<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, 1999
Commission file number 1-7476
AmSouth Bancorporation
(Exact Name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 63-0591257
(State or other jurisdiction of
Incorporation or Organization) (I.R.S. Employer Identification No.)
AmSouth--Sonat Tower
1900 Fifth Avenue North
Birmingham, Alabama 35203
(Address of principal executive offices) (Zip Code)
</TABLE>
(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, 1999, AmSouth Bancorporation had 391,088,837 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.a Historical Financial Statements (Unaudited)................. 3
Consolidated Statement of Condition--September 30, 1999, December
31, 1998, and September 30, 1998............................. 3
Consolidated Statement of Earnings--Nine months ended September
30, 1999 and 1998............................................ 4
Consolidated Statement of Shareholders' Equity--Nine months ended
September 30, 1999........................................... 5
Consolidated Statement of Cash Flows--Nine months ended September
30, 1999 and 1998 ........................................... 6
Notes to Consolidated Financial Statements........................ 7
Independent Accountants' Review Report............................ 10
Item 1.b Supplemental Combined Financial Information (Unaudited).... 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 14
Part II. Other Information
Item 1. Legal Proceedings............................................ 26
Item 4. Submission of Matters to a Vote of Security Holders.......... 26
Item 5. Other Information............................................ 26
Item 6. Exhibits and Reports on Form 8-K............................. 27
Signatures................................................................ 28
Exhibit Index............................................................. 29
</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, the Year 2000 issue, and with
respect to certain other issues. 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.a Historical Financial Statements (Unaudited)
AMSOUTH BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CONDITION
(Unaudited)
<TABLE>
<CAPTION>
September 30 December 31 September 30
1999 1998 1998
------------ ----------- ------------
(In thousands)
<S> <C> <C> <C>
ASSETS
Cash and due from banks................. $ 584,176 $ 619,599 $ 532,758
Federal funds sold and securities
purchased under agreements to resell... 22,625 5,609 500
Trading securities...................... 8,783 4,144 2,689
Available-for-sale securities........... 3,581,168 3,029,372 3,281,129
Held-to-maturity securities (market
value of $2,126,990, $2,162,102 and
$2,328,440, respectively).............. 2,170,022 2,147,044 2,297,091
Mortgage loans held for sale............ 41,050 148,461 81,483
Other interest-earning assets........... 7,392 29,276 21,988
Loans................................... 13,851,474 12,977,467 12,622,913
Less: Allowance for loan losses......... 177,556 176,075 175,046
Unearned income......................... 143,858 107,604 95,745
----------- ----------- -----------
Net loans............................ 13,530,060 12,693,788 12,352,122
Premises and equipment, net............. 331,645 336,772 324,903
Customers' acceptance liability......... 1,552 3,947 1,047
Accrued interest receivable and other
assets................................. 999,322 883,667 797,633
----------- ----------- -----------
$21,277,795 $19,901,679 $19,693,343
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits and interest-bearing
liabilities:
Deposits:
Noninterest-bearing demand............ $ 2,191,574 $ 2,215,887 $ 2,040,880
Interest-bearing demand............... 4,546,668 4,559,470 4,185,796
Savings............................... 884,315 980,829 990,272
Time.................................. 4,332,450 4,553,666 4,700,940
Certificates of deposit of $100,000
or more.............................. 992,283 973,952 1,099,279
----------- ----------- -----------
Total deposits....................... 12,947,290 13,283,804 13,017,167
Federal funds purchased and securities
sold under agreements to repurchase... 1,855,606 1,482,100 1,283,025
Other borrowed funds................... 404,577 88,873 312,156
Long-term Federal Home Loan Bank
advances.............................. 3,450,082 2,500,117 2,515,118
Other long-term debt................... 788,805 739,642 739,803
----------- ----------- -----------
Total deposits and interest-bearing
liabilities......................... 19,446,360 18,094,536 17,867,269
Acceptances outstanding................. 1,552 3,947 1,047
Accrued expenses and other liabilities.. 357,425 375,567 387,070
----------- ----------- -----------
Total liabilities.................... 19,805,337 18,474,050 18,255,386
----------- ----------- -----------
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--750,000,000 shares;
Issued--202,413,293, 202,425,450 and
202,635,075 shares, respectively..... 202,413 202,425 202,635
Capital surplus........................ 455,817 448,620 448,424
Retained earnings...................... 1,257,862 1,133,046 1,096,249
Cost of common stock in treasury--
25,854,655, 25,048,731 and 23,774,241
shares, respectively.................. (392,744) (367,286) (333,797)
Deferred compensation on restricted
stock................................. (10,607) (8,272) (9,054)
Accumulated other comprehensive (loss)
income................................ (40,283) 19,096 33,500
----------- ----------- -----------
Total shareholders' equity........... 1,472,458 1,427,629 1,437,957
----------- ----------- -----------
$21,277,795 $19,901,679 $19,693,343
=========== =========== ===========
</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
--------------------- -------------------
1999 1998 1999 1998
---------- ---------- --------- ---------
(In thousands except per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans............................... $ 837,013 $ 810,060 $286,216 $275,383
Available-for-sale securities....... 161,683 160,265 59,751 56,958
Held-to-maturity securities......... 102,548 121,763 36,100 39,058
Trading securities.................. 120 85 35 37
Mortgage loans held for sale........ 3,559 3,435 1,063 932
Federal funds sold and securities
purchased under agreements to re-
sell............................... 406 690 125 286
Other interest-earning assets....... 706 336 169 215
---------- ---------- --------- ---------
Total interest income.............. 1,106,035 1,096,634 383,459 372,869
---------- ---------- --------- ---------
INTEREST EXPENSE
Interest-bearing demand deposits.... 102,597 106,562 35,389 37,924
Savings deposits.................... 13,871 22,288 4,337 7,343
Time deposits....................... 178,661 204,286 59,055 67,869
Certificates of deposit of $100,000
or more............................ 36,162 44,263 12,140 15,969
Federal funds purchased and securi-
ties sold under agreements to re-
purchase........................... 58,869 54,128 21,849 20,048
Other borrowed funds................ 7,171 23,468 3,127 5,109
Long-term Federal Home Loan Bank ad-
vances............................. 106,179 85,842 40,032 32,450
Other long-term debt................ 36,710 35,994 11,790 12,643
---------- ---------- --------- ---------
Total interest expense............. 540,220 576,831 187,719 199,355
---------- ---------- --------- ---------
NET INTEREST INCOME 565,815 519,803 195,740 173,514
Provision for loan losses........... 29,400 45,834 12,400 8,000
---------- ---------- --------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 536,415 473,969 183,340 165,514
---------- ---------- --------- ---------
NONINTEREST REVENUES
Service charges on deposit ac-
counts............................. 79,595 78,236 26,782 26,289
Trust income........................ 51,688 50,846 17,184 15,714
Consumer investment services in-
come............................... 33,349 23,148 11,452 7,862
Mortgage income..................... 18,096 12,809 5,400 4,219
Portfolio income.................... 11,162 6,923 3,401 3,092
Bank owned life insurance policies
(BOLI)............................. 14,567 13,874 5,236 3,952
Net gain on sale of businesses...... 0 27,974 0 0
Other noninterest revenues.......... 57,717 47,564 19,525 16,069
---------- ---------- --------- ---------
Total noninterest revenues......... 266,174 261,374 88,980 77,197
---------- ---------- --------- ---------
NONINTEREST EXPENSES
Salaries and employee benefits...... 237,891 215,441 79,502 70,810
Net occupancy expense............... 43,696 42,524 14,929 14,438
Equipment expense................... 48,327 46,958 16,530 14,892
Marketing expense................... 15,997 15,306 5,233 5,270
Postage and office supplies......... 18,213 18,017 5,968 6,056
Communications expense.............. 16,946 17,250 5,219 5,771
Amortization expense................ 12,555 12,888 4,190 4,166
Other noninterest expenses.......... 66,164 66,060 21,475 17,913
---------- ---------- --------- ---------
Total noninterest expenses......... 459,789 434,444 153,046 139,316
---------- ---------- --------- ---------
INCOME BEFORE INCOME TAXES 342,800 300,899 119,274 103,395
Income taxes........................ 120,796 106,562 41,849 36,551
---------- ---------- --------- ---------
<CAPTION>
NET INCOME......................... $ 222,004 $ 194,337 $ 77,425 $ 66,844
<S> <C> <C> <C> <C>
========== ========== ========= =========
Average common shares outstanding... 175,544 179,731 175,411 178,704
Earnings per common share........... $ 1.26 $ 1.08 $ 0.44 $ 0.37
Diluted average common shares out-
standing........................... 178,158 182,647 177,758 181,432
Diluted earnings per common share... $ 1.25 $ 1.06 $ 0.44 $ 0.37
Cash dividends declared............. $ 0.51 $ 0.40 $ 0.17 $ 0.13
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
AMSOUTH BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Deferred
Compensation Accumulated
on Other
Common Capital Retained Treasury Restricted Comprehensive
Stock Surplus Earnings Stock Stock Income (Loss) Total
-------- -------- ---------- --------- ------------ ------------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1,
1999................... $134,950 $516,095 $1,133,046 $(367,286) $ (8,272) $ 19,096 $1,427,629
Adjustment for the
effect of 3-for-2
common stock split..... 67,475 (67,475) -0- -0- -0- -0- -0-
-------- -------- ---------- --------- -------- -------- ----------
BALANCE AT JANUARY 1,
1999, RESTATED......... 202,425 448,620 1,133,046 (367,286) (8,272) 19,096 1,427,629
Comprehensive income:
Net income............. -0- -0- 222,004 -0- -0- -0- 222,004
Other comprehensive
income, net of tax:
Unrealized losses on
available-for-sale
