<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 SEPTEMBER 30, COMMISSION FILE NUMBER 1-7476
1997
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 FIFTH 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 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 X NO
AS OF NOVEMBER 10, 1997, AMSOUTH BANCORPORATION HAD 80,485,829 SHARES OF
COMMON STOCK OUTSTANDING.
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<PAGE>
AMSOUTH BANCORPORATION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statement of Condition--September 30, 1997,
December 31, 1996,
and September 30, 1996.......................................... 3
Consolidated Statement of Earnings--Nine months and three months
ended
September 30, 1997 and 1996..................................... 4
Consolidated Statement of Shareholders' Equity--Nine months
ended
September 30, 1997.............................................. 5
Consolidated Statement of Cash Flows--Nine months ended
September 30, 1997
and 1996........................................................ 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>
Forward Looking Information. This Quarterly Report on Form 10-Q contains
certain forward looking statements with respect to the adequacy of the
allowance for loan losses, the effect of legal proceedings on AmSouth's
financial condition and results of operations and the Year 2000 issue. These
forward looking statements involve certain risks, uncertainties, estimates and
assumptions by management.
Various factors could cause actual results to differ materially from those
contemplated by such forward looking statements. With respect to the adequacy
of the allowance for loan losses, these factors include the rate of growth in
the economy, especially in the Southeast, the relative strength and weakness
in the consumer and commercial credit sectors and in the real estate markets
and the performance of the stock and bond markets. With regard to the effect
of legal proceedings, various uncertainties are discussed in "Item 1. Legal
Proceedings." Moreover, the outcome of litigation is inherently uncertain and
depends on judicial interpretations of law and the findings of judges and
juries. The information regarding Year 2000 compliance is based on
management's current assessment. However, this is an ongoing process involving
continual evaluation and unanticipated problems could develop that could cause
compliance to be more difficult or costly than currently anticipated.
2
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
AMSOUTH BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31 SEPTEMBER 30
1997 1996 1996
------------ ----------- ------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks................. $ 579,032 $ 648,494 $ 632,117
Federal funds sold and securities
purchased under agreements to resell... 2,775 15,000 26,400
Trading securities...................... 2,847 3,879 4,238
Available-for-sale securities........... 2,138,796 2,290,478 2,712,197
Held-to-maturity securities (market
value of $2,354,150, $2,649,481
and $2,703,451, respectively).......... 2,341,661 2,644,706 2,722,661
Mortgage loans held for sale............ 59,947 60,582 49,547
Loans................................... 12,205,892 12,168,572 11,918,492
Less: Allowance for loan losses......... 179,126 179,049 179,350
Unearned income...................... 98,619 88,326 85,855
----------- ----------- -----------
Net loans........................... 11,928,147 11,901,197 11,653,287
Premises and equipment, net............. 314,893 301,592 293,967
Customers' acceptance liability......... 8,154 3,190 1,627
Accrued interest receivable and other
assets................................. 681,946 538,146 519,039
----------- ----------- -----------
$18,058,198 $18,407,264 $18,615,080
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits and interest-bearing
liabilities:
Deposits:
Noninterest-bearing demand............ $ 1,930,694 $ 1,951,543 $ 1,867,463
Interest-bearing demand............... 3,817,238 3,599,987 3,544,414
Savings............................... 1,027,709 1,068,555 1,050,745
Time.................................. 4,950,091 5,073,387 5,218,366
Certificates of deposit of $100,000 or
more................................. 886,901 774,127 775,231
----------- ----------- -----------
Total deposits...................... 12,612,633 12,467,599 12,456,219
Federal funds purchased and securities
sold under agreements to repurchase... 884,834 1,872,286 1,258,905
Other borrowed funds................... 1,334,041 1,025,383 1,952,071
Long-term Federal Home Loan Bank
advances.............................. 1,022,974 1,023,729 883,883
Other long-term debt................... 437,029 411,946 421,687
----------- ----------- -----------
Total deposits and interest-bearing
liabilities........................ 16,291,511 16,800,943 16,972,765
Acceptances outstanding................. 8,154 3,190 1,627
Accrued expenses and other liabilities.. 395,064 207,302 242,222
----------- ----------- -----------
Total liabilities................... 16,694,729 17,011,435 17,216,614
----------- ----------- -----------
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--90,021,326, 90,034,023 and
90,036,873 shares, respectively...... 90,021 90,034 90,037
Capital surplus........................ 562,571 562,459 559,053
Retained earnings...................... 949,344 858,329 835,552
Cost of common stock in treasury--
9,315,144, 5,997,737 and 5,055,768
shares, respectively.................. (257,835) (128,889) (97,188)
Deferred compensation on restricted
stock................................. (9,637) (10,400) (3,950)
Unrealized gains on available-for-sale
securities, net of deferred taxes..... 29,005 24,296 14,962
----------- ----------- -----------
Total shareholders' equity.......... 1,363,469 1,395,829 1,398,466
----------- ----------- -----------
$18,058,198 $18,407,264 $18,615,080
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
AMSOUTH BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
--------------------- -------------------
1997 1996 1997 1996
---------- ---------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
REVENUE FROM EARNING ASSETS
Loans................................ $ 784,128 $ 750,903 $ 266,778 $ 252,423
Available-for-sale securities........ 115,112 122,392 37,867 43,008
Held-to-maturity securities.......... 128,054 132,083 40,881 46,586
Trading securities................... 65 134 12 45
Mortgage loans held for sale......... 1,504 4,686 519 1,218
Federal funds sold and securities
purchased under agreements to re-
sell................................ 709 1,049 226 293
---------- ---------- --------- ---------
Total revenue from earning assets... 1,029,572 1,011,247 346,283 343,573
---------- ---------- --------- ---------
INTEREST EXPENSE
Interest-bearing demand deposits..... 90,661 87,712 34,373 28,305
Savings deposits..................... 22,473 20,875 7,398 7,294
Time deposits........................ 210,869 245,685 70,736 79,029
Certificates of deposit of $100,000
or more............................. 35,757 38,246 12,105 12,296
Federal funds purchased and
securities sold under agreements to
repurchase.......................... 58,377 68,645 19,050 24,343
Other borrowed funds................. 42,868 29,820 11,860 10,806
Long-term Federal Home Loan Bank ad-
vances.............................. 38,218 13,560 13,091 8,680
Other long-term debt................. 24,094 23,789 8,208 7,765
---------- ---------- --------- ---------
Total interest expense.............. 523,317 528,332 176,821 178,518
---------- ---------- --------- ---------
NET INTEREST INCOME.................. 506,255 482,915 169,462 165,055
Provision for loan losses............ 51,619 46,674 16,102 17,505
