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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1998 Commission File Number 1-7476
AmSouth Bancorporation
(Exact Name of registrant as specified in its charter)
Delaware 63-0591257
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
AmSouth-Sonat Tower
1900 Fifth Avenue North 35203
Birmingham, Alabama (Zip Code)
(Address of principal executive
offices)
(205) 320-7151
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
Common Stock, par value $1.00 per registered
share New York Stock Exchange
Floating Rate Notes Due 1999 New York Stock Exchange
Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S)229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the common equity held by nonaffiliates of
the registrant as of February 16, 1999 was $5,156,897,000. (Note 1)
As of February 28, 1999, AmSouth Bancorporation had 117,688,033 shares of
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference herein:
Annual Report to Shareholders for the year ended December 31, 1998: Part I,
Part II
Proxy Statement for Annual Meeting to be held April 15, 1999: Part III
Note 1: In calculating the market value of the common equity held by
nonaffiliates of AmSouth as disclosed on the cover page of this Form 10-K,
AmSouth has treated as common equity held by affiliates only voting stock
owned as of February 16, 1999 by its directors and principal executive
officers and voting stock held by AmSouth's employee benefit plans. AmSouth
has not treated stock held by any of AmSouth's subsidiaries as pledgee or in a
fiduciary capacity as stock held by affiliates of AmSouth for purposes of this
response. AmSouth had no nonvoting common equity outstanding at February 16,
1999. AmSouth's response to this item is not intended to be an admission that
any person is an affiliate of AmSouth for any purpose other than this
response.
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AMSOUTH BANCORPORATION
Form 10-K
INDEX
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Page
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PART I
Item 1. Business........................................................ 3
Item 2. Properties...................................................... 9
Item 3. Legal Proceedings............................................... 9
Item 4. Submission of Matters to a Vote of Security Holders............. 9
Executive Officers of the Registrant..................................... 10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters................................................................. 11
Item 6. Selected Financial Data......................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 13
Item 7A. Quantitative and Qualitative Disclosures about Market Risk..... 13
Item 8. Financial Statements and Supplementary Data..................... 13
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................... 13
PART III
Item 10. Directors and Executive Officers of the Registrant.............. 13
Item 11. Executive Compensation.......................................... 13
Item 12. Security Ownership of Certain Beneficial Owners and Management.. 14
Item 13. Certain Relationships and Related Transactions.................. 14
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-
K....................................................................... 14
SIGNATURES............................................................... 15
EXHIBIT INDEX............................................................ 17
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PART I
ITEM 1. BUSINESS
General
AmSouth Bancorporation (AmSouth) is a bank holding company, which was
organized in 1970 as a corporation under the laws of Delaware and commenced
doing business in 1972. At December 31, 1998, AmSouth had total consolidated
assets of approximately $19.9 billion. AmSouth offers a broad range of bank
and bank-related services through its subsidiaries. AmSouth's principal
subsidiary is AmSouth Bank (the Bank).
The Bank is a banking corporation organized under the laws of the State of
Alabama and a wholly-owned subsidiary of AmSouth. As of December 31, 1998, the
Bank had total consolidated assets of approximately $19.8 billion and total
consolidated deposits of approximately $13.3 billion. As of December 31, 1998,
the assets of the Bank constituted virtually all of the assets of AmSouth.
AmSouth has three reportable segments: Consumer Banking, Commercial Banking
and Capital Management. Consumer Banking delivers a full range of financial
services to individuals and small businesses. Services include loan products
such as residential mortgages, equity lending, credit cards, and loans for
automobile and other personal financing needs, and various products designed
to meet the credit needs of small businesses. In addition, Consumer Banking
offers various deposit products that meet customers' savings and transaction
needs. Commercial Banking meets corporate and middle market customers' needs
with a comprehensive array of credit, treasury management, international, and
capital markets services. Included among these are several specialty services
such as real estate finance, asset based lending, commercial leasing, and
healthcare banking. Capital Management is comprised of client fiduciary
services and broker/dealer services, and provides primarily fee based income.
This area includes not only traditional trust services, but also a substantial
selection of investment management services including AmSouth's proprietary
mutual fund family. The services and products of all three of AmSouth's
segments are offered to businesses and individuals through approximately 275
banking offices located in Alabama, Florida, Tennessee, and Georgia. In
addition to its banking offices, the Bank operates a network of over 640
automated teller machines that are linked with shared automated tellers in all
50 states. Further segment information is included in Note 20 of Notes to
Consolidated Financial Statements, which is incorporated herein by reference
pursuant to Item 8, Financial Statements and Supplementary Data.
As of February 28, 1999, AmSouth and its subsidiaries had 6,729 employees.
Competition
AmSouth's subsidiaries compete aggressively with banks located in Alabama,
Florida, Tennessee, and Georgia, as well as large banks in major financial
centers, and with other financial institutions, such as savings and loan
associations, credit unions, consumer finance companies, brokerage firms,
insurance companies, investment companies, mortgage companies, and financial
service operations of major retailers. Competition is based on a number of
factors, including prices, interest rates, services, and availability of
products. AmSouth also competes with the other bank holding companies
headquartered in Alabama, Florida, Tennessee, Georgia, and other states for
the acquisition of financial institutions.
At December 31, 1998, AmSouth was the third largest bank holding company
headquartered in Alabama in terms of equity capital and total assets. However,
AmSouth is significantly smaller than many of the financial institutions
competing in Alabama, Florida, Tennessee, and Georgia.
Various regulatory developments and existing laws have allowed financial
institutions to conduct significant activities on an interstate basis for a
number of years. During recent years, a number of financial institutions
expanded their out-of-state activities, and various states enacted legislation
intended to allow certain interstate banking combinations which otherwise
would have been prohibited by federal law. For a number of
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years, the Bank Holding Company Act of 1956, as amended (the BHCA), generally
provided that no company which owned or controlled a commercial bank in the
United States could acquire ownership or control of a commercial bank in a
state other than the state in which the company's banking subsidiaries were
principally located unless the acquisition was specifically authorized by the
laws of the state in which the bank being acquired was located.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the IBBEA) authorized interstate acquisitions of banks and bank holding
companies without geographic limitation beginning September 29, 1995. In
addition, beginning June 1, 1997, the IBBEA authorizes a bank to merge with a
bank in another state as long as neither of the states has opted out of
interstate branching by May 31, 1997. A bank may establish and operate a de
novo branch in a state in which the bank does not maintain a branch if that
state expressly permits de novo branching. Once a bank has established
branches in a state through an interstate merger transaction, the bank may
establish and acquire additional branches at any location in the state where
any bank involved in the interstate merger transaction could have established
or acquired branches under applicable federal or state law. A bank that has
established a branch in a state through de novo branching may establish and
acquire additional branches in such state in the same manner and to the same
extent as a bank having a branch in such state as a result of an interstate
merger. If a state opted out of interstate branching within the specified time
period, no bank in any other state may establish a branch in the opting out
state, whether through an acquisition or de novo. None of the states in which
AmSouth had subsidiary banks on June 1, 1997 "opted out" of the provisions of
the IBBEA permitting interstate branching by acquisition. Accordingly, on June
25, 1997, AmSouth merged its subsidiary banks in Alabama, Florida, Tennessee,
and Georgia to form AmSouth Bank, as permitted by the IBBEA. Although the
management of AmSouth cannot predict with certainty the full effect of the
IBBEA on AmSouth, management believes the IBBEA resulted in greater
consolidation within the banking industry and that such consolidation is
likely to continue.
Business Combinations
AmSouth continually evaluates business combination opportunities and
sometimes conducts due diligence activities in connection with them. As a
result, business combination discussions and, in some cases, negotiations take
place, and transactions involving cash, debt or equity securities can be
expected. Any future business combination or series of business combinations
that AmSouth might undertake may be material, in terms of assets acquired or
liabilities assumed, to AmSouth's financial condition. Recent business
combinations in the banking industry have typically involved the payment of a
premium over book and market values. This practice may result in dilution of
book value and net income per share for the acquirers.
Supervision and Regulation
The following discussion addresses the regulatory framework applicable to
bank holding companies and their subsidiaries, and provides certain specific
information relevant to AmSouth. Regulation of financial institutions such as
AmSouth and its subsidiaries is intended primarily for the protection of
depositors, the deposit insurance funds of the Federal Deposit Insurance
Corporation (the FDIC) and the banking system as a whole, and generally is not
intended for the protection of stockholders or other investors.
The following is a summary of certain statutes and regulations that apply
to the operation of banking institutions. Changes in the applicable laws, and
in their application by regulatory agencies, cannot necessarily be predicted,
but they may have a material effect on the business and results of banking
organizations, including AmSouth.
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General
As a bank holding company, AmSouth is subject to the regulation and
supervision of the Board of Governors of the Federal Reserve System (the
Federal Reserve Board) under the BHCA. Under the BHCA, bank holding companies
may not, in general, directly or indirectly acquire the ownership or control
of more than 5 percent of the voting shares or substantially all of the assets
of any company, including a bank, without the prior approval of the Federal
Reserve Board. In addition, bank holding companies are generally prohibited
under the BHCA from engaging in nonbanking activities, subject to certain
exceptions.
The Bank is a state bank, chartered under the laws of Alabama, and is a
member of the Federal Reserve System. It is generally subject to regulation
and supervision by both the Federal Reserve Board and the Office of the
Superintendent of Banking of the State of Alabama. The Bank is also an insured
depository institution and, therefore, also subject to regulation by the FDIC.
The Bank is also subject to various requirements and restrictions under
federal and state law, including requirements to maintain reserves against
deposits, restrictions on the types and amounts of loans that may be granted
and the interest that may be charged thereon, and limitations on the types of
investments that may be made and the types of services that may be offered.
Various consumer laws and regulations also affect the operations of the Bank.
In addition to the impact of regulation, commercial banks are affected
significantly by the actions of the Federal Reserve Board as it attempts to
control the money supply and credit availability in order to influence the
economy.
Various legislative proposals have been made that would affect the
operations of bank holding companies and their subsidiaries, including
proposals to revise the bank regulatory system and to allow affiliations
between bank holding companies and nonbank entities that are restricted under
current law. AmSouth is unable to predict whether any of these proposals will
be adopted and, if so, what their effect on AmSouth would be.
Payment of Dividends
AmSouth is a legal entity separate and distinct from its banking and other
subsidiaries. The principal source of cash flow for AmSouth, including cash
flow to pay dividends on AmSouth's capital stock and to pay interest and
principal on any debt of AmSouth, is dividends from the Bank. There are
statutory and regulatory limitations on the payment of dividends by the Bank
to AmSouth as well as by AmSouth to its shareholders. The payment of dividends
by AmSouth and the Bank also may be affected by other factors, such as the
requirement to maintain capital at or above regulatory guidelines. See
"Capital Adequacy and Related Matters" below.
Under Alabama law, a bank may not pay a dividend in excess of 90 percent of
its net earnings until the bank's surplus is equal to at least 20 percent of
capital. The Bank is also required by Alabama law to obtain the prior approval
of the Superintendent of the State Banking Department of Alabama for the
payment of dividends if the total of all dividends declared by the Bank in any
calendar year will exceed the total of (a) the Bank's net earnings (as defined
by statute) for that year, plus (b) its retained net earnings for the
preceding two years, less any required transfers to surplus. Also, no
dividends may be paid from the Bank's surplus without the prior written
approval of the Superintendent.
In addition, as a member of the Federal Reserve System, the Bank is
required by federal law to obtain regulatory approval for the payment of
dividends if the total of all dividends declared by the Board of Directors of
the Bank in any year could exceed the total of (a) the Bank's net income (as
reportable in its Reports of Condition and Income) for that year, plus (b) the
Bank's retained net income (as defined and interpreted by regulation) for the
preceding two years, less any net losses incurred in the current or prior two
years and any required transfers to surplus or a fund for the retirement of
preferred stock.
Furthermore, if, in the opinion of the applicable federal bank regulatory
authority, a bank under its jurisdiction is engaged in or is about to engage
in an unsafe or unsound practice (which, depending on the financial condition
of the bank, could include the payment of dividends), such authority may
require, after
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notice and a hearing, that such bank cease and desist from such practice. The
Federal Reserve Board has indicated that paying dividends that deplete a
bank's capital base to an inadequate level would be an unsafe and unsound
banking practice. In addition, the Federal Deposit Insurance Act (the FDI Act)
imposes additional restrictions on the payments of dividends by the Bank, as
described under "Capital Adequacy and Related Matters-Prompt Corrective
Action" below. Moreover, the Federal Reserve Board has issued a policy
statement which provides that bank holding companies and state member banks
should generally pay dividends only out of current operating earnings.
Under dividend restrictions imposed under federal and Alabama law,
including those described above, the Bank, without obtaining government
approvals, could declare aggregate dividends in 1999 of approximately $19.2
million, plus an additional amount equal to its net income for 1999.
Capital Adequacy and Related Matters
Capital Guidelines
The Federal Reserve Board has adopted risk-based capital guidelines for
bank holding companies. The minimum guideline for the ratio of total
regulatory capital (Total Capital) to risk-weighted assets (including certain
off-balance-sheet items, such as standby letters of credit) is 8 percent. At
least half of the Total Capital must be composed of common stockholders'
equity, retained earnings, minority interests in the equity accounts of
consolidated subsidiaries, noncumulative perpetual preferred stock, and a
limited amount of qualifying cumulative perpetual preferred stock, less
goodwill and certain other intangible assets (Tier 1 Capital). The remainder
may consist of subordinated debt, other preferred stock and a limited amount
of loan loss reserves. At December 31, 1998, AmSouth's consolidated Tier 1
Capital and Total Capital ratios were 6.55 percent and 10.81 percent,
respectively.
In addition, the Federal Reserve Board has established minimum leverage
ratio guidelines for bank holding companies. The guidelines provide for a
minimum ratio of Tier 1 Capital to average assets, less goodwill and certain
other intangible assets (the Leverage Ratio), of 3 percent for bank holding
companies that meet certain specific criteria, including having the highest
regulatory rating. All other bank holding companies generally are required to
maintain a Leverage Ratio of at least 3 percent, plus an additional cushion of
100 to 200 basis points. AmSouth's Leverage Ratio at December 31, 1998 was
6.00 percent. The guidelines also provide that bank holding companies
experiencing internal growth or making acquisitions will be expected to
maintain strong capital positions substantially above the minimum supervisory
levels without significant reliance on intangible assets. Furthermore, the
Federal Reserve Board has indicated that it will consider a "Tangible Tier 1
Capital Leverage Ratio" (deducting all intangibles) and other indicators of
capital strength in evaluating proposals for expansion or new activities.
The Bank is also subject to risk-based and leverage capital requirements,
similar to those described above. The Bank was in compliance with applicable
minimum capital requirements as of December 31, 1998. Neither AmSouth nor the
Bank has been advised by any federal banking agency of any specific minimum
Leverage Ratio requirement applicable to it.
The Federal Reserve Board has adopted modifications to the Tier 1 Capital
and Total Capital ratios applicable to both banks and bank holding companies
that are intended to address "market risk" arising from large trading
portfolios. These modifications are applicable only to banks and bank holding
companies whose trading activities exceed certain thresholds, and to those
that voluntarily comply with the market risk capital requirements. AmSouth is
not subject to, nor has it voluntarily adopted, these new requirements.
Bank regulators have the authority generally to raise capital requirements
applicable to banking organizations beyond their current levels. However, the
management of AmSouth is unable to predict whether and when higher capital
requirements would be imposed, and, if so, at what levels and on what
schedule.
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Prompt Corrective Action
The FDI Act requires the federal banking regulators to take prompt
corrective action in respect of FDIC-insured depository institutions that do
not meet minimum capital requirements. The FDI Act establishes five capital
tiers: "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized." Under
applicable regulations, a state member bank is defined to be well capitalized
if it maintains a Leverage Ratio of at least 5 percent, a risk-adjusted Tier 1
Capital Ratio of at least 6 percent, and a Total Capital Ratio of at least 10
percent and is not subject to any order or written directive to maintain any
specific capital level. A state member bank is defined to be adequately
capitalized if it maintains a Leverage Ratio of at least 4 percent, a risk-
adjusted Tier 1 Capital Ratio of at least 4 percent, and a Total Capital Ratio
of at least 8 percent. In addition, a state member bank will be considered:
(a) undercapitalized if it fails to meet any minimum required measure; (b)
significantly undercapitalized if it is significantly below such measure; and
(c) critically undercapitalized if it fails to maintain a level of tangible
equity equal to not less than 2 percent of total assets. A state member bank
may be deemed to be in a capitalization category that is lower than is
indicated by its actual capital position if it is operating in an unsafe or
unsound manner or receives an unsatisfactory examination rating. AmSouth
believes that at December 31, 1998, the Bank had capital ratios sufficient to
qualify as "well capitalized."
The capital-based prompt corrective action provisions of the FDI Act and
the implementing regulations apply to FDIC-insured depository institutions
such as the Bank, and are not directly applicable to holding companies, like
AmSouth, that control such institutions. However, the Federal Reserve Board
has indicated that, in regulating bank holding companies, it will take
appropriate action at the holding company level based on an assessment of the
effectiveness of supervisory actions imposed upon subsidiary depository
institutions pursuant to such provisions and regulations. Although the capital
categories defined under the prompt corrective action regulations are not
directly applicable to AmSouth under existing law and regulations, if AmSouth
were placed in a capital category it would qualify as well-capitalized as of
December 31, 1998.
The FDI Act generally prohibits an FDIC-insured depository institution from
making any capital distribution (including payment of dividends) or paying any
management fee to its holding company if the depository institution would
thereafter be undercapitalized. Undercapitalized insured depository
institutions are subject to restrictions on borrowing from the Federal Reserve
System. In addition, undercapitalized depository institutions are subject to
growth limitations and are required to submit capital restoration plans. An
insured depository institution's holding company must guarantee the capital
plan, up to an amount equal to the lesser of 5 percent of the depository
institution's assets at the time it becomes undercapitalized or the amount of
the capital deficiency when the institution fails to comply with the plan. The
federal banking agencies may not accept a capital plan without determining,
among other things, that the plan is based on realistic assumptions and is
likely to succeed in restoring the depository institution's capital. If an
insured depository institution fails to submit an acceptable plan, it is
treated as if it is significantly undercapitalized.
Significantly undercapitalized insured depository institutions may be
subject to a number of requirements and restrictions, including orders to sell
sufficient voting stock to become adequately capitalized, requirements to
reduce total assets and cessation of receipt of deposits from correspondent
banks. Critically undercapitalized insured depository institutions are subject
to appointment of a receiver or conservator.
Brokered Deposits and Pass-Through Insurance
The FDIC has adopted regulations under the FDI Act governing the receipt of
brokered deposits. Under the regulations, an FDIC-insured depository
institution cannot accept, rollover or renew brokered deposits unless (a) it
is well capitalized or (b) it is adequately capitalized and receives a waiver
from the FDIC. A depository institution that cannot receive brokered deposits
also cannot offer "pass-through" insurance on certain employee benefit
accounts. Whether or not it has obtained such a waiver, an adequately
capitalized depository institution may not pay an interest rate on any
deposits in excess of 75 basis points over certain prevailing market rates
specified by regulation. There are no such restrictions on a depository
institution that is well capitalized. Because the Bank was well capitalized as
of December 31, 1998, AmSouth believes the brokered deposits regulation will
have no material effect on the funding or liquidity of the Bank.
