<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 COMMISSION FILE NUMBER 1-7476
30, 1998
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 August 10, 1998 AmSouth Bancorporation had 120,183,906 shares of
common stock outstanding.
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<PAGE>
AMSOUTH BANCORPORATION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statement of Condition--June 30, 1998, December 31, 1997,
and June 30, 1997.................................................... 3
Consolidated Statement of Earnings--Six months and three months ended
June 30, 1998 and 1997............................................... 4
Consolidated Statement of Shareholders' Equity--Six months ended June
30, 1998............................................................. 5
Consolidated Statement of Cash Flows--Six months ended June 30, 1998
and 1997............................................................. 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 4. Submission of Matters to a Vote of Security Holders............. 21
Item 5. Other Information............................................... 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 of the economy and in the real
estate markets, the performance of the stock and bond markets and the
potential effects of the Year 2000 issue. With regard to the effect of legal
proceedings, various uncertainties are discussed in "Part II, 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>
JUNE 30 DECEMBER 31 JUNE 30
1998 1997 1997
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Cash and due from banks................. $ 577,138 $ 658,500 $ 639,588
Federal funds sold and securities
purchased under agreements to resell... 11,850 19,000 3,075
Trading securities...................... 2,370 1,406 3,790
Available-for-sale securities........... 3,337,235 2,507,690 2,264,214
Held-to-maturity securities (market
value of $2,562,259, $2,287,004 and
$2,475,229, respectively).............. 2,544,386 2,272,154 2,475,095
Mortgage loans held for sale............ 83,176 80,820 44,857
Other earning assets.................... 34,318 -0- -0-
Loans................................... 12,535,316 12,342,825 12,203,520
Less: Allowance for loan losses......... 174,079 179,197 179,081
Unearned income....................... 98,781 105,157 85,880
----------- ----------- -----------
Net loans............................ 12,262,456 12,058,471 11,938,559
Premises and equipment, net............. 321,563 314,200 314,898
Customers' acceptance liability......... 1,806 10,926 2,059
Accrued interest receivable and other
assets................................. 805,846 699,089 667,196
----------- ----------- -----------
$19,982,144 $18,622,256 $18,353,331
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits and interest-bearing
liabilities:
Deposits:
Noninterest-bearing demand............. $ 2,063,417 $ 2,062,906 $ 1,912,532
Interest-bearing demand................ 3,979,689 3,960,968 3,809,161
Savings................................ 1,014,260 1,027,557 1,028,198
Time................................... 4,815,941 5,000,535 5,017,586
Certificates of deposit of $100,000 or
more.................................. 1,084,947 893,231 846,209
----------- ----------- -----------
Total deposits........................ 12,958,254 12,945,197 12,613,686
Federal funds purchased and securities
sold under agreements to repurchase... 1,125,065 1,435,925 1,132,381
Other borrowed funds................... 988,472 985,918 1,736,941
Long-term Federal Home Loan Bank
advances.............................. 2,406,279 1,198,146 798,245
Other long-term debt................... 739,899 435,078 436,970
----------- ----------- -----------
Total deposits and interest-bearing
liabilities.......................... 18,217,969 17,000,264 16,718,223
Acceptances outstanding................. 1,806 10,926 2,059
Accrued expenses and other liabilities.. 341,380 225,821 250,276
----------- ----------- -----------
Total liabilities..................... 18,561,155 17,237,011 16,970,558
----------- ----------- -----------
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--135,106,014, 135,031,989 and
135,049,989 shares, respectively...... 135,106 135,032 135,050
Capital surplus........................ 516,037 517,464 517,954
Retained earnings...................... 1,058,941 983,371 918,340
Cost of common stock in treasury--
15,029,163, 14,227,007 and 11,952,753
shares, respectively.................. (304,840) (268,019) (201,270)
Deferred compensation on restricted
stock................................. (9,788) (9,196) (11,050)
Accumulated other comprehensive
income................................ 25,533 26,593 23,749
----------- ----------- -----------
Total shareholders' equity............ 1,420,989 1,385,245 1,382,773
----------- ----------- -----------
$19,982,144 $18,622,256 $18,353,331
=========== =========== ===========
</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
------------------- -------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
REVENUE FROM EARNING ASSETS
Loans.................................. $ 534,677 $ 517,350 $ 269,944 $ 263,182
Available-for-sale securities.......... 103,307 77,245 54,860 39,789
Held-to-maturity securities............ 82,705 87,173 41,654 42,941
Trading securities..................... 48 53 31 29
Mortgage loans held for sale........... 2,503 985 1,436 498
Federal funds sold and securities
purchased under agreements to resell.. 404 483 237 182
Other earning assets................... 121 -0- 121 -0-
--------- --------- --------- ---------
Total revenue from earning assets..... 723,765 683,289 368,283 346,621
--------- --------- --------- ---------
INTEREST EXPENSE
Interest-bearing demand deposits....... 68,638 56,288 35,003 29,238
Savings deposits....................... 14,945 15,075 7,528 7,471
Time deposits.......................... 136,417 140,133 67,964 70,548
Certificates of deposit of $100,000 or
more.................................. 28,294 23,652 14,702 12,444
Federal funds purchased and securities
sold under agreements to repurchase... 34,080 39,327 16,484 20,037
Other borrowed funds................... 18,359 31,008 9,962 18,054
Long-term Federal Home Loan Bank
advances.............................. 53,392 25,127 29,354 10,977
Other long-term debt................... 23,351 15,886 12,664 8,226
--------- --------- --------- ---------
Total interest expense................ 377,476 346,496 193,661 176,995
--------- --------- --------- ---------
NET INTEREST INCOME.................... 346,289 336,793 174,622 169,626
Provision for loan losses.............. 37,834 35,517 23,434 17,800
--------- --------- --------- ---------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES........................... 308,455 301,276 151,188 151,826
--------- --------- --------- ---------
NONINTEREST REVENUES
Service charges on deposit accounts.... 51,947 48,749 25,888 24,418
Trust income........................... 35,132 29,979 18,153 15,184
Consumer investment services income.... 15,286 11,269 8,055 5,932
Bank owned life insurance policies..... 9,922 4,402 5,886 2,213
Net gain on sale of businesses......... 27,974 -0- 27,974 -0-
Other noninterest revenues............. 43,916 35,107 22,416 18,077
--------- --------- --------- ---------
Total noninterest revenues............ 184,177 129,506 108,372 65,824
--------- --------- --------- ---------
NONINTEREST EXPENSES
Salaries and employee benefits......... 144,631 122,536 76,914 61,377
Net occupancy expense.................. 28,086 27,805 14,211 14,092
Equipment expense...................... 32,066 27,712 16,876 14,148
Marketing expense...................... 10,036 9,176 5,028 4,583
Postage and office supplies............ 11,961 10,999 6,502 5,253
Communications expense................. 11,479 9,990 5,804 5,389
Amortization expense................... 8,722 9,217 4,196 4,672
Other noninterest expenses............. 48,147 42,569 28,683 21,866
--------- --------- --------- ---------
Total noninterest expenses............ 295,128 260,004 158,214 131,380