---------- ---------- --------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES..................... 454,636 436,241 153,360 147,550
---------- ---------- --------- ---------
NONINTEREST REVENUES
Service charges on deposit accounts.. 73,313 70,826 24,564 23,819
Trust income......................... 45,531 42,465 15,552 14,566
Consumer investment services income.. 17,550 12,613 6,281 4,802
Credit card income................... 11,071 10,723 3,802 3,821
Interchange income................... 8,701 6,308 3,035 2,305
Mortgage income...................... 4,774 2,409 1,831 578
Letters of credit income............. 5,980 5,840 1,932 1,886
Portfolio income..................... 6,629 6,585 1,321 2,633
Other operating revenues............. 21,506 16,828 7,231 5,685
---------- ---------- --------- ---------
Total noninterest revenues.......... 195,055 174,597 65,549 60,095
---------- ---------- --------- ---------
NONINTEREST EXPENSES
Salaries and employee benefits....... 185,017 173,275 62,481 58,921
Net occupancy expense................ 41,714 40,202 13,909 13,903
Equipment expense.................... 41,883 39,257 14,171 13,191
Marketing expense.................... 13,600 13,387 4,424 4,522
Postage and office supplies.......... 16,863 17,465 5,864 5,794
Communications expense............... 15,269 11,691 5,279 4,046
Professional fees.................... 8,120 8,249 2,497 2,649
FDIC premiums........................ 2,215 7,875 797 2,637
SAIF assessment...................... -0- 24,196 -0- 24,196
Amortization expense................. 13,889 13,073 4,672 4,471
Other operating expenses............. 52,521 54,412 16,993 17,657
---------- ---------- --------- ---------
Total noninterest expenses.......... 391,091 403,082 131,087 151,987
---------- ---------- --------- ---------
INCOME BEFORE INCOME TAXES........... 258,600 207,756 87,822 55,658
Income taxes......................... 91,325 76,695 31,020 20,465
---------- ---------- --------- ---------
NET INCOME.......................... $ 167,275 $ 131,061 $ 56,802 $ 35,193
========== ========== ========= =========
Average common shares outstanding*... 82,532 85,075 81,149 84,934
Earnings per common share*........... $ 2.03 $ 1.54 $ 0.70 $ 0.41
</TABLE>
- --------
*Restated for three-for-two common stock split.
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, 1997.... $60,023 $592,470 $858,329 $(128,889) $(10,400) $24,296 $1,395,829
Adjustment for the effect of
3-for-2 common stock split... 30,011 (30,011) -0- -0- -0- -0- -0-
------- -------- -------- --------- -------- ------- ----------
BALANCE AT JANUARY 1, 1997
RESTATED..................... 90,034 562,459 858,329 (128,889) (10,400) 24,296 1,395,829
Net income.................... -0- -0- 167,275 -0- -0- -0- 167,275
Cash dividends declared ($0.84
per common share)*........... -0- -0- (69,365) -0- -0- -0- (69,365)
Common stock transactions:
Purchase of common stock..... -0- -0- -0- (155,627) -0- -0- (155,627)
Employee stock plans......... (13) 44 (6,756) 22,709 763 -0- 16,747
Dividend reinvestment........ -0- 68 (139) 3,972 -0- -0- 3,901
Unrealized gains on available-
for-sale securities, net of
deferred taxes............... -0- -0- -0- -0- -0- 4,709 4,709
------- -------- -------- --------- -------- ------- ----------
BALANCE AT SEPTEMBER 30, 1997. $90,021 $562,571 $949,344 $(257,835) $ (9,637) $29,005 $1,363,469
======= ======== ======== ========= ======== ======= ==========
</TABLE>
- --------
* Restated for three-for-two common stock split.
See notes to consolidated financial statements.
5
<PAGE>
AMSOUTH BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30
---------------------
1997 1996
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income............................................. $ 167,275 $ 131,061
Adjustments to reconcile net income to net cash pro-
vided by operating activities:
Provision for loan losses............................. 51,619 46,674
Provision for foreclosed property losses.............. 343 301
Depreciation and amortization of premises and equip-
ment................................................. 25,400 20,698
Amortization of premiums and discounts on held-to-ma-
turity securities
and available-for-sale securities.................... (1,747) (2,398)
Net decrease in mortgage loans held for sale.......... 635 12,470
Net decrease (increase) in trading securities......... 1,032 (1,260)
Net gains on sales of available-for-sale securities... (6,136) (4,936)
Net gains on calls of held-to-maturity securities..... -0- (288)
Net (increase) decrease in accrued interest receivable
and other assets..................................... (146,319) 18,167
Net increase in accrued expenses and other liabili-
ties................................................. 7,688 40,937
Provision for deferred income taxes................... 33,770 27,408
Amortization of intangible assets..................... 12,417 12,858
Other................................................. 6,838 2,558
--------- ----------
Net cash provided by operating activities............ 152,815 304,250
--------- ----------
INVESTING ACTIVITIES
Proceeds from maturities and prepayments of available-
for-sale securities................................... 243,463 433,504
Proceeds from sales of available-for-sale securities... 911,627 1,174,447
Purchases of available-for-sale securities............. (667,373) (1,114,678)
Proceeds from maturities, prepayments and calls of
held-to-maturity securities........................... 375,277 308,565
Purchases of held-to-maturity securities............... (43,063) (863,501)
Net decrease (increase) in federal funds sold and secu-
rities purchased under
agreements to resell.................................. 12,225 (24,625)
Net increase in loans.................................. (299,131) (860,412)
Net purchases of premises and equipment................ (38,701) (38,239)
--------- ----------
Net cash provided (used) by investing activities..... 494,324 (984,939)
--------- ----------
FINANCING ACTIVITIES
Net increase (decrease) in demand deposits and savings
accounts.............................................. 155,556 (289,836)
Net decrease in time deposits.......................... (10,108) (667,815)
Net decrease in federal funds purchased and securities
sold under
agreements to repurchase.............................. (987,452) (602,185)
Net increase in other borrowed funds................... 283,658 1,467,942
Issuance of long-term Federal Home Loan Bank advances
and other long-term debt.............................. 940,000 1,045,000
Payments for maturing long-term debt................... (890,753) (176,861)
Cash dividends paid.................................... (69,365) (67,850)
Proceeds from employee stock plans and dividend rein-
vestment plan......................................... 17,490 14,124
Purchase of common stock............................... (155,627) (61,354)
--------- ----------
Net cash (used) provided by financing activities..... (716,601) 661,165
--------- ----------
Decrease in cash and cash equivalents.................. (69,462) (19,524)
Cash and cash equivalents at beginning of period....... 648,494 651,641
--------- ----------
Cash and cash equivalents at end of period............. $579,032 $ 632,117
========= ==========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
AMSOUTH BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
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 1997 presentation. These
reclassifications had no effect on net income. All common share data presented
reflect a three-for-two stock split completed in April 1997. The notes
included herein should be read in conjunction with the notes to consolidated
financial statements included in AmSouth Bancorporation's (AmSouth) 1996
annual report on Form 10-K.