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Holding Company Structure
There are various legal restrictions on the extent to which AmSouth and its
nonbank subsidiaries may borrow or otherwise obtain funding from the Bank. The
Bank (and its subsidiaries) is limited in engaging in borrowing and other
"covered transactions" with nonbank and nonsavings bank affiliates to the
following amounts: (a) in the case of any single such affiliate, the aggregate
amount of covered transactions of the Bank and its subsidiaries may not exceed
10 percent of the capital stock and surplus of the Bank; and (b) in the case
of all affiliates, the aggregate amount of covered transactions of the Bank
and its subsidiaries may not exceed 20 percent of the capital stock and
surplus of the Bank. Covered transactions also are subject to certain
collateralization requirements. "Covered transactions" are defined by statute
to include a loan or extension of credit, as well as a purchase of securities
issued by an affiliate, a purchase of assets (unless otherwise exempted by the
Federal Reserve Board) from the affiliate, the acceptance of securities issued
by the affiliate as collateral for a loan, and the issuance of a guarantee,
acceptance, or letter of credit on behalf of an affiliate.
Under Federal Reserve Board policy, AmSouth is expected to act as a source
of financial strength to, and to commit resources to support, the Bank. This
support may be required at times when, absent such Federal Reserve Board
policy, AmSouth may not be inclined to provide it. In addition, any capital
loans by a bank holding company to a subsidiary bank are subordinate in right
of payment to deposits and to certain other indebtedness of such subsidiary
bank. In the event of a bank holding company's bankruptcy, any commitment by
the bank holding company to a federal bank regulatory agency to maintain the
capital of a subsidiary bank will be assumed by the bankruptcy trustee and
entitled to a priority of payment.
The FDI Act provides that, in the event of the "liquidation or other
resolution" of an insured depository institution, the claims of depositors of
such institution (including claims by the FDIC as subrogee of insured
depositors) and certain claims for administrative expenses of the FDIC as
receiver would be afforded a priority over other general unsecured claims
against the institution including any claims of the bank's holding company as
a creditor. If an insured depository institution fails, insured and uninsured
depositors, along with the FDIC, will be placed ahead of unsecured, nondeposit
creditors, including a parent holding company such as AmSouth, in its capacity
as creditor, in order of priority of payment.
FDIC Deposit Insurance Assessments
The Bank is subject to FDIC deposit insurance assessments pursuant to two
separate assessment schedules, one applicable to those deposits insured by the
Bank Insurance Fund (BIF) and another applicable to those deposits insured by
the Savings Association Insurance Fund (SAIF). The FDIC has reduced the
assessments it charges on bank deposits insured by the BIF and the SAIF to
zero for most "well capitalized" banks.
In addition, the Deposit Insurance Funds Act of 1996 requires that
depository institutions pay assessments to pay for the cost of Financing
Corporation or "FICO" bonds. The current annual assessments to be imposed on
insured depository institutions for this purpose are $0.01 per $100.00 with
respect to deposits insured by the BIF and $0.06 per $100.00 with respect to
deposits insured by the SAIF. Under current law beginning January 1, 2000, the
FICO-related annual assessment rates for BIF and SAIF deposits will both be
$0.03 per $100.00. However, legislation has been proposed to extend the date
on which the assessment rates will become the same until January 1, 2003.
Liability for Affiliate Insured Depository Institutions
Under the FDI Act, an insured depository institution, such as the Bank, can
be held liable for any loss incurred by, or reasonably expected to be incurred
by, the FDIC in connection with (a) the default of a commonly controlled FDIC-
insured depository institution or (b) any assistance provided by the FDIC to
any commonly controlled FDIC-insured depository institution "in danger of
default." "Default" is defined generally as the appointment of a conservator
or receiver and "in danger of default" is defined generally as the existence
of certain conditions indicating that a default is likely to occur in the
absence of regulatory assistance. AmSouth currently has no depository
institution subsidiaries other than the Bank; however, it may in the future.
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ITEM 2. PROPERTIES
The executive offices of AmSouth are located in the 30-story AmSouth-Sonat
Tower in downtown Birmingham, Alabama. An undivided one-half interest in this
building is owned by the Bank through an unincorporated joint venture. The
Bank is a principal tenant of this building. The Bank is also a principal
tenant of the AmSouth/Harbert Plaza, a 32-story office building also located
in downtown Birmingham, Alabama, and of another office complex in the
Birmingham area. The Bank's headquarters and most of its operations are
located in these facilities. The Bank also has other banking and operational
offices located in Alabama, Florida, Tennessee, and Georgia.
At December 31, 1998, AmSouth and its subsidiaries had 290 offices
(principally bank offices) of which 176 were owned and 114 were either leased
or subject to a ground lease.
ITEM 3. LEGAL PROCEEDINGS
Several of AmSouth's subsidiaries are defendants in legal proceedings
arising in the ordinary course of business. Some of these proceedings seek
relief or damages that are substantial. The actions relate to AmSouth's
lending, collections, loan servicing, deposit taking, investment, trust, and
other activities.
Among the actions which are pending against AmSouth subsidiaries are
actions filed as class actions in the State of Alabama. The actions are
similar to others that have been brought in recent years in Alabama against
financial institutions in that they seek punitive damage awards in
transactions involving relatively small amounts of actual damages. In recent
years, juries in Alabama state courts have made large punitive damage awards
in such cases. Legislation that would limit these lawsuits has been proposed
from time to time in the Alabama legislature but has not been enacted into
law. AmSouth cannot predict whether any such legislation will be enacted.
It may take a number of years to finally resolve some of these legal
proceedings pending against AmSouth subsidiaries, due to their complexity and
for other reasons. It is not possible to determine with any certainty at this
time the corporation's potential exposure from the proceedings. At times,
class actions are settled by defendants without admission or even an actual
finding of any wrongdoing but with payment of some compensation to purported
class members and large attorney's fees to plaintiff class counsel.
Nonetheless, based upon the advice of legal counsel, AmSouth's management is
of the opinion that the ultimate resolution of these legal proceedings will
not have a material adverse effect on AmSouth's financial condition or results
of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters brought to a vote of security holders during the
fourth quarter of 1998.
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Executive Officers of the Registrant
The executive officers of AmSouth, their ages, the positions held by them
with AmSouth and certain of its subsidiaries, and their principal occupations
for the last five years are as follows:
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C. Dowd Ritter 51 Chairman (September 1996 to date) and President
and Chief Executive Officer (January 1996 to date)
of AmSouth and AmSouth Bank; Director of AmSouth
and AmSouth Bank. Formerly, President and Chief
Operating Officer, AmSouth and AmSouth Bank of
Alabama (August 1994 to December 1995), and Vice
Chairman of the Board of AmSouth and AmSouth Bank
of Alabama (July 1993 to August 1994).
Michael C. Baker 51 Senior Executive Vice President and Capital
Management Group Head of AmSouth and AmSouth Bank
(October 1995 to date). Formerly, President and
Chief Executive Officer of Barnett Banks Trust
Co., N.A. (1989 to July 1995).
Sloan D. Gibson, IV 45 Senior Executive Vice President (October 1994 to
date), Chief Financial Officer (October 1997 to
date) and Finance, Commercial and Credit Group
Head (October 1994 to date) of AmSouth and AmSouth
Bank. Formerly, Executive Vice President (1993 to
October 1994) of AmSouth Bank of Alabama.
W. Charles Mayer, III 44 Senior Executive Vice President of AmSouth
(October 1994 to date) and
Alabama/Tennessee/Georgia Banking Group Head of
AmSouth Bank (November 1997 to date). Formerly,
Birmingham City President of AmSouth Bank (May
1995 to December 1998), Alabama Banking Group Head
of AmSouth (May 1995 to October 1997), President
and Chief Executive Officer of AmSouth Bank of
Tennessee (January 1993 to April 1995) and
Executive Vice President of AmSouth (January 1993
to October 1994).
Candice W. Rogers 49 Senior Executive Vice President and Consumer
Banking Group Head of AmSouth and AmSouth Bank
(August 1995 to date). Formerly, Executive Vice
President and Director of Marketing of AmSouth and
AmSouth Bank of Alabama (July 1994 to August 1995)
and Senior Vice President and Director of
Marketing, Bank One Texas (February 1991 to July
1994).
E. W. Stephenson, Jr. 52 Senior Executive Vice President of AmSouth (July
1993 to date) and Senior Executive Vice President
of AmSouth Bank and Florida Banking Group Head
(July 1997 to date). Formerly, Chairman of the
Board and Chief Executive Officer of AmSouth Bank
of Florida (July 1993 to June 1997).
Alfred W. Swan, Jr. 56 Senior Executive Vice President of AmSouth and
West Coast of Florida Area Executive (1994 to
date) and Senior Executive Vice President of
AmSouth Bank (July 1997 to date). Formerly,
Executive Vice President of AmSouth (1992 to
October 1994).
David B. Edmonds 45 Executive Vice President and Human Resources
Director of AmSouth and AmSouth Bank (October 1994
to date). Formerly, Director Human Resources,
Southeast Business Unit of Pepsi-Cola, Inc. (1986
to September 1994).
O. B. Grayson Hall, Jr. 41 Executive Vice President (June 1994 to date) and
Operations and Technology Division Head (January
1993 to date) of AmSouth and AmSouth Bank.
Stephen A. Yoder 45 Executive Vice President and General Counsel of
AmSouth and AmSouth Bank (August 1995 to date).
Formerly, Assistant General Counsel (1992 to 1995)
of Mellon Bank Corporation.
</TABLE>
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
AmSouth's common stock, par value $1.00 per share, is listed for trading on
the New York Stock Exchange under the symbol ASO. Quarterly high and low sales
prices of, and cash dividends declared on, AmSouth common stock are set forth
in Note 23 of the Notes to Consolidated Financial Statements, which are
incorporated herein by reference pursuant to Item 8 of this Form 10-K. As of
February 16, 1999, there were approximately 18,000 holders of record of
AmSouth's common stock (including participants in the Dividend Reinvestment
and Common Stock Purchase Plan).
Restrictions on the ability of the Bank to transfer funds to AmSouth at
December 31, 1998, are set forth in Note 16 of the Notes to Consolidated
Financial Statements, which are incorporated herein by reference pursuant to
Item 8 of this Form 10-K. A discussion of certain limitations on the ability
of the Bank to pay dividends to AmSouth, and the ability of AmSouth to pay
dividends on its common stock, is set forth in Part I under the headings
"Supervision and Regulation--Payment of Dividends" and "Supervision and
Regulation--Capital Adequacy and Related Matters."
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the last five
years.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Earnings summary
Interest income........ $ 1,462,541 $ 1,377,788 $ 1,353,823 $ 1,272,939 $ 1,047,741
Interest expense....... 763,571 701,511 701,442 679,396 480,414
----------- ----------- ----------- ----------- -----------
Net interest income.... 698,970 676,277 652,381 593,543 567,327
Provision for loan
losses................ 58,134 67,399 65,171 40,139 30,103
----------- ----------- ----------- ----------- -----------
Net interest income
after provision for
loan losses........... 640,836 608,878 587,210 553,404 537,224
Noninterest revenues... 346,626 266,004 235,274 231,671 175,355
Noninterest expenses... 582,117 526,192 534,232 509,898 519,239
----------- ----------- ----------- ----------- -----------
Income before income
taxes................. 405,345 348,690 288,252 275,177 193,340
Income taxes........... 142,633 122,523 105,576 100,222 66,050
----------- ----------- ----------- ----------- -----------
Net income........... $ 262,712 $ 226,167 $ 182,676 $ 174,955 $ 127,290
=========== =========== =========== =========== ===========
Common stock data*
Net income per common
share................. $ 2.20 $ 1.84 $ 1.43 $ 1.33 $ 1.00
Diluted net income per
common share.......... $ 2.17 $ 1.82 $ 1.42 $ 1.32 $ 0.99
Cash dividends
declared.............. $ 0.85 $ 0.76 $ 0.72 $ 0.69 $ 0.63
Average common shares
outstanding........... 119,384 123,059 127,362 131,090 127,187
Diluted average common
shares outstanding.... 121,281 124,120 128,764 132,959 128,946
Selected year end
balances
Loans net of unearned
income................ $12,869,863 $12,237,668 $12,080,246 $11,743,273 $11,429,907
Assets................. 19,901,679 18,622,256 18,407,264 17,738,795 16,777,951
Deposits............... 13,283,804 12,945,197 12,467,599 13,420,287 13,203,101
Long-term Federal Home
Loan Bank advances.... 2,500,117 1,198,146 1,023,729 15,014 103,092
Other long-term debt... 739,642 435,078 411,946 425,885 275,581
Shareholders' equity... 1,427,629 1,385,245 1,395,829 1,383,475 1,310,458
Selected average
balances
Loans net of unearned
income................ $12,475,539 $12,059,249 $11,694,849 $11,747,385 $ 9,918,274
Assets................. 19,524,206 18,042,143 17,989,621 16,942,326 15,293,985
Deposits............... 12,950,537 12,564,197 12,926,343 13,304,092 11,572,725
Long-term Federal Home
Loan Bank advances.... 2,257,657 989,802 511,583 54,000 112,550
Other long-term debt... 707,375 428,657 423,623 298,945 219,229
Shareholders' equity... 1,415,619 1,369,777 1,380,532 1,357,336 1,243,151
Selected ratios
Return on average
assets................ 1.35% 1.25% 1.02% 1.03% 0.83%
Return on average
equity................ 18.56 16.51 13.23 12.89 10.24
Net interest margin.... 3.92 4.09 3.93 3.87 4.14
Operating efficiency... 55.37 55.43 59.56 60.98 68.72
Allowance for loan
losses to loans net
of unearned income.... 1.37 1.46 1.48 1.52 1.50
Nonperforming assets
to loans net of
unearned income,
foreclosed properties
and repossessions..... 0.60 0.68 0.78 0.98 1.16
Ending equity to
ending assets......... 7.17 7.44 7.58 7.80 7.81
Average equity to
average assets........ 7.25 7.59 7.67 8.01 8.13
Without 1996 SAIF
assessment
Net income............. $ 262,712 $ 226,167 $ 197,895 $ 174,955 $ 127,290
Net income per common
share*................ 2.20 1.84 1.55 1.33 1.00
Diluted net income per
common share*......... 2.17 1.82 1.54 1.32 0.99
Return on average
asssets............... 1.35% 1.25% 1.10% 1.03% 0.83%
Return on average
equity................ 18.56 16.51 14.26 12.89 10.24
Operating efficiency... 55.37 55.43 56.86 60.98 68.72
</TABLE>
- --------
* Restated for common stock splits.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of AmSouth's 1998 Annual Report to
Shareholders is hereby incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is included on page 45 of
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," which is incorporated herein by reference pursuant to Item 7,
above.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of AmSouth and Subsidiaries, the
accompanying Notes to Consolidated Financial Statements, Management's
Statement on Responsibility for Financial Reporting, and the Report of
Independent Auditors contained in AmSouth's 1998 Annual Report to Shareholders
are hereby incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information on the directors and director nominees of AmSouth included at
pages 6, 8, and 10 of AmSouth's Proxy Statement for the Annual Meeting of
Shareholders to be held on April 15, 1999 (the Proxy Statement) and the
information incorporated by reference pursant to Item 13 below is hereby
incorporated herein by reference. Information on AmSouth's executive officers
is included in Part I of this report.
Information regarding late filings under Section 16(a) of the Securities
Exchange Act of 1934 included at page 12 of the Proxy Statement under the
caption "Section 16(a) Beneficial Ownership Reporting Compliance" is hereby
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding compensation of directors and executive officers
included at pages 13 through 22 of the Proxy Statement is hereby incorporated
herein by reference. However, the information provided in the Proxy Statement
under the headings "Executive Compensation Committee Report on Executive
Compensation" and "Performance Graph" shall not be deemed to be "soliciting
material" or to be "filed" with the Securities and Exchange Commission, or
subject to Regulation 14A or 14C, other than as provided in Item 402 of
Regulation S-K, or to liabilities of Section 18 of the Securities Exchange Act
of 1934.
13
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Voting Securities and
Principal Holders Thereof " at pages 1 through 5 of the Proxy Statement is
hereby incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth in the Proxy Statement under the caption "Certain
Relationships, Related Transactions and Legal Proceedings" at page 13 thereof
is hereby incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules
Financial Statements
The following management's statement on responsibility for financial
reporting, report of independent auditors and consolidated financial
statements of AmSouth and its subsidiaries included in AmSouth's 1998 Annual
Report to Shareholders are incorporated herein by reference pursuant to Item
8.
Management's Statement on Responsibility for Financial Reporting
Report of Ernst & Young LLP, Independent Auditors
Consolidated Statement of Condition--December 31, 1998 and 1997
Consolidated Statement of Earnings--Years ended December 31, 1998, 1997
and 1996
Consolidated Statement of Shareholders' Equity--Years ended December 31,
1998, 1997 and 1996
Consolidated Statement of Cash Flows--Years ended December 31, 1998,
1997 and 1996
Notes to Consolidated Financial Statements
Financial Statement Schedules
All schedules to the consolidated financial statements required by Article
9 of Regulation S-X and all other schedules to the financial statements of
AmSouth required by Article 5 of Regulation S-X are not required under the
related instructions or are inapplicable and, therefore, have been omitted, or
the required information is contained in the Consolidated Financial Statements
or the notes thereto, which are incorporated herein by reference pursuant to
Item 8, Financial Statements and Supplementary Data.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of 1998.
(c) Exhibits
The exhibits listed in the Exhibit Index at page 17 of this Form 10-K are
filed herewith or are incorporated herein by reference.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AMSOUTH BANCORPORATION
/s/ C. Dowd Ritter
By __________________________________
C. Dowd Ritter
Chairman of the Board, President and
Chief Executive Officer
Date: March 30, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ C. Dowd Ritter /s/ Sloan D. Gibson, IV
By __________________________________ By __________________________________
C. Dowd Ritter Sloan D. Gibson, IV
Chairman of the Board, President and Senior Executive Vice President
Chief Executive Officer and Chief Financial Officer
Date: March 30, 1999 (Principal Financial Officer)
Date: March 30, 1999
/s/ Robert R. Windelspecht
By __________________________________
Robert R. Windelspecht
Executive Vice President
and Controller
(Principal Accounting Officer)
Date: March 30, 1999
15
<PAGE>
* *
By __________________________________ By __________________________________
J. Harold Chandler James R. Malone
A Director A Director
Date: March 30, 1999
Date: March 30, 1999
* *
By __________________________________ By __________________________________
James E. Dalton, Jr. Francis A. Newman
A Director A Director
Date: March 30, 1999
Date: March 30, 1999
*
By __________________________________ *
Rodney C. Gilbert By __________________________________
A Director Claude B. Nielsen
Date: March 30, 1999 A Director
Date: March 30, 1999
*
By __________________________________ *
Victoria B. Jackson By __________________________________
A Director Benjamin F. Payton, Ph.D.
Date: March 30, 1999 A Director
Date: March 30, 1999
* *
By __________________________________ By __________________________________
Elmer B. Harris Herbert A. Sklenar
A Director A Director
Date: March 30, 1999
Date: March 30, 1999
*
By __________________________________
Ronald L. Kuehn, Jr.
A Director
Date: March 30, 1999
- --------
* Carl L. Gorday, by signing his name hereto, does sign this document on
behalf of each of the persons indicated above pursuant to powers of attorney
executed by such persons and filed with the Securities and Exchange
Commission.
/s/ Carl L. Gorday
By __________________________________
Carl L. Gorday
Attorney in Fact
16
<PAGE>
EXHIBIT INDEX
The following is a list of exhibits including items incorporated by
reference. Compensatory plans and arrangements are identified by an asterisk.