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES............. 197,504 170,778 101,346 86,270
Income taxes........................... 70,011 60,305 35,876 30,370
--------- --------- --------- ---------
NET INCOME............................ $ 127,493 $ 110,473 $ 65,470 $ 55,900
========= ========= ========= =========
Average common shares outstanding...... 120,168 124,852 119,369 124,031
Earnings per common share.............. $ 1.06 $ 0.88 $ 0.55 $ 0.45
Diluted average common shares
outstanding........................... 122,176 125,804 122,154 124,991
Diluted earnings per common share...... $ 1.04 $ 0.88 $ 0.54 $ 0.45
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
AMSOUTH BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON CAPITAL RETAINED TREASURY DEFERRED COMPREHENSIVE
STOCK SURPLUS EARNINGS STOCK COMPENSATION INCOME TOTAL
-------- -------- ---------- --------- ------------ ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1,
1998................... $ 90,021 $562,475 $ 983,371 $(268,019) $(9,196) $26,593 $1,385,245
Adjustment for the
effect of 3-for-2
common stock split..... 45,011 (45,011) -0- -0- -0- -0- -0-
-------- -------- ---------- --------- ------- ------- ----------
BALANCE AT JANUARY 1,
1998 RESTATED.......... 135,032 517,464 983,371 (268,019) (9,196) 26,593 1,385,245
-------- -------- ---------- --------- ------- ------- ----------
Comprehensive income:
Net income............. -0- -0- 127,493 -0- -0- -0- 127,493
Other comprehensive
income, net of tax:
Unrealized losses on
available-for-sale
securities, net of
reclassification
adjustment............ -0- -0- -0- -0- -0- (1,060) (1,060)
----------
Other comprehensive
income................ (1,060)
----------
Comprehensive income.... 126,433
Cash dividends declared
($0.40 per common
share)................. -0- -0- (48,201) -0- -0- -0- (48,201)
Common stock
transactions:
Special rights and
warrants.............. -0- (355) -0- -0- -0- -0- (355)
Purchase of common
stock................. 140 (202) -0- (56,868) -0- -0- (56,930)
Employee stock plans... (66) (1,430) (3,722) 17,982 (592) -0- 12,172
Dividend reinvestment.. -0- 560 -0- 2,065 -0- -0- 2,625
-------- -------- ---------- --------- ------- ------- ----------
BALANCE AT JUNE 30,
1998................... $135,106 $516,037 $1,058,941 $(304,840) $(9,788) $25,533 $1,420,989
======== ======== ========== ========= ======= ======= ==========
DISCLOSURE OF
RECLASSIFICATION
AMOUNT:
Unrealized holding gains
on available-for-sale
securities arising
during the period...... $ 474
Less: Reclassification
adjustment for gains
realized in net
income................. 1,534
-------
Net unrealized losses on
available-for-sale
securities, net of
tax.................... $(1,060)
=======
</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
---------------------------
1998 1997
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income......................................... $ 127,493 $ 110,473
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses......................... 37,834 35,517
Depreciation and amortization of premises and
equipment........................................ 18,650 16,689
Amortization of premiums and discounts on held-to-
maturity securities and available-for-sale
securities....................................... (1,662) (930)
Net (increase) decrease in mortgage loans held for
sale............................................. (2,356) 15,725
Net (increase) decrease in trading securities..... (964) 87
Net gains on sales of available-for-sale
securities....................................... (2,458) (4,941)
Net increase in accrued interest receivable and
other assets..................................... (111,594) (104,576)
Net increase (decrease) in accrued expenses and
other liabilities................................ 67,084 (22,610)
Provision for deferred income taxes............... 16,155 18,441
Amortization of intangible assets................. 8,246 8,279
Other............................................. 4,838 4,465
------------- -----------
Net cash provided by operating activities........ 161,266 76,619
------------- -----------
INVESTING ACTIVITIES
Proceeds from maturities and prepayments of
available-for-sale securities..................... 345,019 138,499
Proceeds from sales of available-for-sale
securities........................................ 298,285 635,838
Purchases of available-for-sale securities......... (1,420,939) (541,612)
Proceeds from maturities, prepayments and calls of
held-to-maturity securities....................... 432,874 170,214
Purchases of held-to-maturity securities........... (671,744) -0-
Net decrease in federal funds sold and securities
purchased under agreements to resell.............. 7,150 11,925
Net increase in other earning assets............... (34,318) -0-
Net increase in loans.............................. (298,823) (286,341)
Net purchases of premises and equipment............ (26,013) (29,995)
------------- -----------
Net cash (used) provided by investing
activities...................................... (1,368,509) 98,528
------------- -----------
FINANCING ACTIVITIES
Net increase in demand deposits and savings
accounts.......................................... 5,935 129,806
Net increase in time deposits...................... 7,256 16,605
Net decrease in federal funds purchased and
securities sold under agreements to repurchase.... (310,860) (739,905)
Net increase in other borrowed funds............... 2,554 686,558
Issuance of long-term Federal Home Loan Bank
advances and other long-term debt................. 1,719,973 775,000
Payments for maturing long-term debt............... (206,942) (950,515)
Cash dividends paid................................ (48,201) (23,208)
Cash payment for special rights and warrants on
stock............................................. (355) -0-
Proceeds from employee stock plans and dividend
reinvestment plan................................. 13,451 13,379
Purchase of common stock........................... (56,930) (91,773)
------------- -----------
Net cash provided (used) by financing
activities...................................... 1,125,881 (184,053)
------------- -----------
Decrease in cash and cash equivalents.............. (81,362) (8,906)
Cash and cash equivalents at beginning of period... 658,500 648,494
------------- -----------
Cash and cash equivalents at end of period......... $ 577,138 $ 639,588
============= ===========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
AMSOUTH BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
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 1998 presentation. These
reclassifications had no effect on net income. All common share data presented
in the consolidated financial statements reflect a three-for-two stock split
completed on April 30, 1998. The notes included herein should be read in
conjunction with the notes to consolidated financial statements included in
AmSouth Bancorporation's (AmSouth) 1997 annual report on Form 10-K.
On January 1, 1998, AmSouth adopted the provisions of Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" (Statement 125), relating
to repurchase agreements, securities lending and other similar transactions
and pledged collateral, which had 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 the additional
provisions of Statement 125 as amended by Statement 127 resulted in no
material impact on AmSouth's financial condition or results of operations.
On January 1, 1998, AmSouth also adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." This statement
establishes standards for reporting the components of comprehensive income and
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be included in a financial
statement that is displayed with the same prominence as other financial
statements. Comprehensive income includes net income as well as certain items
that are reported directly within a separate component of shareholders' equity
and bypass net income. The adoption of Statement 130 did not have a material
impact on AmSouth's financial condition or results of operations.