securities, net of
reclassification
adjustment............ -0- -0- -0- -0- -0- (59,379) (59,379)
----------
Comprehensive income.... 162,625
Cash dividends declared
($0.51 per common
share*)................ -0- -0- (89,266) -0- -0- -0- (89,266)
Common stock
transactions:
Purchase of common
stock................. -0- -0- -0- (62,008) -0- -0- (62,008)
Benefit stock plans.... (12) 7,090 (7,348) 31,616 (2,335) -0- 29,011
Dividend reinvestment
plan.................. -0- 107 (574) 4,934 -0- -0- 4,467
-------- -------- ---------- --------- -------- -------- ----------
BALANCE AT SEPTEMBER 30,
1999................... $202,413 $455,817 $1,257,862 $(392,744) $(10,607) $(40,283) $1,472,458
======== ======== ========== ========= ======== ======== ==========
Disclosure of
reclassification
amount:
Unrealized holding
losses on available-
for-sale securities
arising during the
period................. $(53,688)
Less: Reclassification
adjustment for gains
realized in net
income................. 5,691
--------
Net unrealized losses on
available-for-sale
securities, net of
tax.................... $(59,379)
========
</TABLE>
- --------
* Restated for three-for-two common stock split in May 1999
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
----------------------
1999 1998
---------- ----------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income............................................ $ 222,004 $ 194,337
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses........................... 29,400 45,834
Depreciation and amortization of premises and
equipment.......................................... 34,368 28,639
Amortization of premiums and discounts on held-to-
maturity securities and available-for-sale
securities......................................... 3,189 (2,113)
Net decrease (increase) in mortgage loans held for
sale............................................... 107,411 (663)
Net increase in trading securities.................. (4,639) (1,283)
Net gains on sales of available-for-sale
securities......................................... (8,860) (5,218)
Net increase in accrued interest receivable and
other assets....................................... (108,636) (106,172)
Net increase in accrued expenses and other
liabilities........................................ 13,301 69,600
Provision for deferred income taxes................. 41,298 27,683
Amortization of intangible assets................... 12,265 12,342
Other operating activities, net..................... 9,843 6,780
---------- ----------
Net cash provided by operating activities......... 350,944 269,766
---------- ----------
INVESTING ACTIVITIES
Proceeds from maturities and prepayments of available-
for-sale securities.................................. 643,825 535,321
Proceeds from sales of available-for-sale securities.. 460,836 630,135
Purchases of available-for-sale securities............ (1,783,789) (1,838,659)
Proceeds from maturities, prepayments and calls of
held-to-maturity securities.......................... 584,619 885,245
Purchases of held-to-maturity securities.............. (632,422) (880,140)
Net (increase) decrease in federal funds sold and
securities purchased under agreements to resell...... (17,016) 18,500
Net decrease (increase) in other interest-earning
assets............................................... 21,884 (21,988)
Net increase in loans................................. (888,012) (401,353)
Net purchases of premises and equipment............... (29,241) (39,342)
---------- ----------
Net cash used by investing activities............. (1,639,316) (1,112,281)
---------- ----------
FINANCING ACTIVITIES
Net (decrease) increase in demand deposits and savings
accounts............................................. (133,629) 165,517
Net decrease in time deposits......................... (202,761) (93,346)
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase....... 373,506 (152,900)
Net increase (decrease) in other borrowed funds....... 315,704 (673,762)
Issuance of long-term Federal Home Loan Bank advances
and other long-term debt............................. 1,399,231 1,878,973
Payments for maturing long-term debt.................. (399,938) (256,942)
Cash dividends paid................................... (59,527) (72,061)
Cash payment for special rights and warrants on common
stock................................................ -0- (355)
Proceeds from benefit and dividend reinvestment
plans................................................ 22,371 19,788
Purchase of common stock.............................. (62,008) (98,139)
---------- ----------
Net cash provided by financing activities......... 1,252,949 716,773
---------- ----------
Decrease in cash and cash equivalents................. (35,423) (125,742)
Cash and cash equivalents at beginning of period...... 619,599 658,500
---------- ----------
Cash and cash equivalents at end of period............ $ 584,176 $ 532,758
========== ==========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
AMSOUTH BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Nine Months Ended September 30, 1999 and 1998
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 1999
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 May 24, 1999. The notes included herein
should be read in conjunction with the notes to consolidated financial
statements included in AmSouth Bancorporation's (AmSouth) 1998 annual report
on Form 10-K.
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and for Hedging Activities" (Statement
133), was issued by the Financial Accounting Standards Board (FASB). Statement
133 provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging 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 was originally
effective for fiscal years beginning after June 15, 1999. In June 1999, FASB
issued Statement of Financial Accounting Standard No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date
of FASB Statement No. 133" (Statement 137), which defers the effective date of
Statement 133 to fiscal years beginning after June 15, 2000. The impact of
adopting Statement 133 on AmSouth's financial condition or results of
operations has not been determined at this time.
Cash Flows--For the nine months ended September 30, 1999 and 1998, AmSouth
paid interest of $534,641,000 and $557,583,000, respectively, and income taxes
of $78,806,000 and $58,408,000, respectively. Noncash transfers from loans to
foreclosed properties for the nine months ended September 30, 1999 and 1998,
were $16,796,000 and $8,523,000, respectively, and noncash transfers from
foreclosed properties to loans were $413,000 and $364,000, respectively. For
the nine months ended September 30, 1999, noncash transfers from loans to
available-for-sale securities and to other assets of approximately $6,860,000
and $10,425,000, respectively, were made in connection with the participation
of mortgages to third-party conduits. For the nine months ended September 30,
1998, noncash transfers from loans to available-for-sale securities of
approximately $49,183,000 were made in connection with mortgage loan
securitizations.
Comprehensive Income--Total comprehensive income was $67,976,000 and
$162,625,000 for the three and nine months ended September 30, 1999 and
$74,811,000 and $201,244,000 for the three and nine months ended September 30,
1998. Total comprehensive income consists of net income and the change in the
unrealized gain or loss on the Corporation's available-for-sale security
portfolio arising during the period.
7
<PAGE>
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 Ended Nine Months Ended
September 30 September 30
------------------- -------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(In thousands except per share data)
<S> <C> <C> <C> <C>
Earnings per common share computation:
Numerator:
Net income.......................... $ 77,425 $ 66,844 $ 222,004 $ 194,337
Denominator:
Average common shares outstanding... 175,411 178,704 175,544 179,731
Earnings per common share.............. $ .44 $ .37 $ 1.26 $ 1.08
Diluted earnings per common share
computation:
Numerator:
Net income.......................... $ 77,425 $ 66,844 $ 222,004 $ 194,337
Denominator:
Average common shares outstanding... 175,411 178,704 175,544 179,731
Dilutive shares contingently
issuable........................... 2,347 2,728 2,614 2,916
--------- --------- --------- ---------
Average diluted common shares
outstanding....................... 177,758 181,432 178,158 182,647
Diluted earnings per common share...... $ .44 $ .37 $ 1.25 $ 1.06
</TABLE>
Acquisition--On October 1, 1999, the Corporation completed the acquisition
of First American Corporation ("First American"). Including the acquisition of
First American, AmSouth today has $43.4 billion in assets and approximately
660 branch banking offices and 1,365 ATMs in nine southeastern states. AmSouth
and its subsidiaries provide a full line of traditional and nontraditional
financial services including consumer and commercial banking, small business
banking, mortgage loans, trust services and investment management. See Item
1.b, Supplemental Combined Financial Information.
Shareholders' Equity--On March 20, 1997, AmSouth's Board of Directors
approved the repurchase by AmSouth of up to 13,500,000 shares of its common
stock for the purpose of funding employee benefit and dividend reinvestment
plans and for general corporate purposes. AmSouth purchased 5,859,000 shares
at a cost of $110,267,000 during 1997, 5,297,000 shares at a cost of
$136,514,000 during 1998 and 1,352,000 shares at a cost of $41,247,000 during
the first three months of 1999 under this authorization. The authorization for
the remaining 992,000 shares expired in March 1999.
On April 15, 1999, AmSouth's shareholders approved an increase in the
common stock authorized to be issued by AmSouth to 350,000,000 shares.
On April 15, 1999, a three-for-two common stock split in the form of a 50
percent common stock dividend was announced. The stock dividend was paid May
24 to shareholders of record as of April 30.
On April 15, 1999, AmSouth's Board of Directors approved the repurchase of
approximately 13,100,000 shares of the Company's outstanding common stock for
the purpose of funding employee benefit and dividend reinvestment plans and
for general corporate purposes. From April 15, 1999 to May 30, 1999, AmSouth
purchased 655,200 shares at a cost of $20,398,000. The authorization was
rescinded by the Board of Directors on May 31, 1999.
On September 16, 1999, in an action related to the merger with First
American, AmSouth's shareholders approved an increase in the common stock
authorized to be issued by AmSouth from 350,000,000 to 750,000,000 shares.
