145,588
Provision for loan losses............ 29,169 20,651 14,049 12,307
--------- --------- --------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES..................... 288,691 270,421 146,106 133,281
--------- --------- --------- ---------
NONINTEREST REVENUES
Service charges on deposit accounts.. 47,007 41,198 23,881 20,954
Trust income......................... 27,899 24,472 14,418 13,067
Credit card income................... 6,902 6,092 3,720 3,220
Consumer investment services......... 7,811 2,872 4,323 1,623
Mortgage income...................... 1,831 36,190 709 27,848
Interchange income................... 4,003 2,464 2,320 1,372
Letters of credit income............. 3,954 3,421 1,920 1,627
Portfolio income..................... 4,048 3,449 2,096 49
Other operating revenues............. 11,143 11,373 6,116 4,964
--------- --------- --------- ---------
Total noninterest revenues.......... 114,598 131,531 59,503 74,724
--------- --------- --------- ---------
NONINTEREST EXPENSES
Salaries and employee benefits....... 114,354 120,829 57,115 61,673
Net occupancy expense................ 26,299 29,728 13,109 17,475
Equipment expense.................... 26,066 27,877 13,263 16,763
Marketing expense.................... 8,865 8,575 4,488 4,033
Postage and office supplies.......... 11,671 11,892 5,795 5,757
Telephone expense.................... 7,645 6,328 4,295 3,201
Professional fees.................... 5,600 6,027 3,375 3,750
FDIC premiums........................ 5,238 14,726 2,676 7,515
Foreclosed properties expense........ 876 (413) 423 (477)
Amortization......................... 8,602 12,338 4,364 3,469
Other operating expenses............. 35,975 37,211 19,440 20,315
--------- --------- --------- ---------
Total noninterest expenses.......... 251,191 275,118 128,343 143,474
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES........... 152,098 126,834 77,266 64,531
Income taxes......................... 56,230 45,866 28,561 23,673
--------- --------- --------- ---------
NET INCOME.......................... $ 95,868 $ 80,968 $ 48,705 $ 40,858
========= ========= ========= =========
Average common shares outstanding.... 56,764 58,199 56,508 58,293
Earnings per common share............ $ 1.69 $ 1.39 $ 0.86 $ 0.70
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
AMSOUTH BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
UNREALIZED
COMMON CAPITAL RETAINED TREASURY DEFERRED GAINS/(LOSSES)
STOCK SURPLUS EARNINGS STOCK COMPENSATION ON SECURITIES TOTAL
------- -------- -------- --------- ------------ -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1996................... $60,030 $590,882 $788,170 $ (73,192) $(4,120) $ 21,705 $1,383,475
Net income.............. -0- -0- 95,868 -0- -0- -0- 95,868
Cash dividends declared
($0.80 per common
share)................. -0- -0- (45,192) -0- -0- -0- (45,192)
Common stock
transactions:
Purchase of common
stock................. -0- -0- -0- (40,506) -0- -0- (40,506)
Employee stock plans... (1) (1,684) -0- 9,721 (468) -0- 7,568
Dividend reinvestment.. -0- (14) -0- 2,710 -0- -0- 2,696
Unrealized losses on
available-for-sale
securities, net of
deferred taxes......... -0- -0- -0- -0- -0- (11,837) (11,837)
------- -------- -------- --------- ------- -------- ----------
Balance at June 30,
1996................... $60,029 $589,184 $838,846 $(101,267) $(4,588) $ 9,868 $1,392,072
======= ======== ======== ========= ======= ======== ==========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
AMSOUTH BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30
--------------------
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income............................................... $ 95,868 $ 80,968
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses............................... 29,169 20,651
Foreclosed property recoveries.......................... -0- (322)
Depreciation and amortization of premises and
equipment.............................................. 13,682 13,619
Amortization of premiums and discounts on held-to-
maturity securities and available-for-sale securities.. (1,719) (2,658)
Net (increase) decrease in mortgage loans held for
sale................................................... (53,725) 49,108
Net( increase) decrease in trading securities........... (631) 6,113
Net gains on sales of available-for-sale securities..... (2,697) (3,228)
Net gains on calls of held-to-maturity securities....... (144) (196)
Net decrease in accrued interest receivable and other
assets................................................. 17,553 28,763
Net increase in accrued expenses and other liabilities.. 21,535 57,232
Provision (benefit) for deferred income taxes........... 12,361 (874)
Amortization of intangible assets....................... 8,459 13,037
Other................................................... 1,537 (1,523)
--------- ---------
Net cash provided by operating activities............... 141,248 260,690
--------- ---------
INVESTING ACTIVITIES
Proceeds from maturities and prepayments of available-
for-sale securities..................................... 342,779 13,222
Proceeds from sales of available-for-sale securities..... 886,509 204,710
Purchases of available-for-sale securities............... (761,850) (272,390)
Proceeds from maturities, prepayments and calls of held-
to-maturity securities.................................. 213,775 132,741
Purchases of held-to-maturity securities................. (816,469) -0-
Net (increase) decrease in federal funds sold and
securities purchased under agreements to resell......... (5,800) 145,775
Net increase in loans.................................... (357,538) (405,097)
Net purchases of premises and equipment.................. (24,745) (6,609)
Net cash used for acquisitions........................... -0- (13,221)
--------- ---------
Net cash used by investing activities................... (523,339) (200,869)
--------- ---------
FINANCING ACTIVITIES
Net decrease in demand deposits and savings accounts..... (290,665) (220,398)
Net (decrease) increase in time deposits................. (169,354) 543,556
Net decrease in federal funds purchased and securities
sold under agreements to repurchase..................... (185,850) (452,141)
Net increase in other borrowed funds..................... 737,534 234,563
Issuance of long-term debt............................... 420,000 -0-
Payments for maturing long-term debt..................... (151,634) (58,526)
Cash dividends paid...................................... (45,192) (44,278)
Proceeds from employee stock plans....................... 9,166 5,118
Purchase of common stock................................. (40,506) -0-
--------- ---------
Net cash provided by financing activities............... 283,499 7,894
--------- ---------
(Decrease) increase in cash and cash equivalents......... (98,592) 67,715
Cash and cash equivalents at beginning of period......... 651,641 616,639
--------- ---------
Cash and cash equivalents at end of period............... $ 553,049 $ 684,354
========= =========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
AMSOUTH BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
General--The consolidated financial statements conform to generally accepted
accounting principles and to general industry practices. The accompanying
interim financial statements are unaudited, however, in the opinion of
management, all adjustments necessary for the fair presentation of the
consolidated financial statements have been included. All such adjustments are
of a normal recurring nature. Certain amounts in the prior year's financial
statements have been reclassified to conform with the 1996 presentation. These
reclassifications had no effect on net income. The notes included herein
should be read in conjunction with the notes to consolidated financial
statements included in AmSouth Bancorporation's (AmSouth) 1995 annual report
on Form 10-K.