In February 1998, the Financial Accounting Standards Board issued Statement
132, "Employers' Disclosures about Pension and Other Postretirement Benefits--
an amendment of FASB Statements No. 87, 88, and 106." This statement revises
employers' disclosures about pension and other postretirement benefit plans,
but does not change the measurement or recognition of those plans. It
standardizes the disclosure requirements to the extent practicable, requires
additional information on changes in the benefit obligations and fair values
of plan assets that will facilitate financial analysis and eliminates certain
disclosures that are no longer as useful as they were when Statements 87, 88
and 106 were issued. This statement is effective for fiscal years beginning
after December 15, 1997. Restatement of disclosures for previous periods
provided for comparative purposes is required unless the information is not
readily available, in which case the notes to the financial statements should
include all available information and a description of the information not
available. These disclosure requirements will have no material impact on
AmSouth's financial position or results of operations.
In June 1998, Statement No. 133, "Accounting for Derivative Instruments and
for Hedging Activities," (Statement 133), was issued by the Financial
Accounting Standards Board. Statement 133 provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging
7
<PAGE>
activities. It requires all derivatives to be recorded on the balance sheet at
fair value and establishes unique accounting treatment for the following three
different types of hedges: hedges of changes in the fair value of assets,
liabilities or firm commitments, referred to as fair value hedges; hedges of
the variable cash flows of forecasted transactions, referred to as cash flow
hedges; and hedges of foreign currency exposures of net investments in foreign
operations. The accounting for each of the three types of hedges results in
recognizing offsetting changes in value or cash flows of both the hedge and
the hedged item in earnings in the same period. Changes in the fair value of
derivatives that do not meet the criteria of one of these three types of
hedges are included in earnings in the period of change. Statement 133 is
effective for fiscal years beginning after June 15, 1999. The impact of
adopting Statement 133 on AmSouth's financial condition or results of
operations has not been determined at this time.
Earnings Per Common Share--The following table sets forth the computation of
earnings per common share and diluted earnings per common share:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
------------------- -------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Earnings per common share
computation:
Numerator:
Net income....................... $ 65,470 $ 55,900 $ 127,493 $ 110,473
Denominator:
Average common shares
outstanding..................... 119,369 124,031 120,168 124,852
Earnings per common share.......... $ 0.55 $ 0.45 $ 1.06 $ 0.88
Diluted earnings per common share
computation:
Numerator:
Net income....................... $ 65,470 $ 55,900 $ 127,493 $ 110,473
Denominator:
Average common shares
outstanding..................... 119,369 124,031 120,168 124,852
Dilutive shares contingently
issuable........................ 2,785 960 2,008 952
--------- --------- --------- ---------
Average diluted common shares
outstanding.................... 122,154 124,991 122,176 125,804
Diluted earnings per common share.. $ 0.54 $ 0.45 $ 1.04 $ 0.88
</TABLE>
Cash Flows--For the six months ended June 30, 1998 and 1997, AmSouth paid
interest of $358,526,000 and $342,053,000, respectively, and income taxes of
$29,787,000 and $38,273,000, respectively. Noncash transfers from loans to
foreclosed properties for the six months ended June 30, 1998 and 1997 were
$4,872,000 and $8,601,000, respectively, and noncash transfers from foreclosed
properties to loans were $278,000 and $331,000, respectively. For the six
months ended June 30, 1998, noncash transfers from loans to available-for-sale
securities of approximately $49,183,000 were made in connection with mortgage
loan securitizations.
Shareholders' Equity--On March 20, 1997, AmSouth's Board of Directors
approved the repurchase by AmSouth of up to 9,000,000 shares of its common
stock for the purpose of funding employee benefit and dividend reinvestment
plans and for general corporate purposes. AmSouth purchased 3,906,000 shares
at a cost of $110,267,000 during 1997 and 1,421,000 shares at a cost of
$56,931,000 during the first half of 1998 under this authorization. At June
30, 1998, approximately 3,700,000 shares remained authorized for purchase.
On March 19, 1998, AmSouth's Board of Directors 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 3.
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, 1998 and 1997, and the
related consolidated statement of earnings for the three-month and six-month
periods ended June 30, 1998 and 1997, the consolidated statement of cash flows
for the six-month periods ended June 30, 1998 and 1997 and the consolidated
statement of shareholders' equity for the six-month period ended June 30,
1998. 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, 1997, 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 February 10, 1998, 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, 1997 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 14, 1998
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
AmSouth reported net income of $127.5 million for the six months ended June
30, 1998, a 15.4% increase over net income of $110.5 million for the same
period of 1997. Diluted earnings per common share were $1.04 and $.88 for the
six month periods ended June 30, 1998 and 1997, respectively. Year-to-date
earnings resulted in an annualized return on average assets (ROA) of 1.34% and
an annualized return on average equity (ROE) of 18.22% for 1998 compared to
1.23% and 16.13%, respectively, for the first six months of 1997. AmSouth's
1998 year-to-date operating efficiency ratio increased to 55.33% compared to
55.29% for the prior year.
Net income for the second quarter of 1998 was $65.5 million compared to
$55.9 million for the same period of 1997. Diluted earnings per common share
were $.54 and $.45, respectively. ROA and ROE for the second quarter of 1998
were 1.34% and 18.48%, respectively, compared to 1.24% and 16.32%,
respectively, for the second quarter of 1997.
Net Interest Income
Net interest income on a fully taxable equivalent basis for the six months
ended June 30, 1998 was $349.2 million, a 2.5% increase over the same period
of 1997. The net interest margin decreased 12 basis points and the incremental
interest spread decreased 13 basis points from the same period of the prior
year. The decreases were primarily the result of increased rates paid across
almost all categories of interest-bearing deposits and a higher level of
investment securities.
Net interest income on a fully taxable equivalent basis for the three months
ended June 30, 1998 was $175.9 million, a 2.6% increase over the same period
of 1997. Both the net interest margin and the incremental interest spread
decreased 18 basis points from the prior year. The reasons for the decreases
were primarily the same as those discussed in the year-to-date analysis.
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.
A number of measures are used to monitor and manage interest rate risk,
including earnings simulation and interest sensitivity (gap) analysis. An
earnings simulation model is the primary tool used to assess the direction and
magnitude of changes in net interest income (NII) resulting from changes in
interest rates. Key assumptions in the model include prepayment speeds on
mortgage-related assets; cash flows and maturities of derivatives and other
financial instruments held for purposes other than trading; changes in market
conditions, loan volumes and pricing; deposit sensitivity; customer
preferences and management's financial and capital plans. These assumptions
are inherently uncertain and, as a result, the model cannot precisely estimate
NII or precisely predict the impact of higher or lower interest rates on NII.
Actual results will differ from simulated results due to timing, magnitude and
frequency of interest rate changes and changes in market conditions and
management strategies, among other factors.