<TABLE>
<C> <S>
3-a Restated Certificate of Incorporation of AmSouth Bancorporation (1)
3-b Bylaws of AmSouth Bancorporation, as amended (2)
4-a Instruments defining the rights of security holders (3)
4-b Stockholder Protection Rights Agreement dated as of December 18, 1997,
including as Exhibit A the forms of Rights Certificate and of Election
to Exercise and as Exhibit B the form of Certificate of Designation and
Terms of Series A Preferred Stock (4)
*10-a AmSouth Bancorporation Executive Incentive Plan (5)
*10-b AmSouth Bancorporation Relocation Policy for Executive Officers(6)
*10-c AmSouth Bancorporation Supplemental Retirement Plan (7)
*10-d AmSouth Bancorporation Long Term Incentive Compensation Plan (8)
*10-e Amendment No. 1 to the AmSouth Bancorporation Long Term Incentive
Compensation Plan (9)
*10-f Amendment No. 2 to the AmSouth Bancorporation Long Term Incentive
Compensation Plan (10)
*10-g Amendment No. 3 to the AmSouth Bancorporation Long Term Incentive
Compensation Plan (11)
*10-h Amendment No. 4 to the AmSouth Bancorporation Long Term Incentive
Compensation Plan (12)
*10-i Amendment No. 5 to the AmSouth Bancorporation Long Term Incentive
Compensation Plan (13)
*10-j Amendment No. 6 to the AmSouth Bancorporation Long Term Incentive
Compensation Plan (14)
*10-k 1989 AmSouth Bancorporation Long Term Incentive Compensation Plan (15)
*10-l Amendment No. 1 to the 1989 AmSouth Bancorporation Long Term Incentive
Compensation Plan (16)
*10-m Amendment No. 2 to the 1989 AmSouth Bancorporation Long Term Incentive
Compensation Plan (17)
*10-n Director Restricted Stock Plan (18)
*10-o 1997 Performance Incentive Plan (19)
*10-p 1996 Long Term Incentive Compensation Plan (20)
*10-q Amended and Restated Deferred Compensation Plan for Directors of AmSouth
Bancorporation (21)
*10-r AmSouth Bancorporation Supplemental Thrift Plan (22)
*10-s Amendment Number One to the AmSouth Bancorporation Supplemental Thrift
Plan (23)
*10-t Employment Agreement for C. Dowd Ritter (24)
*10-u Form of Executive Severance Agreement for certain Executive Officers
(25)
*10-v AmSouth Bancorporation Deferred Compensation Plan (26)
*10-w Stock Option Plan for Outside Directors
*10-x Life Insurance Agreement (27)
*10-y Supplemental Long-Term Disability Plan (28)
11 Statement Regarding Computation of Earnings per Share
13 AmSouth Bancorporation's 1998 Annual Report to Shareholders, excluding
the portions thereof not incorporated by reference in this Form 10-K
21 List of Subsidiaries of AmSouth Bancorporation
23 Consent of Ernst & Young LLP, Independent Auditors
24 Powers of Attorney
27 Financial Data Schedule
</TABLE>
17
<PAGE>
NOTES TO EXHIBITS
(1) Filed as Exhibit 3-b to AmSouth's Form 10-Q Quarterly Report for the
quarter ended March 31, 1993, incorporated herein by reference (filed
with the Securities and Exchange Commission in Washington, D.C., SEC
File No. 1-7476, former File No. 0-6907)
(2) Filed as Exhibit 3-b to AmSouth's Form 10-Q Quarterly Report for the
quarter ended June 30, 1997, incorporated herein by reference
(3) Instruments defining the rights of holders of long-term debt of AmSouth
are not filed herewith pursuant to Item 601(b)(4)(iii) of Regulation S-
K, and AmSouth hereby agrees to furnish a copy of said instruments to
the SEC upon request.
(4) Filed as Exhibit 4.1 to AmSouth's Report on Form 8-K filed on December
18, 1997, incorporated herein by reference
(5) Filed as Exhibit 10-a to AmSouth's Form 10-K Annual Report for the year
ended December 31, 1997, incorporated herein by reference
(6) Filed as Exhibit 10-b to AmSouth's Form 10-K Annual Report for the year
ended December 31, 1996, incorporated herein by reference
(7) Filed as Exhibit 10-c to AmSouth's Form 10-K Annual Report for the year
ended December 31, 1995, incorporated herein by reference
(8) Filed as part of Exhibit 23 to AmSouth's Form 10-Q Quarterly Report for
the quarter ended March 31, 1984, incorporated herein by reference
(filed with the Securities and Exchange Commission in Washington, D.C.,
SEC File No. 1-7476, former File No. 0-6907)
(9) Filed as Exhibit 10-e to AmSouth's Form 10-K Annual Report for the year
ended December 31, 1985, incorporated herein by reference (filed with
the Securities and Exchange Commission in Washington, D.C., SEC File
No. 1-7476, former File No. 0-6907)
(10) Filed as Exhibit 10-b to AmSouth's Form 10-Q Quarterly Report for the
quarter ended March 31, 1987, incorporated herein by reference (filed
with the Securities and Exchange Commission in Washington, D.C., SEC
File No. 1-7476, former File No. 0-6907)
(11) Filed as Exhibit 10(b) to AmSouth's Form 10-Q Quarterly Report for the
quarter ended September 30, 1988, incorporated herein by reference
(filed with the Securities and Exchange Commission in Washington, D.C.,
SEC File No. 1-7476, former File No. 0-6907)
(12) Filed as Exhibit 10-i to AmSouth's Form 10-K Annual Report for the year
ended December 31, 1988, incorporated herein by reference (filed with
the Securities and Exchange Commission in Washington, D.C., SEC File
No. 1-7476, former File No. 0-6907)
(13) Filed as Exhibit 10-i to AmSouth's Form 10-K Annual Report for the year
ended December 31, 1994, incorporated herein by reference
(14) Filed as Exhibit 10-b to AmSouth's Form 10-Q Quarterly Report for the
quarter ended September 30, 1995, incorporated herein by reference
(15) Filed as Exhibit 10 to AmSouth's Form 10-Q Quarterly Report for the
quarter ended March 31, 1993, incorporated herein by reference (filed
with the Securities and Exchange Commission in Washington, D.C., SEC
File No. 1-7476, former File No. 0-6907)
(16) Filed as Exhibit 10-k to AmSouth's Form 10-K Annual Report for the year
ended December 31, 1994, incorporated herein by reference
(17) Filed as Exhibit 10-a to AmSouth's Form 10-Q Quarterly Report for the
quarter ended September 30, 1995, incorporated herein by reference
(18) Filed as Exhibit 4.1 to AmSouth's Registration Statement on Form S-8
(Registration No. 33-58777), incorporated herein by reference
(19) Filed as Appendix A to AmSouth's Proxy Statement, dated March 10, 1997,
for the Annual Meeting of Shareholders on April 17, 1997, incorporated
herein by reference
(20) Filed as Exhibit 10-p to AmSouth's Form 10-K Annual Report for the year
ended December 31, 1996, incorporated herein by reference
(21) Filed as Exhibit 10-q to AmSouth's Form 10-K Annual Report for the year
ended December 31, 1997, incorporated herein by reference
18
<PAGE>
(22) Filed as Exhibit 10-q to AmSouth's Form 10-K Annual Report for the year
ended December 31, 1995, incorporated herein by reference
(23) Filed as Exhibit 10-r to AmSouth's Form 10-K Annual Report for the year
ended December 31, 1995, incorporated herein by reference
(24) Filed as Exhibit 10-t to AmSouth's Form 10-K Annual Report for the year
ended December 31, 1997, incorporated herein by reference
(25) Filed as Exhibit 10-u to AmSouth's Form 10-K Annual Report for the year
ended December 31, 1997, incorporated herein by reference. Agreements
in this form have been entered into with the following Executive
Officers: Michael C. Baker, David B. Edmonds, Sloan D. Gibson, IV, O.B.
Grayson Hall, Jr., W. Charles Mayer, III, Candice W. Rogers, E. W.
Stephenson, Jr., Alfred W. Swan, Jr., and Stephen A. Yoder
(26) Filed as Exhibit 10-v to AmSouth's Form 10-K Annual Report for the year
ended December 31, 1997, incorporated herein by reference
(27) Filed as Exhibit 10-a to AmSouth's Form 10-Q Quarterly Report for the
quarter ended March 31, 1998, incorporated herein by reference
(28) Filed as Exhibit 10-b to AmSouth's Form 10-Q Quarterly Report for the
quarter ended March 31, 1998, incorporated herein by reference
19
<PAGE>
AMSOUTH BANCORPORATION
STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
I. Purpose
The purposes of this Stock Option Plan for Outside Directors are to align
the interests of the outside directors of AmSouth Bancorporation (the
"Corporation") more closely with the interests of the Corporation's
shareholders, to provide such directors with an additional inducement to
remain in the service of the Corporation with an increased incentive to
work for its long-term success, and to establish an effective element of a
reasonable directors' compensation package.
II. Definitions
The following terms shall have the meanings indicated below:
2.1 "Common Stock" shall mean the common stock, par value $1.00 per share,
of the Corporation.
2.2 "Committee" shall mean the Director Affairs Committee of the
Corporation or any successor committee that performs similar
functions.
2.3 "Corporation" shall mean AmSouth Bancorporation.
2.4 "Business Day" shall mean any day on which the market used to
determine the Fair Market Value of the Common Stock is open for
trading.
2.5 "Fair Market Value" shall mean the closing price of the Common Stock
on the New York Stock Exchange on the relevant date. If on the
relevant date the Common Stock is not listed on the New York Stock
Exchange, "Fair Market Value" shall mean the closing price of the
Common Stock on the relevant date on the principal stock exchange on
which the Common Stock is listed. If the Common Stock is not listed
on any stock exchange on the relevant date, "Fair Market Value" shall
mean the mean between the bid and asked price of the Common Stock as
reported on the National Association of Securities Dealers Automated
Quotation System on the relevant date.
-1-
<PAGE>
2.6 "Outside Director" shall mean any individual who on the relevant date
is a member of the Board of Directors of the Corporation but is not an
employee of the Corporation.
2.7 "Plan" shall mean the AmSouth Bancorporation Stock Option Plan for
Outside Directors.
2.8 "Service Year" shall mean the period beginning on the third Business
Day after the Corporation's annual meeting of shareholders at which
directors are elected and ending on the day immediately preceding the
date of such annual meeting in the immediately following year.
2.9 "HR Head" shall mean the head of the Human Resources Division of
AmSouth Bank.
2.10 "Option" shall mean an option granted to an Outside Director pursuant
to the Plan.
2.11 "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as
amended from time to time, or any successor rule.
III. Administration
3.1 Self-Operative Plan. The Plan is intended to be self-operative to the
-------------------
maximum extent consistent with prudent business practice. Under no
circumstances shall any individual or group of individuals exercise
discretion with respect to designating the recipient of an Option, the
number of shares of Common Stock that are subject to an Option, the
date of grant for an Option or the exercise price for an Option.
3.2 Certain Administrative Duties. Within the parameters set forth in
-----------------------------
Section 3.1 hereof, the Committee shall administer the Plan. The
Committee's actions and interpretations under the Plan shall be final,
conclusive and binding, and the Committee shall not be liable for any
action taken or decisions made in good faith relating to the Plan or
any Option thereunder.
3.3 Source of Shares. The shares of Common Stock that may be issued upon
----------------
the exercise of Options under the Plan shall be authorized and issued
shares held in the Corporation's treasury. The aggregate number of
shares of Common Stock which may be issued under the Plan shall not
exceed 300,000 shares, subject to adjustment pursuant to Section 7.6
hereof.
-2-
<PAGE>
IV. Grantings of Options
4.1 Timing. Except for individuals who become Outside Directors during the
------
Service Year (as described in Section 4.3 hereof), Options will be
granted once per Service Year on the third Business Day following the
Corporation's annual meeting of shareholders at which directors are
elected.
4.2 Recipients. Options will be awarded in equal amounts to all
----------
individuals who are Outside Directors on the date of grant.
4.3 Mid-Service Year Elections. A director who is elected by the Board of
--------------------------
Directors after the start of a Service Year will be granted an Option
having terms (including term, exercise dates, and exercise price)
identical to the Options granted to Outside Directors at the start of
that Service Year, except that the number of shares of Common Stock
subject to such Option shall be the number of shares that are subject
to each Option granted at the start of such Service Year multiplied by
a fraction the numerator of which is the number of days during such
Service Year that the recipient of such Option will serve as a
director and the denominator of which is the number of days in the
Service Year (with fractional shares being rounded upward to the
nearest whole share).
4.4 Stock Option Agreements. The grant of any Option shall be evidenced
-----------------------
by a written "Stock Option Agreement" executed by the Corporation and
the optionee. The Stock Option Agreement shall contain the number of
shares of Common Stock that are subject to the Option evidenced
thereby, the other essential terms of the Option determined in
accordance with Section V hereof, and other terms that are not
inconsistent with the requirements of this Plan.
V. Terms of Options
5.1 Terms of Options. All Options, other than Options granted to an
----------------
Outside Director upon his or her election during a Service Year, shall
have a term of ten years from the date of grant, subject to earlier
termination pursuant to Section 5.5 hereof.
5.2 Exercise of Options. Options shall become exercisable on the last day
-------------------
of the Service Year in which the Options were granted.
-3-
<PAGE>
5.3 Exercise Price. The exercise price for all Options, other than Options
--------------
granted to an Outside Director upon his or her election during a
Service Year, shall be the Fair Market Value of the Common Stock on
the date the Option is granted.
5.4 Number of Shares. Subject to the provisions of Section 4.3 regarding
----------------
Mid-Service Year Elections, each Outside Director will receive an
award of Options to purchase 2,500 shares of Common Stock on the first
day of each Service Year. The number of shares subject to an Option
shall be subject to adjustment in accordance with Section 7.6 hereof.
5.5 Forfeiture. Options that have not become exercisable on the date the
----------
optionee ceases to serve as a director of the Corporation for any
reason other than the optionee's death, retirement or disability (as
defined in the retirement policy of the Board of Directors of the
Corporation) shall be forfeited and terminated immediately upon such
termination of service. Upon the death, retirement or disability of a
director, any Options that have been awarded but have not yet become
exercisable shall become immediately exercisable. Options that have
become exercisable shall remain exercisable, and shall no longer be
subject to forfeiture, throughout their ten-year terms, regardless of
whether the optionee is a director of the Corporation at the time the
Option is exercised.
VI. Exercise of Options
6.1 Notice of Exercise. An Option shall be exercised by delivery to the
------------------
HR Head of a written notice of exercise in the form prescribed by the
HR Head for use from time to time. Such notice of exercise shall
indicate the number of shares as to which the Option is exercised and
shall be accompanied by the full exercise price for the Options
exercised.
6.2 Form of Payment. The exercise price may be paid (i) in cash, (ii) in
---------------
whole or in part, by surrender of shares of Common Stock, which shall
be credited against the exercise price at their Fair Market Value on
the date the Option is exercised, (iii) by "cashless exercise" in
which a third party is authorized to sell shares of Common Stock (or a
sufficient portion of the shares) acquired upon exercise of the Option
and remit to the Corporation a sufficient portion of the sale proceeds
to pay the entire exercise price and any tax withholding resulting
from such exercise, or (iv) by any other means that the Committee
determines to be consistent with the Plan's purpose and applicable
law.
-4-
<PAGE>
VII. Miscellaneous
7.1 General Restriction. Each Option under the Plan shall be subject to
-------------------
the requirement that, if at any time the Committee shall determine
that any listing or registration of the shares of Common Stock, any
consent or approval of any governmental body, or any other agreement,
consent or action is necessary or desirable as a condition of the
granting of an Option or issuance of Common Stock in satisfaction
thereof, such grant or issuance may not be consummated unless such
requirement is satisfied in a manner acceptable to the Committee.
7.2 Non-Assignability. No Option under the Plan shall be assignable or
-----------------
transferable by the optionee, except by will or pursuant to applicable
laws of descent and distribution. During the life of an optionee, an
Option shall be exercisable only by such optionee.
7.3 Withholding Taxes. Whenever the Corporation issues or transfers shares
-----------------
of Common Stock under the Plan, the Corporation shall have the right
to require the optionee to remit to the Corporation an amount
sufficient to satisfy any federal, state, and local withholding tax
requirements prior to the delivery of any certificate for such shares.
An optionee may elect to satisfy the withholding requirement, in whole
or in part, by having the Corporation withhold shares of Common Stock
having a Fair Market Value on the date the tax is to be determined
equal to the total tax to be withheld. The amount to be withheld shall
be determined by the HR Head based on applicable laws and regulations.
All such elections shall be made in writing and shall be subject to
any restrictions or limitations that the HR Head, in his or her sole
discretion, deems appropriate.
7.4 No Right to Continued Service. Nothing in the Plan or in any
-----------------------------
agreement entered into pursuant to the Plan shall confer upon any
optionee any right to continued service as a director of the
Corporation or any subsidiary or affect any right of the Corporation
or a subsidiary, acting through their Boards of Directors or
otherwise, to terminate or otherwise affect the service of such
optionee.
7.5 No Rights as Shareholders. Holders of Options under the Plan shall
-------------------------
have no rights as shareholders of the Corporation resulting therefrom
unless and until certificates for shares of Common Stock are
registered in their names in satisfaction of a duly exercised Option.
-5-
<PAGE>
7.6 Adjustments. In the event that the outstanding shares of Common Stock
-----------
of the Corporation are changed in number, class or character by reason
of any split-up, change of par value, stock dividend, combination or
reclassification of shares, recapitalization, merger, consolidation or
other corporate change, or shall be changed in value by reason of any
spin-off, dividend in partial liquidation or other special
distribution, the Committee may make any changes it may deem equitable
and appropriate in outstanding Options, the number of Options to be
granted to each Outside Director each Service Year and/or in the
number of shares of Common Stock reserved for issuance under the Plan.
For purposes of this Section 7.6, it is intended that, absent reasons
to the contrary, adjustments to Options be consistent with any changes
or lack of changes to other options on the Common Stock resulting from
the same cause.
7.7 Amendment or Termination of Plan. The Board of Directors of the
--------------------------------
Corporation may amend or terminate the Plan as it deems advisable;
provided, however, no such amendment or termination may impair the
rights of an optionee under an Option previously granted, or effect a
change to any part of the provisions setting the amount, price and
timing of Option grants more often than permitted under Rule 16b-3.
-6-
<PAGE>
Exhibit 11
AMSOUTH BANCORPORATION
STATEMENT REGARDING COMPUTATION OF EARNINGS PER COMMON SHARE
Twelve Months Ended Three Months Ended
December 31 December 31
-------------------- --------------------
1998 1997 1998 1997
---- ---- ---- ----
(In thousands except per share data)
Net income....................... $262,712 $226,167 $ 68,375 $ 58,892
======== ======== ======== ========
Average shares of common
stock outstanding*............. 119,384 123,059 118,089 120,866
======== ======== ======== ========
Earnings per common share*....... $ 2.20 $ 1.84 $ 0.58 $ 0.49
======== ======== ======== ========
Diluted average shares of
common stock outstanding*...... 121,281 124,120 119,843 122,088
======== ======== ======== ========
Diluted earnings per
common share*.................. $ 2.17 $ 1.82 $ 0.57 $ 0.48
======== ======== ======== ========
* Restated for three-for-two common stock split in April 1998.
<PAGE>
EXHIBIT 13
AMSOUTH BANCORPORATION'S 1998 ANNUAL REPORT TO SHAREHOLDERS,
EXCLUDING THE PORTIONS THEREOF NOT INCORPORATED BY REFERENCE
IN THIS FORM 10-K
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Summary of Consolidated Financial Performance
AmSouth Bancorporation (AmSouth) reported diluted earnings per common share
in 1998 of $2.17 compared to $1.82 per share for 1997 and $1.42 per share in
1996. Net income for the same periods totaled $262.7 million, $226.2 million
and $182.7 million, respectively.
The improvement in earnings for 1998 resulted from continued strong growth
in net interest income and noninterest revenues. These improvements, however,
were partially offset by higher noninterest expenses.
The higher level of earnings in 1997 was primarily the result of an increase
in net interest income, significant growth in noninterest revenues and lower
noninterest expenses.