Effective January 1, 1996, AmSouth adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," (Statement 121). The statement requires
that long-lived assets and certain identifiable intangibles to be held and
used by the entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. An impairment loss is recognized when the sum of the future cash
flows (undiscounted and without interest charges expected from the use of the
asset and its eventual disposition) is less than the carrying amount of the
asset. The adoption of Statement 121 resulted in no material impact on
AmSouth's financial condition or results of operations.
Statement of Financial Accounting Standards No. 122, "Accounting for
Mortgage Servicing Rights, an amendment of FASB Statement No. 65" (Statement
122) was adopted by AmSouth effective January 1, 1996. In accordance with
Statement 122, the cost of mortgage loans purchased or originated with a
definitive plan to sell the loans and retain the mortgage servicing rights is
allocated between the loans and the servicing rights based on their estimated
fair values at the purchase or origination date. The adoption of Statement 122
resulted in no material impact on AmSouth's financial condition or results of
operations.
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities,"
(Statement 125). Statement 125 provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishment of liabilities
based on consistent application of a "financial-components approach" that
focuses on control. Under that approach, after a transfer of financial assets,
an entity recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control has
been surrendered and derecognizes liabilities when extinguished. Statement 125
provides standards for consistently distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings. The impact
of Statement 125, when adopted on January 1, 1997, on AmSouth's financial
condition or results of operations has not been determined at this time.
Cash Flows--For the six months ended June 30, 1996 and 1995, AmSouth paid
interest of $354,698,000 and $328,770,000, respectively, and income taxes of
$54,245,000 and $36,926,000, respectively. Noncash transfers from loans to
foreclosed properties for the six months ended June 30, 1996 and 1995 were
$9,764,000 and $8,144,000, respectively, and noncash transfers from foreclosed
properties to loans were $154,000 and $789,000, respectively. For the six
months ended June 30, 1996, noncash transfers from loans to available-for-sale
securities of approximately $514,522,000 and noncash transfers from loans to
other assets of approximately $3,886,000 were made in connection with mortgage
loan securitizations.
7
<PAGE>
Shareholders' Equity--On March 1, 1996, AmSouth purchased 1,000,000 shares
of its common stock at a cost of $40,506,000 for the purpose of satisfying
requirements of employee benefit and dividend reinvestment plans. This
repurchase was part of a plan approved in October 1995 and all authorized
shares have been repurchased.
On July 18, 1996, AmSouth's Board of Directors authorized a new plan to
repurchase up to five percent of AmSouth's outstanding shares of common stock
as of June 30, 1996 or approximately 2.8 million shares from time to time. The
shares will be used to fund stock issued under AmSouth's dividend reinvestment
and employee benefit plans or for general corporate purposes.
8
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors
AmSouth Bancorporation
We have reviewed the accompanying consolidated statement of condition of
AmSouth Bancorporation and subsidiaries as of June 30, 1996 and 1995, and the
related consolidated statement of earnings for the three-month and six-month
periods ended June 30, 1996 and 1995, and the consolidated statement of cash
flows for the six-month periods ended June 30, 1996 and 1995. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with the standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data, and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, which will
be performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of condition of AmSouth Bancorporation
and subsidiaries as of December 31, 1995, and the related consolidated
statements of earnings, shareholders' equity, and cash flows for the year then
ended (not presented herein) and in our report dated January 31, 1996, we
expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying consolidated
statement of condition as of December 31, 1995, is fairly stated, in all
material respects, in relation to the consolidated statement of condition from
which it has been derived.
/s/ Ernst & Young LLP
August 9, 1996
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
AmSouth's net income for the six months ended June 30, 1996 was $95.9
million, an 18.4% increase over net income of $81.0 million for the same
period of 1995. On a per common share basis, earnings were $1.69 and $1.39,
respectively. Year-to-date net income for 1995 included a pre-tax gain of
$25.0 million from the sale of AmSouth's third-party mortgage servicing
portfolio. Also included in 1995 year-to-date net income was $22.2 million in
nonrecurring expenses primarily associated with productivity initiatives.
Year-to-date earnings for 1996 resulted in an annualized return on average
assets (ROA) of 1.08% and an annualized return on average equity (ROE) of
14.01% compared to .97% and 12.25%, respectively, for the first six months of
1995. AmSouth's 1996 year-to-date operating efficiency ratio improved to
57.42% compared to 64.20% for the prior year.
Net income for the second quarter of 1996 was $48.7 million, or $.86 per
common share, compared to $40.9 million, or $.70 per common share, for the
same period of 1995. ROA and ROE for the second quarter of 1996 were 1.09% and
14.26%, respectively, compared to .97% and 12.22% for the second quarter of
1995.
Net Interest Income
Net interest income on a fully taxable equivalent basis for the six months
ended June 30, 1996 was $322.8 million, an 8.5% increase over the same period
of 1995. The improvement in net interest income was primarily the result of a
$1.1 billion increase in year-to-date average earning asset balances. The net
interest margin increased five basis points to 3.90%.
The increase in year-to-date average earning assets, exclusive of the
securitizations of residential first mortgages, was primarily due to increases
in average securities and loans. Average securities increased $1.1 billion as
a result of the securitization of approximately $850 million of variable rate
residential first mortgages during the previous nine months and additional
purchases of securities. Average loans net of unearned income decreased $57.8
million, however, exclusive of residential first mortgages, average loans net of
unearned income increased $762.7 million, or 10.4%, primarily in commercial,
dealer indirect and consumer revolving credit loans.
The year-to-date average balance of interest-bearing liabilities increased
$892.4 million, funding 82.5% of the growth in average earning assets. An
increase of $621.8 million in average Federal funds purchased and securities
sold under agreements to repurchase was the primary reason for the increase.
Other significant changes included a $271.2 million increase in treasury, tax
and loan notes and a $149.8 million increase in parent company subordinated
long-term debt, related to the issuance of 6.75% subordinated debentures
during the fourth quarter of 1995. The remaining growth in average earning
assets was funded by decreases in noninterest-earning assets and an increase
in shareholders' equity.
Asset/Liability Management
AmSouth maintains a formal asset and liability management process to
quantify, monitor and control interest rate risk and to assist management in
maintaining stability in the net interest margin under varying interest rate
environments. This is accomplished through the development and implementation
of lending, funding and pricing strategies designed to maximize net interest
income performance under varying interest rate environments subject to
specific liquidity and interest rate risk guidelines.
The primary tool used by AmSouth to measure interest rate risk is an
earnings simulation model which evaluates the impact of different interest
rate scenarios on the corporation's projected business plan over a 12 to 24
month horizon. Management feels that a more traditional interest sensitivity
gap analysis does not provide a complete picture of the corporation's exposure
to interest rate changes since static gap models are a point-in-time
measurement and, therefore, do not incorporate the effects of future balance
sheet trends, changes in the relationship between yields earned and rates
paid, patterns of rate movements in general or changes in prepayment speeds
due to changes in rates. AmSouth's earnings simulation model incorporates the
effect of these
10
<PAGE>
factors in addition to the impact of certain embedded interest rate caps and
floors on certain assets and liabilities while also reflecting management's
anticipated action under varying interest rate environments.