Based on the results of the simulation model as of June 30, 1998, AmSouth
would expect decreases in NII of $2.8 million and $1.8 million if interest
rates gradually increase or decrease, respectively, from current rates by 100
basis points over a 12-month period. This level of interest rate risk is well
within the company's policy guidelines.
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 1998, AmSouth has entered into additional interest rate
swaps in the notional amount of $415.0 million. There were no maturities or
terminations of interest rate swaps
10
<PAGE>
in the first six months of 1998. Additionally, interest rate swaps in the
notional amount of $90.0 million were called. At June 30, 1998, AmSouth had
interest rate swaps, all of which were receive fixed rates, totaling a
notional amount of $1.2 billion. The swaps added in 1998 as hedges were
designated to certain commercial loans, available-for-sale securities and bank
debt. At June 30, 1998, 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.
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 6 presents a five-quarter analysis of the allowance for loan losses.
At June 30, 1998, the allowance for loan losses was $174.1 million, or 1.40%
of loans net of unearned income, compared to $179.1 million, or 1.48%, for the
prior year. The coverage ratio of the allowance for loan losses to
nonperforming loans decreased from 245.17% at June 30, 1997 to 230.57% for the
same period in 1998. Over the same period the level of nonperforming loans
increased $2.5 million.
Net charge-offs for the quarter ended June 30, 1998 were $13.8 million, a
decrease of $4.0 million or 22.3% from $17.8 million a year earlier. For the
six months ended June 30, 1998, net charge-offs were $28.1 million, a decrease
of $7.4 million, or 20.9%, from $35.5 million for the same period of 1997.
Annualized net charge-offs to average loans net of unearned income were .45%
and .46%, respectively, for the three months and six months ended June 30,
1998 compared to .59% and .60% for the same periods of the prior year.
Decreases in net charge-offs occurred primarily in dealer indirect, revolving
credit and other consumer loans. Consumer annualized net charge-offs fell to
.72% and .80% of average consumer loans for the three months and six months
ended June 30, 1998, respectively, compared to 1.11% and 1.11% for the prior
year. Centralization of and significant changes in underwriting over the past
two years have contributed to the decrease in net charge-offs in the consumer
loan portfolio. Net charge-offs of impaired loans for the three months and six
months ended June 30, 1998 totaled $3.4 million and $4.9 million,
respectively, compared to $1.1 million and $1.9 million for the same periods
in 1997.
The provision for loan losses was $23.4 million for the second quarter and
$37.8 million for the first six months of 1998 up $5.6 million or 31.7% and
$2.3 million or 6.5%, respectively, from year-earlier periods. Compared with
the first quarter, the second quarter provision was higher by $9.0 million.
The Year 2000 assessment program was implemented as part of AmSouth's overall
credit review process during the second quarter of 1998. The increase in the
second quarter provision reflects additional allowances for customer credit
exposures related to various factors including loan growth, economic
conditions and AmSouth's assessment of Year 2000 compliance among its
borrowers.
Table 7 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
.73% at June 30, 1997 to .68% at June 30, 1998. The level of nonperforming
assets decreased $4.6 million during the same period. The decrease of $15.5
million in the level of nonperforming assets from the first quarter of 1998
reflects the sale, in the second quarter, of a single large commercial loan
which was put on nonaccrual status in the first quarter of 1998.
Included in nonperforming assets at June 30, 1998 and 1997 was $46.2 million
and $39.5 million, respectively, in loans that were considered to be impaired,
substantially all of which were on a nonaccrual basis.
11
<PAGE>
Collateral-dependent loans, which were measured at the fair value of the
collateral, constituted approximately all of these impaired loans. At June 30,
1998 and 1997, there was $4.5 million and $7.8 million, respectively, in the
allowance for loan losses specifically allocated to these impaired loans. The
average balance of impaired loans for the three months ended June 30, 1998 and
1997 was $50.6 million and $43.3 million, respectively, and $49.9 million and
$42.5 million, respectively, for the six months ended June 30, 1998 and 1997.
AmSouth recorded no material interest income on its impaired loans during the
three months and six months ended June 30, 1998.
Noninterest Revenues and Noninterest Expenses
Year-to-date noninterest revenues totaled $184.2 million at June 30, 1998
compared to $129.5 million for the prior year. Included in noninterest
revenues was a $28.0 million net gain from the sale of AmSouth's bond
administration and stock transfer businesses and the sale of certain credit
card assets during the second quarter of 1998. Excluding the net gain from the
sale of certain credit card assets and the bond administration and stock
transfer businesses, year-to-date noninterest revenues rose $26.7 million or
20.6% compared to the same period a year earlier. Growth occurred in all major
categories, including trust income, consumer investment services income,
service charges on various commercial and consumer deposit accounts, and
income from bank owned life insurance. Trust income increased $5.2 million
primarily due to new employee benefit plan administration and personal trust
accounts, fee increases and continued strength in financial markets. Consumer
investment services income increased $4.0 million primarily as a result of a
higher sales volume of mutual funds and annuity products. Bank owned life
insurance policies were increased during the past year, which resulted in a
$5.5 million increase in income. Other noninterest revenues increased $8.8
million primarily due to an increase in mortgage income.
Noninterest revenues for the second quarter of 1998 were $108.4 million, a
64.6% increase over the same period of the prior year. Excluding the net gain
from the sale of certain credit card assets and the sale of the bond
administration and stock transfer businesses, noninterest revenue in the
second quarter of 1998 increased $14.6 million or 22.1% over the second
quarter of 1997. Changes for the quarter were primarily for the same reasons
discussed in the year-to-date analysis.
Year-to-date noninterest expenses increased 13.5% to $295.1 million at June
30, 1998 compared to $260.0 million for the prior year. Salaries and employee
benefits increased $22.1 million when compared to the same period a year ago.
The increase is primarily due to merit increases, bonuses, incentives and
additions to staff for new initiatives. Equipment expense increased $4.4
million primarily reflecting the costs of investments in technology for the
consumer and commercial lines of business and costs associated with Year 2000
system compliance. Communications expense increased $1.5 million primarily due
to increasing expenses associated with a wide area network to support the
technology for the consumer and commercial lines of business. Other
noninterest expenses increased $5.6 million due primarily to contributions to
AmSouth's charitable foundation and operating costs associated with new
revenue initiatives.
Noninterest expenses for the second quarter were $158.2 million compared to
$131.4 million for the same period of the prior year. Changes were primarily
for the same reasons discussed in the year-to-date analysis.
Capital Adequacy
At June 30, 1998, shareholders' equity totaled $1.4 billion or 7.11% of
total assets. Since December 31, 1997, shareholders' equity has increased
$35.7 million as the increase from net income of $127.5 million was partially
offset by dividends of $48.2 million and the purchase of 1,421,000 shares of
AmSouth common stock for $56.9 million.
12
<PAGE>
Table 10 presents the capital amounts and risk-adjusted capital ratios for
AmSouth and AmSouth Bank at June 30, 1998 and 1997. At June 30, 1998, 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 June 30, 1998.