The increase in earnings for 1996 was due primarily to higher net interest
income and an increase in noninterest revenues. These improvements were offset,
in part, by a higher provision for loan losses and an increase in noninterest
expenses. Included in net income for 1996 was a one time, pretax charge of
$24.2 million, or $.12 per share after tax, required by federal legislation
passed during the third quarter to recapitalize the Savings Association
Insurance Fund (SAIF). Net income in 1996, without the effect of the SAIF
assessment, was $197.9 million or $1.54 per share on a diluted basis.
Two key measures of profitability in the banking industry are return on
average equity (ROE) and return on average assets (ROA). ROE was 18.56 percent
in 1998 versus 16.51 percent in 1997 and 13.23 percent in 1996. ROA was 1.35
percent in 1998 compared to 1.25 percent in 1997 and 1.02 percent in 1996.
Excluding the one-time SAIF charge in 1996, ROE and ROA for 1996 would have
been 14.26 percent and 1.10 percent, respectively. See graphs below.
This section of the annual report provides a narrative discussion and
analysis of AmSouth's financial condition and results of operations for the
previous three years. All tables, graphs and financial statements included in
this report should be considered an integral part of this analysis.
In March 1998, AmSouth's Board of Directors declared a three-for-two stock
split in the form of a 50 percent stock dividend. The shares were distributed
April 30, 1998, to stockholders of record as of April 3, 1998. One year earlier
in March 1997, AmSouth's Board declared a three-for-two stock split, also in
the form of a 50 percent stock dividend. The shares were distributed April 30,
1997, to stockholders of record as of April 4, 1997. For all years presented in
this discussion, shares outstanding and per share data have been adjusted to
reflect the stock splits.
[BAR GRAPH APPEARS HERE]
26
<PAGE>
COMPOSITION OF INTEREST-EARNING ASSETS (Table 1)
<TABLE>
<CAPTION>
1998 1997 1996
(Dollars in thousands) ------------------- ------------------- --------------------
Percent Percent
Average of Average of Average Percent
Balance Total Balance Total Balance of Total
----------- ------- ----------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Loans net of unearned
income................. $12,475,539 69.4% $12,059,249 72.2% $11,694,849 69.6%
Held-to-maturity
securities............. 2,354,192 13.1 2,451,358 14.7 2,621,070 15.6
Available-for-sale
securities............. 3,029,719 16.8 2,113,217 12.7 2,391,748 14.2
Other interest-earning
assets................. 119,546 0.7 72,561 0.4 107,352 0.6
----------- ----- ----------- ----- ----------- -----
$17,978,996 100.0% $16,696,385 100.0% $16,815,019 100.0%
=========== ===== =========== ===== =========== =====
</TABLE>
Note: Available-for-sale securities excludes adjustment for market valuation
and certain noninterest-earning marketable equity securities.
Forward Looking Information This Annual Report to Shareholders contains
certain forward looking information with respect to the strategic goals,
financial condition, results of operations and business of AmSouth including
statements relating to: (A) AmSouth's ability to achieve certain financial and
strategic goals; (B) the net interest margin; (C) noninterest revenues; (D)
loan losses; (E) operating efficiency; (F) legal proceedings; (G) growth in
various categories of loans; and (H) the Year 2000 project.
These forward looking statements involve certain risks, uncertainties,
estimates, and assumptions by management. Factors that may cause actual results
to differ materially from those contemplated by such forward looking statements
include, among others, the following: (1) general economic conditions including
the stability and the rate of growth of the economy, especially in the
Southeast; (2) the level and trend of interest rates; (3) relative
strength/weakness in the consumer credit sector; (4) AmSouth's ability to
improve sales and service quality, to achieve certain business strategies and
to develop profitable new products; (5) the successful implementation of
technological enhancements; (6) the outcome of litigation involving AmSouth,
which depends on judicial interpretations of law and findings of juries; (7)
the strength of the real estate markets, especially in the Southeast; (8) the
level of consumer confidence and loan demand; (9) the success of AmSouth's
marketing and sales efforts and its ability to maintain credit quality; (10)
the performance of the stock and bond markets; (11) the condition of foreign
financial markets and economies; (12) the effects of competitive pressures;
(13) the inherent uncertainties in successfully completing AmSouth's Year 2000
project, as well as the success of AmSouth's vendors, suppliers and loan
customers in completing their own efforts for Year 2000 compliance; and (14)
the ability to control expenses.
Earnings Analysis
Net Interest Income Net interest income (NII), defined as the amount of
revenue generated by interest-earning assets less the interest cost of funding
those assets, is the principal source of earnings for AmSouth, constituting
67.0 percent of total net revenues in 1998, 72.0 percent in 1997 and 73.8
percent in 1996. For purposes of this earnings analysis, NII has been adjusted
to a fully taxable equivalent basis for certain tax-exempt loans and
investments included in interest-earning assets.
The level of NII is determined primarily by variations in the volume and mix
of interest-earning assets and interest-bearing liabilities and changes in
their related yields and interest rates paid.
In 1998, NII increased $21.3 million to $704.6 million, an increase of 3.1
percent over 1997. The increase was attributable to a higher level of average
interest-earning assets in 1998. Average interest-earning assets in 1998 were
$18.0 billion compared to $16.7 billion in 1997, an increase of $1.3 billion or
7.7 percent. Investment securities and loans were the primary areas of growth
in interest-earning assets. Average investment securities increased 17.9
percent to $5.4 billion in 1998 as compared to $4.6 billion in 1997. The
available-for-sale portfolio increased $916.5 million to $3.0 billion in 1998,
while the held-to-maturity portfolio decreased $97.2 million to $2.4 billion.
The increase in the available-for-sale portfolio was primarily the result of a
planned expansion of the investment securities portfolio early in the year.
Growth in average loans net of unearned income (net loans) of $416.3 million to
$12.5 billion was responsible for
27
<PAGE>
YIELDS EARNED ON AVERAGE INTEREST-EARNING ASSETS
AND RATES PAID ON AVERAGE INTEREST-BEARING LIABILITIES (Table 2)
<TABLE>
<CAPTION>
1998
------------------------------------------
(Taxable equivalent basis--dollars in Average Balance Revenue/Expense Yield/Rate
thousands) --------------- --------------- ----------
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans net of unearned income....... $12,475,539 $1,087,602 8.72%
Available-for-sale securities...... 3,029,719 212,583 7.02
Held-to-maturity securities:
Taxable........................... 2,242,931 150,045 6.69
Tax-free.......................... 111,261 11,790 10.60
----------- ----------
Total held-to-maturity
securities...................... 2,354,192 161,835 6.87
----------- ----------
Total investment securities...... 5,383,911 374,418 6.95
Trading securities................. 2,753 127 4.61
Federal funds sold and securities
purchased under agreements to
resell............................ 14,832 831 5.60
Mortgage loans held for sale....... 90,432 4,622 5.11
Other interest-earning assets...... 11,529 581 5.04
----------- ----------
Total interest-earning assets..... 17,978,996 1,468,181 8.17
Cash and other assets................ 1,680,706
Allowance for loan losses............ (175,954)
Market valuation on available-for-
sale securities..................... 40,458
-----------
$19,524,206
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits... $ 4,084,906 143,144 3.50
Savings deposits................... 1,013,201 28,395 2.80
Time deposits...................... 4,804,976 269,111 5.60
Certificates of deposit of $100,000
or more........................... 1,035,051 58,389 5.64
Federal funds purchased and
securities sold under agreements
to repurchase..................... 1,403,501 71,821 5.12
Other borrowed funds............... 480,433 25,607 5.33
Long-term Federal Home Loan Bank
advances.......................... 2,257,657 118,749 5.26
Subordinated Capital Notes Due
1999.............................. 99,892 9,504 9.51
6.75% Subordinated Debentures Due
2025.............................. 149,871 9,065 6.05
6.45% Subordinated Notes Due 2018.. 272,235 16,242 5.97
7.75% Subordinated Notes Due 2004.. 149,458 11,696 7.83
7.50% Convertible Subordinated
Debentures........................ -0- -0- --
Other long-term debt............... 35,919 1,848 5.14
----------- ----------
Total interest-bearing
liabilities..................... 15,787,100 763,571 4.84
---------- -----
Net interest spread............. 3.33%
=====
Noninterest-bearing demand deposits.. 2,012,403
Other liabilities.................... 309,084
Shareholders' equity................. 1,415,619
-----------
$19,524,206
===========
Net interest income/margin on a
taxable equivalent basis....... 704,610 3.92%
=====
Taxable equivalent adjustment:
Loans.............................. 1,756
Held-to-maturity securities........ 3,884
----------
Total taxable equivalent
adjustment...................... 5,640
----------
Net interest income............ $ 698,970
==========
</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
28
<PAGE>
<TABLE>
<CAPTION>
1997 1996
------------------------------------------ --------------------------------------------
Average Balance Revenue/Expense Yield/Rate Average Balance Revenue/Expense Yield/Rate
--------------- --------------- ---------- --------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
$12,059,249 $1,053,837 8.74% $11,694,849 $1,006,658 8.61%
2,113,217 155,600 7.36 2,391,748 164,473 6.88
2,305,336 156,138 6.77 2,422,940 163,159 6.73
146,022 15,989 10.95 198,130 22,204 11.21
----------- ---------- ----------- ----------
2,451,358 172,127 7.02 2,621,070 185,363 7.07
----------- ---------- ----------- ----------
4,564,575 327,727 7.18 5,012,818 349,836 6.98
3,393 78 2.30 4,124 144 3.49
17,602 964 5.48 22,307 1,224 5.49
51,566 2,223 4.31 80,921 5,242 6.48
-0- -0- -- -0- -0- --
----------- ---------- ----------- ----------
16,696,385 1,384,829 8.29 16,815,019 1,363,104 8.11
1,490,195 1,327,974
(179,656) (178,592)
35,219 25,220
----------- -----------
$18,042,143 $17,989,621
=========== ===========
$3,727,911 123,586 3.32 $ 3,670,068 115,192 3.14
1,045,121 29,928 2.86 1,036,240 28,432 2.74
5,109,045 281,838 5.52 5,593,123 318,410 5.69
861,733 48,735 5.66 859,468 49,311 5.74
1,478,394 78,461 5.31 1,771,305 91,790 5.18
972,299 52,837 5.43 754,369 39,500 5.24
989,802 53,945 5.45 511,583 27,210 5.32
99,763 9,530 9.55 99,634 9,513 9.55
149,854 9,299 6.21 149,836 9,145 6.10
-0- -0- -- -0- -0- --
149,366 11,696 7.83 149,274 11,696 7.84
-0- -0- -- 2,390 145 6.07
29,674 1,656 5.58 22,489 1,098 4.88
----------- ---------- ----------- ----------
14,612,962 701,511 4.80 14,619,779 701,442 4.80
---------- ----- ---------- -----
3.49% 3.31%
===== =====
1,820,387 1,767,444
239,017 221,866
1,369,777 1,380,532
----------- -----------
$18,042,143 $17,989,621
=========== ===========
683,318 4.09% 661,662 3.93%
===== =====
1,712 2,178
5,329 7,103
---------- ----------
7,041 9,281
---------- ----------
$ 676,277 $ 652,381
========== ==========
</TABLE>
tax free assets. Loan net of unearned income includes nonaccrual loans
for all years presented. Certain noninterest-earning marketable equity
securities are not included in available-for-sale securities.
29
<PAGE>
VOLUME AND YIELD/RATE VARIANCES (Table 3)
<TABLE>
<CAPTION>
1998 Compared to 1997 1997 Compared to 1996
Change Due to Change Due to
--------------------------- ---------------------------
(Taxable equivalent Volume Yield/Rate Net Volume Yield/Rate Net
basis--in thousands) ------- ---------- ------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNED ON:
Loans net of unearned
income................. $36,291 $ (2,526) $33,765 $31,688 $15,490 $47,178
Available-for-sale
securities............. 64,618 (7,635) 56,983 (19,997) 11,124 (8,873)
Held-to-maturity
securities:
Taxable................ (4,191) (1,902) (6,093) (7,961) 940 (7,021)
Tax-free............... (3,699) (500) (4,199) (5,717) (498) (6,215)
------- -------- ------- ------- ------- -------
Total held-to-maturity
securities............. (7,890) (2,402) (10,292) (13,678) 442 (13,236)
------- -------- ------- ------- ------- -------
Total investment
securities............. 56,728 (10,037) 46,691 (33,675) 11,566 (22,109)
Trading securities...... (17) 66 49 (23) (43) (66)
Federal funds sold and
securities purchased
under agreements to
resell................. (155) 22 (133) (258) (2) (260)
Mortgage loans held for
sale................... 1,925 474 2,399 (1,571) (1,448) (3,019)
Other interest-earning
assets................. 581 -0- 581 -0- -0- -0-
------- -------- ------- ------- ------- -------
Total interest-earning
assets................. 95,353 (12,001) 83,352 (3,839) 25,563 21,724
------- -------- ------- ------- ------- -------
INTEREST PAID ON:
Interest-bearing demand
deposits............... 12,259 7,299 19,558 1,838 6,556 8,394
Savings deposits........ (902) (631) (1,533) 246 1,250 1,496
Time deposits........... (16,977) 4,250 (12,727) (26,931) (9,641) (36,572)
Certificates of deposit
of $100,000 or more.... 9,777 (123) 9,654 130 (706) (576)
Federal funds purchased
and securities sold
under agreements to
repurchase............. (3,892) (2,748) (6,640) (15,498) 2,169 (13,329)
Other borrowed funds.... (26,236) (994) (27,230) 11,793 1,544 13,337
Long-term Federal Home
Loan Bank advances..... 66,752 (1,948) 64,804 26,047 688 26,735
Subordinated Capital
Notes Due 1999......... 12 (38) (26) 12 5 17
6.75% Subordinated
Debentures Due 2025.... 1 (235) (234) 1 153 154
6.45% Subordinated Notes
Due 2018............... 16,242 -0- 16,242 -0- -0- -0-
7.75% Subordinated Notes
Due 2004............... 14 (14) -0- 14 (14) -0-
7.50% Convertible
Subordinated
Debentures............. -0- -0- -0- (73) (73) (146)
Other long-term debt.... 329 (137) 192 386 172 558
------- -------- ------- ------- ------- -------
Total interest-bearing
liabilities............ 57,379 4,681 62,060 (2,035) 2,103 68
------- -------- ------- ------- ------- -------
Net interest income on a
taxable equivalent
basis.................. $37,974 $(16,682) 21,292 $(1,804) $23,460 21,656
======= ======== ======= =======
Add taxable equivalent
adjustment............. 1,401 2,240
------- -------
Net interest income..... $22,693 $23,896
======= =======
</TABLE>
Notes:
1. The change in interest not due solely to volume or yield/rate has been
allocated to the volume column and yield/rate column in proportion to the
relationship of the absolute dollar amounts of the change in each.
2. The computation of the taxable equivalent adjustment has given effect to
the disallowance of interest expense, for federal income tax purposes,
related to certain tax-free assets.
3. Certain noninterest-earning marketable equity securities are not included
in available-for-sale securities.
30
<PAGE>
the remainder of the growth in interest-earning assets. The growth in loans
occurred primarily in commercial real estate, dealer indirect and equity
lending. See further discussion of loans in the Balance Sheet Analysis.
Funding for the increase in interest-earning assets was supplied by a $386.3
million increase in deposits and a $1.5 billion increase in long-term
borrowings. Sources for the long-term borrowings were long-term Federal Home
Loan Bank (FHLB) advances and $300 million in 6.45 percent long-term
subordinated notes issued in 1998. These borrowings extended current maturities
while enhancing NII and creating a better match of maturities with the
increased level of investment securities.
Partially offsetting the effects of the growth in average interest-earning
assets on NII was a decline in the net interest margin (NIM) of 17 basis points
to 3.92 percent in 1998. The NIM is computed by dividing fully taxable
equivalent NII by average interest-earning assets and measures how effectively
the bank utilizes its interest-earning assets in relationship to the interest
cost of funding them. The downward pressure on the NIM in 1998 resulted from the
narrowing of the net interest spread or the difference between the average yield
earned on interest-earning assets on a fully taxable equivalent basis and
average rate paid for interest-bearing liabilities. The net interest spread in
1998 was 3.33 percent versus 3.49 percent in 1997, a decrease of 16 basis
points. The decrease was the result of a 12 basis point decline in the yield on
average interest-earning assets to 8.17 percent, resulting from the higher level
of investment securities, and the sale of $169.5 million of underperforming
credit card loans. Also contributing to the decline in the net interest spread
was a 4 basis point increase in the rate paid on total interest-bearing
liabilities to 4.84 percent reflecting higher rates paid on certain time and
interest-bearing demand deposits.
Further constraining growth in net interest income and interest-earning
assets in 1998 was the increase in the use of off-balance sheet loan funding
vehicles called conduits. In an effort to reduce the amount of narrow spread
commercial and industrial (C&I) loans maintained on the balance sheet while
retaining the customer relationships and loan servicing, AmSouth in mid-1997
began using commercial loan conduits.
In 1998, AmSouth began utilizing a conduit for residential first mortgages
as well. Conduits have the effect of reducing the amount of loans on the
balance sheet and accordingly the interest revenue associated with those loans.
However, because the loans that are sold to the conduits typically have lower
spreads, the net interest margin widens while AmSouth's funding capacity
expands. Loans in the conduits continue to generate ongoing service fees for
AmSouth and can generate gains or losses when they are initially sold to the
conduit.
During 1997, NII reached $683.3 million, an increase of 3.3 percent over
1996. This improvement was attributable to higher yields on both loans and
investment securities in 1997 aided by a shift in the composition of earning
assets toward a greater proportion of loans. The yield earned on average net
loans in 1997 was 8.74 percent compared to 8.61 percent in 1996, while the
yield earned on total average investment securities improved to 7.18 percent in
1997 versus 6.98 percent the previous year. Average net loans as a percentage
of total average earning assets increased to 72.2 percent in 1997 from 69.6
percent in 1996. Total average interest-earning assets declined $118.6 million
between years primarily due to management's efforts during 1997 to reduce the
level of narrower spread assets held on the balance sheet.
Further evidence of the effects of these actions included the widening of
the net interest spread. The net interest spread in 1997 was 3.49 percent
versus 3.31 percent in 1996, an increase of 18 basis points. A major factor
contributing to the increase in the net interest spread in 1997 was the lower
cost of time deposits. The average rate paid for time deposits during the year
was 5.52 percent, a decline of 17 basis points from the 5.69 percent paid in
1996. This decrease was primarily due to a program conducted during the latter
half of 1996 to reprice and restructure the maturities of $1.6 billion of
consumer certificates of deposit. Despite increases in the cost of other
deposits, the decrease in the cost of time deposits kept the rate paid on total
interest-bearing liabilities in 1997 at 4.80 percent, unchanged from 1996.
The widening of the net interest spread, in turn, was the primary reason for
the improvement in the NIM to 4.09 percent for 1997 from 3.93 percent reported
in the prior year.
Management anticipates modest improvement in the NIM in 1999 provided the
economy continues a course of modest growth, interest rates remain stable and
AmSouth's strategy to shift the mix of earning assets from narrower spread
investment securities to wider spread loans meets with continuing success.
However, competitive pressures adversely affecting AmSouth's ability to set
deposit rates and price loans as well as deterioration in the overall economy
may inhibit such expansion of the net interest margin.