On January 1, 1997, AmSouth adopted Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," (Statement 125), except for the
provisions relating to repurchase agreements, securities lending and other
similar transactions and pledged collateral, which have been delayed until
after December 31, 1997 by Statement of Financial Accounting Standards No.
127, "Deferral of the Effective Date of Certain Provisions of FASB Statement
No. 125, an amendment of FASB Statement No. 125," (Statement 127). Statement
125 provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishment of liabilities based on a 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 adoption
of Statement 125 resulted in no material impact on AmSouth's financial
condition or results of operations. Statement 127 will be adopted as required
in 1998 and is not expected to have a material impact on AmSouth's financial
condition or results of operations.
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
(Statement 128) which is required to be adopted on December 31, 1997. At that
time, AmSouth will be required to change the method currently used to compute
earnings per share and to restate all prior periods. Under the new
requirements for calculating basic earnings per share, the dilutive effect of
stock options will be excluded. The impact of Statement 128 on the calculation
of basic and diluted earnings per share for the nine months and the three
months ended September 30, 1997 and 1996 is not expected to have a material
impact on AmSouth's financial condition or results of operations.
In June 1997, FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income," which establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. The new rules require that
enterprises classify items of other comprehensive income separately from
retained earnings and capital surplus in the equity section of the statement
of condition. This Statement is effective for fiscal years beginning after
December 15, 1997.
FASB Statement of Financial Accounting Standards No. 131, "Disclosures About
Segments of an Enterprise and Related Information," was issued in June 1997.
This Statement changes the way public companies report segment information in
annual financial statements and requires public companies to report selected
segment information in interim financial reports to shareholders. Under the
Statement's "management approach," public companies are to report financial
and descriptive information about their operating segments. Operating segments
are revenue-producing components of an enterprise for which separate financial
information is produced internally and are subject to evaluation by the chief
operating decision maker in deciding how to allocate resources to segments.
This Statement is effective for fiscal years beginning after December 15,
1997.
Cash Flows--For the nine months ended September 30, 1997 and 1996, AmSouth
paid interest of $516,113,000 and $522,674,000, respectively, and income taxes
of $48,770,000 and $59,442,000, respectively.
7
<PAGE>
Noncash transfers from loans to foreclosed properties for the nine months
ended September 30, 1997 and 1996 were $13,066,000 and $15,333,000,
respectively, and noncash transfers from foreclosed properties to loans were
$2,290,000 and $942,000, respectively. For the nine months ended September 30,
1997 and 1996, noncash transfers from loans to available-for-sale securities
of approximately $205,000,000 and $704,525,000, respectively, and noncash
transfers from loans to other assets of approximately $1,546,000 and
$5,309,000, respectively, were made in connection with mortgage loan
securitizations. For the nine months ended September 30, 1996, a $4,131,000
transfer from long-term debt to shareholders' equity was made due to the
redemption of convertible debt.
Shareholders' Equity--During the first nine months of 1997, AmSouth
purchased 4,052,000 shares of its common stock at a cost of $155,627,000 for
the purpose of making shares available for employee benefit plans, dividend
reinvestment plans and general corporate purposes. At September 30, 1997,
approximately 3,675,000 shares remained authorized for purchase under a plan
approved by AmSouth's Board of Directors (Board) in March 1997.
On March 20, 1997, AmSouth's Board approved a three-for-two common stock
split in the form of a 50 percent common stock dividend. The stock dividend
was paid April 30 to shareholders of record as of April 4.
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 September 30, 1997 and 1996, and
the related consolidated statement of earnings for the three-month and nine-
month periods ended September 30, 1997 and 1996, the consolidated statement of
cash flows for the nine-month periods ended September 30, 1997 and 1996 and
the consolidated statement of shareholders' equity for the nine-month period
ended September 30, 1997. 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, 1996, 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, 1997, 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, 1996, 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
November 14, 1997
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
AmSouth reported net income of $167.3 million for the nine months ended
September 30, 1997, a 27.6% increase over net income of $131.0 million for the
same period of 1996. On a per common share basis, earnings were $2.03 and
$1.54, respectively. Included in year-to-date net income for 1996 was a one-
time, pre-tax charge of $24.2 million, or $.18 per share net of tax, required
under federal legislation to recapitalize the Savings Association Insurance
Fund (SAIF). Year-to-date earnings resulted in an annualized return on average
assets (ROA) of 1.24% and an annualized return on average equity (ROE) of
16.30% for 1997 compared to .97% and 12.74%, respectively, for the first nine
months of 1996. Exclusive of the one-time SAIF Assessment, ROA and ROE for
1996 were 1.09% and 14.14%, respectively. AmSouth's year-to-date operating
efficiency ratio improved to 55.33% for 1997 compared to 60.64% for the prior
year. Exclusive of the one-time SAIF Assessment, 1996 year-to-date operating
efficiency ratio was 57.00%.
Net income for the third quarter of 1997 was $56.8 million, or $.70 per
common share, compared to $35.1 million, or $.41 per common share, for the
same period of 1996. Exclusive of the one-time SAIF assessment, 1996 third
quarter net income was $50.4 million, or $.59 per common share. ROA and ROE
for the third quarter of 1997 were 1.26% and 16.64%, respectively, compared to
.77% and 10.08%, respectively, for the third quarter of 1996. Third quarter
1996 ROA and ROE were 1.10% and 14.42%, respectively, exclusive of the one-
time SAIF assessment.
Net Interest Income
Net interest income on a fully taxable equivalent basis for the nine months
ended September 30, 1997 was $511.8 million, a 4.4% increase over the same
period of 1996. A combination of the higher rate earned on average earning
assets and the lower rate paid on average interest-bearing liabilities
resulted in a 20 basis point improvement in the net interest margin and a 24
basis point improvement in the incremental interest spread. The improvement
was primarily the result of a $363.9 million increase in average loans net of
unearned income (net loans) combined with a 12 basis point increase in the
yield earned on net loans. Also contributing to the improvement was a $564.5
million decline in average time deposits combined with a 26 basis point
decrease in the average rate paid on time deposits. These changes were
partially offset by an $898.3 million increase in average other interest-
bearing liabilities, primarily the result of a $674.9 million increase in
Federal Home Loan Bank advances.