Interest rate scenarios are simulated on a regular basis to determine the
range of interest rate risk. Net interest income performance is measured under
scenarios ranging from plus or minus 100 basis points to plus or minus 300
basis points over 12 months compared to a stable interest rate environment.
The net interest income differential is expressed as a percent of net interest
income over twelve months if interest rates are unchanged. As of June 30,
1996, the earnings simulation model results indicated that the corporation was
in a relatively neutral interest rate risk position with net interest income
in a plus or minus 200 basis point scenario being less than 2% of projected
net interest income in a stable interest rate scenario. This level of interest
rate risk is well within the corporation's policy guidelines. A very important
factor in determining this interest rate risk position is the extent to which
pricing on administered rate deposit products, including interest checking,
savings, and money market accounts would be affected under varying interest
rate scenarios. At AmSouth, pricing for these products is assumed to be more
variable in rising rate scenarios than in declining rate scenarios. While
these assumptions are somewhat subjective, management reviews the anticipated
pricing for these products on a regular basis and alters these assumptions
whenever trends or market conditions dictate.
Over the last few years, AmSouth has, from time to time, utilized various
off-balance sheet instruments such as interest rate swaps, caps and floors to
assist in managing interest rate risk. At June 30, 1996, AmSouth had $1.0
billion notional amount of caps outstanding, consisting of $500.0 million of
caps sold and $500.0 million of caps purchased, as hedges on $500.0 million of
prime rate loans. This transaction effectively locked-in the historically wide
300 basis points spread between Federal funds and the prime rate in a rising
rate environment. Additionally, $100.0 million notional amount of caps
outstanding hedge the cost of designated liabilities. In addition to the caps,
AmSouth had interest rate swaps in the aggregate notional amount of $150.0
million which were purchased to hedge the cost of $150.0 million of 6.75%
subordinated debentures issued in the fourth quarter of 1995. These swaps
effectively converted the fixed rate applicable to these debentures to a
floating rate tied to the one-month LIBOR rate. AmSouth also had $130.0 million
notional amount of interest rate swaps to hedge designated securities and
deposits. At June 30, 1996, AmSouth also held other off-balance sheet
instruments to provide customers and AmSouth a means of managing the risks of
changing interest and foreign exchange rates. These other off-balance sheet
instruments were immaterial. At June 30, 1996, no off-balance sheet instruments
were held for trading purposes.
Credit Quality
AmSouth maintains an allowance for loan losses which it believes is adequate
to absorb losses inherent in the loan portfolio. A formal review is prepared
quarterly to assess the risk in the portfolio and to determine the adequacy of
the allowance for loan losses. The review includes analyses of historical
performance, the level of nonperforming and adversely rated loans, specific
analyses of certain problem loans, loan activity since the previous quarter,
reports prepared by the Loan Review Department, consideration of current
economic conditions, and other pertinent information. The level of allowance
to net loans outstanding will vary depending on the overall results of this
quarterly review. The review is then presented to and subsequently approved by
senior management and the Audit and Community Responsibility Committee of the
Board of Directors.
Table 7 presents a five quarter analysis of the allowance for loan losses.
At June 30, 1996, the allowance for loan losses was $178.7 million, or 1.55%
of loans net of unearned income, compared to $179.0 million, or 1.50%, for the
prior year. The coverage ratio of the allowance for loan losses to
nonperforming loans increased from 186.25% at June 30, 1995 to 213.83% for the
same period in 1996 as the level of nonperforming loans decreased $12.5
million.
For the three months ended June 30, 1996, net charge-offs were $13.3
million, an increase of $5.6 million compared to the same period of 1995.
Year-to-date net charge-offs were $28.9 million compared to $14.6 million for
the prior year. Increases for both periods were primarily in the consumer
revolving credit and dealer indirect loan portfolios which grew 26.8% and
10.8%, respectively, from June 30, 1995 to June 30, 1996. However, these
portfolios comprised only 4.2% and 9.5%, respectively, of the total loan
portfolio. Declining trends in credit quality in the consumer sector of
the economy also contributed to the increase in net charge-offs. Annualized
net
11
<PAGE>
charge-offs to average loans net of unearned income for the three months ended
June 30, 1996 was .46% compared to .26% for the same period of the prior year.
Year to date, the ratio was .50% compared to .25% for the prior year. The
increased level of net charge-offs, combined with the growth in the consumer
loan portfolio, which traditionally has a higher risk of loss, resulted in a
provision for loan losses for the three months and six months ended June 30,
1996, of $14.0 million and $29.2 million, respectively. Net charge-offs of
impaired loans for the six months ended June 30, 1996 were $127 thousand.
Table 8 presents a five quarter comparison of the components of
nonperforming assets. As a percentage of loans net of unearned income,
foreclosed properties and repossessions, nonperforming assets decreased from
.97% at June 30, 1995 to .85% at June 30, 1996. The level of nonperforming
assets decreased $18.2 million during the same period.
Included in nonperforming assets at June 30, 1996 and 1995 was a recorded
investment of $44.5 million and $61.1 million, respectively, in loans that
were considered to be impaired, substantially all of which were on a
nonaccrual basis. Collateral dependent loans, which were measured at the fair
value of the collateral, constituted approximately all of these impaired
loans. There was no material balance in the allowance for loan losses
specifically allocated to these impaired loans as the recorded investment in
these loans approximated the fair value of the collateral at June 30, 1996.
The average balance of impaired loans for the three months ended June 30, 1996
and 1995 was $50.6 million and $62.0 million, respectively, and $52.9 million
and $64.0 million, respectively, for the six months ended June 30, 1996 and
1995. AmSouth recorded no material interest income on its impaired loans
during the three months and six months ended June 30, 1996 and 1995.
Noninterest Revenues and Noninterest Expenses
Year-to-date noninterest revenues totaled $114.6 million at June 30, 1996
compared to $131.5 million for the same period of the prior year. Included in
mortgage income for the prior year was a $25.0 million gain from AmSouth's sale
of its third-party mortgage servicing portfolio. Exclusive of the gain, year-
to-date noninterest revenues increased 7.6% over the prior year. Compared to
the prior year, service charges on deposit accounts increased $5.8 million, or
14.1%. This increase was primarily attributable to a revenue enhancement
initiative that was implemented in the second quarter of 1995 to automate the
payment of certain demand deposit account service fees. Trust income increased
14.0% to $27.9 million primarily from new employee benefit plan administration
accounts, increased personal trust accounts and higher fees. Consumer
investment services increased $4.9 million as a result of a higher sales
volume of mutual funds and annuity products. The introduction of the AmSouth
CheckCardSM in 1995 was the primary reason for a 62.5% increase in interchange
income. Credit card income increased 13.3% reflecting a higher level of
customer activity and an increased number of cardholder accounts.
Noninterest revenues for the second quarter of 1996 were $59.5 million.
Excluding the effect of the gain from the sale of the third-party mortgage
servicing portfolio during the second quarter of 1995, noninterest revenues
for the period increased 19.7% over 1995. Changes were primarily for the same
reasons discussed in the year-to-date analysis.