31
<PAGE>
Provision for Loan Losses The provision for loan losses is the charge to
operating earnings necessary to maintain the allowance for loan losses at an
adequate level to absorb losses inherent in the loan portfolio. The provision
for loan losses in 1998 totaled $58.1 million, a $9.3 million decrease from the
$67.4 million reported in 1997 and $7.0 million lower than the $65.2 million
recorded in 1996. At the same time, net charge-offs in 1998 decreased to $46.4
million from $67.3 million in 1997 and $64.6 million in 1996. Decreases
occurred primarily in the consumer loan portfolio, reflecting improvement in
several consumer loan segments including direct consumer, dealer indirect and
revolving credit. This is the result of enhancements in all aspects of the
consumer lending programs from underwriting to collections during the past three
years. The improvement in 1998 also reflects the sale of approximately $169.5
million of underperforming credit card loans. The decline in consumer loan net
charge-offs was offset somewhat by an increase in C&I loan net charge-offs.
The increase in 1997 resulted from increased loan volumes, higher commercial
and consumer loan net charge-offs and lower net recoveries of commercial real
estate loans. The increase in consumer loan net charge-offs was lessened due to
higher recoveries of dealer indirect loans as a direct result of enhancements
made to the collection process during the year.
[BAR GRAPH APPEARS HERE]
Measured as a percentage of average net loans, net charge-offs followed the
same pattern as the absolute level of losses during the past three years. In
1998, net charge-offs were .37 percent of average net loans versus .56 percent
in 1997 and .55 percent in 1996. Management expects the absolute dollar amount
of loan losses to increase in 1999, while loan losses as a percentage of net
loans should decline provided the overall economy remains stable.
For additional details on net charge-offs, see Tables 17 and 18. Also,
additional discussion of asset quality trends may be found in the section of
this report entitled Credit Risk Management Process and Loan Quality.
Noninterest Revenues Noninterest revenues grew to represent 33.0 percent of
total, tax equivalent, net revenues in 1998, up from 28.0 percent in 1997 and
26.2 percent in 1996. Total noninterest revenues increased 30.3 percent to
$346.6 million in 1998, compared to $266.0 million in 1997 and $235.3 million
in 1996. 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 underperforming credit card assets. Excluding the effects of
this one time gain, noninterest revenues for 1998 were $318.7 million, an
increase of 19.8 percent over 1997, and represented 31.1 percent of total
revenues. Growth occurred in all major revenue categories, led by service
charges on deposits, trust income, consumer investment services income and
other noninterest revenues.
Service charges on commercial and consumer deposit accounts grew 6.3 percent
to $104.7 million in 1998, an increase of $6.2 million. The increase in service
charges, which represent the single largest category of noninterest revenues,
was primarily due to increases in corporate analysis fees and higher service
fee income from consumer checking accounts. Increased sales of Treasury
Management services and a greater number of corporate analysis opportunities
contributed to the growth in fees as well as a rate increase at the beginning
of 1998.
Trust income of $66.5 million represents an increase of $4.4 million or 7.1
percent over 1997. The increase was due to revenue from new employee benefit
plan administration and personal trust accounts, fee increases and strength in
financial markets during most of 1998. Partially offsetting these items was a
reduction in fees due to the sale of the bond administration
32
<PAGE>
[BAR GRAPH APPEARS HERE]
and stock transfer businesses in 1998. Total trust assets under administration
at the end of 1998 were $31.3 billion, compared to $29.0 billion at year-end
1997. Total assets under management, which are included in total assets under
administration, grew 9.5 percent to $9.2 billion at year-end 1998 compared to
$8.4 billion at the end of 1997.
Consumer investment services income was a leading growth area in noninterest
revenues increasing $7.7 million to $31.2 million in 1998 from $23.5 million in
1997. This represents an increase of 32.7 percent. The increase was the result
of higher sales volume of mutual funds and annuity products. As part of the
strategic initiative to generate $50 million in revenues from new sources,
AmSouth in December 1997 began training personnel to sell fixed annuity
products through the branch network. At December 31, 1998, there were
approximately 500 trained and licensed personnel selling these products
throughout the AmSouth franchise. In addition, AmSouth added three proprietary
mutual funds to its investment products offered, bringing the number of
AmSouth's proprietary funds to 18. Total assets in these mutual funds at the
end of 1998 were $3.6 billion.
The increase in other noninterest revenues reflects increases in interchange
income, bank-owned life insurance (BOLI) on the lives of key employees,
mortgage income, and a one time gain on the sale of businesses. Fees from
interchange services, which are derived from debit cards and automated teller
machine (ATM) transactions, increased 27.3 percent to $15.5 million in 1998, an
increase of $3.3 million over 1997. The increase resulted from the strategic
initiative to double the contribution from Consumer Banking. As part of this
initiative, AmSouth has grown its ATM network to 642 machines and debit cards
outstanding to over 400,000 accounts.
Income from BOLI experienced substantial growth in 1998. BOLI has the effect
of reducing NII by the amount previously earned on the principal amount
invested and to increase noninterest revenues by the earnings received from the
insurance policies. Because the proceeds from life insurance policies are
exempt from federal income taxes, the corporation's effective tax rate is
reduced. Income from BOLI was up $7.3 million, or 64.3 percent, to $18.6
million in 1998. The increase was due primarily to additional BOLI purchases in
the latter half of 1997 and early 1998. The total principal amount of BOLI at
the end of 1998 was $301 million compared to $200 million at year-end 1997.
Mortgage income represented another area of significant growth for
noninterest revenues in 1998. The expansion of the mortgage lending program is
another component of the strategic initiative to double the contribution from
Consumer Banking. In 1998, AmSouth expanded its Florida mortgage staff by over
40 professionals and doubled the overall production of mortgage loan
originations over 1997. Mortgage income consists of income from the sale of
mortgage loans and related servicing rights and income from the sale of third-
party mortgage servicing rights. Mortgage income for the year was $18.3 million
versus $6.6 million for 1997, an increase of 178.7 percent.
Also included in other noninterest revenues is a $28.0 million one time gain
on the sale of AmSouth's bond administration and stock transfer businesses and
the sale of underperforming credit card assets during 1998. The remainder of
the increase in other noninterest revenues was primarily the result of gains
generated from the sale of various miscellaneous assets and an increase in the
fees from the commercial loan conduit. Further contributing to the increase in
other noninterest revenues was higher portfolio income of $1.6 million.
Total noninterest revenues increased 13.1 percent to $266.0 million in 1997,
compared to $235.3 million in 1996. Growth occurred across all major revenue
categories, led by
33
<PAGE>
investment services income, service charges on deposits, other noninterest
revenues, and trust income.
Service charges on deposit accounts increased $3.8 million or 4.0 percent in
1997. This growth reflects increases primarily in consumer checking account
fees, commercial account analysis fees and check enclosure fees. The increase
in consumer checking fees was primarily due to a decrease in fee waivers during
the year. Also contributing to the increase were increases in transaction
volumes and account activity.
Trust income in 1997 reached $62.1 million, an increase of $4.7 million or
8.3 percent over 1996. Revenue growth was led by new business in employee
benefit plan administration and personal trust administration and by higher
market values of assets. Total trust assets under administration at year-end
1997 were $29.0 billion, up from $20.6 billion at the end of 1996, while total
assets under management, which are included in total trust assets under
administration, reached $8.4 billion at the end of 1997 compared to $7.1
billion at year-end 1996.
Consumer investment services income was $23.5 million in 1997, up $6.6
million or 38.7 percent from 1996. The principal reason for the increase was a
13.0 percent increase in the number of employees registered to sell investment
products in 1997. In addition, the number of AmSouth proprietary mutual funds
was expanded during the year to include equity income, large capitalization,
fixed income, and additional money market funds. Total assets in the AmSouth
mutual funds at year-end 1997 were $3.3 billion.
The increase in other noninterest revenues was primarily the result of
increases in interchange income and BOLI. Interchange income had substantial
growth in 1997, increasing $3.2 million or 35.3 percent. The principal reasons
for the increase include an increase in the number of activated debit cards
during the year and the expansion of the ATM network, initially begun in the
latter half of 1996.
BOLI represented a new noninterest revenue category at the end of 1996 with
the purchase of $150 million, principal amount. An additional $50 million of
principal amount of BOLI was purchased in the third quarter of 1997, bringing
the total principal amount of BOLI to $200 million at year-end 1997. The income
recorded in 1997 from BOLI totaled $11.3 million.
The remaining increase in other noninterest revenues was primarily the
result of growth in mortgage income due to increases in servicing fees on loans
sold and higher gains on the sales of mortgages.
Management expects, excluding nonrecurring items, total noninterest revenues
in 1999 to exceed the levels reported in 1998, provided the economy remains
stable. Performance of the stock and bond markets will also influence
management's ability to achieve its noninterest revenue goals.
Each of the major categories of noninterest revenues for 1993 through 1998,
with a five year compound growth rate for each component, is shown in Table 4.
Noninterest Expenses Noninterest expenses were $582.1 million in 1998,
representing a $55.9 million increase over 1997 noninterest expenses of $526.2
million. Increases occurred across all major categories of expenses, but the
primary increase occurred in salaries and employee benefits expense, the
largest category of noninterest expenses.
Salaries and employee benefits expense increased $40.6 million to $290.3
million, an increase of 16.3 percent over 1997 expense of $249.7 million. The
increase in 1998 was primarily due to merit increases, higher performance-based
incentive compensation and an increase in the total number of employees, much
of which was directly related to the strategic initiative to generate $50
million in revenues from new sources by the Year 2000. The total number of
employees at December 31, 1998, was approximately 6,700 compared to
approximately 6,400 at the end of 1997, a net increase of 300 employees. The
majority of the increase in employees was related to the initiative for the
expansion of the Florida franchise, which experienced a net increase of 198
employees.
Net occupancy expense was $56.3 million in 1998 compared to 1997 expense of
$55.8 million, an increase of $487 thousand or 1.0 percent. The modest increase
was due to increases in net rent expense and depreciation expense on leasehold
improvements.
Equipment expense increased $5.2 million in 1998 to $62.2 million versus
expense of $57.0 million in 1997. The increase was attributable to increased
depreciation on technology investments in the consumer and commercial lines of
business as well as expenses related to the Year 2000 project. See Year 2000
Project of the Management's Discussion and Analysis for further discussion of
Year 2000 issues.
34
<PAGE>
NONINTEREST REVENUES AND NONINTEREST EXPENSES (TABLE 4)
<TABLE>
<CAPTION>
Compound
Growth
Years Ended December 31 Rate
(Dollars in thousands) ----------------------------------------------------- ---------
1998 1997 1996 1995 1994 1993 1998/1993
-------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
NONINTEREST REVENUES:
Service charges on
deposit accounts...... $104,709 $ 98,546 $ 94,765 $ 85,085 $ 68,780 $ 60,541 11.58%
Trust income........... 66,473 62,094 57,354 50,272 46,121 41,659 9.80
Consumer investment
services income....... 31,191 23,500 16,944 7,325 5,314 485 129.96
Other noninterest
revenues.............. 144,253 81,864 66,211 88,989 55,140 96,552 8.36
-------- -------- -------- -------- -------- --------
$346,626 $266,004 $235,274 $231,671 $175,355 $199,237 11.71%
======== ======== ======== ======== ======== ========
NONINTEREST EXPENSES:
Salaries and employee
benefits.............. $290,261 $249,655 $232,076 $226,317 $232,050 $222,756 5.44%
Net occupancy expense.. 56,278 55,791 54,211 53,918 46,770 36,537 9.02
Equipment expense...... 62,245 57,033 55,044 50,289 41,432 39,213 9.68
FDIC premiums.......... 3,155 2,625 7,814 20,315 24,664 21,413 (31.82)
SAIF assessment........ -0- -0- 24,196 -0- -0- -0- --
Other noninterest
expenses.............. 170,178 161,088 160,891 159,059 174,323 134,080 4.88
-------- -------- -------- -------- -------- --------
$582,117 $526,192 $534,232 $509,898 $519,239 $453,999 5.10%
======== ======== ======== ======== ======== ========
</TABLE>
Other noninterest expenses were $170.2 million in 1998 versus $161.1 million
in 1997, an increase of 5.6 percent or $9.1 million. Within this expense
category, marketing expense increased $3.3 million due to increased promotions
and direct marketing projects in 1998; communications expense increased $2.3
million due to expenses associated with a wide area network to support
technology for the consumer and commercial lines of business; and postage and
supplies expense increased $1.8 million related to increased direct marketing
initiatives and growth in AmSouth's customer base in 1998. Also included in
other noninterest expenses were increases due to contributions to AmSouth's
charitable foundation and operating costs associated with new revenue
initiatives.
Noninterest expenses totaled $526.2 million in 1997, a decrease of $8.0
million or 1.5 percent compared to 1996. Noninterest expenses in 1996 included
a one time, pretax charge of $24.2 million required by federal legislation to
recapitalize SAIF. Before consideration of this item in 1996, noninterest
expenses in 1997 increased $16.2 million or 3.2 percent compared to 1996.
Increases occurred in salaries and employee benefits, net occupancy expense,
equipment expense, and other noninterest expenses, offset, in part, by lower
Federal Deposit Insurance Corporation (FDIC) deposit insurance premiums.
Salaries and employee benefits increased $17.6 million or 7.6 percent in
1997 versus 1996. The increase was due primarily to merit increases and higher
performance-based incentive compensation. The total number of employees at
AmSouth on December 31, 1997, was approximately 6,400 compared to approximately
6,500 at year-end 1996.
Net occupancy expense in 1997 was $55.8 million versus $54.2 million in
1996, an increase of $1.6 million or 2.9 percent. The main reason for the
increase was higher lease payments related to increased occupancy during the
year in a new office complex.
Equipment expense of $57.0 million in 1997 represented an increase of $2.0
million or 3.6 percent over the amount recorded in the prior year. The increase
was primarily the result of increased costs of investments in technology,
principally to support the consumer and commercial lines of business.
FDIC premium expense for deposit insurance declined in 1997 to $2.6 million
from the $7.8 million incurred in 1996. For 1996, deposits insured by the Bank
Insurance Fund (BIF) did not
35
<PAGE>
have an assessment for the best capitalized banks, while deposits insured by the
SAIF continued to be assessed at a rate of 23 basis points on every $100 in
deposits. Effective January 1, 1997, deposits of the best capitalized
institutions insured by the SAIF are assessed at a rate of 6.5 basis points,
while deposits insured by the BIF are assessed at 1.3 basis points.
Other noninterest expenses in 1997 were $161.1 million and remained
essentially unchanged from the level reported in 1996. Within this expense
category, communications expense increased $4.2 million in 1997 due to higher
costs associated with the establishment of a wide area network to support the
enhanced technology in the consumer and commercial lines of business. This
increase was offset by lower other miscellaneous noninterest expenses during
1997.
Each of the major categories of noninterest expenses for 1993 through 1998,
with a five year compound growth rate for each component, is shown in Table 4.
Operating Efficiency Productivity in the banking industry is commonly
measured by the operating efficiency ratio. It measures the amount of expense
dollars utilized to generate a dollar of revenue. The ratio is calculated by
dividing total noninterest expenses by the sum of NII and total noninterest
revenues. In 1998, AmSouth's operating efficiency ratio was 55.37 percent
compared to 55.43 percent in 1997 and 59.56 percent in 1996. Excluding the SAIF
assessment in 1996, the ratio was 56.86 percent.
Management's ability to improve operating efficiency during 1999 will depend
upon its ability to continue strong top-line revenue growth while maintaining
control across all noninterest expense categories.
Income Taxes AmSouth's income tax expense was $142.6 million in 1998, $122.5
million in 1997, and $105.6 million in 1996. The increases in income tax
expense in all three years were due primarily to increases in pretax income.
The effective tax rate for 1998 was 35.2 percent compared to 35.1 percent in
1997 and 36.6 percent in 1996. The effect of the increase in BOLI on the
effective tax rate was more than offset by the increase in taxable income
resulting in a slight increase in the effective tax rate in 1998. The 1997
decrease resulted from an increase in tax-exempt income from the purchase of
BOLI. Details of the
[BAR GRAPH APPEARS HERE]
deferred tax assets and liabilities are included in Note 18 of the Notes to
Consolidated Financial Statements.
Year 2000 Project The following information constitutes a 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 Year 2000 issues 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, began in 1997 to oversee AmSouth's Year 2000 efforts. A plan was
developed which included 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
36
<PAGE>
has fully completed its assessment phase of all systems that could be affected
by the Year 2000. As part of the assessment phase, systems which have the
greatest impact on the operations of AmSouth were designated as mission critical
systems.
The remediation and testing phases for all internal mission critical systems
are substantially completed. As of October 31, 1998, modifications of 100
percent of these systems were completed. Once systems were modified, AmSouth
conducted unit testing, integrated testing and then completed implementation.
These phases ran concurrently for different systems. To date, AmSouth has
completed the testing of 97 percent of internal mission critical systems and
has implemented 95 percent of its remediated mission critical systems. AmSouth
substantially completed testing of internal mission critical systems prior to
December 31, 1998. While implementation of these systems is required to be
completed no later than June 30, 1999, AmSouth had 95 percent of its internal
mission critical systems fully implemented by December 31, 1998, fully six
months ahead of regulatory guidelines. Even after testing and implementation,
AmSouth 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 mission
critical services have certified their Year 2000 readiness and are all on
schedule to complete their testing by March 31, 1999, as required by federal
banking regulations. AmSouth expects all third-party mission critical systems
to be fully implemented by June 30, 1999.
While AmSouth's greatest focus and efforts to date have been on preparing
mission critical systems for the Year 2000, 82 percent of noncritical systems
have been remediated, tested and implemented as of December 31, 1998. Eleven
percent of noncritical systems have been remediated and are in the process of
testing or implementation, and seven percent of noncritical systems are
awaiting remediation. Noncritical systems are expected to be Year 2000
compliant and in operation during 1999.
In addition, AmSouth is in 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 possible impact of Year 2000 on
its loan customers' liquidity and their ability to repay their loans. Earlier
this year, AmSouth established an education and assessment program for
substantially 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 plans to continue
to assess and evaluate the impact of Year 2000 in its credit analysis of
current and future loan customers 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.
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 will be
reviewed with the degree of emphasis varying based on the risk profile of the
asset. 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, and will not be material to
AmSouth's financial performance. This cost estimate does not include salaries
and
37
<PAGE>
employee benefits of AmSouth employees working on the Year 2000 project, as
these costs are not separately tracked.
As noted above, AmSouth believes that it has an effective program in place
to resolve the Year 2000 issue. However, if appropriate modifications and
conversions are not completed in a timely manner for some unexpected reason,
the Year 2000 issue could impact AmSouth's operations. In addition, disruptions
in the economy resulting from Year 2000 issues could also materially impact
AmSouth. There can also be no guarantee that systems of other companies on
which AmSouth's systems rely will be converted in a timely manner and not have
any adverse impact on AmSouth's systems. Accordingly, AmSouth is assessing the
extent to which its operations are vulnerable to other companies' systems and
is developing contingency plans to minimize the impact on AmSouth's operations
if these organizations fail to remediate their systems properly.
Balance Sheet Analysis
At December 31, 1998, AmSouth reported total assets of $19.9 billion
compared to $18.6 billion at the end of 1997. Average total assets were $19.5
billion in 1998, an increase of $1.5 billion compared to 1997.
Interest-Earning Assets In banking, the predominant interest-earning assets
are loans and investment securities. The proportion of interest-earning assets
to total assets measures the effectiveness of management's effort to invest
available funds into the most efficient and profitable uses. In 1998, interest-
earning assets were 92.1 percent of total average assets compared to 92.5
percent in 1997. The decrease in 1998 was primarily a reflection of
management's continuing efforts during the year to reduce the level of low
spread interest-earning assets on the balance sheet. The categories which
comprise interest-earning assets are shown in Table 1.
Securities AmSouth classifies its debt and equity securities as either held-
to-maturity, available-for-sale or trading securities. Securities are
classified as held-to-maturity and carried at amortized cost only if AmSouth
has the intent and ability to hold those securities to maturity. If not
classified as held-to-maturity, such securities are classified as trading
securities or available-for-sale securities. Trading securities are carried at
[BAR GRAPH APPEARS HERE]
market value with unrealized gains and losses included in other noninterest
revenues. Available-for-sale securities are also carried at market value with
unrealized gains and losses, net of deferred taxes, reported in accumulated
other comprehensive income within shareholders' equity.