8
<PAGE>
Business Segment Information--AmSouth has three reportable segments:
Consumer Banking, Commercial Banking, and Capital Management. Treasury & Other
is comprised of balance sheet management activities that include the
investment portfolio, nondeposit funding and off-balance sheet financial
instruments. Treasury & Other also includes BOLI income and corporate expenses
such as corporate overhead and goodwill amortization. All revenues and
expenses related to the bond administration and stock transfer businesses,
sold in 1998, are included in Treasury & Other for 1998. The following is a
summary of the segment performance for the three months and nine months ended
September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Consumer Commercial Capital Treasury &
Banking Banking Management Other Total
-------- ---------- ---------- ---------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Three Months Ended
September 30, 1999
Net interest income from
external customers........ $ 76,454 $ 89,702 $ (158) $ 29,742 $195,740
Internal funding........... 51,154 (32,012) 250 (19,392) -0-
-------- -------- ------- -------- --------
Net interest income........ 127,608 57,690 92 10,350 195,740
Noninterest revenues....... 39,317 11,291 28,638 9,734 88,980
-------- -------- ------- -------- --------
Total revenues............. 166,925 68,981 28,730 20,084 284,720
Provision for loan losses.. 11,203 723 -0- 474 12,400
Noninterest expenses....... 89,938 24,854 19,190 19,064 153,046
-------- -------- ------- -------- --------
Income before income
taxes..................... 65,784 43,404 9,540 546 119,274
Income taxes............... 24,771 16,298 3,577 (2,797) 41,849
-------- -------- ------- -------- --------
Segment net income......... $ 41,013 $ 27,106 $ 5,963 $ 3,343 $ 77,425
======== ======== ======= ======== ========
Three Months Ended
September 30, 1998
Net interest income from
external customers........ $ 43,430 $ 95,852 $ (556) $ 34,788 $173,514
Internal funding........... 62,970 (40,217) 1,240 (23,993) -0-
-------- -------- ------- -------- --------
Net interest income........ 106,400 55,635 684 10,795 173,514
Noninterest revenues....... 36,600 9,076 23,421 8,100 77,197
-------- -------- ------- -------- --------
Total revenues............. 143,000 64,711 24,105 18,895 250,711
Provision for loan losses.. 6,953 80 -0- 967 8,000
Noninterest expenses....... 84,317 23,422 16,026 15,551 139,316
-------- -------- ------- -------- --------
Income before income
taxes..................... 51,730 41,209 8,079 2,377 103,395
Income taxes............... 20,196 15,482 2,651 (1,778) 36,551
-------- -------- ------- -------- --------
Segment net income......... $ 31,534 $ 25,727 $ 5,428 $ 4,155 $ 66,844
======== ======== ======= ======== ========
Nine Months Ended September
30, 1999
Net interest income from
external customers........ $205,010 $277,950 $ (597) $ 83,452 $565,815
Internal funding........... 165,862 (105,678) 1,260 (61,444) -0-
-------- -------- ------- -------- --------
Net interest income........ 370,872 172,272 663 22,008 565,815
Noninterest revenues....... 117,426 35,140 85,047 28,561 266,174
-------- -------- ------- -------- --------
Total revenues............. 488,298 207,412 85,710 50,569 831,989
Provision for loan losses.. 26,004 1,915 -0- 1,481 29,400
Noninterest expenses....... 268,133 75,418 58,174 58,064 459,789
-------- -------- ------- -------- --------
Income before income
taxes..................... 194,161 130,079 27,536 (8,976) 342,800
Income taxes............... 73,071 48,712 10,316 (11,303) 120,796
-------- -------- ------- -------- --------
Segment net income......... $121,090 $ 81,367 $17,220 $ 2,327 $222,004
======== ======== ======= ======== ========
Nine Months Ended September
30, 1998
Net interest income from
external customers........ $141,857 $281,806 $(2,176) $ 98,316 $519,803
Internal funding........... 180,864 (121,430) 4,255 (63,689) -0-
-------- -------- ------- -------- --------
Net interest income........ 322,721 160,376 2,079 34,627 519,803
Noninterest revenues....... 110,739 25,148 71,053 54,434 261,374
-------- -------- ------- -------- --------
Total revenues............. 433,460 185,524 73,132 89,061 781,177
Provision for loan losses.. 31,054 4,031 -0- 10,749 45,834
Noninterest expenses....... 251,346 71,276 49,551 62,271 434,444
-------- -------- ------- -------- --------
Income before income
taxes..................... 151,060 110,217 23,581 16,041 300,899
Income taxes............... 57,508 41,405 8,073 (424) 106,562
-------- -------- ------- -------- --------
Segment net income......... $ 93,552 $ 68,812 $15,508 $ 16,465 $194,337
======== ======== ======= ======== ========
</TABLE>
9
<PAGE>
Item 1.b SUPPLEMENTAL COMBINED FINANCIAL INFORMATION
The following unaudited supplemental combined financial information gives
retroactive effect to the merger of AmSouth and First American consummated on
October 1, 1999 (the "Merger") on a pooling of interests accounting basis.
Accordingly, the unaudited supplemental combined financial information
combines the historical financial information of AmSouth and First American
for all periods presented herein. Certain insignificant reclassifications have
been included to ensure consistent presentation.
The combined financial information includes merger related costs of $19.7
million and $47.7 million for the three and nine month periods ended September
30, 1999 and $37.1 million and $109.2 million for the same periods of 1998.
These amounts were primarily related to the acquisition of companies by First
American prior to the Merger. Merger related costs associated with the Merger
are expected to primarily be incurred over the next three quarters. The third
quarter of 1999 also included $15.6 million of special charges. These special
charges included an $8.0 million impairment loss on a portfolio investment,
and approximately $7.6 million of other charges conforming First American to
AmSouth's accounting policies and practices. These special charges are
included in the provision for loan losses, noninterest revenue and noninterest
expense. Excluding the merger related costs and these other special charges,
AmSouth would have recorded net income of $156.6 million and $443.6 million
for the three months and nine months ended September 30, 1999, respectively,
or $0.40 and $1.12 per diluted share, respectively.
The supplemental data are presented for comparative purposes only and are
not necessarily indicative of the future financial position or results of
operations of the combined company.
11
<PAGE>
AMSOUTH BANCORPORATION AND SUBSIDIARIES
SUPPLEMENTAL COMBINED FINANCIAL INFORMATION
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Third Quarter Third Quarter
1999 % Change 1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Excluding merger related costs and other
special charges:
Earnings:
Net income.............................. $ 156,554 6.4% $ 147,130
Provision for loan losses............... 27,604 66.2 16,604
Noninterest revenue..................... 225,218 12.9 199,545
Noninterest expense..................... 336,879 8.3 310,971
Per Share:
Diluted earnings per common share....... $ 0.40 8.1 $ 0.37
Earnings per common share............... 0.40 5.3 0.38
Ratios:
Return on average assets................ 1.46% 1.49%
Return on average common equity......... 19.03 18.87
Efficiency ratio........................ 55.09 55.13
- -------------------------------------------------------------------------------
Including merger related costs and other
special charges:
Earnings:
Net interest income..................... $ 380,347 6.3% $ 357,761
Provision for loan losses............... 30,604 84.3 16,604
Noninterest revenue excluding gain on
sale of businesses..................... 207,753 4.1 199,545
Net gain on sale of businesses.......... 8,624 -- --
Noninterest expense excluding merger
related costs.......................... 340,680 9.6 310,971
Merger related costs.................... 19,672 (47.0) 37,139
Income taxes............................ 71,122 4.2 68,250
----------- -----------
Net income.............................. $ 134,646 8.3 $ 124,342
=========== ===========
- -------------------------------------------------------------------------------
Per share:
Diluted earnings per common share....... $ 0.34 6.3% $ 0.32
Earnings per common share............... 0.35 9.4 0.32
- -------------------------------------------------------------------------------
Average Balances:
Total assets............................ $42,619,886 8.6% $39,246,344
Interest-earning assets................. 38,833,086 8.0 35,972,211
Loans net of unearned income............ 25,715,288 7.8 23,857,684
Deposits................................ 27,539,662 1.9 27,029,115
Total shareholders' equity.............. 3,264,009 5.5 3,093,142
- -------------------------------------------------------------------------------
At quarter end:
Common shares issued and outstanding.... 391,949 0.4% 390,475
Book value per common share............. $ 8.10 0.7 $ 8.04
Tangible book value per common share.... $ 6.99 2.0 $ 6.85
- -------------------------------------------------------------------------------
Ratios:
Return on average assets................ 1.25% 1.26%
Return on average common equity......... 16.37 15.95
Average shareholders' equity to average
total assets........................... 7.66 7.88
Efficiency ratio........................ 59.79 61.72
- -------------------------------------------------------------------------------
Credit quality information:
Nonaccrual loans........................ $ 161,842 46.6% $ 110,362
Nonperforming assets.................... $ 186,329 46.9 $ 126,854
Nonperforming assets to loans net of
unearned income, foreclosed properties
and repossessions...................... 0.71% 0.54%
Net charge-offs......................... $ 31,046 116.1% $ 14,368
Allowance for loan losses to loans net
of unearned income..................... 1.39% 1.55%
Net charge-offs to average loans net of
unearned income........................ 0.48 0.24
Allowance for loan losses to
nonperforming loans.................... 225.79 331.27
Allowance for loan losses to
nonperforming assets................... 196.12 288.20
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
AMSOUTH BANCORPORATION AND SUBSIDIARIES
SUPPLEMENTAL COMBINED FINANCIAL INFORMATION
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Year through September 30,
----------------------------------
1999 % Change 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Excluding merger related costs and other
special charges:
Earnings:
Net income................................ $ 443,619 8.1 % $ 410,430
Provision for loan losses................. 64,926 (4.1) 67,713
Noninterest revenue....................... 640,586 6.0 604,265
Noninterest expense ...................... 1,016,578 4.6 971,593
Per Share:
Diluted earnings per common share......... $ 1.12 7.7 $ 1.04
Earnings per common share................. 1.13 6.6 1.06
Ratios:
Return on average assets.................. 1.44% 1.43%
Return on average common equity........... 18.28 17.89
Efficiency ratio.......................... 56.90 57.25
- --------------------------------------------------------------------------------
Including merger related costs and other
special charges:
Earnings:
Net interest income....................... $ 1,126,684 4.9 % $ 1,074,221
Provision for loan losses................. 67,926 0.3 67,713