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. The company accomplishes this process 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 AmSouth'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 effects of these
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.
10
<PAGE>
As of September 30, 1997, the earnings simulation model results indicated that
the corporation was in a relatively neutral interest rate risk position with
the net interest income differential in a plus or minus 200 basis point
scenario being approximately two percent when compared to net interest income
in a stable interest rate scenario. This level of interest rate risk is well
within the company'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.
AmSouth, from time to time, utilizes various off-balance sheet instruments
such as interest rate swaps, caps and floors to assist in managing interest
rate risk. During 1997, AmSouth entered into additional interest rate swaps in
the notional amount of $650.0 million and terminated interest rate swaps in
the notional amount of $75.0 million. Additionally, interest rate swaps in the
notional amount of $75.0 million were called. AmSouth terminated interest rate
caps in the notional amount of $1.0 billion. See Table 4. The swaps added in
1997 as hedges were designated to certain commercial loans, available-for-sale
securities and certificates of deposit. At September 30, 1997, 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 September 30,
1997, AmSouth held foreign exchange contracts in the notional amount of $57.7
million for trading purposes.
Credit Quality
AmSouth maintains an allowance for loan losses which management 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 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 September 30, 1997, the allowance for loan losses was $179.1 million, or
1.48% of loans net of unearned income, compared to $179.4 million, or 1.52%,
for the prior year. The coverage ratio of the allowance for loan losses to
nonperforming loans increased from 221.40% at September 30, 1996 to 265.83%
for the same period in 1997 as the level of nonperforming loans decreased
$13.6 million.
For the nine months ended September 30, 1997, net charge-offs were $51.5
million, an increase of $5.8 million compared to the same period of 1996.
Increases occurred primarily in the revolving credit segment of the consumer
loan portfolio. Consumer annualized net charge-offs rose to 1.06% of average
consumer loans at September 30, 1997 compared to .97% for the prior year.
Declining trends in credit quality in the consumer sector of the economy
contributed to the increase in net charge-offs. Annualized net charge-offs to
average loans net of unearned income for the nine months ended September 30,
1997 was .53% compared to .57% for the same period of the prior year. The
provision for loan losses for the nine months ended September 30, 1997 was
$51.6 million and approximated net charge-offs. Net charge-offs of impaired
loans for the nine months ended September 30, 1997 and 1996 totaled $3.8
million and $2.3 million, respectively.
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 improved from
.82% at September 30, 1996 to .66% at September 30, 1997. The level of
nonperforming assets decreased $17.7 million during the same period.
11
<PAGE>
Included in nonperforming assets at September 30, 1997 and 1996 was $37.5
million and $47.4 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. At September 30, 1997,
there was $8.4 million in the allowance for loan losses specifically allocated
to these impaired loans. The average balance of impaired loans for the three
months ended September 30, 1997 and 1996 was $40.3 million and $44.3 million,
respectively, and $41.8 million and $50.0 million, respectively, for the nine
months ended September 30, 1997 and 1996. AmSouth recorded no material
interest income on its impaired loans during the nine months ended September
30, 1997.
Noninterest Revenues and Noninterest Expenses
Year-to-date noninterest revenues totaled $195.1 million at September 30,
1997 compared to $174.6 million for the prior year. Compared to the prior
year, service charges on deposit accounts increased $2.5 million due to
increased account activity and decreased fee waivers. Trust income increased
$3.1 million primarily from new employee benefit plan administration and
personal trust accounts. Consumer investment services income increased $4.9
million primarily as a result of a higher sales volume of mutual funds and
annuity products. The expansion of AmSouth's ATM network and an increase in
check card usage were the primary reasons for a 37.9% increase in interchange
income. Mortgage income increased $2.8 million primarily as a result of
increases in servicing fees on loans sold and higher gains on the sale of
mortgages. Other noninterest revenues increased $4.7 million primarily due to
income generated from bank owned life insurance policies.
Noninterest revenues for the third quarter of 1997 were $65.5 million, a
9.1% increase over the same period of the prior year. Changes for the quarter
were primarily for the same reasons discussed in the year-to-date analysis.
Year-to-date noninterest expenses decreased 3.0% to $391.1 million at
September 30, 1997 compared to $403.1 million for the prior year. Exclusive of
the one-time SAIF assessment in 1996, noninterest expenses increased 3.2%.
Salaries and employee benefits increased $11.7 million primarily due to merit
increases and increases in staffing in income producing areas. Net occupancy
expense increased $1.5 million primarily due to higher lease payments related
to increased occupancy in a new office complex. Equipment expense increased
$2.6 million primarily reflecting the costs of investments in technology for
the consumer and commercial lines of business. Communications expense
increased $3.6 million as the network was established for these consumer and
commercial technology projects. FDIC premiums decreased $5.7 million as a
result of the Federal Deposit Insurance Corporation reducing the premium
assessment rate on insured deposits beginning January 1997.
Noninterest expenses for the third quarter were $131.1 million compared to
$152.0 million for the same period of the prior year. Net of the effects of
the SAIF assessment, noninterest expenses increased $3.3 million, or 2.6% over
the third quarter of 1996. Changes were primarily for the same reasons
discussed in the year-to-date analysis.
AmSouth has established a company-wide task force to review all computer-
based systems and applications and develop a company-wide preparation and
action plan to ensure that its computer and information systems will function
properly in the year 2000. AmSouth's goal is to have all systems and
applications Year 2000 compliant by December 31, 1998. At this time,
management believes that the implementation of its action plan for Year 2000
issues will not materially affect AmSouth's operations in the future. However,
AmSouth could possibly be affected by the century change to the extent other
entities not affiliated with AmSouth are unsuccessful in addressing this
issue. Preliminary expense estimates associated with Year 2000 compliance have
been incorporated into technology budgets and are not considered to be
material.
Capital Adequacy
At September 30, 1997, shareholders' equity totaled $1.4 billion or 7.55% of
total assets. Since December 31, 1996, shareholders' equity has decreased
$32.4 million as the increase from net income of $167.3 million was offset by
dividends of $69.4 million and the purchase of 4,052,000 shares of AmSouth
common stock for $155.6 million.