At December 31, 1998, available-for-sale securities totaled $3.0 billion and
represented 58.5 percent of the total portfolio compared to $2.5 billion or
52.5 percent in available-for-sale securities at the end of 1997. These
securities at year-end 1998 consisted of U.S. Treasury securities, variable and
fixed rate mortgage-backed securities, other private asset-backed securities,
and equity securities. The average life of the portfolio is estimated to be 3.3
years with a duration of approximately 1.9 years. Total realized gains of $8.3
million from the sale of available-for-sale securities were included in other
noninterest revenues for 1998, compared to $7.9 million of realized gains in
1997. Unrealized gains on the available-for-sale portfolio of $19.1 million,
net of deferred taxes, were included in accumulated other comprehensive income
within shareholders' equity at December 31, 1998.
Held-to-maturity securities were $2.1 billion at the end of 1998 compared to
$2.3 billion at year-end 1997. Securities classified as held-to-maturity at the
end of 1998 consisted
38
<PAGE>
SECURITIES (Table 5)
<TABLE>
<CAPTION>
December 31
(In millions) --------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Trading securities........................................ $ 4 $ 1 $ 4
Available-for-sale securities:
U.S. Treasury and federal agency securities.............. 2,719 2,331 2,001
Other securities......................................... 310 177 289
------ ------ ------
3,029 2,508 2,290
------ ------ ------
Held-to-maturity securities:
U.S. Treasury and federal agency securities.............. 1,826 1,940 2,211
Other securities......................................... 190 205 255
State, county and municipal securities................... 131 127 179
------ ------ ------
2,147 2,272 2,645
------ ------ ------
$5,180 $4,781 $4,939
====== ====== ======
</TABLE>
primarily of collateralized mortgage obligations, federal agency securities,
mortgage-backed securities and state, county and municipal obligations. The
average life of these securities is estimated to be 3.6 years with a duration of
2.3 years. At December 31, 1998, the held-to-maturity portfolio had an
unrealized gain, before taxes, of $15.1 million.
AmSouth's policy requires all securities purchased for the securities
portfolio, except state, county and local municipal obligations, to be rated
investment grade or better. Securities backed by the U.S. Government and its
agencies, both on a direct and indirect basis, represented approximately 90
percent of the portfolio at December 31, 1998. Approximately 86 percent of
state, county and local municipal securities at year-end 1998 were rated either
single A or above by the rating agencies or were escrowed in U.S. Treasury
obligations.
Management anticipates, in 1999, further reduction in the investment
portfolio as the result of normal sales and maturities of investment securities
and the shift of earning assets from narrower spread investment securities to
wider spread loans.
Loans Loans are the single largest category of interest-earning assets for
AmSouth and produce the highest level of revenues. At December 31, 1998, loans,
net of unearned income, totaled $12.9 billion, an increase of 5.2 percent from
the $12.2 billion reported at the end of 1997.
The controlled growth in the loan portfolio reflects management initiatives
to reduce the level of low-spread earning assets on the balance sheet including
reducing the proportion of residential first mortgages held in the loan
portfolio, selling participations in certain narrow spread commercial loans,
divesting certain underperforming credit card loans, and growing wider spread
consumer, C&I and commercial real estate loan categories.
While AmSouth more than doubled mortgage originations from 1997 to 1998, the
residential mortgage portfolio held on the balance sheet was allowed to decline
by 16.9 percent between year-end 1997 and 1998. This was done through normal
runoff, selling a large part of new originations into the secondary market,
securitization of mortgage loans and participating loans into a third-party
conduit. During the year, $400 million of mortgage loans was participated to
this conduit and $68.0 million was securitized and reclassified to the
investment portfolio.
During 1998, AmSouth continued to reduce the amount of low spread commercial
loans on the balance sheet through the use of commercial loan conduits. AmSouth
began using conduits in mid-year 1997. At the end of 1998, there was
approximately
39
<PAGE>
AVAILABLE-FOR-SALE SECURITIES AND HELD-TO-MATURITY SECURITIES
RELATIVE CONTRACTUAL MATURITIES AND WEIGHTED AVERAGE YIELDS (Table 6)
<TABLE>
<CAPTION>
Due After One Due After Five
(Taxable equivalent Due Within but Within but Within Ten Due After
basis -- dollars in One Year Five Years Years Ten Years
thousands) ------------- -------------- -------------- ----------------
Amount Yield Amount Yield Amount Yield Amount Yield
------- ----- -------- ----- -------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
SECURITIES:
U.S. Treasury and
federal agency
securities............ $49,976 6.50% $ 79,291 6.27% $245,880 6.66% $2,320,742 6.82%
Other securities....... -0- -- -0- -- -0- -- 110,268 5.37
------- ----- -------- ----- -------- ---- ---------- ----
$49,976 6.50% $ 79,291 6.27% $245,880 6.66% $2,431,010 6.75%
======= ===== ======== ===== ======== ==== ========== ====
HELD-TO-MATURITY
SECURITIES:
U.S. Treasury and
federal agency
securities............ $ 5,555 6.68% $129,963 6.52% $309,190 6.61% $1,380,848 7.06%
State, county and
municipal
obligations........... 23,526 11.58 18,245 11.12 18,003 9.08 71,442 5.94
Other securities....... 25,093 6.68 1,000 7.95 1,075 6.57 163,104 6.80
------- ----- -------- ----- -------- ---- ---------- ----
$54,174 8.81% $149,208 7.09% $328,268 6.75% $1,615,394 6.98%
======= ===== ======== ===== ======== ==== ========== ====
Taxable equivalent
adjustment for
calculation of yield... $ 954 $ 710 $ 572 $ 1,484
</TABLE>
- --------
Notes:
1. The weighted average yields were computed by dividing the taxable equivalent
interest income by the amortized cost of the appropriate securities. The
taxable equivalent interest income does not give effect to the disallowance
of interest expense, for federal income tax purposes, related to certain
tax-free assets.
2. The amount of available-for-sale securities indicated as maturing after five
but within ten years includes $206 million of mortgage-backed securities,
and those indicated as maturing after ten years includes $2.4 billion of
mortgage-backed securities. Although these securities have long-term
maturities, according to mortgage industry standards, the estimated weighted
average remaining life of these securities held in AmSouth's investment
portfolio is approximately 3.5 years.
3. The amount of held-to-maturity securities indicated as maturing after five
but within ten years includes $255 million of mortgage-backed securities and
those indicated as maturing after ten years includes $1.5 billion of
mortgage-backed securities. Although these securities have long-term
maturities, according to mortgage industry standards, the estimated weighted
average remaining life of these securities held in AmSouth's investment
portfolio is approximately 3.5 years.
4. Federal Reserve Bank stock, Federal Home Loan Bank stock, and equity stock
of other corporations held by AmSouth are not included in the above table.
$1.5 billion in commercial loans in conduits versus $413 million at year-end
1997.
AmSouth also sold approximately $169.5 million of credit card loans in 1998.
These loans represented an underperforming portion of the total credit card
portfolio which had been acquired through direct mail solicitations in markets
outside of AmSouth's franchise and through a previous portfolio purchase. At
year-end 1998, bankcard and other revolving credit loans declined 41.6 percent
compared to year-end 1997.
At the end of 1998, total managed loans net of unearned income, which
include loans contained in the conduits, grew 16.4 percent compared to year-end
1997. Excluding residential first mortgages and the effects of the sale of
underperforming credit card loans, total managed loans, net of unearned income,
increased 23.7 percent over 1997.
The loan portfolio at AmSouth is comprised of four main components: C&I
loans, commercial real estate loans, consumer loans and, within the consumer
loan category, residential first mortgage loans. At the end of 1998, C&I loans
represented 28.6 percent of the total portfolio, commercial real estate loans
were 25.5 percent, while consumer loans, excluding residential first mortgages,
were 29.1 percent and residential first mortgages comprised 16.8 percent. This
compared with 30.5 percent, 21.1 percent, 27.1 percent, and 21.3 percent at the
end of 1997 for C&I loans, commercial real estate loans, consumer loans, and
residential first mortgages, respectively.
The level of C&I loans at the end of 1998 was $3.7 billion and remained
relatively unchanged from year-end 1997. Including the loans in conduits at
year-end 1998, C&I loans grew 20.8 percent year over year. The strong growth
was primarily a function of management's strategy, formulated several years
ago, to apply targeted sales efforts and relationship banking concepts across
all lines of business. In 1998, this approach produced solid results in many
C&I lending segments and increases in several industry groups.
40
<PAGE>
One such area is commercial lease financing, which expanded significantly in
1998 and 1997, increasing 20.2 percent and 35.5 percent, respectively. The
increases in lease financing were centered in the transportation, communication
and utilities industry groups, with most counterparties rated investment grade.
A new area of emphasis for AmSouth in 1998 was asset-based lending. In 1996,
AmSouth, as a part of its three-year strategic plan, established an initiative
to generate $50 million in revenues from new sources by the Year 2000. One of
the programs within that initiative was the creation of AmSouth Capital
Corporation in 1998. AmSouth Capital Corporation was created to facilitate the
development of a national, asset-based lending program. Through the efforts of
AmSouth Capital Corporation, at the end of 1998, AmSouth had outstanding
asset-based loans of over $100 million and commitments of approximately $229
million. Finally, increases also occurred in the manufacturing and trade
industries during 1998 and 1997.
Management expects further growth in C&I loans in 1999 due to new business
development, expansion of commercial lease financing and asset-based lending
and further application of its relationship banking concept. In order for this
growth to occur, the economy must remain stable or improve throughout the year
for loan demand to be sufficient to meet the company's goals. In addition,
management must be able to provide satisfactory sales and service quality and
develop new products in the C&I lending area.
Commercial real estate loans are comprised of three primary categories:
owner occupied commercial real estate mortgages, nonowner occupied commercial
real estate mortgages and real estate construction loans. At December 31, 1998,
owner occupied commercial real estate mortgage loans declined $13.8 million or
2.5 percent. Nonowner occupied commercial real estate mortgage loans increased
$296.1 million or 25.5 percent. Real estate construction loans also increased
in 1998 to $1.3 billion from the $867.0 million reported at the end of 1997, an
increase of $414.7 million or 47.8 percent. The increases reflect the current
strength of the real estate markets in AmSouth's four-state area of the
southeastern U.S., particularly Florida. The increase is also indicative of
AmSouth's efforts to systematically grow the real estate portfolio while
improving loan quality.
MAJOR LOAN CATEGORIES (TABLE 7)
<TABLE>
<CAPTION>
December 31
(In millions) ---------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Commercial:
Commercial and industrial............. $ 3,683 $ 3,738 $ 3,607 $ 3,055 $ 2,694
Commercial real estate mortgages --
owner occupied....................... 536 550 584 603 588
Commercial real estate mortgages --
nonowner occupied.................... 1,458 1,161 1,068 919 782
Real estate construction.............. 1,282 867 693 526 541
------- ------- ------- ------- -------
Total commercial..................... 6,959 6,316 5,952 5,103 4,605
------- ------- ------- ------- -------
Consumer:
Residential first mortgages........... 2,164 2,603 2,972 3,802 4,276
Other residential mortgages........... 1,302 1,114 882 698 636
Dealer indirect....................... 1,735 1,243 1,218 1,033 823
Revolving credit...................... 266 455 492 478 350
Other consumer........................ 444 507 564 629 740
------- ------- ------- ------- -------
Total consumer....................... 5,911 5,922 6,128 6,640 6,825
------- ------- ------- ------- -------
Total loans net of unearned income..... $12,870 $12,238 $12,080 $11,743 $11,430
======= ======= ======= ======= =======
</TABLE>
41
<PAGE>
Substantially all of AmSouth's real estate growth is made up of loans to
finance local home builders within AmSouth's markets; loans for construction
projects that have been presold, preleased or otherwise have secured permanent
financing; and loans to real estate companies who have significant equity
invested in each project and who offer substantive and meaningful guarantees.
Management anticipates all categories of commercial real estate loans to
grow during 1999, provided the economy and AmSouth's real estate markets remain
strong, sales goals are met and credit quality is maintained.
Consumer loans primarily include dealer indirect loans, home equity loans
and lines of credit, revolving credit, and other direct consumer loans but
exclude residential first mortgage loans. Dealer indirect loans were $1.7
billion at the end of 1998, versus $1.2 billion at the end of 1997, an increase
of $492.8 million. These loans consist primarily of loans made to individuals
to finance the purchase of new and used automobiles. Building on its strong
experience in dealer indirect lending, AmSouth in 1998 expanded the existing
program in the Florida market and moved into several new markets as another of
the critical drivers of the strategic initiative to create $50 million in
revenues from new sources. New loan production in this area nearly doubled in
1998 with a strong outlook for growth in 1999 and beyond, assuming a stable
economy and continued strong loan demand.
Home equity loans and lines of credit experienced strong growth in all of
AmSouth's markets during 1998. This represents the third consecutive year of
strong growth in this loan category and reflects the continuing success of this
key contributor to the strategic initiative to double the contribution of
Consumer Banking. At the end of 1998, these loans totaled $1.3 billion, an
increase from the prior year-end of $187.9 million or 16.9 percent. Measured on
an average basis, home equity loans and lines of credit increased 20.4 percent
in 1998 versus 1997. The increase was primarily the result of new customers
acquired in 1998 from direct mail marketing promotions and the selling of home
equity loans and lines of credit in the branches.
Revolving credit, which consists primarily of bankcard outstandings, at the
end of 1998 decreased $189.1 million or 41.6 percent below the level reported
at year-end 1997. The decrease was primarily attributable to the sale of an
underperforming portion of the credit card portfolio in 1998. The direct
[PIE CHART APPEARS HERE]
consumer installment loan portfolio also declined due to normal portfolio
runoff and more emphasis on promoting home equity loans and lines of credit.
Management anticipates that in 1999, consumer loans will return to more
normal growth, provided the economy remains stable and consumer-borrowing
patterns remain unchanged.
Deposits Deposits are AmSouth's primary source of funding, and their cost is
the largest category of interest expense. Average total deposits were $13.0
billion in 1998, representing an increase of $386.3 million or 3.1 percent from
total average deposits in 1997 of $12.6 billion. There are five principal
categories of deposits: noninterest-bearing demand, interest-bearing demand,
savings, time, and certificates of deposit of $100,000 or more. See Table 9 for
the detailed amounts.
One element of the strategic initiative to double the contribution from
Consumer Banking is a plan to grow transaction account households and consumer
checking accounts. This, in turn, provides a higher level of low cost deposits
which
42
<PAGE>
SELECTED LOAN MATURITIES AND SENSITIVITY TO CHANGE IN INTEREST RATES (Table 8)
<TABLE>
<CAPTION>
Due in One Due After One but
Year or Less Within Five Years Due After Five Years
(In millions) ------------- ---------------------- ---------------------
Fixed Variable Fixed Variable
Rate Rate Total Rate Rate Total Total
------------ ------ -------- ------ ----- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and
industrial............. $ 568 $ 603 $1,870 $2,473 $408 $234 $ 642 $3,683
Commercial real estate
mortgages.............. 223 622 544 1,166 416 189 605 1,994
Real estate
construction........... 511 126 411 537 126 108 234 1,282
------ ------ ------ ------ ---- ---- ------ ------
Total................. $1,302 $1,351 $2,825 $4,176 $950 $531 $1,481 $6,959
====== ====== ====== ====== ==== ==== ====== ======
</TABLE>
represent AmSouth's least expensive source of funds. Two promotions that
met with continued success in 1998 were the promotion of free checking accounts
and the offer of a more market-rate competitive money market account. These
promotions contributed to a 10.5 percent growth in average noninterest-bearing
demand deposits and a 9.6 percent increase in average interest-bearing demand
deposits. These programs helped AmSouth shift its deposits to a more favorable
mix and reduced its reliance on costly time deposits as a source of funds.
Transaction account households in 1998 also grew 5.3 percent as a result of
these programs.
During 1998, average time deposits, measured as a percentage of total
average deposits, decreased to 37.1 percent compared to 40.7 percent in 1997,
representing the third consecutive year of decreases in this costly deposit
category, and average noninterest-bearing demand deposits increased to 15.5
percent of total average deposits, up from 14.5 percent in 1997. Average
interest-bearing demand deposits increased to 31.5 percent from 29.7 percent,
and average savings deposits in 1998 declined to 7.8 percent of total average
deposits from 8.3 percent the prior year.
Certificates of deposit of $100,000 or more represented 8.0 percent of total
average deposits in 1998 versus 6.9 percent in 1997. The average balance of
these deposits increased to $1.0 billion, an increase of $173.3 million. The
increase occurred primarily in core time deposits, up $115.0 million in 1998,
which represented deposits of consumers and businesses and make up over half of
this deposit category. The remainder of the increase was in non-core time
deposits which, for the most part, are competitively bid and fluctuate based on
the average level of interest rates and management's determination of the need
for such deposits from time to time. Table 10 provides a maturity schedule for
time deposits of $100,000 or more at December 31, 1998.
Other Interest-Bearing Liabilities Other interest-bearing liabilities
include all interest-bearing liabilities except deposits. Short-term
liabilities included in this category consist of federal funds purchased and
securities sold under agreements to repurchase (repurchase agreements) and
other borrowed funds. Average other borrowed funds, which include master notes,
short-term FHLB advances, bank notes, and treasury, tax and loan notes
decreased in 1998 to $480.4 million versus $972.3 million in 1997, a decrease
of 50.6 percent. Due to the availability of cheaper sources of funds, these
short-term funds were allowed to run off and were replaced with funds from less
expensive sources.
Average federal funds purchased and repurchase agreements were $1.4 billion
in 1998, a 5.1 percent decrease from $1.5 billion in 1997. At December 31,
1998, 1997 and 1996, federal funds purchased and repurchase agreements totaled
$1.5 billion, $1.4 billion and $1.9 billion, respectively, with weighted-
average interest rates of 4.22 percent, 5.39 percent and 6.00 percent,
respectively. The maximum amount outstanding at any month end during each of
the last three years was $1.5 billion, $2.0 billion and $2.3 billion,
respectively. The average daily balance and average interest rate for each year
are presented in Table 2.
At December 31, 1998, 1997 and 1996, treasury, tax and loan notes totaled
$66.4 million, $576.5 million and
43
<PAGE>
AVERAGE DEPOSITS (Table 9)
<TABLE>
<CAPTION>
December 31
(In thousands) -----------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Noninterest-bearing
demand................. $ 2,012,403 $ 1,820,387 $ 1,767,444 $ 1,755,717 $ 1,779,833
Interest-bearing
demand................. 4,084,906 3,727,911 3,670,068 3,893,721 3,820,580
Savings................. 1,013,201 1,045,121 1,036,240 960,969 918,132
Time:
Retail................. 3,787,267 4,007,392 4,443,282 4,652,502 3,343,936
Individual retirement
accounts.............. 870,909 896,973 926,633 928,901 784,736
Other.................. 146,800 204,680 223,208 188,416 163,105
----------- ----------- ----------- ----------- -----------
Total time............. 4,804,976 5,109,045 5,593,123 5,769,819 4,291,777
----------- ----------- ----------- ----------- -----------
Certificates of deposit
of $100,000 or more.... 1,035,051 861,733 859,468 923,866 762,403
----------- ----------- ----------- ----------- -----------
$12,950,537 $12,564,197 $12,926,343 $13,304,092 $11,572,725
=========== =========== =========== =========== ===========
</TABLE>
$732.7 million, respectively, with interest rates of 4.92 percent, 5.93 percent
and 6.01 percent, respectively. The maximum amount outstanding at any month end
during each of the last three years was $850 million, $1.3 billion and $1.8
billion, respectively. The average amount outstanding for 1998, 1997 and 1996
was $279.5 million, $490.6 million and $444.4 million, respectively, with
weighted-average interest rates of 5.24 percent, 5.27 percent and 5.11 percent,
respectively.