Noninterest revenue excluding gain on sale
of businesses ........................... 623,121 8.1 576,291
Net gain on sale of businesses............ 8,624 (69.2) 27,974
Noninterest expense excluding merger
related costs ........................... 1,020,380 5.0 971,593
Merger related costs...................... 47,710 (56.3) 109,202
Income taxes.............................. 219,391 14.2 192,110
----------- -----------
Net income................................ $ 403,022 19.3 $ 337,868
=========== ===========
- --------------------------------------------------------------------------------
Per share:
Diluted earning per common share.......... $ 1.02 20.0 % $ 0.85
Earning per common share.................. 1.03 18.4 0.87
- --------------------------------------------------------------------------------
Average Balances:
Total assets.............................. $41,263,284 7.5 % $38,399,780
Interest-earning assets................... 37,594,118 7.0 35,123,035
Loans net of unearned income.............. 25,115,170 4.1 24,115,351
Deposits.................................. 27,569,991 2.4 26,923,051
Total shareholders' equity................ 3,244,820 5.8 3,066,939
- --------------------------------------------------------------------------------
At quarter end:
Common shares issued and outstanding...... 391,949 0.4 % 390,475
Book value per common share............... $ 8.10 0.7 $ 8.04
Tangible book value per common share...... $ 6.99 2.0 $ 6.85
- --------------------------------------------------------------------------------
Ratios:
Return on average assets.................. 1.31% 1.18%
Return on average common equity........... 16.61 14.73
Average shareholders' equity to average
total assets............................. 7.86 7.99
Efficiency ratio.......................... 60.08 63.69
- --------------------------------------------------------------------------------
Credit quality information:
Nonaccrual loans.......................... $ 161,842 46.6 % $ 110,362
Nonperforming assets...................... $ 186,329 46.9 $ 126,854
Nonperforming assets to loans net of
unearned income, foreclosed properties
and repossessions........................ 0.71% 0.54%
Net charge-offs........................... $ 76,255 37.1 % $ 55,613
Allowance for loan losses to loans net of
unearned income.......................... 1.39% 1.55%
Net charge-offs to average loans net of
unearned income.......................... 0.41 0.31
Allowance for loan losses to nonperforming
loans.................................... 225.79 331.27
Allowance for loan losses to nonperforming
assets................................... 196.12 288.20
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
13
<PAGE>
Independent Accountants' Review Report
The Board of Directors
AmSouth Bancorporation
We have reviewed the accompanying consolidated statements of condition of
AmSouth Bancorporation and subsidiaries as of September 30, 1999 and 1998, and
the related consolidated statements of earnings for the three-month and nine-
month periods ended September 30, 1999 and 1998, and consolidated statements
of cash flows for the nine-month periods ended September 30, 1999 and 1998,
and the consolidated statement of shareholders' equity for the nine-month
period ended September 30, 1999. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with 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, 1998, 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 29, 1999, except
for Note 22 as to which the date is March 1, 1999, 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, 1998 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 10, 1999
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
In October 1999, AmSouth acquired First American Corporation and First
American Corporation merged into AmSouth (the "Merger"), with AmSouth the
surviving entity. AmSouth is a bank holding company whose principal subsidiary
as of September 30, 1999 was AmSouth Bank. Because the merger occurred after
September 30, 1999, the historical financial statements in this report do not
give effect to the Merger. The results presented in the historical financial
statements and, except where noted, in this discussion represent the results
of AmSouth and do not include the results of First American Corporation for
any of the periods presented. See the Supplemental Combined Financial
Information included in Item 1.b for combined financial information giving
retroactive effect to the Merger on a pooling of interests accounting basis.
AmSouth reported net income of $222.0 million for the nine months ended
September 30, 1999, a 14.2% increase over net income of $194.3 million for the
same period of 1998. Diluted earnings per common share were $1.25 and $1.06
for the nine month periods ended September 30, 1999 and 1998, respectively.
AmSouth's year-to-date earnings resulted in an annualized return on average
assets (ROA) of 1.46% and an annualized return on average equity (ROE) of
20.77% for 1999 compared to 1.34% and 18.37%, respectively, for the first nine
months of 1998.
Net income for the third quarter of 1999 was $77.4 million compared to
$66.8 million for the same period of 1998. Diluted earnings per common share
for these periods were $.44 and $.37, respectively. ROA and ROE for the third
quarter of 1999 were 1.47% and 21.35%, respectively, compared to 1.34% and
18.65%, respectively, for the third quarter of 1998.
Total assets were $21.3 billion at quarter end, compared to 1998's quarter-
end assets of $19.7 billion. The increase was primarily the result of
continued loan growth over the past year. Loans net of unearned income at
September 30, 1999, increased $1.2 billion from September 30, 1998, to $13.7
billion. On a managed basis, which includes commercial and residential loans
participated to third-party conduits, loans increased $2.5 billion to $16.3
billion at quarter end. The increases in the managed loan portfolio occurred
primarily in commercial and industrial, commercial real estate, home equity,
and indirect lending.
On the funding side of the balance sheet, total deposits at September 30,
1999 decreased slightly, with increases in interest-bearing and noninterest-
bearing demand deposits offsetting a 7.8% and 9.7% decrease in time deposits
and certificates of deposit of $100,000 or more, respectively. AmSouth
increased its use of federal funds purchased and securities sold under
agreements to repurchase as a funding source. Federal funds purchased and
securities sold under agreements to repurchase increased to $1.9 billion at
September 30, 1999, a 44.6% increase over 1998 third-quarter end. AmSouth
continued to increase its use of Federal Home Loan Bank (FHLB) advances as a
funding source. FHLB advances increased to $3.5 billion at September 30, 1999,
a 37.2% increase over 1998 third-quarter end.
Net Interest Income
Net interest income on a fully taxable equivalent basis for the nine months
ended September 30, 1999, was $570.2 million, an 8.8% increase over the same
period of 1998. The increase can be attributed to lower funding costs and a
shift in the mix of AmSouth's earning assets from investment securities to
higher yielding loans. This resulted in a widening of the net interest margin
to 4.08% from 3.91% for the nine months ended September 30, 1998. Lower
borrowing and deposit rates across all categories of deposits contributed to
the lower funding costs. The improvement was further enhanced by a shift in
the deposit mix from higher cost consumer CDs to noninterest-bearing demand
and lower cost interest checking and money market deposit accounts.
Net interest income on a fully taxable equivalent basis for the three
months ended September 30, 1999 was $197.3 million, a 12.7% increase over the
same period of 1998. The net interest margin and the net interest spread
increased 29 and 33 basis points, respectively, from the prior year. The
reasons for the increases 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
14
<PAGE>
interest rate environments. AmSouth 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 and in compliance with specific liquidity and interest rate
risk guidelines.
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 September 30, 1999,
AmSouth would expect NII to decrease $15.7 million and increase $5.6 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. Based on September 30,
1998 simulation model results, AmSouth would have expected decreases of $0.2
million and $4.2 million if interest rates had gradually increased or
decreased from the rates in effect at the time by 100 basis points over a 12-
month period.
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 1999, AmSouth entered into additional interest rate swaps in
the notional amount of $1.5 billion. There have been $15.0 million in
maturities or terminations of interest rate swaps in 1999. Interest rate swaps
in the notional amount of $450.0 million were called during the first nine
months of 1999. At September 30, 1999, AmSouth had interest rate swaps, all of
which receive fixed rates, totaling a notional amount of $1.9 billion. The
swaps added in 1999 as hedges were designated to certain deposits, commercial
loans and indebtedness of AmSouth Bank. At September 30, 1999, 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 Credit 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 reviewed by 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 September 30, 1999, the allowance for loan losses was $177.6 million, or
1.30% of loans net of unearned income, compared to $175.0 million, or 1.40%,
for the prior year. The coverage ratio of the allowance for loan losses to
nonperforming loans decreased from 236.10% at September 30, 1998, to 167.39%
at September 30, 1999. Over the same period, the level of nonperforming loans
increased $31.9 million. The increase was primarily the result of three
commercial credits placed on non-accrual during the quarter. Two of the
credits were to borrowers in the health care services sector for whom a
material portion of their services are long-term, acute care services and
whose revenues are substantially dependent upon reimbursements from
government-sponsored programs such as Medicare and Medicaid. Reimbursement
rates from such programs are strictly regulated and subject to funding
appropriations from federal and state governments. Implementation by the
United States government of the Prospective Payment System for the Medicare
system and other changes in the Medicare program have, in recent quarters,
resulted in significantly lower Medicare revenues for health care service
providers like the aforesaid borrowers than would have been received under the
old Medicare payment methodology. AmSouth cannot
15
<PAGE>
predict exactly what will be the future effect of such changes on this portion
of its health care-related lending portfolio. However, this portion of the
portfolio, together with the rest of the health care-related portfolio, will
continue to be closely monitored. At September 30, 1999, AmSouth had
approximately $120.0 million of loans in this portion of its health care
lending portfolio, $32.4 million of which were considered nonperforming at
quarter-end. On a combined basis, AmSouth and First American had approximately
$146.6 million of loans outstanding to this segment of the health care
industry at September 30, 1999, $36.9 million of which were considered
nonperforming at quarter-end.