12
<PAGE>
Table 11 presents the capital amounts and risk-adjusted capital ratios for
AmSouth and AmSouth Bank at September 30, 1997 and 1996. At September 30,
1997, AmSouth exceeded the regulatory minimum required risk-adjusted Tier 1
Capital Ratio of 4.00% and risk-adjusted Total Capital Ratio of 8.00%. In
addition, the risk-adjusted capital ratios for AmSouth Bank were above the
regulatory minimums and the bank was well-capitalized at September 30, 1997.
13
<PAGE>
TABLE 1--FINANCIAL SUMMARY
<TABLE>
<CAPTION>
SEPTEMBER 30
----------------------------------
1997 1996 % CHANGE
---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
BALANCE SHEET SUMMARY
End-of-period balances:
Loans net of unearned
income............... $ 12,107,273 $ 11,832,637 2.3%
Total investment secu-
rities *............. 4,433,809 5,411,609 (18.1)
Total assets.......... 18,058,198 18,615,080 (3.0)
Total deposits........ 12,612,633 12,456,219 1.3
Shareholders' equity.. 1,363,469 1,398,466 (2.5)
Year-to-date average
balances:
Loans net of unearned
income............... $ 12,022,588 $ 11,658,708 3.1%
Total investment secu-
rities *............. 4,594,108 5,013,547 (8.4)
Total assets.......... 18,007,394 17,969,164 0.2
Total deposits........ 12,509,595 13,074,206 (4.3)
Shareholders' equity.. 1,372,227 1,374,003 (0.1)
<CAPTION>
THREE MONTHS
ENDED
NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30
---------------------------------- ---------------- %
1997 1996 % CHANGE 1997 1996 CHANGE
---------------- ---------------- ----------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS SUMMARY
Net income............ $ 167,275 $ 131,061 27.6% $56,802 $35,193 61.4%
Per common share **... 2.03 1.54 31.8 0.70 0.41 70.7
SELECTED RATIOS
Return on average
assets (annualized).. 1.24% 0.97% 1.26% 0.77%
Return on average eq-
uity (annualized).... 16.30 12.74 16.64 10.08
Average equity to as-
sets................. 7.62 7.65 7.57 7.62
End of period equity
to assets............ 7.55 7.51 7.55 7.51
End of period tangible
equity to assets..... 6.22 6.14 6.22 6.14
Allowance for loan
losses to loans net
of unearned income... 1.48 1.52 1.48 1.52
Efficiency ratio...... 55.33 60.64 55.39 66.85
COMMON STOCK DATA **
Cash dividends
declared............. $ 0.84 $ 0.80 $ 0.28 $ 0.27
Book value at end of
period............... 16.89 16.46 16.89 16.46
Market value at end of
period............... 48.44 29.67 48.44 29.67
Average common shares
outstanding.......... 82,532 85,075 81,149 84,934
WITHOUT SAIF ASSESSMENT
Net income............ $ 167,275 $ 146,280 14.4% $56,802 $50,412 12.7%
Per common share **... 2.03 1.72 18.0 0.70 0.59 18.6
Return on average as-
sets (annualized).... 1.24% 1.09% 1.26% 1.10%
Return on average eq-
uity (annualized).... 16.30 14.14 16.64 14.42
Efficiency ratio...... 55.33 57.00 55.39 56.21
</TABLE>
- --------
* Excludes adjustment for market valuation on available-for-sale securities.
** Restated for three-for-two common stock split in April 1997.
14
<PAGE>
TABLE 2--YEAR-TO-DATE YIELDS EARNED ON AVERAGE EARNING ASSETS
AND RATES PAID ON AVERAGE INTEREST-BEARING LIABILITIES
<TABLE>
<CAPTION>
1997 1996
------------------------------ ------------------------------
NINE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 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................ $12,022,588 $ 785,476 8.74% $11,658,708 $ 752,607 8.62%
Available-for-sale
securities............ 2,083,268 115,112 7.39 2,414,356 122,392 6.77
Held-to-maturity
securities:...........
Taxable............... 2,357,316 119,652 6.79 2,396,223 120,952 6.74
Tax-free.............. 153,524 12,613 10.98 202,968 16,612 10.93
----------- ---------- ----------- ----------
Total held-to-maturity
securities........... 2,510,840 132,265 7.04 2,599,191 137,564 7.07
----------- ---------- ----------- ----------
Total investment
securities.......... 4,594,108 247,377 7.20 5,013,547 259,956 6.93
Other earning assets... 65,622 2,278 4.64 123,133 5,869 6.37
----------- ---------- ----------- ----------
Total earning assets.. 16,682,318 1,035,131 8.30 16,795,388 1,018,432 8.10
---------- ----------
Cash and other assets... 1,473,038 1,330,009
Allowance for loan
losses................. (179,845) (178,548)
Market valuation on
available-for-sale
securities............. 31,883 22,315
----------- -----------
$18,007,394 $17,969,164
=========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing
liabilities:
Interest-bearing demand
deposits.............. $ 3,679,371 90,661 3.29 $ 3,710,368 87,712 3.16
Savings deposits....... 1,050,441 22,473 2.86 1,028,268 20,875 2.71
Time deposits.......... 5,128,856 210,869 5.50 5,693,388 245,685 5.76
Certificates of deposit
of $100,000 or more... 846,443 35,757 5.65 887,055 38,246 5.76
Federal funds purchased
and securities sold
under agreements to
repurchase............ 1,471,987 58,377 5.30 1,771,159 68,645 5.18
Other interest-bearing
liabilities........... 2,426,567 105,180 5.80 1,528,263 67,169 5.87
----------- ---------- ----------- ----------
Total interest-bearing
liabilities.......... 14,603,665 523,317 4.79 14,618,501 528,332 4.83
---------- ----- ---------- -----
INCREMENTAL INTEREST
SPREAD................. 3.51% 3.27%
===== =====
Noninterest-bearing
demand deposits........ 1,804,484 1,755,127
Other liabilities....... 227,018 221,533
Shareholders' equity.... 1,372,227 1,374,003
----------- -----------
$18,007,394 $17,969,164
=========== ===========
NET INTEREST
INCOME/MARGIN ON A
TAXABLE EQUIVALENT
BASIS.................. 511,814 4.10% 490,100 3.90%
===== =====
Taxable equivalent
adjustment:
Loans.................. 1,348 1,704
Securities............. 4,211 5,481
---------- ----------
Total taxable
equivalent
adjustment........... 5,559 7,185
---------- ----------
Net interest income.. $ 506,255 $ 482,915
========== ==========
</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>
1997
----------------------------------------------------------------------------------------
THIRD QUARTER SECOND QUARTER FIRST QUARTER