Long-term debt consists of long-term FHLB advances, Subordinated Capital
Notes due 1999, 6.75% Subordinated Debentures due 2025, 7.75% Subordinated
Notes due 2004, 6.45% Subordinated Notes due 2018, and various long-term notes
payable.
Significant increases occurred in two categories of long-term borrowings in
1998: subordinated debt and FHLB advances. Average subordinated debt increased
by $272.5 million as a result of AmSouth Bank's issuance in the first quarter
of 1998 of $300 million of 6.45% subordinated notes due February 1, 2018.
Average long-term FHLB advances grew by $1.3 billion during the year. The
result was average long-term borrowings in 1998 of $3.0 billion, an increase of
$1.5 billion or 109 percent over 1997. These funds were utilized in 1998
because of their relatively low cost and the ability to match their maturities
with those of the assets being funded.
Shareholders' Equity At December 31, 1998, shareholders' equity totaled
$1.43 billion versus $1.39 billion at the end of 1997. The sources of growth in
shareholders' equity during 1998 were the retention of net income and issuances
of common stock under the various stock-based employee benefit plans and the
dividend reinvestment plan. Offsetting the increases were cash dividends
declared of $101.6 million, a $7.5 million decrease in unrealized gains on
available-for-sale securities and the purchase of 3.5 million shares of AmSouth
common stock for $136.5 million to provide shares for employee benefit plans,
dividend reinvestment and other corporate purposes. Information on prior years
may be found in the Consolidated Statement of Shareholders' Equity.
AmSouth maintains a capital and dividend policy based on industry standards,
regulatory requirements, perceived risk of the various lines of business, and
future growth opportunities. Periodically, management reevaluates the policy
and presents its findings to the Board of Directors to ensure that the policy
continues to support corporate objectives, the regulatory environment and
changes in market conditions.
At December 31, 1998, AmSouth met or exceeded all of the minimum capital
standards for the parent company and its banking subsidiary as established by
the company's capital and dividend policy. Refer to Table 11 and to Note 16 of
the Notes to Consolidated Financial Statements for specific information.
44
<PAGE>
Risk Management
Risk identification and management are key elements in the overall
management of AmSouth. Management believes the primary risk exposures are
interest rate, liquidity and credit risk. Some of the more significant
processes used to manage and control these risks are described in the following
paragraphs.
Asset and Liability Management AmSouth maintains a formal asset and
liability management process to quantify, monitor and control interest rate
risk and to assist management in maintaining stability in the net interest
margin under varying interest rate environments. This is accomplished through
the development and implementation of lending, funding and pricing strategies
designed to maximize net interest income performance under varying interest
rate environments subject to specific liquidity and interest rate risk
guidelines.
Interest Rate Risk A number of measures are used to monitor and manage
interest rate risk, including earnings simulation and interest sensitivity
(gap) analysis. An earnings simulation model is the primary tool used to assess
the direction and magnitude of changes in 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's strategies, among other factors.
Based on the results of the simulation model as of December 31, 1998 and
1997, NII would increase $3.9 million and $3.5 million, respectively, and
decrease $5.5 million and $2.1 million, respectively, if interest rates
gradually increased or decreased, respectively, from their current rates by 100
basis points over a 12-month period. This level of interest rate risk is well
within the company's policy guidelines.
AmSouth has, from time to time, utilized various off-balance sheet
instruments such as interest rate swaps to assist in managing interest rate
risk. AmSouth had interest rate swaps as of December 31, 1998, in the notional
amount of $879 million. Of these swaps, $425 million of notional value were
used as asset hedges to convert variable rate ARM securities and LIBOR
commercial loans to fixed rates. The remaining $454 million of notional value
of swaps was used as liability hedges to convert fixed rate consumer
certificates of deposit, corporate and bank debt and wholesale certificates of
deposit to variable rates.
As of December 31, 1998, AmSouth held other off-balance sheet instruments as
hedges as well as futures and forward contracts to provide customers and
AmSouth a means of managing the risks of changing interest and foreign exchange
rates. These other off-balance sheet instruments are immaterial in amount.
Table 13 summarizes the activity, by notional amount, of off-balance sheet
financial instruments utilized in the asset and liability management process at
AmSouth for the years 1998, 1997 and 1996.
MATURITY OF TIME DEPOSITS OF $100,000 OR MORE (Table 10)
<TABLE>
<CAPTION>
December 31
(In thousands) ----------------------------
1998 1997 1996
---------- -------- --------
<S> <C> <C> <C>
Three months or less.............................. $ 328,826 $349,027 $367,898
Over three through six months..................... 134,285 104,014 123,449
Over six through twelve months.................... 321,193 241,543 167,509
Over twelve months................................ 237,072 233,067 163,800
---------- -------- --------
$1,021,376 $927,651 $822,656
========== ======== ========
</TABLE>
45
<PAGE>
CAPITAL RATIOS (Table 11)
<TABLE>
<CAPTION>
December 31
(Dollars in thousands) -------------------------
1998 1997
----------- -----------
<S> <C> <C>
RISK-BASED CAPITAL:
Shareholders' equity.............................. $ 1,427,629 $ 1,385,245
Unrealized gains on available-for-sale securities
(net of deferred taxes).......................... (19,096) (26,593)
Less certain intangible assets.................... (235,388) (251,657)
----------- -----------
Tier I capital................................... 1,173,145 1,106,995
Adjusted allowance for loan losses................ 176,075 179,197
Qualifying long-term debt......................... 586,574 319,241
----------- -----------
Tier II capital.................................. 762,649 498,438
----------- -----------
Total capital................................... $ 1,935,794 $ 1,605,433
=========== ===========
Risk-adjusted assets.............................. $17,911,860 $15,467,538
=========== ===========
CAPITAL RATIOS:
Tier I capital to total risk-adjusted assets...... 6.55 % 7.16 %
Total capital to total risk-adjusted assets....... 10.81 10.38
Leverage.......................................... 6.00 6.19
Ending equity to assets........................... 7.17 7.44
Ending tangible equity to assets.................. 6.06 6.17
</TABLE>
Table 14 summarizes the expected maturities on all of AmSouth's off-balance
sheet positions at December 31, 1998, and interest rates exchanged on swaps.
Both the timing of the maturities and the variable interest payments and
receipts vary as certain interest rates change. The maturities and interest
rates exchanged are calculated assuming that interest rates remain unchanged
from average December 1998 rates. The information presented could change as
future interest rates increase or decrease. See Note 11 of the Notes to
Consolidated Financial Statements.
Liquidity AmSouth's goal in liquidity management is to satisfy the cash flow
requirements of depositors and borrowers while at the same time meeting the
cash flow needs of AmSouth. This is accomplished through the active management
of both the asset and liability sides of the balance sheet. The liquidity
position of AmSouth is monitored on a daily basis. In addition, the
Asset/Liability Committee reviews liquidity on a regular basis and approves any
changes in strategy that are necessary as a result of the asset/liability
management process or anticipated cash flow changes. Management also compares
on a monthly basis the company's liquidity position to established corporate
liquidity guidelines. At December 31, 1998, AmSouth was within all of the
guidelines which have been established. The primary sources of liquidity on the
asset side of the balance sheet are maturities and cash flows from both loans
and investments as well as the ability to securitize certain assets. Liquidity
on the liability side is generated primarily through growth in core deposits
and the ability to obtain economical wholesale funding in national and regional
markets through a variety of sources. AmSouth's most commonly used sources of
wholesale funding are (1) federal funds (i.e., the excess reserves of other
financial institutions); (2) repurchase agreements, whereby U.S. government and
government agency securities are pledged as collateral for short-term
borrowings; and (3) pledges of acceptable assets as collateral for public
deposits and certain tax collection monies.
In addition to these sources, AmSouth can access other wholesale funding
sources such as Eurodollar deposits, certificates
46
<PAGE>
INTEREST SENSITIVITY ANALYSIS (Table 12)
<TABLE>
<CAPTION>
Over One
and Less
0-30 31-60 61-90 91-180 181-365 Than Five Over Five
Days Days Days Days Days Years Years Total
(Dollars in thousands) ----------- ----------- ----------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning
assets:
Federal funds sold
and securities
purchased under
agreements to
resell............. $ 5,609 $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ 5,609
Trading securities.. 4,144 -0- -0- -0- -0- -0- -0- 4,144
Available-for-sale
securities......... 208,267 113,020 82,422 221,361 555,182 1,119,809 659,890 2,959,951
Held-to-maturity
securities......... 144,217 74,126 65,421 171,473 303,461 862,949 525,397 2,147,044
Mortgage loans held
for sale........... 148,461 -0- -0- -0- -0- -0- -0- 148,461
Loans net of
unearned income.... 5,101,775 435,690 405,583 778,913 1,101,404 3,854,847 1,191,651 12,869,863
Other interest-
earning assets..... 29,276 -0- -0- -0- -0- -0- -0- 29,276
----------- ----------- ----------- ----------- ----------- ---------- ---------- -----------
Total interest-
earning assets..... 5,641,749 622,836 553,426 1,171,747 1,960,047 5,837,605 2,376,938 18,164,348
Cash and other
assets.............. -0- -0- -0- -0- -0- -0- 1,882,682 1,882,682
Allowance for loan
losses.............. -0- -0- -0- -0- -0- -0- (176,075) (176,075)
Market valuation on
available-for-sale
securities.......... -0- -0- -0- -0- -0- -0- 30,724 30,724
----------- ----------- ----------- ----------- ----------- ---------- ---------- -----------
$ 5,641,749 $ 622,836 $ 553,426 $ 1,171,747 $ 1,960,047 $5,837,605 $4,114,269 $19,901,679
=========== =========== =========== =========== =========== ========== ========== ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing
liabilities:
Interest-bearing
demand deposits.... $ 3,113,605 $ 18,453 $ 18,453 $ 55,359 $ 110,718 $ 664,308 $ 578,574 $ 4,559,470
Savings deposits.... 300,526 8,631 8,631 25,894 51,788 310,727 274,632 980,829
Time deposits....... 283,846 255,316 305,034 765,223 1,698,311 1,112,661 133,275 4,553,666
Certificates of
deposit of $100,000
or more............ 161,619 66,168 55,448 158,900 320,121 183,666 28,030 973,952
Federal funds
purchased and
securities sold
under agreements to
repurchase......... 1,482,100 -0- -0- -0- -0- -0- -0- 1,482,100
Other borrowed
funds.............. 88,873 -0- -0- -0- -0- -0- -0- 88,873
Long-term Federal
Home Loan Bank
advances........... 1,150,000 50,000 200,000 -0- 75,000 1,024,000 1,117 2,500,117
Other long-term
debt............... -0- 10,784 25,000 99,957 -0- -0- 603,901 739,642
----------- ----------- ----------- ----------- ----------- ---------- ---------- -----------
Total interest-
bearing
liabilities........ 6,580,569 409,352 612,566 1,105,333 2,255,938 3,295,362 1,619,529 15,878,649
Noninterest-bearing
demand deposits..... 20,859 37,204 37,204 111,612 223,223 1,339,339 446,446 2,215,887
Other liabilities.... -0- -0- -0- -0- -0- -0- 379,514 379,514
Shareholders'
equity.............. -0- -0- -0- -0- -0- -0- 1,427,629 1,427,629
----------- ----------- ----------- ----------- ----------- ---------- ---------- -----------
$ 6,601,428 $ 446,556 $ 649,770 $ 1,216,945 $ 2,479,161 $4,634,701 $3,873,118 $19,901,679
=========== =========== =========== =========== =========== ========== ========== ===========
Off-balance sheet
financial
instruments......... $ (684,000) $ (124,749) $ 230,000 $ 150,000 $ 175,000 $ 78,749 $ 175,000 $ -0-
=========== =========== =========== =========== =========== ========== ========== ===========
Rate sensitivity gap:
Dollar amount....... $(1,643,679) $ 51,531 $ 133,656 $ 104,802 $ (344,114)
Percent of total
earning assets..... (9.0)% 0.3% 0.7% 0.6% (1.9)%
Cumulative dollar
amount............. $(1,643,679) $(1,592,148) $(1,458,492) $(1,353,690) $(1,697,804)
</TABLE>
- --------
Note: Certain interest-sensitive assets and liabilities are included in the
table based on historical experience rather than contractual maturities.
Available-for-sale securities excludes certain noninterest-earning
marketable equity securities.
47
<PAGE>
INTEREST RATE SWAPS, CAPS AND FLOORS (Table 13)
<TABLE>
<CAPTION>
Receive Fixed Caps
Rate Swaps & Floors Total
(In millions) ------------- -------- -------
<S> <C> <C> <C>
Balance at January 1, 1996..................... $150 $ 1,110 $ 1,260
Additions..................................... 220 -0- 220
Maturities.................................... -0- (33) (33)
Calls......................................... -0- -0- -0-
Terminations.................................. -0- -0- -0-
---- ------- -------
Balance at December 31, 1996................... 370 1,077 1,447
Additions..................................... 740 -0- 740
Maturities.................................... -0- (77) (77)
Calls......................................... (140) -0- (140)
Terminations.................................. (75) (1,000) (1,075)
---- ------- -------
Balance at December 31, 1997................... 895 -0- 895
Additions..................................... 419 -0- 419
Maturities.................................... (130) -0- (130)
Calls......................................... (255) -0- (255)
Terminations.................................. (50) -0- (50)
---- ------- -------
Balance at December 31, 1998................... $879 $ -0- $ 879
==== ======= =======
</TABLE>
of deposit, and lines of credit. AmSouth Bank also has the ability to borrow
from the FHLB. FHLB advances are competitively priced and actively used as a
source of funds. Also, AmSouth Bank during 1998 renewed a short and medium-term
note facility with a borrowing capacity of $3.0 billion. There was $25 million
outstanding under the facility which is included in long-term notes payable at
December 31, 1998.
Maintaining adequate credit ratings on debt issues is critical to liquidity
because it affects the ability of AmSouth to attract funds from various sources
on a cost competitive basis. Table 15 summarizes AmSouth's credit ratings at
December 31, 1998.
Credit Risk Management Process and Loan Quality The loan portfolio at
AmSouth holds the highest degree of risk for the company. AmSouth manages and
controls risk in the loan portfolio through adherence to consistent standards
established by senior management, combined with a commitment to producing
quality assets, developing profitable relationships and meeting strategic
growth targets. AmSouth has written credit
MATURITIES AND INTEREST RATES EXCHANGED ON SWAPS (Table 14)
<TABLE>
<CAPTION>
Mature During
(Dollars in millions) -----------------------
1999 2000 2008 Total
---- ---- ---- -----
<S> <C> <C> <C> <C>
RECEIVE FIXED SWAPS:
Notional amount....................................... $625 $ 79 $175 $879
Receive rate.......................................... 6.62% 6.66% 6.13% 6.53%
Pay rate.............................................. 5.55% 5.42% 5.36% 5.50%
</TABLE>
48
<PAGE>
CREDIT RATINGS (Table 15)
<TABLE>
<CAPTION>
Standard &
Moody's Poor's BankWatch
------- ---------- ---------
<S> <C> <C> <C>
7.75% Subordinated Notes Due 2004.................. A3 BBB+ A
6.75% Subordinated Debentures Due 2025............. A3 BBB+ A
6.45% Subordinated Notes Due 2018.................. Aa3* A-* --
Subordinated Capital Notes Due 1999................ A3 BBB+ A
Floating Rate Notes Due 1999....................... A2 A- --
Commercial paper................................... P-1 A-2 TBW-1
Certificates of deposit............................ Aa3* A* --
Short-term counterparty............................ P-1* A-1* --
Long-term counterparty............................. Aa3* A* --
</TABLE>
- --------
* AmSouth Bank
policies which establish underwriting standards, place limits on exposure and
set other limits or standards as deemed necessary and prudent. Also included in
the policy, primarily determined by the amount and type of loan, are various
approval levels, ranging from the branch or department level to those which are
more centralized. AmSouth maintains a diversified portfolio intended to spread
its risk and reduce its exposure to economic downturns, which may occur in
different segments of the economy or in particular industries. Industry and loan
type diversification is reviewed quarterly.
Commercial real estate loans are categorized by the type of collateral.
Owner occupied properties include mortgages where the borrower is a primary
tenant, such as factory or warehouse loans. Nonowner occupied lending
represents those loans where the primary method of repayment is anticipated to
come from the rental income and generally has inherently more risk than owner
occupied lending.
Each commercial loan recorded at AmSouth is assigned a risk rating on a 9-
point numerical scale by the loan officer using established credit policy
guidelines. Consumer loan portfolios are assigned ratings by pools on the same
scale as commercial loans and are based on the type of loan and its
performance. All risk ratings are subject to review by an independent Credit
Review Department. In addition, regular reports are made to senior management
and the Board of Directors regarding the credit quality of the loan portfolio
as well as trends in the portfolio.
The Credit Administration function includes designated credit officers, some
industry specialists, who are organizationally independent of the production
areas. They oversee the loan approval process, ensure adherence to credit
policies and monitor efforts to reduce nonperforming and classified assets.
Additionally, a centralized special assets function handles the resolution and
disposition of certain problem loans. Risk in the consumer loan portfolio is
further managed through utilization of computerized credit scoring, in-depth
analysis of portfolio components and specific account selection, management and
collection techniques. In addition, the consumer collection function is
centralized and automated to ensure timely collection of accounts and
consistent management of risk associated with delinquent accounts.
Finally, AmSouth has a Credit Review Department, which performs ongoing,
independent reviews of the risk management process, proper documentation and
specific loans. This department is centralized and independent of the lending
function. The results of its examinations are reported to the Audit and
Community Responsibility Committee of the Board of Directors as well as to
AmSouth's independent auditors.
Nonperforming Assets Management closely monitors loans and other assets
which are classified as nonperforming assets. Nonperforming assets include
nonaccrual loans, restructured loans, foreclosed properties, and repossessions.
Loans are generally placed on nonaccrual if full collection of principal and
49
<PAGE>
NONPERFORMING ASSETS (Table 16)
<TABLE>
<CAPTION>
December 31
(Dollars in thousands) ---------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans................ $66,072 $71,358 $78,048 $ 96,246 $ 89,545
Restructured loans.............. -0- -0- -0- -0- 13,203
------- ------- ------- -------- --------
Nonperforming loans............ 66,072 71,358 78,048 96,246 102,748
------- ------- ------- -------- --------
Foreclosed properties........... 10,237 11,433 14,445 16,150 28,263
Repossessions................... 828 632 1,822 3,114 2,079
------- ------- ------- -------- --------
Total nonperforming assets*.... $77,137 $83,423 $94,315 $115,510 $133,090
======= ======= ======= ======== ========
Nonperforming assets* to loans
net of unearned income,
foreclosed properties and
repossessions.................. 0.60% 0.68% 0.78% 0.98% 1.16%
======= ======= ======= ======== ========
Accruing loans 90 days past
due............................ $23,832 $37,797 $36,382 $ 39,618 $ 34,246
======= ======= ======= ======== ========
</TABLE>
- --------
* Exclusive of accruing loans 90 days past due
interest becomes unlikely (even if all payments are current) or if the loan is
delinquent in principal or interest payments for 90 days or more, unless the
loan is well secured and in the process of collection.
Nonperforming assets, excluding accruing loans 90 days past due, decreased
$6.3 million, or 7.5 percent, during 1998. This follows a $10.9 million, or
11.5 percent, decrease during 1997 and represents the fourth straight year of
lower nonperforming assets. The graph entitled Improving Credit Quality and
Table 16 provide trend information and detailed components of nonperforming
assets for each of the last five years.