Year 2000
AmSouth is in the process of preparing its computer systems and applications
for the Year 2000. This process involves modifying or replacing certain
hardware and software maintained by AmSouth as well as communicating with
external service providers to ensure that they are taking appropriate action
to remedy any Year 2000 issues. Project teams consisting of professionals from
all areas of the bank were created last year to plan and oversee AmSouth's
Year 2000 compliance efforts. Modifications for critical systems began last
year and are expected to be completed in advance of December 31, 1998.
Integrated systems testing began in May 1998 and is scheduled to be
substantially completed by October 1998. However, continued testing and
validations are scheduled throughout 1999 to continuously reaffirm the Year
2000 compliance of mission critical systems. Non-critical systems are expected
to be Year 2000 compliant either prior to or during 1999. In addition to
testing and making appropriate changes to its own internal software systems,
AmSouth is taking steps to review Year 2000 readiness on the part of important
customers and suppliers of the Bank. There can be no guarantee, however, that
the systems of other companies on which AmSouth's systems rely will be timely
converted and not have an adverse impact on AmSouth's systems. Accordingly,
the bank is assessing the extent to which its operations are vulnerable to
other companies' systems and developing contingency plans to minimize the
impact on AmSouth's operations should those organizations fail to remediate
their systems properly. While AmSouth presently believes that its Year 2000
plans will mitigate the Year 2000 issue, if such modifications and conversions
are not made, or are not completed in a timely manner, the Year 2000 issue
could impact AmSouth's operations.
Incremental costs related to Year 2000 compliance, which exclude the cost to
upgrade and replace systems in the ordinary course of business, are not
expected to be material to the financial performance of the Company.
13
<PAGE>
TABLE 1--FINANCIAL SUMMARY
<TABLE>
<CAPTION>
JUNE 30
----------------------- %
1998 1997 CHANGE
----------- ----------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET SUMMARY
End-of-period balances:
Loans net of unearned income................... $12,436,535 $12,117,640 2.6%
Total investment securities*................... 5,840,406 4,701,831 24.2
Total assets................................... 19,982,144 18,353,331 8.9
Total deposits................................. 12,958,254 12,613,686 2.7
Shareholders' equity........................... 1,420,989 1,382,773 2.8
Year-to-date average balances:
Loans net of unearned income................... $12,250,765 $12,005,268 2.0%
Total investment securities*................... 5,346,879 4,674,827 14.4
Total assets................................... 19,220,863 18,061,586 6.4
Total deposits................................. 12,834,029 12,426,151 3.3
Shareholders' equity........................... 1,410,787 1,381,181 2.1
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
ENDED JUNE 30 ENDED JUNE 30
------------------ % ---------------- %
1998 1997 CHANGE 1998 1997 CHANGE
-------- -------- ------ ------- ------- ------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
EARNINGS SUMMARY
Net income............... $127,493 $110,473 15.4% $65,470 $55,900 17.1%
Per common share**....... 1.06 0.88 20.5 0.55 0.45 22.2
Per common share--
diluted**............... 1.04 0.88 18.2 0.54 0.45 20.0
SELECTED RATIOS
Return on average assets
(annualized)............ 1.34% 1.23% 1.34% 1.24%
Return on average equity
(annualized)............ 18.22 16.13 18.48 16.32
Average equity to
assets.................. 7.34 7.65 7.27 7.57
End of period equity to
assets.................. 7.11 7.53 7.11 7.53
End of period tangible
equity to assets........ 5.97 6.12 5.97 6.12
Allowance for loan losses
to loans net of unearned
income.................. 1.40 1.48 1.40 1.48
Efficiency ratio......... 55.33 55.29 55.65 55.35
COMMON STOCK DATA**
Cash dividends declared.. $ 0.40 $ 0.37 $ 0.20 $ 0.19
Book value at end of
period.................. 11.83 11.23 11.83 11.23
Market value at end of
period.................. 39.31 25.21 39.31 25.21
Average common shares
outstanding............. 120,168 124,852 119,369 124,031
Average common shares
outstanding--diluted.... 122,176 125,804 122,154 124,991
</TABLE>
- --------
* Excludes adjustment for market valuation on available-for-sale securities.
** Restated for three-for-two common stock split in April 1998.
14
<PAGE>
TABLE 2--YEAR-TO-DATE YIELDS EARNED ON AVERAGE EARNING ASSETS
AND RATES PAID ON AVERAGE INTEREST-BEARING LIABILITIES
<TABLE>
<CAPTION>
1998 1997
---------------------------- ----------------------------
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................ $12,250,765 $535,501 8.81% $12,005,268 $518,281 8.71%
Available-for-sale
securities............ 2,899,223 103,307 7.19 2,112,154 77,245 7.37
Held-to-maturity
securities:
Taxable................ 2,339,091 78,488 6.77 2,400,627 81,236 6.82
Tax-free............... 108,565 6,284 11.67 162,046 8,920 11.10
----------- -------- ----------- --------
Total held-to-maturity
securities............ 2,447,656 84,772 6.98 2,562,673 90,156 7.09
----------- -------- ----------- --------
Total investment
securities........... 5,346,879 188,079 7.09 4,674,827 167,401 7.22
Other earning assets... 108,285 3,076 5.73 64,433 1,521 4.76
----------- -------- ----------- --------
Total earning assets... 17,705,929 726,656 8.28 16,744,528 687,203 8.28
Cash and other assets... 1,650,114 1,469,926
Allowance for loan
losses................. (176,070) (179,855)
Market valuation on
available-for-sale
securities............. 40,890 26,987
----------- -----------
$19,220,863 $18,061,586
=========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing
liabilities:
Interest-bearing demand
deposits.............. $ 3,930,887 68,638 3.52 $ 3,566,617 56,288 3.18
Savings deposits....... 1,034,660 14,945 2.91 1,061,112 15,075 2.86
Time deposits.......... 4,897,154 136,417 5.62 5,163,416 140,133 5.47
Certificates of deposit
of $100,000 or more... 1,003,291 28,294 5.69 846,321 23,652 5.64
Federal funds purchased
and securities sold
under agreements to
repurchase............ 1,306,164 34,080 5.26 1,504,248 39,327 5.27
Other interest-bearing
liabilities........... 3,383,078 95,102 5.67 2,529,978 72,021 5.74
----------- -------- ----------- --------
Total interest-bearing
liabilities.......... 15,555,234 377,476 4.89 14,671,692 346,496 4.76
-------- ----- -------- -----
INCREMENTAL INTEREST
SPREAD................. 3.39% 3.52%
===== =====
Noninterest-bearing
demand deposits........ 1,968,037 1,788,685
Other liabilities....... 286,805 220,028
Shareholders' equity.... 1,410,787 1,381,181
----------- -----------
$19,220,863 $18,061,586
=========== ===========
NET INTEREST
INCOME/MARGIN ON A
TAXABLE EQUIVALENT
BASIS.................. 349,180 3.98% 340,707 4.10%
===== =====
Taxable equivalent
adjustment:
Loans.................. 824 931
Securities............. 2,067 2,983
-------- --------
Total taxable
equivalent
adjustment............ 2,891 3,914
-------- --------
Net interest income... $346,289 $336,793
======== ========
</TABLE>
- --------
NOTE: The taxable equivalent adjustment has been computed based on a 35%
federal income tax rate and has given effect to the disallowance of
interest expense, for federal income tax purposes, related to certain
tax-free assets. Loans net of unearned income includes nonaccrual loans
for all periods presented.