---------------------------- ---------------------------- ----------------------------
AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
----------- -------- ------ ----------- -------- ------ ----------- -------- ------
(TAXABLE EQUIVALENT BASIS--DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Loans net of
unearned income. $12,056,663 $267,195 8.79% $12,085,579 $263,645 8.75% $11,924,065 $254,640 8.66%
Available-for-
sale securities. 2,026,440 37,867 7.41 2,163,439 39,789 7.38 2,060,299 37,456 7.37
Held-to-maturity
securities:
Taxable.......... 2,272,106 38,416 6.71 2,366,941 40,138 6.80 2,434,686 41,098 6.85
Tax-free......... 136,758 3,693 10.71 155,744 4,240 10.92 168,419 4,679 11.27
----------- -------- ----------- -------- ----------- --------
Total held-to-
maturity
securities...... 2,408,864 42,109 6.94 2,522,685 44,378 7.06 2,603,105 45,777 7.13
----------- -------- ----------- -------- ----------- --------
Total investment
securities..... 4,435,304 79,976 7.15 4,686,124 84,167 7.20 4,663,404 83,233 7.24
Other earning
assets.......... 67,961 757 4.42 59,722 709 4.76 69,198 809 4.74
----------- -------- ----------- -------- ----------- --------
Total earning
assets.......... 16,559,928 347,928 8.34 16,831,425 348,521 8.31 16,656,667 338,682 8.25
-------- -------- --------
Cash and other
assets........... 1,479,162 1,475,669 1,464,118
Allowance for loan
losses........... (179,827) (179,075) (180,643)
Market valuation
on available-for-
sale securities.. 41,515 21,917 32,112
----------- ----------- -----------
$17,900,778 $18,149,936 $17,972,254
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing
liabilities:
Interest-bearing
demand deposits. $ 3,901,202 34,373 3.50 $ 3,606,363 29,238 3.25 $ 3,526,430 27,050 3.11
Savings deposits. 1,029,446 7,398 2.85 1,048,497 7,471 2.86 1,073,866 7,603 2.87
Time deposits.... 5,060,864 70,736 5.55 5,155,529 70,548 5.49 5,171,390 69,585 5.46
Certificates of
deposit of
$100,000 or
more............ 846,684 12,105 5.67 885,565 12,444 5.64 806,641 11,209 5.64
Federal funds
purchased and
securities sold
under agreements
to repurchase... 1,408,515 19,050 5.37 1,493,231 20,037 5.38 1,515,388 19,290 5.16
Other interest-
bearing
liabilities..... 2,223,116 33,159 5.92 2,559,769 37,257 5.84 2,499,857 34,764 5.64
----------- -------- ----------- -------- ----------- --------
Total interest-
bearing
liabilities..... 14,469,827 176,821 4.85 14,748,954 176,995 4.81 14,593,572 169,501 4.71
-------- ----- -------- ----- -------- -----
INCREMENTAL
INTEREST SPREAD.. 3.49% 3.50% 3.54%
===== ===== =====
Noninterest-
bearing demand
deposits......... 1,835,568 1,805,781 1,771,399
Other liabilities. 240,772 221,575 218,464
Shareholders'
equity........... 1,354,611 1,373,626 1,388,819
----------- ----------- -----------
$17,900,778 $18,149,936 $17,972,254
=========== =========== ===========
NET INTEREST
INCOME/MARGIN ON
A TAXABLE
EQUIVALENT BASIS. 171,107 4.10% 171,526 4.09% 169,181 4.12%
===== ===== =====
Taxable equivalent
adjustment:
Loans............ 417 463 468
Securities....... 1,228 1,437 1,546
-------- -------- --------
Total taxable
equivalent
adjustment...... 1,645 1,900 2,014
-------- -------- --------
Net interest
income......... $169,462 $169,626 $167,167
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1996
----------------------------------------------------------
FOURTH QUARTER THIRD QUARTER
---------------------------- ----------------------------
AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
----------- -------- ------ ----------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Loans net of
unearned income. $11,802,480 $254,051 8.56% $11,726,594 $252,951 8.58%
Available-for-
sale securities. 2,324,417 42,081 7.20 2,468,474 43,008 6.93
Held-to-maturity
securities:
Taxable.......... 2,502,510 42,208 6.71 2,566,379 43,162 6.69
Tax-free......... 183,722 5,590 12.10 191,680 5,106 10.60
----------- -------- ----------- --------
Total held-to-
maturity
securities...... 2,686,232 47,798 7.08 2,758,059 48,268 6.96
----------- -------- ----------- --------
Total investment
securities..... 5,010,649 89,879 7.14 5,226,533 91,276 6.95
Other earning
assets.......... 60,354 742 4.89 102,270 1,556 6.05
----------- -------- ----------- --------
Total earning
assets.......... 16,873,483 344,672 8.13 17,055,397 345,783 8.07
-------- --------
Cash and other
assets........... 1,321,914 1,332,692
Allowance for loan
losses........... (178,725) (178,764)
Market valuation
on available-for-
sale securities.. 33,873 13,767
----------- -----------
$18,050,545 $18,223,092
=========== ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing
liabilities:
Interest-bearing
demand deposits. $ 3,552,445 27,480 3.08 $ 3,586,774 28,305 3.14
Savings deposits. 1,059,981 7,557 2.84 1,044,721 7,294 2.78
Time deposits.... 5,292,106 72,724 5.47 5,586,983 79,029 5.63
Certificates of
deposit of
$100,000 or
more............ 777,307 11,066 5.66 853,058 12,296 5.73
Federal funds
purchased and
securities sold
under agreements
to repurchase... 1,771,740 23,146 5.20 1,870,288 24,343 5.18
Other interest-
bearing
liabilities..... 2,170,005 31,138 5.71 1,894,780 27,251 5.72
----------- -------- ----------- --------
Total interest-
bearing
liabilities..... 14,623,584 173,111 4.71 14,836,604 178,518 4.79
-------- ----- -------- -----
INCREMENTAL
INTEREST SPREAD.. 3.42% 3.28%
===== =====
Noninterest-
bearing demand
deposits......... 1,804,129 1,781,474
Other liabilities. 234,204 216,683
Shareholders'
equity........... 1,388,628 1,388,331
----------- -----------
$18,050,545 $18,223,092
=========== ===========
NET INTEREST
INCOME/MARGIN ON
A TAXABLE
EQUIVALENT BASIS. 171,561 4.04% 167,265 3.90%
===== =====
Taxable equivalent
adjustment:
Loans............ 474 528
Securities....... 1,621 1,682
-------- --------
Total taxable
equivalent
adjustment...... 2,095 2,210
-------- --------
Net interest
income......... $169,466 $165,055
======== ========
- ----
NOTE: The taxable equivalent adjustment has been computed based on a 35%
federal income tax rate.