Net charge-offs for the quarter ended September 30, 1999, were $11.9
million, an increase of $4.9 million or 69.6% from $7.0 million a year
earlier. The increase was the result of higher charge-offs in the commercial,
dealer, indirect and other residential mortgage portfolios. For the nine
months ended September 30, 1999, net charge-offs were $27.9 million, a
decrease of $7.2 million, or 20.4 %, from $35.1 million for the same period of
1998. Annualized net charge-offs to average loans net of unearned income were
0.35% and 0.28%, respectively, for the three months and nine months ended
September 30, 1999, compared to 0.22% and 0.38% for the same periods of the
prior year. The decrease in net charge-offs occurred primarily in AmSouth's
revolving credit portfolio, which decreased $635.0 thousand and $11.4 million
for the three months and nine months versus the same periods of 1998. The
decline in revolving credit net charge-offs reflects the sale of approximately
$169.5 million of underperforming credit card loans in the second quarter of
1998. In addition, net charge-offs for the direct consumer lending portfolio
decreased $510.0 thousand and $2.2 million for the three months and nine
months versus the same periods of the prior year. This decrease was offset by
a $2.3 million and $4.7 million increase in net charge-offs in AmSouth's
indirect lending portfolio for the three and nine month periods ended
September 30, 1999 versus the same periods of 1998. Annualized net charge-offs
for the consumer loan portfolio were 0.50% of average consumer loans for the
three months ended September 30, 1999 compared to 0.43% for the same period of
1998. Annualized net charge-offs for the consumer loan portfolio fell to 0.45%
of average consumer loans for the nine months ended September 30, 1999
compared to 0.67% for the prior year. The provision for loan losses for the
third quarter was $12.4 million and $29.4 million for the first nine months of
1999 compared to $8.0 million and $45.8 million for the year-earlier periods.
The 1999 provision reflects loan loss exposure related to the overall growth
in the loan portfolio and the change in the mix of the loan portfolio.
Table 7 presents a five-quarter comparison of the components of
nonperforming assets. At September 30, 1999, nonperforming assets as a
percentage of loans net of unearned income, foreclosed properties and
repossessions, increased 23 basis points to 0.90% compared to September 30,
1998. The level of nonperforming assets increased $39.2 million during the
same period.
Included in nonperforming assets at September 30, 1999 and 1998, was $56.7
million and $42.2 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 almost all of these impaired loans. At September 30, 1999 and
1998, there was $20.6 million and $4.8 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 September 30, 1999 and
1998, was $39.1 million and $44.4 million, respectively, and $32.6 million and
$48.1 million, respectively, for the nine months ended September 30, 1999 and
1998. AmSouth recorded no material interest income on its impaired loans
during the three months and nine months ended September 30, 1999.
Noninterest Revenues and Noninterest Expenses
Year-to-date noninterest revenues totaled $266.2 million at September 30,
1999, compared to $261.4 million for the prior-year period. Included in
noninterest revenues for 1998 was a $28.0 million 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
effects of this one-time gain, noninterest revenues rose $32.8 million or
14.0% compared to the same period a year earlier. Growth occurred in most
major categories, including consumer investment services income, mortgage
income and portfolio income. Consumer investment services income increased
$10.2 million primarily as a result of a higher sales volume of annuity
products. Mortgage income increased $5.3 million primarily as a result of
gains on the sales of residential mortgage loans to third-
16
<PAGE>
party conduits partially offset by a decrease in gains on sale of servicing.
Other noninterest revenues increased $10.2 million primarily due to an
increase in income from commercial loan conduit activity. Noninterest revenues
for the third quarter of 1999 were $89.0 million. Noninterest revenues for the
quarter increased 15.3% compared to the same period last year. Changes for the
quarter were primarily for the same reasons discussed in the year-to-date
analysis.
Year-to-date noninterest expenses increased 5.8% to $459.8 million at
September 30, 1999, compared to $434.4 million for the prior year. Salaries
and employee benefits increased $22.5 million when compared to the same period
a year ago. The increase is primarily due to an increased number of employees
associated with new revenue initiatives, annual merit increases and incentives
associated with AmSouth's stronger financial performance. Equipment expense
increased $1.4 million when compared to the same period a year ago. The
increase is due to the implementation of consumer and commercial automation
projects and additional expenses associated with the addition of Florida
branches purchased from another bank. Noninterest expenses for the third
quarter of 1999 were $153.0 million, an increase of 9.9% over the same period
of 1998. Changes for the quarter were primarily for the same reasons discussed
in the year-to-date analysis.
Capital Adequacy
At September 30, 1999, shareholders' equity totaled $1.5 billion or 6.92%
of total assets. Since December 31, 1998, shareholders' equity increased $44.8
million as dividends of $89.3 million and the purchase of 2,024,000 shares of
AmSouth common stock for $62.0 million offset the increase from net income of
$222.0 million.
Table 10 presents the capital amounts and risk-adjusted capital ratios for
AmSouth and AmSouth Bank at September 30, 1999 and 1998. At September 30,
1999, 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, 1999.
Year 2000 Project
The following information that appears in this section constitutes Year
2000 Readiness Disclosure, pursuant to the Year 2000 Information and Readiness
Disclosure Act.
The Year 2000 issue is the result of computer systems using a two-digit
format, as opposed to four digits, to indicate the year. Any of AmSouth's
computer programs or hardware that have date-sensitive software or embedded
chips may not appropriately interpret dates beyond the year 1999. This could
result in a system failure, miscalculation or other computer errors causing
disruptions of operations. AmSouth believes that it has an effective program
in place to resolve the Year 2000 issue in a timely manner and that it is
unlikely that the Year 2000 issue will cause any significant problems with
customer service or otherwise have a material adverse impact on AmSouth's
operations or financial performance.
A Year 2000 project team, consisting of professionals from all areas of
AmSouth, was created in 1997 to plan and oversee AmSouth's Year 2000 efforts.
A plan was developed which involves the following five phases: awareness,
assessment, remediation, testing, and implementation. The plan also included
communicating with external service providers to ensure that they are taking
appropriate action to remedy any Year 2000 issues. To date, AmSouth has fully
completed its assessment phase of all systems that could be affected by the
Year 2000. As part of the assessment phase, systems that have the greatest
impact on the operations of AmSouth were designated as mission critical
systems. The remediation, testing and implementation phases for all internal
mission critical systems are 100% complete, with all phases meeting relevant
regulatory guidelines. Even after testing and implementation, AmSouth has
continued and will continue testing throughout 1999 to reaffirm the Year 2000
compliance of mission critical systems.
A small number of mission critical systems are provided by third parties on
a service bureau basis, such as credit card processing and services supporting
securities brokerage businesses. All such third-party providers of
17
<PAGE>
mission critical services have certified their Year 2000 readiness and all
completed their testing by March 31, 1999, as required by federal banking
regulations. Further, AmSouth is now utilizing the Year 2000 compliant
versions of all third-party mission critical systems, as was required by June
30, 1999, according to federal banking regulations.
While AmSouth's greatest focus and efforts to date have been on preparing
mission critical systems for the Year 2000, substantially all noncritical
systems have been remediated, tested and implemented.
In addition, AmSouth is continuing the process of assessing the Year 2000
readiness of its significant customers, suppliers and counterparties. In the
fourth quarter of 1997, AmSouth began researching the issue of Year 2000 and
the possible impact of Year 2000 on its loan customers' liquidity and their
ability to repay their loans. Early last year, AmSouth established an
education and assessment program for all of its commercial loan customers with
credit exposure of $100,000 or more. Meetings were held with these customers
to assess their risk of Year 2000 problems as well as their understanding and
progress toward preparing their systems to operate in the Year 2000. AmSouth
has continued throughout 1999 to assess and evaluate the impact of Year 2000
in its credit analysis of current and future loan customers and plans to
continue throughout 1999 and 2000.
AmSouth has also used a survey process to review its exposure with respect
to counterparties to various transactions. In domestic securities
transactions, AmSouth only enters into transactions with recognized dealers
that are monitored by U.S. regulators. AmSouth plans to suspend trading with
any domestic dealers who cannot demonstrate their Year 2000 compliance by the
fourth quarter of 1999. Annual lines with international securities dealers
were reviewed before the end of 1998, all with satisfactory results.
AmSouth has contacted all of its essential suppliers regarding their Year
2000 compliance and has completed an analysis of the possible impact of
noncompliance on their ability to fulfill their commitments to AmSouth. To
date, AmSouth is not aware of any external supplier with a Year 2000 issue
that would materially impact AmSouth's results of operations, liquidity or
capital resources.
The potential impact of the Year 2000 issue on AmSouth's responsibilities
when it acts in a fiduciary capacity is also being considered. Assets under
fiduciary management are being reviewed to assess the possible impact of the
Year 2000 issue on their value. The extent of analysis of particular assets is
based on an assessment of their risk characteristics. This will be combined
with a review of accounts above a predetermined dollar amount. Consideration
of Year 2000 issues will be a part of ongoing activities, including investment
selection and acceptance of new accounts.
In recent years, AmSouth has invested heavily in new technology to improve
service and competitiveness. In addition, AmSouth utilizes common operating
systems company-wide. As a result, AmSouth estimates that the total
incremental cost of Year 2000 compliance, which excludes the cost to upgrade
and replace systems in the ordinary course of business, will not exceed $10.0
million, the majority of which has already been expensed.