15
<PAGE>
TABLE 3--QUARTERLY YIELDS EARNED ON AVERAGE EARNING ASSETS AND RATES PAID ON
AVERAGE INTEREST-BEARING LIABILITIES
<TABLE>
<CAPTION>
1998 1997
------------------------------------------------------------- ----------------------------
SECOND QUARTER FIRST QUARTER FOURTH 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.. $12,303,518 $270,372 8.81% $12,197,427 $265,129 8.82% $12,168,038 $268,361 8.75%
Available-for-
sale securities.. 3,101,694 54,860 7.09 2,694,502 48,447 7.29 2,202,087 40,488 7.29
Held-to-maturity
securities:
Taxable.......... 2,391,211 39,829 6.68 2,286,392 38,659 6.86 2,151,095 36,486 6.73
Tax-free......... 102,976 2,712 10.56 114,216 3,572 12.68 123,758 3,376 10.82
----------- -------- ------------ -------- ------ ------------ --------
Total held-to-
maturity
securities....... 2,494,187 42,541 6.84 2,400,608 42,231 7.13 2,274,853 39,862 6.95
----------- -------- ------------ -------- ------- ------------ --------
Total investment
securities...... 5,595,881 97,401 6.98 5,095,110 90,678 7.22 4,476,940 80,350 7.12
Other earning
assets........... 126,453 1,825 5.79 89,915 1,251 5.64 93,150 987 4.20
----------- -------- ------------ -------- ------- ------------ --------
Total earning
assets........... 18,025,852 369,598 8.22 17,382,452 357,058 8.33 16,738,128 349,698 8.29
Cash and other
assets............ 1,665,235 1,634,825 1,541,105
Allowance for loan
losses............ (172,135) (180,050) (179,095)
Market valuation
on available-for-
sale securities... 37,000 44,824 45,118
----------- ------------ ------------
$19,555,952 $18,882,051 $18,145,256
=========== ============ ============
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing
liabilities:
Interest-bearing
demand deposits.. $ 3,955,644 35,003 3.55 $ 3,905,855 33,635 3.49 $ 3,871,949 32,925 3.37
Savings
deposits......... 1,034,423 7,528 2.92 1,034,900 7,417 2.91 1,029,337 7,455 2.87
Time deposits.... 4,848,525 67,964 5.62 4,946,323 68,453 5.61 5,050,259 70,969 5.58
Certificates of
deposit of
$100,000 or
more............. 1,037,385 14,702 5.68 968,818 13,592 5.69 907,105 12,978 5.68
Federal funds
purchased and
securities sold
under agreements
to repurchase.... 1,261,245 16,484 5.24 1,351,583 17,596 5.28 1,497,408 20,083 5.32
Other interest-
bearing
liabilities...... 3,702,694 51,980 5.63 3,059,910 43,122 5.72 2,284,497 33,784 5.87
----------- -------- ------------ -------- ------------ --------
Total interest-
bearing
liabilities...... 15,839,916 193,661 4.90 15,267,389 183,815 4.88 14,640,555 178,194 4.83
-------- ------- -------- ------- -------- ------
<PAGE>
INCREMENTAL
INTEREST SPREAD... 3.32% 3.45% 3.46%
Noninterest- ======= ======= ======
bearing demand
deposits.......... 2,000,507 1,935,206 1,867,575
Other
liabilities....... 294,212 279,315 274,620
Shareholders'
equity............ 1,421,317 1,400,141 1,362,506
----------- ------------ ------------
$19,555,952 $18,882,051 $18,145,256
=========== ============ ============
NET INTEREST
INCOME/MARGIN ON A
TAXABLE EQUIVALENT
BASIS............. 175,937 3.91% 173,243 4.04% 171,504 4.07%
Taxable equivalent ======= ======= =======
adjustment:
Loans............ 428 396 364
Securities....... 887 1,180 1,118
-------- -------- --------
Total taxable
equivalent
adjustment....... 1,315 1,576 1,482
-------- -------- --------
Net interest
income.......... $174,622 $171,667 $170,022
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1997
----------------------------------------------------------
THIRD QUARTER SECOND 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.. $12,056,663 $267,195 8.79% $12,085,579 $263,645 8.75%
Available-for-
sale securities.. 2,026,440 37,867 7.41 2,163,439 39,789 7.38
Held-to-maturity
securities:
Taxable.......... 2,272,106 38,416 6.71 2,366,941 40,138 6.80
Tax-free......... 136,758 3,693 10.71 155,744 4,240 10.92
------------ -------- ------------ --------
Total held-to-
maturity
securities....... 2,408,864 42,109 6.94 2,522,685 44,378 7.06
------------ -------- ------------ --------
Total investment
securities...... 4,435,304 79,976 7.15 4,686,124 84,167 7.20
Other earning
assets........... 67,961 757 4.42 59,722 709 4.76
------------ -------- ------------ --------
Total earning
assets........... 16,559,928 347,928 8.34 16,831,425 348,521 8.31
Cash and other
assets............ 1,479,162 1,475,669
Allowance for loan
losses............ (179,827) (179,075)
Market valuation
on available-for-
sale securities... 41,515 21,917
------------ ------------
$17,900,778 $18,149,936
============ ============
<PAGE>
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
Savings
deposits......... 1,029,446 7,398 2.85 1,048,497 7,471 2.86
Time deposits.... 5,060,864 70,736 5.55 5,155,529 70,548 5.49
Certificates of
deposit of
$100,000 or
more............. 846,684 12,105 5.67 885,565 12,444 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
Other interest-
bearing
liabilities...... 2,223,116 33,159 5.92 2,559,769 37,257 5.84
----------- -------- ------------ --------
Total interest-
bearing
liabilities...... 14,469,827 176,821 4.85 14,748,954 176,995 4.81
-------- ------- -------- -------
INCREMENTAL
INTEREST SPREAD... 3.49% 3.50%
======= =======
Noninterest-
bearing demand
deposits.......... 1,835,568 1,805,781
Other
liabilities....... 240,772 221,575
Shareholders'
equity............ 1,354,611 1,373,626
----------- ------------
$17,900,778 $18,149,936
=========== ============
NET INTEREST
INCOME/MARGIN ON A
TAXABLE EQUIVALENT
BASIS............. 171,107 4.10% 171,526 4.09%
======= =======
Taxable equivalent
adjustment:
Loans............ 417 463
Securities....... 1,228 1,437
-------- --------
Total taxable
equivalent
adjustment....... 1,645 1,900
-------- --------
Net interest
income.......... $169,462 $169,626
======== ========
</TABLE>
- ----
NOTE: The taxable equivalent adjustment has been computed based on a 35%
federal income tax rate and has given effect to the disallowance of
interest expense, for federal income tax purposes, related to certain
tax-free assets. Loans net of unearned income includes nonaccrual loans
for all periods presented.