</TABLE>
16
<PAGE>
TABLE 4--INTEREST RATE SWAPS, CAPS AND FLOORS
<TABLE>
<CAPTION>
RECEIVE
FIXED RATE CAPS
SWAPS & FLOORS TOTAL
---------- -------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Balance at January 1, 1997........................ $370 $ 1,077 $ 1,447
Additions....................................... 650 -0- 650
Maturities...................................... -0- -0- -0-
Calls........................................... (75) -0- (75)
Terminations.................................... (75) (1,000) (1,075)
---- ------- -------
Balance at September 30, 1997..................... $870 $ 77 $ 947
==== ======= =======
</TABLE>
TABLE 5--MATURITIES ON CAPS AND INTEREST RATES EXCHANGED ON SWAPS
<TABLE>
<CAPTION>
MATURE DURING
---------------------------------
1997 1998 1999 2000 TOTAL
----- ----- ----- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Receive fixed swaps:
Notional amount............................ $ 65 $ 385 $ 395 $ 25 $ 870
Receive rate............................... 6.89% 6.68% 6.80% 7.15% 6.76%
Pay rate................................... 5.72% 5.70% 5.67% 5.57% 5.69%
Caps:
Notional amount............................ $ 77 $ -0- $ -0- $ -0- $ 77
</TABLE>
- --------
NOTE:
The maturities and interest rates exchanged are calculated assuming that
interest rates remain unchanged from average September 1997 rates. The
information presented could change as future interest rates increase or
decrease.
17
<PAGE>
TABLE 6--LOANS AND CREDIT QUALITY
<TABLE>
<CAPTION>
NET CHARGE-OFFS
LOANS* NONPERFORMING LOANS** NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
----------------------- --------------------- ------------------
1997 1996 1997 1996 1997 1996
----------- ----------- ---------- ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial.............. $ 3,553,058 $ 3,447,498 $ 17,673 $ 17,410 $ 3,533 $ 2,331
Commercial real estate:
Commercial real estate
mortgages............. 1,744,102 1,617,776 15,870 26,361 346 (75)
Real estate construc-
tion.................. 808,449 688,892 2,163 1,930 (69) (274)
----------- ----------- ---------- ---------- -------- --------
Total commercial real
estate............... 2,552,551 2,306,668 18,033 28,291 277 (349)
----------- ----------- ---------- ---------- -------- --------
Consumer:
Residential first mort-
gages................. 2,752,288 2,961,780 22,536 27,637 1,234 2,045
Other residential mort-
gages................. 1,059,471 820,425 3,692 1,061 1,257 301
Dealer indirect........ 1,221,110 1,181,503 3,845 4,647 9,094 10,922
Revolving credit....... 444,222 476,654 -0- -0- 24,258 20,924
Other consumer......... 524,573 638,109 1,605 1,961 11,889 9,601
----------- ----------- ---------- ---------- -------- --------
Total consumer........ 6,001,664 6,078,471 31,678 35,306 47,732 43,793
----------- ----------- ---------- ---------- -------- --------
$12,107,273 $11,832,637 $ 67,384 $ 81,007 $ 51,542 $ 45,775
=========== =========== ========== ========== ======== ========
</TABLE>
- --------
*Net of unearned income.
**Exclusive of accruing loans 90 days past due.
TABLE 7--ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
1997 1996
----------------------------------- -----------------------
3RD QUARTER 2ND QUARTER 1ST QUARTER 4TH QUARTER 3RD QUARTER
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of
period................. $179,081 $179,049 $179,049 $179,350 $178,724
Loans charged off....... (24,280) (24,209) (22,632) (23,009) (21,202)
Recoveries of loans
previously charged off. 8,223 6,441 4,915 4,211 4,323
-------- -------- -------- -------- --------
Net charge-offs......... (16,057) (17,768) (17,717) (18,798) (16,879)
Addition to allowance
charged to expense..... 16,102 17,800 17,717 18,497 17,505
-------- -------- -------- -------- --------
Balance at end of
period................. $179,126 $179,081 $179,049 $179,049 $179,350
======== ======== ======== ======== ========
Allowance for loan
losses to loans net of
unearned income........ 1.48% 1.48% 1.49% 1.48% 1.52%
Allowance for loan
losses to nonperforming
loans.................. 265.83% 245.17% 225.31% 229.41% 221.40%
Allowance for loan
losses to nonperforming
assets................. 224.16% 201.53% 189.69% 189.84% 183.67%
Net charge-offs to
average loans net of
unearned income
(annualized)........... 0.53% 0.59% 0.60% 0.63% 0.57%
</TABLE>
18
<PAGE>
TABLE 8--NONPERFORMING ASSETS
<TABLE>
<CAPTION>
1997 1996
------------------------------ ------------------------
SEPTEMBER 30 JUNE 30 MARCH 31 DECEMBER 31 SEPTEMBER 30
------------ ------- -------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans........ $67,384 $73,044 $79,469 $78,048 $81,007
Foreclosed properties... 11,518 13,546 12,890 14,445 13,874
Repossessions........... 1,008 2,272 2,030 1,822 2,769
------- ------- ------- ------- -------
Total nonperforming
assets*.............. $79,910 $88,862 $94,389 $94,315 $97,650
======= ======= ======= ======= =======
Nonperforming assets* to
loans net of unearned
income, foreclosed
properties and
repossessions.......... 0.66% 0.73% 0.78% 0.78% 0.82%
Accruing loans 90 days
past due............... $33,466 $42,918 $32,535 $36,382 $39,535
</TABLE>
- --------
* Exclusive of accruing loans 90 days past due.