As noted above, AmSouth believes that it has an effective program in place
to resolve the Year 2000 issue. However, for unexpected reasons, the Year 2000
issue could impact AmSouth's operations. In addition, disruptions in the
economy generally resulting from Year 2000 issues could also materially impact
AmSouth. There can also be no guarantee that the systems of other companies on
which AmSouth's systems rely will not have any adverse impact on AmSouth's
systems.
While AmSouth has no reason to conclude that a failure will occur, the most
likely worst-case Year 2000 scenarios entail those items over which AmSouth
has no control, including (1) unpredictable actions resulting from irrational
public demand even if the Year 2000 issue actually presents no problems and
(2) a scenario where a disruption or failure of AmSouth's power suppliers or
voice and data transmission suppliers impacts AmSouth, its customers, vendors,
and the public infrastructure. If such public reaction or a failure were to
occur, AmSouth would implement a contingency plan. While it is impossible to
quantify the impact of such scenarios, the most reasonably likely worst-case
scenario would entail liquidity issues related to increased customer
withdrawals or the diminishment of service levels, resulting in customer
inconvenience, and additional costs associated with the implementation of
contingency plans.
18
<PAGE>
AmSouth has comprehensive contingency plans in place to address these
scenarios and other possible system and service failures that could occur
outside of AmSouth's control in an effort to minimize the impact on AmSouth of
other organizations' failures to properly remediate their systems. These plans
include having back-up power and telecommunication sources and sufficient
resources to deal with possible increased liquidity demands. Additionally,
AmSouth has formulated event plans and outlined responsibilities for the days
immediately preceding and including the date change.
Table 1--Financial Summary
<TABLE>
<CAPTION>
September 30
------------------------ %
1999 1998 Change
----------- ----------- ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance sheet summary
End-of-period balances:
Loans net of unearned
income................ $13,707,616 $12,527,168 9.4%
Total assets........... 21,277,795 19,693,343 8.0
Total deposits......... 12,947,290 13,017,167 (0.5)
Shareholders' equity... 1,472,458 1,437,957 2.4
Year-to-date average
balances:
Loans net of unearned
income................ $13,282,285 $12,370,269 7.4%
Total assets........... 20,341,018 19,432,513 4.7
Total deposits......... 13,068,839 12,890,941 1.4
Shareholders' equity... 1,429,064 1,414,533 1.0
<CAPTION>
Nine Months Three Months
Ended September 30 Ended September 30
------------------------ % -------------------- %
1999 1998 Change 1999 1998 Change
----------- ----------- ------ --------- --------- ------
(In thousands except per share data)
<S> <C> <C> <C> <C> <C> <C>
Earnings summary
Net income............. $ 222,004 $ 194,337 14.2% $ 77,425 $ 66,844 15.8%
Per common share*...... 1.26 1.08 16.7 0.44 0.37 18.9
Per common share--
diluted*.............. 1.25 1.06 17.9 0.44 0.37 18.9
Selected ratios
Return on average as-
sets (annualized)..... 1.46% 1.34% 1.47% 1.34%
Return on average eq-
uity (annualized)..... 20.77 18.37 21.35 18.65
Average equity to
assets................ 7.03 7.28 6.91 7.16
End-of-period equity to
assets................ 6.92 7.30 6.92 7.30
End-of-period tangible
equity to assets...... 5.93 6.16 5.93 6.16
Allowance for loan
losses to loans net of
unearned income....... 1.30 1.40 1.30 1.40
Efficiency ratio....... 54.97 55.31 53.47 55.25
Common stock data*
Cash dividends
declared.............. $ 0.51 $ 0.40 $ 0.17 $ 0.13
Book value at end of
period................ 8.34 8.04 8.34 8.04
Market value at end of
period................ 23.44 22.75 23.44 22.75
Average common shares
outstanding........... 175,544 179,731 175,411 178,704
Average common shares
outstanding--diluted.. 178,158 182,647 177,758 181,432
</TABLE>
- --------
* Restated for three-for-two common stock split in May 1999
19
<PAGE>
Table 2--Year-to-Date Yields Earned on Average Interest-Earning Assets
and Rates Paid on Average Interest-Bearing Liabilities
<TABLE>
<CAPTION>
1999 1998
------------------------------ -----------------------------
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
Interest-earning assets:
Loans net of unearned income..................... $ 13,282,285 $ 838,245 8.44% $12,370,269 $ 811,406 8.77%
Available-for-sale securities.................... 3,180,651 161,683 6.80 3,024,666 160,265 7.08
Held-to-maturity securities:
Taxable.......................................... 1,929,938 96,266 6.67 2,298,117 115,642 6.73
Tax-free......................................... 147,685 9,472 8.58 110,267 9,118 11.06
------------ --------- ----------- ---------
Total held-to-maturity securities................ 2,077,623 105,738 6.80 2,408,384 124,760 6.93
------------ --------- ----------- ---------
Total investment securities..................... 5,258,274 267,421 6.80 5,433,050 285,025 7.01
Other interest-earning assets.................... 128,213 4,791 5.00 113,045 4,546 5.38
------------ --------- ----------- ---------
Total interest-earning assets.................... 18,668,772 1,110,457 7.95 17,916,364 1,100,977 8.22
Cash and other assets............................. 1,859,909 1,651,194
Allowance for loan losses......................... (177,752) (175,764)
Market valuation on available-for-sale
securities....................................... (9,911) 40,719
------------ -----------
$ 20,341,018 $19,432,513
============ ===========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits................. $ 4,460,672 102,597 3.08 $ 3,998,916 106,562 3.56
Savings deposits................................. 946,387 13,871 1.96 1,023,954 22,288 2.91
Time deposits.................................... 4,533,585 178,661 5.27 4,860,101 204,286 5.62
Certificates of deposit of $100,000 or more...... 938,547 36,162 5.15 1,039,599 44,263 5.69
Federal funds purchased and securities sold under
agreements to repurchase........................ 1,730,657 58,869 4.55 1,378,322 54,128 5.25
Other interest-bearing liabilities............... 3,775,196 150,060 5.31 3,448,590 145,304 5.63
------------ --------- ----------- ---------
Total interest-bearing liabilities............... 16,385,044 540,220 4.41 15,749,482 576,831 4.90
--------- ---- --------- -----
Net interest spread.............................. 3.54% 3.32%
==== =====
Noninterest-bearing demand deposits.............. 2,189,648 1,968,371
Other liabilities................................ 337,262 300,127
Shareholders' equity............................. 1,429,064 1,414,533
------------ -----------
$ 20,341,018 $19,432,513
============ ===========
Net interest income/margin on a taxable equivalent
basis............................................ 570,237 4.08% 524,146 3.91%
==== =====
Taxable equivalent adjustment:
Loans............................................ 1,232 1,346
Securities....................................... 3,190 2,997
--------- ---------
Total taxable equivalent adjustment.............. 4,422 4,343
--------- ---------
Net interest income............................. $ 565,815 $ 519,803
========= =========
</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. Available-for-sale securities excludes certain
noninterest-earning, marketable equity securities.