Year-to-date noninterest expenses totaled $251.2 million at June 30, 1996
compared to $275.1 million for the same period of the prior year. Exclusive of
the $22.2 million in nonrecurring expenses discussed previously, noninterest
expenses remained relatively flat. Salaries and employee benefits, net of $6.7
million of expenses related to business and branch consolidations in 1995,
increased slightly. Net occupancy expense increased $2.1 million, net of costs
of $5.5 million for branch consolidations in 1995. This increase is primarily
related to a new office complex lease. Adjusted for $4.7 million for
development costs of new financial systems and the write-off of various
leases, equipment expense in 1996 increased $2.9 million primarily due to
investments in technology for the consumer and commercial lines of business.
Telephone expense increased $1.3 million as the network was established for
the consumer and commercial technology projects. Other significant changes in
noninterest expenses included a $9.5 million decrease in Federal Deposit
Insurance Corporation (FDIC) premiums and a $3.7 million decrease in
amortization expense. FDIC premiums were lower as a result of the FDIC
reducing the premium rate on deposits insured by the Bank Insurance Fund (BIF)
to zero beginning in
12
<PAGE>
1996. The reduction in amortization expense was due to the decrease in
purchased mortgage servicing rights as a result of AmSouth's third-party
mortgage servicing portfolio sale in June 1995.
Noninterest expenses for the second quarter of 1996 increased $7.1 million,
net of the $22.2 million in nonrecurring expenses previously discussed. For
the quarter, salaries and employee benefits increased $2.2 million, net of the
$6.7 million discussed previously. This increase was primarily due to a higher
company match of employee thrift plan contributions and enhancements to
employee life insurance benefits. Other changes were primarily for the same
reasons discussed in the year-to-date analysis.
Capital Adequacy
At June 30, 1996, shareholders' equity totaled $1.4 billion or 7.67% of
total assets. Since December 31, 1995, shareholders' equity has increased $8.6
million due to net income of $95.9 million, reduced by dividends of $45.2
million and partially offset by the purchase of 1,000,000 shares of AmSouth
common stock for $40.5 million. This purchase completed a program approved by
the Board of Directors in 1995 to repurchase 2,265,000 shares to provide
shares for AmSouth's employee benefit and dividend reinvestment plans. In July
1996, the Board of Directors approved an additional program to repurchase from
time to time up to five percent of AmSouth's outstanding shares of common
stock as of June 30, 1996 or approximately 2.8 million shares. The shares will
be used for AmSouth's employee benefit and dividend reinvestment plans or for
general corporate purposes.
Table 11 presents the calculation of the risk-adjusted capital ratios for
AmSouth at June 30, 1996 and 1995. At June 30, 1996, AmSouth remained above
the regulatory minimum required risk-adjusted Tier 1 Capital Ratio of 4.00% and
the regulatory minimum required risk-adjusted Total Capital Ratio of 8.00%. In
addition, the risk-adjusted capital ratios for AmSouth's banking subsidiaries
were above the regulatory minimum and each subsidiary was well-capitalized at
June 30, 1996.
Deposit Insurance Assessments
Effective January 1, 1996, the FDIC assessment schedule for BIF deposits
ranged from 0 to 27 cents per $100 of such deposits, based on each
institution's risk classification. AmSouth's current assessment for BIF
deposits is zero. The FDIC has maintained the assessment rate schedule of 23
to 31 cents per $100 of deposits insured by the Savings Association Insurance
Fund (SAIF). AmSouth's SAIF assessment rate is currently 23 cents per $100 of
deposits. At June 30, 1996, AmSouth had a BIF deposit assessment base of $8.5
billion and a SAIF deposit base of $4.6 billion. Legislation has been under
consideration in the U.S. Congress which would charge a special one-time
assessment on SAIF insured deposits to recapitalize the SAIF to its
statutorily mandated minimum designated reserve ratio of 1.25 percent. Under
one proposal, an assessment at a rate between 75 and 85 cents per $100 of SAIF
insured deposits would be imposed. Included in this proposed legislation under
consideration is a proposal to lower the special assessment for those
institutions with SAIF deposits meeting certain qualifications. The reduction
would be achieved by lowering the SAIF deposit assessment base for such
institutions by 20 percent prior to the calculation of the special charge.
AmSouth believes that most of its SAIF deposits would qualify for this
treatment under that version of this legislation and, as a result, would incur
a one-time cost of approximately $26.0 to $34.0 million on a pre-tax basis if
such legislation is passed. The charge to earnings would not occur until the
law has been enacted. Due to the uncertain nature of legislative affairs,
management cannot predict with any degree of accuracy when the legislation would
be enacted, if at all, or what form (including whether any reduction as
described above would be included) the final legislation may take.
13
<PAGE>
TABLE 1--FINANCIAL SUMMARY
<TABLE>
<CAPTION>
JUNE 30
------------------------------ %
1996 1995 CHANGE
-------------- -------------- -------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
BALANCE SHEET SUMMARY
End-of-period balances:
Loans net of unearned income........ $ 11,543,331 $ 11,913,525 (3.1)%
Total securities.................... 5,288,026* 3,640,964* 45.2
Total assets........................ 18,140,447 17,004,755 6.7
Total deposits...................... 12,948,319 13,471,236 (3.9)
Shareholders' equity................ 1,392,072 1,360,583 2.3
Year-to-date average balances:
Loans net of unearned income........ $ 11,624,393 $ 11,682,181 (0.5)%
Total securities.................... 4,936,591* 3,789,089* 30.3
Total assets........................ 17,840,806 16,906,483 5.5
Total deposits...................... 13,120,077 13,269,191 (1.1)
Shareholders' equity................ 1,375,691 1,332,943 3.2
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
ENDED JUNE 30 ENDED JUNE 30
---------------- % ---------------- %
1996 1995 CHANGE 1996 1995 CHANGE
------- ------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS SUMMARY
Net income.................. $95,868 $80,968 18.4% $48,705 $40,858 19.2%
Per common share............ 1.69 1.39 21.6 0.86 0.70 22.9
SELECTED RATIOS
Return on average assets
(annualized)............... 1.08% 0.97% 1.09% 0.97%
Return on average equity
(annualized)............... 14.01 12.25 14.26 12.22
Average equity to average
assets..................... 7.71 7.88 7.63 7.92
Allowance for loan losses to
loans net of unearned
income..................... 1.55 1.50 1.55 1.50
Efficiency ratio............ 57.42 64.20 57.79 64.26
COMMON STOCK DATA
Cash dividends declared..... $ 0.80 $ 0.76 $ 0.40 $ 0.38
Book value at end of
period..................... 24.60 23.31 24.60 23.31
Market value at end of
period..................... 36.12 32.63 36.12 32.63
Average common shares
outstanding................ 56,764 58,199 56,508 58,293
</TABLE>
- --------
* Includes adjustment for market valuation on available-for-sale securities of
$15,093 and $4,612 for end of period balances and $26,636 and $(203) for
year-to-date average balances for 1996 and 1995, respectively.