16
<PAGE>
TABLE 4--MATURITIES AND INTEREST RATES EXCHANGED ON SWAPS
<TABLE>
<CAPTION>
MATURE DURING
----------------------
1998 1999 2000 2008 TOTAL
---- ---- ---- ---- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Receive fixed swaps:
Notional amount............................... $295 $650 $100 $175 $1,220
Receive rate.................................. 6.64% 6.63% 6.66% 6.13% 6.56%
Pay rate...................................... 5.68% 5.65% 5.65% 5.69% 5.66%
</TABLE>
- --------
NOTE: Both the timing of the maturities and the variable interest payments and
receipts vary as certain interest rates change. The maturities and
interest rates exchanged are calculated assuming that interest rates
remain unchanged from June 30, 1998 rates. Accordingly, the information
presented could change as future interest rates increase or decrease.
TABLE 5--LOANS AND CREDIT QUALITY
<TABLE>
<CAPTION>
NET CHARGE-OFFS
LOANS* NONPERFORMING LOANS** SIX MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
----------------------- --------------------- -----------------
1998 1997 1998 1997 1998 1997
----------- ----------- ---------- ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial.............. $ 3,710,708 $ 3,788,660 $ 18,885 $ 16,245 $ 4,825 $ 1,628
Commercial real estate:
Commercial real estate
mortgages............ 1,779,213 1,692,761 23,572 19,620 21 281
Real estate
construction......... 1,168,734 664,529 1,972 2,098 10 25
----------- ----------- ---------- ---------- -------- --------
Total commercial
real estate........ 2,947,947 2,357,290 25,544 21,718 31 306
----------- ----------- ---------- ---------- -------- --------
Consumer:
Residential first
mortgages............ 2,517,951 2,769,810 24,086 23,880 938 836
Other residential
mortgages............ 1,200,580 1,009,268 5,259 3,805 963 712
Dealer indirect....... 1,347,032 1,212,045 987 5,078 3,195 6,790
Revolving credit...... 248,534 451,790 -0- -0- 14,918 16,888
Other consumer........ 463,783 528,777 740 2,318 3,182 8,325
----------- ----------- ---------- ---------- -------- --------
Total consumer...... 5,777,880 5,971,690 31,072 35,081 23,196 33,551
----------- ----------- ---------- ---------- -------- --------
$12,436,535 $12,117,640 $ 75,501 $ 73,044 $ 28,052 $ 35,485
=========== =========== ========== ========== ======== ========
</TABLE>
- --------
* Net of unearned income.
** Exclusive of accruing loans 90 days past due.
17
<PAGE>
TABLE 6--ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------------------
2ND QUARTER 1ST QUARTER 4TH QUARTER 3RD QUARTER 2ND QUARTER
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of
period................. $179,347 $179,197 $179,126 $179,081 $179,049
Loans charged off....... (19,248) (20,880) (22,864) (24,280) (24,209)
Recoveries of loans
previously charged
off.................... 5,446 6,630 7,155 8,223 6,441
-------- -------- -------- -------- --------
Net charge-offs......... (13,802) (14,250) (15,709) (16,057) (17,768)
Addition to allowance
charged to expense..... 23,434 14,400 15,780 16,102 17,800
Allowance sold.......... (14,900) -0- -0- -0- -0-
-------- -------- -------- -------- --------
Balance at end of
period................. $174,079 $179,347 $179,197 $179,126 $179,081
======== ======== ======== ======== ========
Allowance for loan
losses to loans net of
unearned income........ 1.40% 1.47% 1.46% 1.48% 1.48%
Allowance for loan
losses to nonperforming
loans.................. 230.57% 202.06% 251.12% 265.83% 245.17%
Allowance for loan
losses to nonperforming
assets................. 206.51% 179.68% 214.81% 224.16% 201.53%
Net charge-offs to
average loans net of
unearned income
(annualized)........... 0.45% 0.47% 0.51% 0.53% 0.59%
</TABLE>
TABLE 7--NONPERFORMING ASSETS
<TABLE>
<CAPTION>
1998 1997
----------------- --------------------------------
JUNE 30 MARCH 31 DECEMBER 31 SEPTEMBER 30 JUNE 30
------- -------- ----------- ------------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans........... $75,501 $88,760 $71,358 $67,384 $73,044
Foreclosed properties...... 8,035 9,902 11,433 11,518 13,546
Repossessions.............. 761 1,154 632 1,008 2,272
------- ------- ------- ------- -------
Total nonperforming
assets*.................. $84,297 $99,816 $83,423 $79,910 $88,862
======= ======= ======= ======= =======
Nonperforming assets* to
loans net of unearned
income, foreclosed
properties and
repossessions............. 0.68% 0.82% 0.68% 0.66% 0.73%
Accruing loans 90 days past
due....................... $25,701 $32,363 $37,797 $33,466 $42,918
</TABLE>
- --------
* Exclusive of accruing loans 90 days past due.
18
<PAGE>
TABLE 8--INVESTMENT SECURITIES
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1997
--------------------- ---------------------
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...................... $2,189,913 $2,205,037 $2,092,291 $2,088,347
State, county and municipal
securities...................... 119,667 122,535 150,394 155,506
Other securities................. 234,806 234,687 232,410 231,376
---------- ---------- ---------- ----------
$2,544,386 $2,562,259 $2,475,095 $2,475,229
========== ========== ========== ==========
AVAILABLE-FOR-SALE:
U.S. Treasury and federal agency
securities...................... $3,103,633 $2,124,857
Other securities................. 233,602 139,357
---------- ----------
$3,337,235 $2,264,214
========== ==========
</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, 1998 were approximately 3.6 years and 6.90%,
respectively. Included in the combined portfolios was $5.0 billion of
mortgage-backed securities, $681 million of which were variable rate. The
weighted average remaining life and the weighted average yield of
mortgage-backed securities at June 30, 1998 were approximately 3.5 years
and 6.90%, respectively. The duration of the combined portfolios which
considers the repricing frequency of variable rate securities is
approximately 1.9 years.
2. The available-for-sale portfolio included net unrealized gains of $41.2
million and $37.5 million at June 30, 1998 and 1997, respectively.