20
<PAGE>
Table 3--Quarterly Yields Earned on Average Interest-Earning Assets and Rates
Paid on Average Interest-Bearing Liabilities
<TABLE>
<CAPTION>
1999
--------------------------------------------------------------------------------------
Third Quarter Second Quarter First Quarter Fourth Quarter
---------------------------- ---------------------------- ---------------------------- ---------------------
Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/
Balance Expense Rate Balance Expense Rate Balance Expense Rate Balance Expense
----------- -------- ------ ----------- -------- ------ ----------- -------- ------ ----------- --------
(Taxable equivalent basis--dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning
assets:
Loans net of
unearned income.. $13,360,012 $286,564 8.51% $13,418,941 $280,477 8.38% $13,064,656 $271,204 8.42% $12,787,915 $276,196
Available-for-
sale securities.. 3,542,904 59,751 6.69 3,126,831 52,916 6.79 2,864,766 49,016 6.94 3,044,713 52,318
Held-to-maturity
securities:
Taxable.......... 2,008,203 33,772 6.67 1,866,778 30,850 6.63 1,913,794 31,644 6.71 2,079,172 34,403
Tax-free......... 166,791 3,513 8.36 148,369 3,102 8.39 127,462 2,857 9.09 114,211 2,672
----------- -------- ----------- -------- ----------- -------- ----------- --------
Total held-to-
maturity
securities....... 2,174,994 37,285 6.80 2,015,147 33,952 6.76 2,041,256 34,501 6.85 2,193,383 37,075
----------- -------- ----------- -------- ----------- -------- ----------- --------
Total investment
securities...... 5,717,898 97,036 6.73 5,141,978 86,868 6.78 4,906,022 83,517 6.90 5,238,096 89,393
Other interest-
earning assets... 110,616 1,392 4.99 124,037 1,645 5.32 150,425 1,754 4.73 138,838 1,615
----------- -------- ----------- -------- ----------- -------- ----------- --------
Total interest-
earning assets... 19,188,526 384,992 7.96 18,684,956 368,990 7.92 18,121,103 356,475 7.98 18,164,849 367,204
Cash and other
assets............ 1,876,465 1,867,225 1,835,590 1,768,281
Allowance for loan
losses............ (177,814) (178,875) (176,554) (176,519)
Market valuation
on available-for-
sale securities... (59,466) 5,930 24,728 39,685
----------- ----------- ----------- -----------
$20,827,711 $20,379,236 $19,804,867 $19,796,296
=========== =========== =========== ===========
Liabilities and
Shareholders'
Equity
Interest-bearing
liabilities:
Interest-bearing
demand deposits.. $ 4,481,863 35,389 3.13 $ 4,453,899 33,828 3.05 $ 4,445,859 33,380 3.04 $ 4,340,072 36,582
Savings
deposits......... 911,476 4,337 1.89 954,475 4,668 1.96 973,896 4,866 2.03 981,293 6,107
Time deposits.... 4,519,111 59,055 5.18 4,560,415 59,478 5.23 4,521,253 60,128 5.39 4,641,398 64,825
Certificates of
deposit of
$100,000 or
more............. 938,684 12,140 5.13 938,094 11,819 5.05 938,864 12,203 5.27 1,021,557 14,126
Federal funds
purchased and
securities sold
under agreements
to repurchase.... 1,849,722 21,849 4.69 1,803,325 20,170 4.49 1,535,469 16,850 4.45 1,478,217 17,693
Other interest-
bearing
liabilities...... 4,126,451 54,949 5.28 3,698,198 48,555 5.27 3,493,989 46,556 5.40 3,436,194 47,407
----------- -------- ----------- -------- ----------- -------- ----------- --------
Total interest-
bearing
liabilities...... 16,827,307 187,719 4.43 16,408,406 178,518 4.36 15,909,330 173,983 4.44 15,898,731 186,740
-------- ---- -------- ---- -------- ---- --------
Net interest
spread............ 3.53% 3.56% 3.54%
==== ==== ====
Noninterest-
bearing demand
deposits.......... 2,228,826 2,207,191 2,131,862 2,143,062
Other
liabilities....... 332,993 336,898 341,994 335,663
Shareholders'
equity............ 1,438,585 1,426,741 1,421,681 1,418,840
----------- ----------- ----------- -----------
$20,827,711 $20,379,236 $19,804,867 $19,796,296
=========== =========== =========== ===========
Net interest
income/margin on a
taxable equivalent
basis............. 197,273 4.08% 190,472 4.09% 182,492 4.08% 180,464
==== ==== ====
Taxable equivalent
adjustment:
Loans............ 348 465 419 410
Securities....... 1,185 1,044 961 887
-------- -------- -------- --------
Total taxable
equivalent
adjustment....... 1,533 1,509 1,380 1,297
-------- -------- -------- --------
Net interest
income.......... $195,740 $188,963 $181,112 $179,167
======== ======== ======== ========
<CAPTION>
1998
-----------------------------------
Third Quarter
----------------------------
Yield/ Average Revenue/ Yield/
Rate Balance Expense Rate
------ ------------ -------- ------
<S> <C> <C> <C> <C>
Assets
Interest-earning
assets:
Loans net of
unearned income.. 8.57% $12,605,379 $275,905 8.68%
Available-for-
sale securities.. 6.82 3,271,460 56,958 6.91
Held-to-maturity
securities:
Taxable.......... 6.56 2,217,506 37,154 6.65
Tax-free......... 9.28 113,616 2,834 9.90
------------ --------
Total held-to-
maturity
securities....... 6.71 2,331,122 39,988 6.81
------------ --------
Total investment
securities...... 6.77 5,602,582 96,946 6.87
Other interest-
earning assets... 4.61 122,408 1,470 4.76
------------ --------
Total interest-
earning assets... 8.02 18,330,369 374,321 8.10
Cash and other
assets............ 1,653,319
Allowance for loan
losses............ (175,160)
Market valuation
on available-for-
sale securities... 40,383
------------
$19,848,911
============
Liabilities and
Shareholders'
Equity
Interest-bearing
liabilities:
Interest-bearing
demand deposits.. 3.34 $ 4,132,755 37,924 3.64
Savings
deposits......... 2.47 1,002,891 7,343 2.90
Time deposits.... 5.54 4,787,203 67,869 5.62
Certificates of
deposit of
$100,000 or
more............. 5.49 1,111,031 15,969 5.70
Federal funds
purchased and
securities sold
under agreements
to repurchase.... 4.75 1,520,284 20,048 5.23
Other interest-
bearing
liabilities...... 5.47 3,577,479 50,202 5.57
------------ --------
Total interest-
bearing
liabilities...... 4.66 16,131,643 199,355 4.90
------ -------- ------
Net interest
spread............ 3.36% 3.20%
====== ======
Noninterest-
bearing demand
deposits.......... 1,969,029
Other
liabilities....... 326,336
Shareholders'
equity............ 1,421,903
------------
$19,848,911
============
Net interest
income/margin on a
taxable equivalent
basis............. 3.94% 174,966 3.79%
====== ======
Taxable equivalent
adjustment:
Loans............ 522
Securities....... 930
--------
Total taxable
equivalent
adjustment....... 1,452
--------
Net interest
income.......... $173,514
========
</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. Available-for-sale securities excludes
certain noninterest-earning, marketable equity securities.
21
<PAGE>
Table 4--Maturities and Interest Rates Exchanged on Swaps
<TABLE>
<CAPTION>
Mature During
--------------------------------------------------------
1999 2000 2001 2002 2003 2008 2009 Total
----- ------ ----- ----- ----- ----- ----- ------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Receive fixed swaps:
Notional amount... $ 135 $1,019 $ 244 $ 50 $ 115 $ 175 $ 150 $1,888
Receive rate...... 6.22% 6.34% 6.10% 6.26% 6.31% 6.13% 6.17% 6.27%
Pay rate.......... 5.37% 5.37% 4.84% 5.39% 5.38% 5.34% 5.37% 5.30%
</TABLE>
- --------
NOTE: The interest rates exchanged are calculated assuming that interest
rates remain unchanged from September 30, 1999 rates and using call
dates of swaps where applicable. The information presented could change
as future interest rates increase or decrease.
Table 5--Loans and Credit Quality
<TABLE>
<CAPTION>
Net Charge-offs
Nine Months
Loans* Nonperforming Loans** Ended September
September 30 September 30 30
----------------------- ---------------------- ---------------
1999 1998 1999 1998 1999 1998
----------- ----------- ----------- ---------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial:
Commercial &
industrial........... $ 3,821,471 $ 3,607,687 $ 51,753 $ 19,224 $ 6,397 $ 5,357
Commercial loans--
secured by real
estate............... 644,124 574,944 4,728 6,810 392 633
----------- ----------- ----------- ---------- ------- -------
Total commercial..... 4,465,595 4,182,631 56,481 26,034 6,789 5,990
----------- ----------- ----------- ---------- ------- -------
Commercial real estate:
Commercial real estate
mortgages............ 1,299,735 1,199,646 13,381 11,802 11 (672)
Real estate
construction......... 1,403,269 1,298,277 7,445 2,532 294 149
----------- ----------- ----------- ---------- ------- -------
Total commercial real
estate.............. 2,703,004 2,497,923 20,826 14,334 305 (523)
----------- ----------- ----------- ---------- ------- -------
Consumer:
Residential first
mortgages............ 1,066,364 1,883,539 17,326 26,487 803 1,079
Other residential
mortgages............ 2,155,413 1,722,975 10,965 5,135 2,124 1,746
Dealer indirect....... 2,591,647 1,529,581 260 1,316 9,410 4,678
Revolving credit...... 267,930 251,606 -0- -0- 6,091 17,485
Other consumer........ 457,663 458,913 214 835 2,397 4,630
----------- ----------- ----------- ---------- ------- -------
Total consumer....... 6,539,017 5,846,614 28,765 33,773 20,825 29,618
----------- ----------- ----------- ---------- ------- -------
$13,707,616 $12,527,168 $ 106,072 $ 74,141 $27,919 $35,085
=========== =========== =========== ========== ======= =======
</TABLE>
- --------
* Net of unearned income.
** Exclusive of accruing loans 90 days past due.
22
<PAGE>
Table 6--Allowance for Loan Losses
<TABLE>
<CAPTION>
1999 1998
----------------------------------- -----------------------
3rd Quarter 2nd Quarter 1st Quarter 4th Quarter 3rd Quarter
----------- ----------- ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of
period................. $177,082 $176,595 $176,075 $175,046 $174,079
Loans charged off....... (16,730) (11,703) (13,939) (16,553) (12,584)
Recoveries of loans
previously charged
off.................... 4,804 4,690 4,959 5,282 5,551
-------- -------- -------- -------- --------
Net charge-offs......... (11,926) (7,013) (8,980) (11,271) (7,033)
Addition to allowance
charged to expense..... 12,400 7,500 9,500 12,300 8,000
-------- -------- -------- -------- --------
Balance at end of
period................. $177,556 $177,082 $176,595 $176,075 $175,046
======== ======== ======== ======== ========
Allowance for loan
losses to loans net of
unearned income........ 1.30% 1.35% 1.34% 1.37% 1.40%
Allowance for loan
losses to nonperforming
loans.................. 167.39% 215.08% 265.24% 266.49% 236.10%
Allowance for loan
losses to nonperforming
assets................. 143.74% 187.54% 227.85% 228.26% 207.57%
Net charge-offs to
average loans net of
unearned income
(annualized)........... 0.35% 0.21% 0.28% 0.35% 0.22%
</TABLE>
Table 7--Nonperforming Assets
<TABLE>
<CAPTION>
1999 1998
------------------------------ ------------------------
September 30 June 30 March 31 December 31 September 30
------------ ------- -------- ----------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans........ $106,072 $82,334 $66,580 $66,072 $74,141
Foreclosed properties... 15,962 10,389 10,020 10,237 9,225
Repossessions........... 1,496 1,701 904 828 967
-------- ------- ------- ------- -------
Total nonperforming
assets*............... $123,530 $94,424 $77,504 $77,137 $84,333
======== ======= ======= ======= =======
Nonperforming assets* to
loans net of unearned
income, foreclosed
properties and
repossessions.......... 0.90% 0.72% 0.59% 0.60% 0.67%
Accruing loans 90 days
past due............... $ 25,736 $24,133 $26,077 $23,832 $29,586
</TABLE>
- --------
* Exclusive of accruing loans 90 days past due.