14
<PAGE>
TABLE 2--YEAR-TO-DATE YIELDS EARNED ON AVERAGE EARNING ASSETS AND RATES PAID ON
AVERAGE INTEREST-BEARING LIABILITIES
<TABLE>
<CAPTION>
1996 1995
---------------------------- ----------------------------
SIX MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
---------------------------- ----------------------------
AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
----------- -------- ------ ----------- -------- ------
(TAXABLE EQUIVALENT BASIS-DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Loans net of unearned
income................ $11,624,393 $499,710 8.64% $11,682,181 $499,442 8.62%
Trading securities..... 4,072 89 4.40 9,792 263 5.42
Available-for-sale
securities............ 2,386,999 79,384 6.69 506,230 18,507 7.37
Held-to-maturity
securities:
Taxable................ 2,310,210 77,790 6.77 2,994,540 97,148 6.54
Tax-free............... 208,674 11,506 11.09 278,730 15,169 10.97
----------- -------- ----------- --------
Total held-to-maturity
securities............ 2,518,884 89,296 7.13 3,273,270 112,317 6.92
----------- -------- ----------- --------
Total securities...... 4,909,955 168,769 6.91 3,789,292 131,087 6.98
Other earning assets... 129,607 4,145 6.43 111,000 4,058 7.37
----------- -------- ----------- --------
Total earning assets.. 16,663,955 672,624 8.12 15,582,473 634,587 8.21
Cash and other assets.. 1,328,653 1,498,293
Allowance for loan
losses................ (178,438) (174,080)
Market valuation on
available-for-sale
securities............ 26,636 (203)
----------- -----------
$17,840,806 $16,906,483
=========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing
liabilities:
Interest-bearing demand
deposits.............. $ 3,773,580 59,407 3.17 $ 3,961,497 74,959 3.82
Savings deposits....... 1,019,952 13,581 2.68 926,918 13,885 3.02
Time deposits.......... 5,680,496 164,903 5.84 5,714,885 157,161 5.55
Certificates of deposit
of $100,000 or more... 904,240 25,950 5.77 888,745 25,142 5.70
Federal funds purchased
and securities
sold under agreements
to repurchase......... 1,721,049 44,278 5.17 1,099,205 32,887 6.03
Other interest-bearing
liabilities........... 1,408,934 41,670 5.95 1,024,609 32,925 6.48
----------- -------- ----------- --------
Total interest-bearing
liabilities........... 14,508,251 349,789 4.85 13,615,859 336,959 4.99
-------- ----- -------- -----
Incremental interest
spread................. 3.27% 3.22%
===== =====
Noninterest-bearing
demand deposits........ 1,741,809 1,777,146
Other liabilities....... 215,055 180,535
Shareholders' equity.... 1,375,691 1,332,943
----------- -----------
$17,840,806 $16,906,483
=========== ===========
Net interest
income/margin on a
taxable equivalent
basis.................. 322,835 3.90% 297,628 3.85%
===== =====
Taxable equivalent
adjustment:
Loans.................. 1,176 1,541
Securities............. 3,799 5,015
-------- --------
Total taxable
equivalent
adjustment............ 4,975 6,556
-------- --------
Net interest income... $317,860 $291,072
======== ========
</TABLE>
- --------
Note: The taxable equivalent adjustment has been computed based on a 35%
federal income tax rate.
15
<PAGE>
TABLE 3--QUARTERLY YIELDS EARNED ON AVERAGE EARNING ASSETS AND RATES PAID ON
AVERAGE INTEREST-BEARING LIABILITIES
<TABLE>
<CAPTION>
1996
----------------------------------------------------------
SECOND QUARTER FIRST QUARTER
---------------------------- ----------------------------
AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
----------- -------- ------ ----------- -------- ------
(TAXABLE EQUIVALENT BASIS--DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Loans net of un-
earned income...... $11,575,473 $248,233 8.63% $11,673,313 $251,472 8.66%
Trading securi-
ties............... 4,366 48 4.42 3,778 41 4.36
Available-for-sale
securities......... 2,419,311 40,912 6.80 2,354,687 38,472 6.57
Held-to-maturity
securities:
Taxable........... 2,477,564 41,531 6.74 2,142,855 36,259 6.81
Tax-free.......... 201,702 5,594 11.15 215,647 5,912 11.03
----------- -------- ----------- --------
Total held-to-ma-
turity securi-
ties.............. 2,679,266 47,125 7.07 2,358,502 42,171 7.19
----------- -------- ----------- --------
Total securi-
ties............. 5,102,943 88,085 6.94 4,716,967 80,684 6.88
Other earning as-
sets............... 152,586 2,390 6.30 106,629 1,760 6.64
----------- -------- ----------- --------
Total earning
assets.......... 16,831,002 338,708 8.09 16,496,909 333,916 8.14
Cash and other as-
sets............... 1,324,032 1,333,274
Allowance for loan
losses............. (178,475) (178,402)
Market valuation on
available-for-sale
securities......... 21,508 31,764
----------- -----------
$17,998,067 $17,683,545
=========== ===========
LIABILITIES AND
SHAREHOLDERS' EQ-
UITY
Interest-bearing
liabilities:
Interest-bearing
demand deposits.... $ 3,700,373 29,051 3.16 $ 3,846,787 30,356 3.17
Savings deposits... 1,025,627 6,899 2.71 1,014,277 6,682 2.65
Time deposits...... 5,697,113 82,303 5.81 5,663,879 82,600 5.87
Certificates of
deposit of
$100,000 or more... 880,157 12,602 5.76 928,322 13,348 5.78
Federal funds pur-
chased and securi-
ties sold under
agreements to re-
purchase........... 1,767,378 22,473 5.11 1,674,720 21,805 5.24
Other interest-
bearing liabili-
ties............... 1,566,497 22,802 5.85 1,251,371 18,868 6.06
----------- -------- ----------- --------
Total interest-
bearing liabili-
ties.............. 14,637,145 176,130 4.84 14,379,356 173,659 4.86
-------- ----- -------- -----
Incremental inter-
est spread......... 3.25% 3.28%
===== =====
Noninterest-bearing
demand deposits.... 1,767,696 1,715,922
Other liabilities.. 219,469 211,581
Shareholders' equi-
ty................. 1,373,757 1,376,686
----------- -----------
$17,998,067 $17,683,545
=========== ===========
Net interest
income/margin on a
taxable equivalent
basis.............. 162,578 3.89% 160,257 3.91%
===== =====
Taxable equivalent
adjustment:
Loans.............. 574 602
Securities......... 1,849 1,950
-------- --------
Total taxable
equivalent ad-
justment.......... 2,423 2,552
-------- --------
Net interest in-
come............. $160,155 $157,705
======== ========
</TABLE>
<TABLE>
<CAPTION>
1995
----------------------------------------------------------------------------------------
FOURTH QUARTER THIRD QUARTER SECOND QUARTER
---------------------------- ---------------------------- ----------------------------
AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
----------- -------- ------ ----------- -------- ------ ----------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Loans net of un-
earned income...... $11,806,113 $257,968 8.67% $11,816,908 $256,878 8.62% $11,801,298 $254,751 8.66%
Trading securi-
ties............... 5,348 29 2.15 2,797 27 3.83 9,194 106 4.62
Available-for-sale
securities......... 642,444 10,627 6.56 496,588 8,900 7.11 477,809 8,608 7.23
Held-to-maturity
securities:
Taxable........... 3,158,591 52,453 6.59 2,908,333 48,044 6.55 2,970,284 48,378 6.53
Tax-free.......... 232,750 6,315 10.76 255,893 6,957 10.79 273,382 7,531 11.05
----------- -------- ----------- -------- ----------- --------
Total held-to-ma-
turity securi-
ties.............. 3,391,341 58,768 6.88 3,164,226 55,001 6.90 3,243,666 55,909 6.91
----------- -------- ----------- -------- ----------- --------
Total securi-
ties............. 4,039,133 69,424 6.82 3,663,611 63,928 6.92 3,730,669 64,623 6.95
Other earning as-
sets............... 73,533 1,310 7.07 87,315 1,205 5.48 90,660 1,868 8.26
----------- -------- ----------- -------- ----------- --------
Total earning
assets.......... 15,918,779 328,702 8.19 15,567,834 322,011 8.21 15,622,627 321,242 8.25
Cash and other as-
sets............... 1,413,087 1,404,025 1,479,463
Allowance for loan
losses............. (178,948) (179,588) (175,616)
Market valuation on
available-for-sale
securities......... 5,761 4,324 1,985
----------- ----------- -----------
$17,158,679 $16,796,595 $16,928,459
=========== =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQ-
UITY
Interest-bearing
liabilities:
Interest-bearing
demand deposits.... $ 3,823,303 31,756 3.30 $ 3,830,799 33,139 3.43 $ 3,901,245 36,849 3.79
Savings deposits... 1,002,444 6,810 2.70 986,486 6,805 2.74 949,737 7,178 3.03
Time deposits...... 5,709,120 84,805 5.89 5,792,071 85,870 5.88 5,874,024 84,198 5.75
Certificates of
deposit of
$100,000 or more... 997,469 15,120 6.01 919,357 14,018 6.05 911,668 13,537 5.96
Federal funds pur-
chased and securi-
ties sold under
agreements to re-
purchase........... 1,388,274 19,329 5.52 1,044,177 14,966 5.69 946,492 14,518 6.15
Other interest-
bearing liabili-
ties............... 894,723 14,911 6.61 913,192 14,908 6.48 993,363 16,102 6.50
----------- -------- ----------- -------- ----------- --------
Total interest-
bearing liabili-
ties.............. 13,815,333 172,731 4.96 13,486,082 169,706 4.99 13,576,529 172,382 5.09
-------- ----- -------- ----- -------- -----
Incremental inter-
est spread......... 3.23% 3.22% 3.16%
===== ===== =====
Noninterest-bearing
demand deposits.... 1,738,426 1,730,937 1,798,087
Other liabilities.. 221,993 213,217 212,513
Shareholders' equi-
ty................. 1,382,927 1,366,359 1,341,330
----------- ----------- -----------
$17,158,679 $16,796,595 $16,928,459
=========== =========== ===========
Net interest
income/margin on a
taxable equivalent
basis.............. 155,971 3.89% 152,305 3.88% 148,860 3.82%
===== ===== =====
Taxable equivalent
adjustment:
Loans.............. 682 745 784
Securities......... 2,083 2,295 2,488
-------- -------- --------
Total taxable
equivalent ad-
justment.......... 2,765 3,040 3,272
-------- -------- --------
Net interest in-
come............. $153,206 $149,265 $145,588
======== ======== ========
</TABLE>
- ----
Note: The taxable equivalent adjustment has been computed based on a 35%
federal income tax rate.
16
<PAGE>
TABLE 4--INTEREST RATE SWAPS, CAPS AND FLOORS
<TABLE>
<CAPTION>
SWAPS
------------------------------------ CAPS
RECEIVE FIXED PAY FIXED BASIS OTHER & FLOORS TOTAL
------------- --------- ----- ----- -------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1996................... $150 $ -0- $ -0- $ -0- $1,110 $1,260
Additions............. 130 -0- -0- -0- -0- 130
Maturities............ -0- -0- -0- -0- -0- -0-
Calls................. -0- -0- -0- -0- -0- -0-
Terminations.......... -0- -0- -0- -0- -0- -0-
---- ----- ----- ----- ------ ------
Balance at June 30,
1996................... $280 $ -0- $ -0- $ -0- $1,110 $1,390
==== ===== ===== ===== ====== ======
TABLE 5--MATURITIES ON CAPS AND INTEREST RATES EXCHANGED ON SWAPS
<CAPTION>
MATURE DURING
----------------------------------------------
1996 1997 1998 1999 2000 TOTAL
------------- --------- ----- ----- -------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Receive fixed swaps:
Notional amount....... $150 $ 65 $ 50 $ 15 $ -0- $ 280
Receive rate.......... 6.28% 6.89% 6.34% 6.78% 0.00% 6.46%
Pay rate.............. 5.47% 5.50% 5.52% 5.50% 0.00% 5.49%
Caps:
Notional amount....... $ 33 $ 77 $ -0- $ -0- $1,000 $1,110
</TABLE>
- --------
Note: The maturities and interest rates exchanged are calculated assuming that
interest rates remain unchanged from average June 1996 rates. The
information presented could change as future interest rates increase or
decrease.
TABLE 6--LOANS AND CREDIT QUALITY
<TABLE>
<CAPTION>
LOANS NONPERFORMING LOANS* NET CHARGE-OFFS
JUNE 30 JUNE 30 JUNE 30
----------------------- --------------------- ----------------
1996 1995 1996 1995 1996 1995
----------- ----------- ---------- ---------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial.............. $ 3,288,848 $ 3,015,616 $14,420 $16,017 $ 250 $ 2,455
Commercial real estate:
Commercial real estate
mortgages............ 1,583,633 1,457,113 26,282 32,778 144 312
Real estate
construction......... 645,877 423,723 2,556 12,328 (267) 273
----------- ----------- ---------- ---------- ------- -------
Total commercial
real estate........ 2,229,510 1,880,836 28,838 45,106 (123) 585
----------- ----------- ---------- ---------- ------- -------
Consumer:
Residential first
mortgages............ 3,110,198 4,380,941 33,402 27,049 1,513 362
Other residential
mortgages............ 747,462 650,292 1,147 -0- 73 80
Dealer indirect....... 1,102,343 995,327 4,435 3,472 7,789 2,796
Revolving credit...... 490,617 387,012 -0- -0- 12,773 6,392
Other consumer........ 644,299 679,008 1,341 4,467 6,621 1,899
----------- ----------- ---------- ---------- ------- -------
Total consumer....... 6,094,919 7,092,580 40,325 34,988 28,769 11,529
----------- ----------- ---------- ---------- ------- -------
$11,613,277 $11,989,032 $83,583 $96,111 $28,896 $14,569
=========== =========== ========== ========== ======= =======
</TABLE>
- --------
* Exclusive of accruing loans 90 days past due.