TABLE 9--OTHER INTEREST-BEARING LIABILITIES
<TABLE>
<CAPTION>
JUNE 30
-------------------
1998 1997
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
OTHER BORROWED FUNDS:
Treasury, tax and loan notes............................. $775,000 $1,030,060
Short-term Federal Home Loan Bank advances............... -0- 385,000
Short-term bank notes.................................... 175,000 275,000
Other short-term debt.................................... 38,472 46,881
-------- ----------
Total other borrowed funds............................. $988,472 $1,736,941
======== ==========
OTHER LONG-TERM DEBT:
6.75% Subordinated Debentures Due 2025................... $149,871 $ 149,854
6.45% Subordinated Notes Due 2018........................ 304,798 -0-
7.75% Subordinated Notes Due 2004........................ 149,458 149,366
Subordinated Capital Notes Due 1999...................... 99,892 99,763
Long-term notes payable.................................. 35,880 37,987
-------- ----------
Total other long-term debt............................. $739,899 $ 436,970
======== ==========
</TABLE>
19
<PAGE>
TABLE 10--CAPITAL AMOUNTS AND RATIOS
<TABLE>
<CAPTION>
JUNE 30
----------------------------------
1998 1997
---------------- ----------------
AMOUNT RATIO AMOUNT RATIO
---------- ----- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
TIER 1 CAPITAL:
AmSouth................................... $1,151,949 6.83% $1,099,127 7.58%
AmSouth Bank.............................. 1,496,248 9.02 1,465,632 10.12
TOTAL CAPITAL:
AmSouth................................... $1,902,003 11.27% $1,597,381 11.02%
AmSouth Bank.............................. 1,970,327 11.88 1,644,713 11.35
LEVERAGE:
AmSouth................................... $1,151,949 5.96% $1,099,127 6.14%
AmSouth Bank.............................. 1,496,248 7.74 1,465,632 8.20
</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, loan servicing, deposit taking, 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 that 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 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The regular Annual Meeting of Shareholders of AmSouth was held on April 16,
1998, at which meeting the shareholders elected four nominees as directors.
The following is a tabulation of the voting on this matter.
ELECTION OF DIRECTORS
<TABLE>
<CAPTION>
VOTES BROKER
NAMES VOTES FOR WITHHELD ABSTENTIONS NONVOTES
- ----- ---------- -------- ----------- --------
<S> <C> <C> <C> <C>
Rodney C. Gilbert...................... 67,135,323 397,517 N/A 0
Victoria Jackson....................... 67,118,194 414,647 N/A 0
Claude B. Nielsen...................... 67,161,426 371,415 N/A 0
Benjamin F. Payton..................... 67,103,542 429,298 N/A 0
</TABLE>
ITEM 5. OTHER INFORMATION
Shareholder proposals submitted to AmSouth in compliance with SEC Rule 14a-8
with respect to AmSouth's 1999 Annual Meeting of Shareholders (which concerns
shareholder proposals that are requested to be included in a company's proxy
statement) must be received at AmSouth's executive offices on or before
November 15, 1998. Pursuant to SEC Rules 14a-4 and 14a-5 (which, among other
things, concern the exercise of discretionary voting authority with respect to
shareholder proposals other than proposals that have been requested to be
included in a company's proxy statement) shareholders are advised that under
the advance notice provisions of AmSouth's bylaws a shareholder proposal with
respect to AmSouth's 1999 Annual Meeting of Shareholders will be considered
untimely if provided to AmSouth after February 15, 1999.
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 April 1, 1998
to June 30, 1998.
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 14, 1998
/s/ C. Dowd Ritter
By: _________________________________
C. Dowd Ritter
Chairman of the Board, President
and Chief Executive Officer
/s/ Robert R. Windelspecht
August 14, 1998 By: _________________________________
Robert R. Windelspecht
Executive Vice President and
Controller
22
<PAGE>
EXHIBIT INDEX
The following is a list of exhibits including items incorporated by
reference.
<TABLE>
<C> <S>
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
</TABLE>
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>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30 JUNE 30
----------------- -------------------
1998 1997 1998 1997
-------- -------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net income ............................. $127,493 $110,473 $ 65,470 $ 55,900
======== ======== ========= =========
Average shares of common stock outstand-
ing*................................... 120,168 124,852 119,369 124,031
======== ======== ========= =========
Earnings per common share*.............. $ 1.06 $ 0.88 $ 0.55 $ 0.45
======== ======== ========= =========
Diluted average shares of common stock
outstanding*........................... 122,176 125,804 122,154 124,991
======== ======== ========= =========
Diluted earnings per common share*...... $ 1.04 $ 0.88 $ 0.54 $ 0.45
======== ======== ========= =========
</TABLE>
- --------
* Restated for three-for-two common stock split in April 1998.
<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 August 14,
1998 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, 1998:
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-8 No. 333-05631 pertaining to the AmSouth Bancorporation 1996 Long
Term Incentive Compensation Plan;
Form S-8 No. 333-27107 pertaining to the AmSouth Bancorporation Employee
Stock Purchase Plan;
Form S-8 No. 333-41599 pertaining to the AmSouth Bancorporation Deferred
Compensation Plan and the Amended and Restated Deferred Compensation
Plan for Directors of AmSouth Bancorporation; and
Form S-3 No. 333-44263 (as amended) pertaining to the AmSouth
Bancorporation Shelf Registration Statement.
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 14, 1998
<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 of Item 1 of Part 1 and tables 2, 6 and 7
of Item 2 of Part 1 of the AmSouth Bancorporation Form 10-Q for the quarterly
period ended June 30, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 577,138
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 11,850
<TRADING-ASSETS> 2,370
<INVESTMENTS-HELD-FOR-SALE> 3,337,235
<INVESTMENTS-CARRYING> 2,544,386
<INVESTMENTS-MARKET> 2,562,259
<LOANS> 12,436,535
<ALLOWANCE> 174,079
<TOTAL-ASSETS> 19,982,144
<DEPOSITS> 12,958,254
<SHORT-TERM> 2,113,537
<LIABILITIES-OTHER> 343,186
<LONG-TERM> 3,146,178
0
0
<COMMON> 135,106
<OTHER-SE> 1,285,883
<TOTAL-LIABILITIES-AND-EQUITY> 19,982,144
<INTEREST-LOAN> 534,677
<INTEREST-INVEST> 186,060
<INTEREST-OTHER> 3,028
<INTEREST-TOTAL> 723,765
<INTEREST-DEPOSIT> 248,294
<INTEREST-EXPENSE> 377,476
<INTEREST-INCOME-NET> 346,289
<LOAN-LOSSES> 37,834
<SECURITIES-GAINS> 2,458
<EXPENSE-OTHER> 295,128
<INCOME-PRETAX> 197,504
<INCOME-PRE-EXTRAORDINARY> 197,504
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 127,493
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.04
<YIELD-ACTUAL> 3.98
<LOANS-NON> 75,501
<LOANS-PAST> 25,701
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 179,197
<CHARGE-OFFS> 40,128
<RECOVERIES> 12,076
<ALLOWANCE-CLOSE> 174,079
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