23
<PAGE>
Table 8--Investment Securities
<TABLE>
<CAPTION>
September 30, 1999 September 30, 1998
--------------------- ---------------------
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....................... $1,762,111 $1,733,285 $1,983,032 $2,010,063
State, county and municipal
securities....................... 190,452 179,991 125,751 129,483
Other securities.................. 217,459 213,714 188,308 188,894
---------- ---------- ---------- ----------
$2,170,022 $2,126,990 $2,297,091 $2,328,440
========== ========== ========== ==========
Available-for-sale:
U.S. Treasury and federal agency
securities....................... $3,113,323 $2,967,937
Other securities.................. 467,845 313,192
---------- ----------
$3,581,168 $3,281,129
========== ==========
</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, 1999, were approximately 5.7 years and 6.80%,
respectively. Included in the combined portfolios was $3.8 billion of
mortgage-backed securities, $311 million of which were variable rate. The
weighted-average remaining life and the weighted-average yield of mortgage-
backed securities at September 30, 1999, were approximately 5.4 years and
6.77%, respectively. The duration of the combined portfolios, which
considers the repricing frequency of variable rate securities, is
approximately 3.6 years.
2. The available-for-sale portfolio included net unrealized gains (losses) of
$(65.3) million and $54.0 million at September 30, 1999 and 1998,
respectively.
Table 9--Other Interest-Bearing Liabilities
<TABLE>
<CAPTION>
September 30
-----------------
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Other borrowed funds:
Treasury, tax and loan notes................................ $139,958 $ 100
Short-term bank notes....................................... 250,000 125,000
Other short-term debt....................................... 14,619 187,056
-------- --------
Total other borrowed funds................................. $404,577 $312,156
======== ========
Other long-term debt:
6.75% Subordinated Debentures Due 2025...................... $149,893 $149,876
6.45% Subordinated Notes Due 2018........................... 304,145 304,642
6.125% Subordinated Notes Due 2009.......................... 174,315 -0-
7.75% Subordinated Notes Due 2004........................... 149,572 149,480
Subordinated Capital Notes Due 1999......................... -0- 99,925
Long-term notes payable..................................... 10,880 35,880
-------- --------
Total other long-term debt................................. $788,805 $739,803
======== ========
</TABLE>
24
<PAGE>
Table 10--Capital Amounts and Ratios
<TABLE>
<CAPTION>
September 30
----------------------------------
1999 1998
---------------- ----------------
Amount Ratio Amount Ratio
---------- ----- ---------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Tier 1 capital:
AmSouth................................... $1,288,765 6.60% $1,164,901 6.91%
AmSouth Bank.............................. 1,601,921 8.23 1,477,188 8.92
Total capital:
AmSouth................................... $2,110,704 10.81% $1,922,398 11.40%
AmSouth Bank.............................. 2,079,477 10.68 1,952,234 11.79
Leverage:
AmSouth................................... $1,288,765 6.25% $1,164,901 5.94%
AmSouth Bank.............................. 1,601,921 7.79 1,477,188 7.54
</TABLE>
25
<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 was recently enacted in Alabama that is designed to
limit the potential amount of punitive damages that can be recovered in
individual cases in the future. However, AmSouth cannot predict the exact
effect of the legislation at this time.
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
A Special Meeting of Shareholders of AmSouth was held on September 16,
1999, at which the shareholders approved (i) an amendment to AmSouth's
Restated Certificate of Incorporation to increase the number of shares of
authorized common stock, and (ii) the issuance of AmSouth's common stock
pursuant to an Agreement and Plan of Merger dated as of May 31, 1999, with
First American Corporation. The following is a tabulation of the voting on
this matter.
AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION
<TABLE>
<CAPTION>
Votes Broker
Votes For Against Abstentions Nonvotes
--------- ------- ----------- --------
<S> <C> <C> <C>
119,062,771 7,595,676 629,118 0
</TABLE>
ISSUANCE OF AMSOUTH COMMON STOCK
<TABLE>
<CAPTION>
Votes Broker
Votes For Against Abstentions Nonvotes
--------- ------- ----------- --------
<S> <C> <C> <C>
118,972,536 7,558,617 756,412 0
</TABLE>
Item 5. Other Information
On October 1, 1999, AmSouth completed the acquisition of First American
Corporation pursuant to the Agreement and Plan of Merger with First American
Corporation. As a result, each outstanding share of common stock of First
American Corporation will be converted into 1.871 shares of AmSouth's common
stock. More information concerning the transaction may be found in the Notes
to Financial Statements that are part of this Form 10-Q.
26
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
Item 6(a)--Exhibits
The exhibits listed in the Exhibit Index at page 29 of this Form 10-Q are
filed herewith or are incorporated by reference herein.
Item 6(b)--Reports on Form 8-K
Two reports on Form 8-K were filed by AmSouth during the period July 1,
1999 to September 30, 1999:
(a) A report was filed on July 28, 1999 to report AmSouth's preliminary
results of operations for the second quarter of 1999.
(b) A report was filed on August 26, 1999 relating to certain investor
presentation materials used by AmSouth.
27
<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 16, 1999 By: _________________________________
C. Dowd Ritter
President and Chief Executive
Officer
November 16, 1999 /s/ Robert R. Windelspecht
By: _________________________________
Robert R. Windelspecht
Executive Vice President and
Controller
28
<PAGE>
EXHIBIT INDEX
The following is a list of exhibits including items incorporated by
reference.
2 Agreement and Plan of Merger, dated May 31, 1999 (1)
3-a Restated Certificate of Incorporation of AmSouth Bancorporation (2)
3-b By-Laws of AmSouth Bancorporation (3)
15 Letter Re: Unaudited Interim Financial Information
27 Financial Data Schedule
NOTES TO EXHIBITS
(1) Filed as Exhibit 2.1 to AmSouth's Report on Form 8-K filed June 8, 1999,
incorporated herein by reference.
(2) Filed as Exhibit 3.1 to AmSouth's Report on Form 8-K filed October 15,
1999, incorporated herein by reference.
(3) Filed as Exhibit 3-b to AmSouth's Form 10-Q Quarterly Report for the
quarter ended June 30, 1997, incorporated herein by reference.
29
<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 10,
1999, relating to the unaudited consolidated interim financial statements of
AmSouth Bancorporation and subsidiaries which are included in its Form 10-Q for
the quarter ended September 30, 1999:
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. 33-2927 (as amended) pertaining to the Employee Stock Purchase
Plan;
Form S-3 No. 33-35280 pertaining to the Dividend Reinvestment and Common
Stock Purchase 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;
Form S-3 No. 333-44263 pertaining to the AmSouth Bancorporation Shelf
Registration Statement; and
Form S-8 No. 333-76283 pertaining to the Stock Option Plan for Outside
Directors.
Form S-8 No. 333-89451 pertaining to the First American Corporation 1993
Non-Employee Director Stock Option Plan.
Form S-8 No. 333-89455 pertaining to the First American Corporation 1999
Broad-Based Employee Stock Option Plan.
Form S-8 No. 333-89457 pertaining to the First American Corporation Star
Award Plan.
Form S-8 No. 333-89459 pertaining to the Deposit Guaranty Corporation Long
Term Incentive Plans.
Form S-8 No. 333-89461 pertaining to the First American Corporation 1991
Employee Stock Incentive Plan.
<PAGE>
Form S-8 No. 333-89463 pertaining to the Heritage Federal Bankshares, Inc.
1994 Stock Option Plan for Non-Employee Directors and 1992 Stock
Option Plan and Incentive Compensation Plan for Non-Employee
Directors.
Form S-8 No. 333-89633 pertaining to the First American Corporation First
Incentives Reward Savings Thrift 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 10, 1999
<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 I AND TABLES 2, 6, AND 7
OF ITEM 2 OF PART I OF THE AMSOUTH BANCORPORATION FORM 10-Q FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 584,176
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 22,625
<TRADING-ASSETS> 8,783
<INVESTMENTS-HELD-FOR-SALE> 3,581,168
<INVESTMENTS-CARRYING> 2,170,022
<INVESTMENTS-MARKET> 2,126,990
<LOANS> 13,707,616
<ALLOWANCE> 177,556
<TOTAL-ASSETS> 21,277,795
<DEPOSITS> 12,947,290
<SHORT-TERM> 2,260,183
<LIABILITIES-OTHER> 358,977
<LONG-TERM> 4,238,887
0
0
<COMMON> 202,413
<OTHER-SE> 1,270,045
<TOTAL-LIABILITIES-AND-EQUITY> 21,277,795
<INTEREST-LOAN> 837,013
<INTEREST-INVEST> 264,231
<INTEREST-OTHER> 4,791
<INTEREST-TOTAL> 1,106,035
<INTEREST-DEPOSIT> 331,291
<INTEREST-EXPENSE> 540,220
<INTEREST-INCOME-NET> 565,815
<LOAN-LOSSES> 29,400
<SECURITIES-GAINS> 8,860
<EXPENSE-OTHER> 459,789
<INCOME-PRETAX> 342,800
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 222,004
<EPS-BASIC> 1.26
<EPS-DILUTED> 1.25
<YIELD-ACTUAL> 4.08
<LOANS-NON> 106,072
<LOANS-PAST> 25,736
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 176,075
<CHARGE-OFFS> 42,372
<RECOVERIES> 14,453
<ALLOWANCE-CLOSE> 177,556
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