17
<PAGE>
TABLE 7--ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
1996 1995
----------------------- -----------------------------------
2ND QUARTER 1ST QUARTER 4TH QUARTER 3RD QUARTER 2ND QUARTER
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of
period................. $ 177,930 $ 178,451 $ 179,550 $ 179,002 $ 174,398
Loans charged off....... (18,442) (20,626) (13,998) (12,290) (11,833)
Recoveries of loans pre-
viously charged off.... 5,187 4,985 2,809 3,440 4,130
--------- --------- --------- --------- ---------
Net charge-offs......... (13,255) (15,641) (11,189) (8,850) (7,703)
Addition to allowance
charged to expense..... 14,049 15,120 10,090 9,398 12,307
--------- --------- --------- --------- ---------
Balance at end of peri-
od..................... $ 178,724 $ 177,930 $ 178,451 $ 179,550 $ 179,002
========= ========= ========= ========= =========
Allowance for loan
losses to loans net of
unearned income........ 1.55% 1.55% 1.52% 1.51% 1.50%
Allowance for loan
losses to nonperforming
loans.................. 213.83% 195.70% 185.41% 200.94% 186.25%
Allowance for loan
losses to nonperforming
assets................. 182.29% 163.06% 154.49% 171.73% 153.98%
Net charge-offs to aver-
age loans net of un-
earned income
(annualized)........... 0.46% 0.54% 0.38% 0.30% 0.26%
</TABLE>
TABLE 8--NONPERFORMING ASSETS
<TABLE>
<CAPTION>
1996 1995
----------------- ---------------------------------
JUNE 30 MARCH 31 DECEMBER 31 SEPTEMBER 30 JUNE 30
------- -------- ----------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans......... $83,583 $ 90,919 $ 96,246 $ 89,355 $ 96,111
Foreclosed properties.... 12,845 14,764 16,150 13,144 18,112
Repossessions............ 1,614 3,439 3,114 2,052 2,028
------- -------- -------- -------- --------
Total nonperforming as-
sets*................. $98,042 $109,122 $115,510 $104,551 $116,251
======= ======== ======== ======== ========
Nonperforming assets* to
loans net of unearned
income, foreclosed
properties and
repossessions........... 0.85% 0.95% 0.98% 0.88% 0.97%
Accruing loans 90 days
past due................ $39,944 $ 40,110 $ 39,618 $ 45,548 $ 34,663
</TABLE>
- --------
*Exclusive of accruing loans 90 days past due.
18
<PAGE>
TABLE 9--SECURITIES
<TABLE>
<CAPTION>
JUNE 30, 1996 JUNE 30, 1995
--------------------- ---------------------
CARRYING MARKET CARRYING MARKET
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Held-to-maturity
U.S. Treasury and federal agency
securities...................... $2,293,413 $2,255,713 $2,927,748 $2,925,946
State, county and municipal
securities...................... 202,873 211,318 270,993 284,370
Other securities................. 273,942 270,093 6,550 6,728
---------- ---------- ---------- ----------
$2,770,228 $2,737,124 $3,205,291 $3,217,044
========== ========== ========== ==========
Available-for-sale
U.S. Treasury and federal agency
securities...................... $2,284,508 $ 287,773
Other securities................. 229,687 145,707
---------- ----------
$2,514,195 $ 433,480
========== ==========
</TABLE>
- --------
Notes:
1. The weighted average remaining life, which reflects the amortization on
mortgage related and other asset-backed securities, and the weighted average
yield on the combined held-to-maturity and available-for-sale portfolios at
June 30, 1996 were approximately 4.4 years and 6.98%, respectively. Included
in the balance was $3.9 billion of mortgage-backed securities, $1.3 billion
of which were variable rate. The weighted average remaining life and the
weighted average yield of mortgage-backed securities at June 30, 1996 were
approximately 4.7 years and 6.94%, respectively. The duration of the combined
portfolios, which considers the repricing frequency of variable rate
securities, was approximately 2.5 years.
2. The available-for-sale portfolio included a net unrealized gain of $15.1
million and $4.6 million at June 30, 1996 and 1995, respectively.
TABLE 10--OTHER INTEREST-BEARING LIABILITIES
<TABLE>
<CAPTION>
JUNE 30
---------------------
1996 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Short-term:
Treasury, tax, and loan notes.......................... $ 997,210 $ 429,958
Federal Home Loan Bank advances........................ 205,000 293,950
Term federal funds purchased........................... -0- 165,030
Floating Rate Notes Due 1999........................... 6,804 7,147
Other.................................................. 18,411 12,742
---------- ----------
Total short-term..................................... 1,227,425 908,827
---------- ----------
Long-term:
Federal Home Loan Bank advances........................ 284,079 45,727
6.75% Subordinated Debentures Due 2025................. 149,836 -0-
7.75% Subordinated Notes Due 2004...................... 149,274 149,183
Subordinated Capital Notes Due 1999.................... 99,634 99,505
7.50% Convertible Subordinated Debentures.............. 4,152 3,931
Other.................................................. 22,883 22,754
---------- ----------
Total long-term...................................... 709,858 321,100
---------- ----------
Total other interest-bearing liabilitites............ $1,937,283 $1,229,927
========== ==========
</TABLE>
19
<PAGE>
TABLE 11--CAPITAL RATIOS
<TABLE>
<CAPTION>
JUNE 30
------------------------
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Risk-adjusted capital ratios:
Total assets....................................... $18,140,447 $17,004,755
Adjusted allowance for loan losses................. 166,726 163,991
Adjustment for risk-weighting of balance sheet
items............................................. (6,344,062) (5,776,819)
Adjustment for off-balance sheet items............. 1,654,438 2,003,619
Unrealized gains on available-for-sale securities.. (15,093) (4,612)
Less certain intangible assets..................... (276,409) (293,028)
----------- -----------
Total risk-adjusted assets....................... $13,326,047 $13,097,906
=========== ===========
Shareholders' equity............................... $ 1,392,072 $ 1,360,583
Unrealized gains on available-for-sale securities
(net of deferred taxes)........................... (9,868) (2,872)
Less certain intangible assets..................... (276,409) (293,028)
----------- -----------
Tier I capital..................................... 1,105,795 1,064,683
----------- -----------
Adjusted allowance for loan losses................. 166,726 163,991
Qualifying long-term debt.......................... 338,964 209,672
----------- -----------
Tier II capital.................................... 505,690 373,663
----------- -----------
Total capital.................................... $ 1,611,485 $ 1,438,346
=========== ===========
Tier I capital to total risk-adjusted assets....... 8.30% 8.13%
Total capital to risk-adjusted assets.............. 12.09% 10.98%
Other capital ratios:
Leverage........................................... 6.24% 6.40%
Equity to assets................................... 7.67% 8.00%
Tangible equity to assets.......................... 6.24% 6.39%
</TABLE>
20
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Several of AmSouth's subsidiaries are defendants in legal proceedings
arising in the ordinary course of business. Some of these proceedings seek
relief or damages that are substantial. The actions relate to AmSouth's
lending, collections, servicing, investment, trust and other activities.