TABLE 9--INVESTMENT SECURITIES
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
---------------------------- ----------------------------
CARRYING AMOUNT MARKET VALUE CARRYING AMOUNT MARKET VALUE
--------------- ------------ --------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
HELD-TO-MATURITY:
U.S. Treasury and
federal agency
securities............ $1,979,601 $1,987,841 $2,267,306 $2,243,054
State, county and
municipal securities.. 131,873 136,473 191,773 199,774
Other securities....... 230,187 229,836 263,582 260,623
---------- ---------- ---------- ----------
$2,341,661 $2,354,150 $2,722,661 $2,703,451
========== ========== ========== ==========
AVAILABLE-FOR-SALE:
U.S. Treasury and
federal agency
securities............ $2,016,618 $2,431,074
Other securities....... 122,178 281,123
---------- ----------
$2,138,796 $2,712,197
========== ==========
</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 September 30, 1997 were approximately 3.6 years and 7.08%,
respectively. Included in the combined portfolios was $3.6 billion of
mortgage-backed securities, $723 million of which were variable rate. The
weighted average remaining life and the weighted average yield of mortgage-
backed securities at September 30, 1997 were approximately 3.8 years and
7.09%, respectively. The duration of the combined portfolios which
considers the repricing frequency of variable rate securities is
approximately 2.0 years.
2. The available-for-sale portfolio included net unrealized gains of $46.6
million and $23.2 million at September 30, 1997 and 1996, respectively.
19
<PAGE>
TABLE 10--OTHER INTEREST-BEARING LIABILITIES
<TABLE>
<CAPTION>
SEPTEMBER 30
---------------------
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
OTHER BORROWED FUNDS:
Treasury, tax and loan notes............................ $ 765,000 $1,779,946
Short-term Federal Home Loan Bank advances.............. 225,000 155,000
Short-term bank notes................................... 325,000 -0-
Other short-term debt................................... 19,041 17,125
---------- ----------
Total other borrowed funds............................. $1,334,041 $1,952,071
========== ==========
OTHER LONG-TERM DEBT:
6 3/4% Subordinated Debentures Due 2025................. $ 149,858 $ 149,841
7 3/4% Subordinated Notes Due 2004...................... 149,389 149,297
Subordinated Capital Notes Due 1999..................... 99,795 99,666
Long-term notes payable................................. 37,987 22,883
---------- ----------
Total other long-term debt............................. $ 437,029 $ 421,687
========== ==========
</TABLE>
TABLE 11--CAPITAL AMOUNTS AND RATIOS
<TABLE>
<CAPTION>
SEPTEMBER 30
----------------------------------
1997 1996
---------------- ----------------
AMOUNT RATIO AMOUNT RATIO
---------- ----- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
TIER 1 CAPITAL:
AmSouth.................................... $1,078,686 7.31% $1,111,233 8.14%
AmSouth Bank............................... 1,442,500 9.78 1,391,196 10.17
TOTAL CAPITAL:
AmSouth.................................... $1,577,018 10.68% $1,620,905 11.88%
AmSouth Bank............................... 1,621,626 10.99 1,562,285 11.42
LEVERAGE:
AmSouth.................................... $1,078,686 6.11% $1,111,233 6.19%
AmSouth Bank............................... 1,442,500 8.18 1,391,196 7.76
</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. At times,
class actions are settled by defendants without admission or even an actual
finding of any wrongdoing but with payment of some compensation to purported
class members and large attorney's fees to plaintiff class counsel.
Nonetheless, 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 July 1, 1997 to
September 30, 1997.
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.
/s/ C. Dowd Ritter
November 14, 1997 By: _________________________________
C. Dowd Ritter
Chairman of the Board, President
and
Chief Executive Officer
/s/ Robert R. Windelspecht
November 14, 1997 By: _________________________________
Robert R. Windelspecht
Executive Vice President
Controller
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 (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, incorporated herein by reference.
(2) Filed as Exhibit 3-b to AmSouth's Form 10-Q Quarterly Report for the
quarter ended June 30, 1997, incorporated herein by reference.
23
<PAGE>
EXHIBIT 11
AMSOUTH BANCORPORATION
STATEMENT REGARDING COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
THREE MONTHS
NINE MONTHS ENDED ENDED SEPTEMBER
SEPTEMBER 30 30
----------------- ---------------
1997 1996 1997 1996
-------- -------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
Net income ................................... $167,275 $131,061 $56,802 $35,193
======== ======== ======= =======
Average shares of common stock outstanding*... 82,532 85,075 81,149 84,934
======== ======== ======= =======
Earnings per common share* ................... $ 2.03 $ 1.54 $ 0.70 $ 0.41
======== ======== ======= =======
</TABLE>
- --------
* Restated for three-for-two common stock split in April 1997.
<PAGE>
EXHIBIT 15
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 November ,
1997 relating to the unaudited consolidated financial statements of AmSouth
Bancorporation and subsidiaries which are included in its Form 10-Q for the
quarter ended September 30, 1997:
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. 33-58777 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;
Form S-8 No. 333-05631 pertaining to the AmSouth Bancorporation 1996 Long Term
Incentive Compensation Plan; and
Form S-8 No. 333-27107 pertaining to the AmSouth Bancorporation Employee Stock
Purchase 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
November 14, 1997
<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, THE
CONSOLIDATED STATEMENT OF CASH FLOWS AND TABLES 2, 7 AND 8 OF ITEM 2 OF THE
AMSOUTH BANCORPORATION FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 579,032
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,775
<TRADING-ASSETS> 2,847
<INVESTMENTS-HELD-FOR-SALE> 2,138,796
<INVESTMENTS-CARRYING> 2,341,661
<INVESTMENTS-MARKET> 2,354,150
<LOANS> 12,107,273
<ALLOWANCE> 179,126
<TOTAL-ASSETS> 18,058,198
<DEPOSITS> 12,612,633
<SHORT-TERM> 2,218,875
<LIABILITIES-OTHER> 403,218
<LONG-TERM> 1,460,003
0
0
<COMMON> 90,021
<OTHER-SE> 1,273,448
<TOTAL-LIABILITIES-AND-EQUITY> 18,058,198
<INTEREST-LOAN> 784,128
<INTEREST-INVEST> 243,166
<INTEREST-OTHER> 2,278
<INTEREST-TOTAL> 1,029,572
<INTEREST-DEPOSIT> 359,760
<INTEREST-EXPENSE> 523,317
<INTEREST-INCOME-NET> 506,255
<LOAN-LOSSES> 51,619
<SECURITIES-GAINS> 6,136
<EXPENSE-OTHER> 391,091
<INCOME-PRETAX> 258,600
<INCOME-PRE-EXTRAORDINARY> 258,600
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 167,275
<EPS-PRIMARY> 2.03
<EPS-DILUTED> 2.03
<YIELD-ACTUAL> 4.10
<LOANS-NON> 67,384
<LOANS-PAST> 33,466
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 179,049
<CHARGE-OFFS> 71,121
<RECOVERIES> 19,579
<ALLOWANCE-CLOSE> 179,126
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