Among the actions which are pending against AmSouth subsidiaries are actions
filed as class actions in the State of Alabama. The actions are similar to
others that have been brought in recent years in Alabama against financial
institutions in that they seek punitive damage awards in transactions
involving relatively small amounts of actual damages. In recent years, juries
in Alabama state courts have made large punitive damage awards in such cases.
Legislation which would limit these lawsuits has been proposed from time to
time in the Alabama legislature but has not been enacted into law. AmSouth
cannot predict whether any such legislation will be enacted.
It may take a number of years to finally resolve some of these legal
proceedings pending against AmSouth subsidiaries, due to their complexity and
for other reasons. It is not possible to determine with any certainty at this
time the corporation's potential exposure from the proceedings. However, based
upon the advice of legal counsel, AmSouth's management is of the opinion that
the ultimate resolution of these legal proceedings will not have a material
adverse effect on AmSouth's financial condition or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
ITEM 6(A)--EXHIBITS
The exhibits listed in the Exhibit Index at page 23 of this Form 10-Q are
filed herewith or are incorporated by reference herein.
ITEM 6(B)--REPORTS ON FORM 8-K
No report on Form 8-K was filed by AmSouth during the period March 31, 1996
to June 30, 1996.
21
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AMSOUTH
HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED
THEREUNTO DULY AUTHORIZED.
August 13, 1996 /s/ C. Dowd Ritter
By__________________________________:
C. Dowd Ritter
President and Chief Executive
Officer
August 13, 1996 /s/ Dennis J. Dill
By__________________________________:
Dennis J. Dill
Executive Vice President and
Chief Accounting Officer
22
<PAGE>
EXHIBIT INDEX
The following is a list of exhibits including items incorporated by
reference:
3-a Restated Certificate of Incorporation of AmSouth Bancorporation (1)
3-b By-Laws of AmSouth Bancorporation, as amended (2)
11 Statement Re: Computation of Earnings per Share
15 Letter Re: Unaudited Interim Financial Information
27 Financial Data Schedule
NOTES TO EXHIBITS
(1) Filed as Exhibit 3-b to AmSouth's Form 10-Q Quarterly Report for the
quarter ended March 31, 1993, and incorporated herein by reference.
(2) Filed as Exhibit 3-b to AmSouth's Form 10-Q Quarterly Report for the
quarter ended March 31, 1996, and incorporated herein by reference.
23
<PAGE>
EXHIBIT 11
AMSOUTH BANCORPORATION
STATEMENT REGARDING COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30 JUNE 30
----------------- -------------------
1996 1995 1996 1995
-------- -------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net income.............................. $ 95,868 $ 80,968 $ 48,705 $ 40,858
======== ======== ========= =========
Average shares of common stock outstand-
ing.................................... 56,764 58,199 56,508 58,293
======== ======== ========= =========
Earnings per common share............... $ 1.69 $ 1.39 $ 0.86 $ 0.70
======== ======== ========= =========
</TABLE>
<PAGE>
Exhibit 15--Letter Re: Unaudited Interim Financial Information
Board of Directors
AmSouth Bancorporation
We are aware of the incorporation by reference in the following Registration
Statements and in their related Prospectuses, of our report dated August 9,
1996 relating to the unaudited consolidated financial statements of AmSouth
Bancorporation and subsidiaries which are included in its Form 10-Q for the
quarter ended June 30, 1996:
Form S-3 No. 33-55683 pertaining to the Dividend Reinvestment and Common
Stock Purchase Plan;
Form S-8 No. 33-52243 pertaining to the assumption by AmSouth Bancorporation
of FloridaBank Stock Option Plan and FloridaBank Stock Option Plan-
1993;
Form S-8 No. 33-52113 pertaining to the 1989 Long Term Incentive
Compensation Plan;
Form S-8 No. 33-35218 pertaining to the 1989 Long Term Incentive
Compensation Plan;
Form S-8 No. 33-37905 pertaining to the AmSouth Bancorporation Thrift Plan;
Form S-8 No. 33-9368 pertaining to the Long Term Incentive Compensation
Plan;
Form S-8 No. 33-2927 (as amended) pertaining to the Employee Stock Purchase
Plan;
Form S-8 No. 2-97464 pertaining to the Long Term Incentive Compensation
Plan;
Form S-3 No. 33-35280 pertaining to the Dividend Reinvestment and Common
Stock Purchase Plan;
Form S-8 No. 33-19016 pertaining to the Long Term Incentive Compensation
Plan;
Form S-8 No. 33-18653 pertaining to the 1987 Substitute Stock Option Plan;
Form S-8 No. 33-58777 pertaining to the Director Restricted Stock Plan;
Form S-8 No. 333-02099 pertaining to the AmSouth Bancorporation Thrift Plan;
Form S-3 No. 333-06641 pertaining to the AmSouth Bancorporation 7 1/2%
Convertible Subordinated Debentures; and
Form S-8 No. 333-05631 pertaining to the AmSouth Bancorporation 1996 Long
Term Incentive Compensation Plan.
Pursuant to Rule 436(c) of the Securities Act of 1933 our reports are not a
part of the registration statements prepared or certified by accountants
within the meaning of Sections 7 or 11 of the Securities Act of 1933.
/s/ Ernst & Young LLP
August 9, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF CONDITION, THE CONSOLIDATED STATEMENT OF
EARNINGS, AND TABLES 3, 7 AND 8 OF ITEM 2 OF THE AMSOUTH BANCORPORATION FORM
10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 553,049
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 7,575
<TRADING-ASSETS> 3,603
<INVESTMENTS-HELD-FOR-SALE> 2,514,195
<INVESTMENTS-CARRYING> 2,770,228
<INVESTMENTS-MARKET> 2,737,124
<LOANS> 11,613,277
<ALLOWANCE> 178,724
<TOTAL-ASSETS> 18,140,447
<DEPOSITS> 12,948,319
<SHORT-TERM> 2,902,665
<LIABILITIES-OTHER> 187,533
<LONG-TERM> 709,858
0
0
<COMMON> 60,029
<OTHER-SE> 1,332,043
<TOTAL-LIABILITIES-AND-EQUITY> 18,140,447
<INTEREST-LOAN> 498,534
<INTEREST-INVEST> 164,970
<INTEREST-OTHER> 4,145
<INTEREST-TOTAL> 667,649
<INTEREST-DEPOSIT> 263,841
<INTEREST-EXPENSE> 349,789
<INTEREST-INCOME-NET> 317,860
<LOAN-LOSSES> 29,169
<SECURITIES-GAINS> 2,841
<EXPENSE-OTHER> 251,191
<INCOME-PRETAX> 152,098
<INCOME-PRE-EXTRAORDINARY> 152,098
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 95,868
<EPS-PRIMARY> 1.69
<EPS-DILUTED> 1.69
<YIELD-ACTUAL> 3.90
<LOANS-NON> 83,583
<LOANS-PAST> 39,944
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 178,451
<CHARGE-OFFS> 39,068
<RECOVERIES> 10,172
<ALLOWANCE-CLOSE> 178,724
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