The decrease in nonperforming assets in 1998 compared to 1997 was primarily
the result of decreases in nonperforming loans and foreclosed properties at the
end of 1998. Nonperforming loans totaled $66.1 million at the end of 1998
compared to $71.4 million in 1997, a decrease of $5.3 million. The decrease
occurred primarily in consumer and C&I nonperforming loans which, combined,
decreased $8.8 million. An increase of $3.5 million in nonperforming commercial
real estate loans somewhat offset the decrease in consumer and C&I
nonperforming loans.
Foreclosed properties declined $1.2 million to $10.2 million at the end of
1998. The improvement came as the result of an improving economic environment
and continued aggressive efforts to dispose of these properties.
Table 17 presents nonperforming loans and year-to-date net charge-offs
including each as a percentage of average net loans by category for December
31, 1998 and 1997.
Allowance for Loan Losses 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.
Elements of the review include analysis of historical performance, the level of
nonperforming and adversely rated loans, specific analysis 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. A new element included in the evaluation in 1998
included the Year 2000 assessment program for certain AmSouth borrowers
described below. 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.
For purposes of the quarterly review, the consumer portfolios are treated as
homogeneous pools. Specific consumer pools include: direct, bankcard, other
revolving, indirect, residential first
50
<PAGE>
NONPERFORMING LOANS AND NET CHARGE-OFFS (RECOVERIES) (Table 17)
<TABLE>
<CAPTION>
Nonperforming Loans* Net Charge-offs (Recoveries)
(In thousands) ------------------------------------------------- -------------------------------------------------
% of % of % of % of
Average Average Average Average
December 31, Loans** per December 31, Loans** per December 31, Loans** per December 31, Loans** per
1998 Category 1997 Category 1998 Category 1997 Category
------------ ----------- ------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial:
Commercial and
industrial......... $17,945 0.49% $19,439 0.54% $ 9,022 0.25% $ 5,111 0.14 %
Commercial real
estate mortgages... 17,473 0.98 13,961 0.82 185 0.01 (255) (0.01)
Real estate
construction....... 1,592 0.14 1,576 0.22 521 0.05 (69) (0.01)
------- ---- ------- ---- ------- ---- ------- -----
Total commercial.... 37,010 0.56 34,976 0.58 9,728 0.15 4,787 0.08
------- ---- ------- ---- ------- ---- ------- -----
Consumer:
Residential first
mortgages.......... 23,028 0.93 25,943 0.92 1,485 0.06 2,022 0.07
Other residential
mortgages.......... 5,523 0.46 4,572 0.46 2,008 0.17 1,690 0.17
Dealer indirect..... 407 0.03 3,848 0.32 7,599 0.54 11,422 0.94
Revolving credit.... -0- -- -0- -- 18,960 5.92 31,838 6.98
Other consumer...... 104 0.02 2,019 0.38 6,576 1.40 15,492 2.90
------- ---- ------- ---- ------- ---- ------- -----
Total consumer...... 29,062 0.49 36,382 0.60 36,628 0.62 62,464 1.04
------- ---- ------- ---- ------- ---- ------- -----
$66,072 0.53% $71,358 0.59% $46,356 0.37% $67,251 0.56 %
======= ==== ======= ==== ======= ==== ======= =====
</TABLE>
- --------
*Exclusive of accruing loans 90 days past due
**Net of unearned income
mortgages, and home equity lending. In accordance with regulatory guidelines,
the allowance for loan losses is allocated to the consumer pools based on
historical net charge-off rates adjusted for any current or anticipated changes
in these trends. The commercial, commercial real estate and business banking
portfolios are evaluated separately. Within this group, every nonperforming loan
in excess of $500,000 is reviewed for a specific allocation. The allowance is
allocated within the commercial portfolio based on a combination of historical
loss rates, adjusted for those elements discussed in the preceding paragraph,
and regulatory guidelines.
In determining the appropriate level for the allowance, management ensures
that the overall allowance appropriately reflects a margin for the imprecision
inherent in most estimates of expected credit losses. This additional allowance
is reflected in the unallocated portion of the allowance.
At December 31, 1998, the allowance for loan losses was $176.1 million
versus $179.2 million at year-end 1997, a decrease of $3.1 million. Within
specific categories, the allowance allocated to C&I loans increased $13.0
million to $40.1 million at the end
[BAR CHART APPEARS HERE]
51
<PAGE>
ALLOWANCE FOR LOAN LOSSES (Table 18)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
(Dollars in thousands) ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1..... $ 179,197 $ 179,049 $ 178,451 $ 171,167 $ 131,509
Loans charged off:
Commercial and
industrial............. (12,619) (9,480) (8,348) (7,991) (13,304)
Commercial real estate
mortgages.............. (1,326) (2,358) (2,455) (3,474) (3,869)
Real estate
construction........... (771) (73) (88) (455) (154)
Residential first
mortgages.............. (1,768) (2,211) (2,977) (854) (2,724)
Other residential
mortgages.............. (2,074) (1,842) (596) (127) (68)
Dealer indirect......... (17,386) (21,571) (20,203) (10,385) (4,270)
Revolving credit........ (22,129) (36,304) (32,145) (17,203) (14,810)
Other consumer.......... (11,192) (20,146) (16,467) (6,793) (4,730)
----------- ----------- ----------- ----------- -----------
Total charge-offs....... (69,265) (93,985) (83,279) (47,282) (43,929)
----------- ----------- ----------- ----------- -----------
Recoveries of loans
previously charged off:
Commercial and
industrial............. 3,597 4,369 4,518 3,396 7,420
Commercial real estate
mortgages.............. 1,141 2,612 2,648 2,077 3,639
Real estate
construction........... 250 142 492 270 224
Residential first
mortgages.............. 283 189 235 128 227
Other residential
mortgages.............. 66 152 29 280 107
Dealer indirect......... 9,787 10,149 6,146 2,786 1,702
Revolving credit........ 3,169 4,467 2,241 1,802 1,470
Other consumer.......... 4,616 4,654 2,397 1,935 2,245
----------- ----------- ----------- ----------- -----------
Total recoveries........ 22,909 26,734 18,706 12,674 17,034
----------- ----------- ----------- ----------- -----------
Net charge-offs.......... (46,356) (67,251) (64,573) (34,608) (26,895)
----------- ----------- ----------- ----------- -----------
Addition to allowance
charged to expense...... 58,134 67,399 65,171 40,139 30,103
Allowance sold........... (14,900) -0- -0- -0- -0-
Allowance acquired in
bank purchases.......... -0- -0- -0- 1,753 36,450
----------- ----------- ----------- ----------- -----------
Balance at December 31... $ 176,075 $ 179,197 $ 179,049 $ 178,451 $ 171,167
=========== =========== =========== =========== ===========
Loans net of unearned
income, outstanding at
end of period........... $12,869,863 $12,237,668 $12,080,246 $11,743,273 $11,429,907
Average loans net of
unearned income,
outstanding for the
period.................. $12,475,539 $12,059,249 $11,694,849 $11,747,385 $ 9,918,274
Ratios:
Allowance at end of
period to loans net of
unearned income........ 1.37 % 1.46 % 1.48 % 1.52 % 1.50 %
Allowance at end of
period to average loans
net of unearned
income................. 1.41 1.49 1.53 1.52 1.73
Allowance at end of
period to nonperforming
loans*................. 266.49 251.12 229.41 185.41 166.59
Allowance at end of
period to nonperforming
assets*................ 228.26 214.81 189.41 154.49 128.61
Net charge-offs to
average loans net of
unearned income........ 0.37 0.56 0.55 0.29 0.27
Net charge-offs to
allowance at end of
period................. 26.33 37.53 36.06 19.39 15.71
Recoveries to prior year
charge-offs............ 24.38 32.10 39.56 28.85 46.84
</TABLE>
- --------
*Exclusive of accruing loans 90 days past due
52
<PAGE>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES (Table 19)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in
thousands) December 31, 1998 December 31, 1997 December 31, 1996 December 31, 1995
------------------------- ------------------------- ------------------------- -------------------------
Percentage of Percentage of Percentage of Percentage of
Loans* in Each Loans* in Each Loans* in Each Loans* in Each
Allowance Category to Allowance Category to Allowance Category to Allowance Category to
Allocation Total Loans* Allocation Total Loans* Allocation Total Loans* Allocation Total Loans*
---------- -------------- ---------- -------------- ---------- -------------- ---------- --------------
Commercial:
Commercial and
industrial..... $ 40,142 28.6% $27,163 30.5% $ 24,919 29.6% $ 30,125 26.0%
Commercial real
estate
mortgages...... 16,795 15.5 16,615 14.0 21,243 13.7 29,177 13.0
Real estate
construction... 10,800 10.0 8,421 7.1 8,677 5.7 5,302 4.5
---------- -------------- ---------- -------------- ---------- -------------- ---------- --------------
Total
commercial..... 67,737 54.1 52,199 51.6 54,839 49.0 64,604 43.5
---------- -------------- ---------- -------------- ---------- -------------- ---------- --------------
Consumer:
Residential
first
mortgages...... 3,246 16.8 5,207 21.3 4,538 24.6 18,699 32.4
Other
residential
mortgages...... 3,906 10.1 3,099 9.1 1,766 7.3 4,188 6.0
Dealer
indirect....... 20,133 13.5 15,659 10.2 14,701 10.1 13,809 8.8
Revolving
credit......... 10,632 2.1 31,019 3.7 41,824 4.3 23,837 4.1
Other consumer.. 8,878 3.4 17,219 4.1 19,214 4.7 16,845 5.2
---------- -------------- ---------- -------------- ---------- -------------- ---------- --------------
Total consumer.. 46,795 45.9 72,203 48.4 82,043 51.0 77,378 56.5
---------- -------------- ---------- -------------- ---------- -------------- ---------- --------------
Unfunded
commitments.... 16,086 -- 11,010 -- 7,144 -- 6,685 --
Standby letters
of credit...... 3,222 -- 2,696 -- 1,963 -- 3,880 --
Unallocated..... 42,235 -- 41,089 -- 33,060 -- 25,904 --
---------- -------------- ---------- -------------- ---------- -------------- ---------- --------------
$176,075 100.0% $179,197 100.0% $179,049 100.0% $178,451 100.0%
========== ============== ========== ============== ========== ============== ========== ==============
<S> <C> <C>
(Dollars in
thousands) December 31, 1994
--------------------------
Percentage of
Loans* in Each
Allowance Category to
Allocation Total Loans*
---------- ---------------
Commercial:
Commercial and
industrial..... $ 29,184 23.6%
Commercial real
estate
mortgages...... 30,464 12.0
Real estate
construction... 12,021 4.7
---------- ---------------
Total
commercial..... 71,669 40.3
---------- ---------------
Consumer:
Residential
first
mortgages...... 18,514 37.4
Other
residential
mortgages...... 2,289 5.6
Dealer
indirect....... 7,916 7.2
Revolving
credit......... 12,441 3.1
Other consumer.. 9,381 6.4
---------- ---------------
Total consumer.. 50,541 59.7
---------- ---------------
Unfunded
commitments.... 7,241 --
Standby letters
of credit...... 1,825 --
Unallocated..... 39,891 --
---------- ---------------
$ 171,167 100.0%
========== ===============
</TABLE>
- --------
* Net of unearned income
of 1998. This increase reflects among other things AmSouth's inclusion in its
C&I loan analysis of the impact of Year 2000 remediation and related business
disruption costs on its customers' ability to repay their loans. A loan's credit
rating was downgraded if, based on information gathered, AmSouth determined that
it was probable that the customer would experience cash flow difficulties as a
result of having to prepare its systems for the Year 2000 in a relatively short
period of time. Downgrades in credit ratings occurred primarily in loans that
had already been rated as criticized or classified. This was a new factor used
by AmSouth in its analysis of its allowance for loan losses in 1998. The
increase in the allocation also reflects an increase in the number of loans
which are considered at risk based on their general risk rating for other than
Year 2000 considerations. The allowance for loan losses allocated to commercial
real estate was $27.6 million in 1998, an increase of $2.6 million over 1997.
The increase reflects the growth in commercial real estate loans. The allocation
to the consumer loan portfolio was $46.8 million at the end of 1998, reflecting
a $25.4 million decrease versus the 1997 balance of $72.2 million. The majority
of the decrease was the result of a lower revolving credit allowance, reflecting
the sale of an underperforming portion of the credit card portfolio in 1998 and
a lower allowance for the "other consumer" category due to less emphasis in
direct consumer lending and runoff of existing loans. These decreases were
partially offset by an increase in the allowance related to the dealer indirect
loan portfolio due to growth in dealer indirect lending in 1998. The allowance
allocated to unfunded commitments increased $5.1 million in 1998 to $16.1
million which, consistent with the growth in commercial real estate lending,
reflects growth in unfunded commitments in 1998.
At December 31, 1998, the allowance for loan losses to net loans was 1.37
percent while coverage of nonperforming loans was 266.5 percent. This compares
with an allowance for loan losses to net loans at the end of 1997 of 1.46
percent and to nonperforming loans for the same period of 251.1 percent. At the
end of 1998, the allowance represented 3.7 times average net charge-offs over
the last five years compared to 4.2 times at the end of 1997.
53
<PAGE>
SUPPLEMENTAL FINANCIAL STATEMENTS
AMSOUTH BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CONDITION
December 31, 1988-1998
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
(In thousands) ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks.. $ 619,599 $ 658,500 $ 648,494 $ 651,641 $ 616,639
Temporary investments.... 3,216,862 2,608,916 2,369,939 2,546,583 672,170
Held-to-maturity
securities.............. 2,147,044 2,272,154 2,644,706 2,167,009 3,336,557
Loans net of unearned
income.................. 12,869,863 12,237,668 12,080,246 11,743,273 11,429,907
Less: Allowance for loan
losses.................. 176,075 179,197 179,049 178,451 171,167
----------- ----------- ----------- ----------- -----------
Net loans............... 12,693,788 12,058,471 11,901,197 11,564,822 11,258,740
Premises and equipment... 336,772 314,200 301,592 276,426 282,095
Other assets............. 887,614 710,015 541,336 532,314 611,750
----------- ----------- ----------- ----------- -----------
Total assets............ $19,901,679 $18,622,256 $18,407,264 $17,738,795 $16,777,951
=========== =========== =========== =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits................. $13,283,804 $12,945,197 $12,467,599 $13,420,287 $13,203,101
Federal funds purchased
and repurchase
agreements.............. 1,482,100 1,435,925 1,872,286 1,861,090 1,212,723
Other interest-bearing
liabilities............. 3,328,632 2,619,142 2,461,058 919,635 906,225
----------- ----------- ----------- ----------- -----------
Total deposits and
interest-bearing
liabilities............ 18,094,536 17,000,264 16,800,943 16,201,012 15,322,049
Acceptances outstanding.. 3,947 10,926 3,190 2,007 6,979
Accrued expenses and
other liabilities....... 375,567 225,821 207,302 152,301 138,465
----------- ----------- ----------- ----------- -----------
Total liabilities....... 18,474,050 17,237,011 17,011,435 16,355,320 15,467,493
Shareholders' equity..... 1,427,629 1,385,245 1,395,829 1,383,475 1,310,458
----------- ----------- ----------- ----------- -----------
Total liabilities and
shareholders' equity... $19,901,679 $18,622,256 $18,407,264 $17,738,795 $16,777,951
=========== =========== =========== =========== ===========
CONSOLIDATED STATEMENT OF EARNINGS
Years ended December 31, 1988-1998
<CAPTION>
(In thousands except per 1998 1997 1996* 1995 1994
share data) ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Interest income.......... $ 1,462,541 $ 1,377,788 $ 1,353,823 $ 1,272,939 $ 1,047,741
Interest expense......... 763,571 701,511 701,442 679,396 480,414
----------- ----------- ----------- ----------- -----------
Net interest income..... 698,970 676,277 652,381 593,543 567,327
Provision for loan
losses.................. 58,134 67,399 65,171 40,139 30,103
----------- ----------- ----------- ----------- -----------
Net interest income after
provision for loan
losses.................. 640,836 608,878 587,210 553,404 537,224
Noninterest revenues..... 346,626 266,004 235,274 231,671 175,355
Noninterest expenses..... 582,117 526,192 534,232 509,898 519,239
----------- ----------- ----------- ----------- -----------
Income before income
taxes................... 405,345 348,690 288,252 275,177 193,340
Income taxes............. 142,633 122,523 105,576 100,222 66,050
----------- ----------- ----------- ----------- -----------
Net income.............. $ 262,712 $ 226,167 $ 182,676 $ 174,955 $ 127,290
=========== =========== =========== =========== ===========
<CAPTION>
Average common shares
outstanding**............ 119,384 123,059 127,362 131,090 127,187
Average diluted shares
outstanding**........... 121,281 124,120 128,764 132,959 128,946
Earnings per common
share**................. $ 2.20 $ 1.84 $ 1.43 $ 1.33 $ 1.00
Diluted earnings per
common share**.......... 2.17 1.82 1.42 1.32 0.99
Cash dividends declared
per common share**...... 0.85 0.76 0.72 0.69 0.63
----------- ----------- ----------- ----------- -----------
</TABLE>
- --------
* Excluding the one time pretax third quarter charge against earnings of
$24,196,000 or $.12 per share, net of tax, required under federal legislation
to recapitalize the Savings Association Insurance Fund, net income for 1996
was $197,895,000 or $1.54 per share on a diluted basis.
** Restated for common stock splits.
54
<PAGE>
<TABLE>
<CAPTION>
Ten-Year
Compound
Growth Rate
1993 1992 1991 1990 1989 1988 1998/1988
- ----------- ----------- ----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 614,698 $ 589,084 $ 560,249 $ 623,744 $ 495,013 $ 511,666 1.93 %
1,896,220 806,257 676,604 178,944 221,231 160,202 34.98
1,823,317 2,607,748 2,780,821 2,214,608 2,166,410 2,185,972 (0.18)
8,540,412 6,716,595 6,293,509 6,382,299 6,316,472 5,873,735 8.16
131,509 99,646 95,392 92,946 96,142 75,945 8.77
- ----------- ----------- ----------- ---------- ---------- ---------- ------
8,408,903 6,616,949 6,198,117 6,289,353 6,220,330 5,797,790 8.15
234,155 182,305 160,984 154,761 143,638 142,545 8.98
492,328 313,984 363,214 382,196 371,159 408,220 8.08
- ----------- ----------- ----------- ---------- ---------- ---------- ------
$13,469,621 $11,116,327 $10,739,989 $9,843,606 $9,617,781 $9,206,395 8.01 %
=========== =========== =========== ========== ========== ========== ======
$10,374,183 $ 8,641,487 $ 8,538,296 $8,086,234 $7,613,948 $7,328,081 6.13 %
793,177 989,790 572,970 828,903 1,079,951 883,237 5.31
829,266 494,649 367,833 164,059 175,953 223,290 31.02
- ----------- ----------- ----------- ---------- ---------- ---------- ------
11,996,626 10,125,926 9,479,099 9,079,196 8,869,852 8,434,608 7.93
6,264 6,005 3,498 22,245 24,422 90,123 (26.86)
324,006 111,022 463,349 82,378 94,465 86,372 15.83
- ----------- ----------- ----------- ---------- ---------- ---------- ------
12,326,896 10,242,953 9,945,946 9,183,819 8,988,739 8,611,103 7.93
1,142,725 873,374 794,043 659,787 629,042 595,292 9.14
- ----------- ----------- ----------- ---------- ---------- ---------- ------
$13,469,621 $11,116,327 $10,739,989 $9,843,606 $9,617,781 $9,206,395 8.01 %
=========== =========== =========== ========== ========== ========== ======
Ten-Year
Compound
Growth Rate
1993 1992 1991 1990 1989 1988 1998/1988
- ----------- ----------- ----------- ---------- ---------- --------- -----------
$ 840,617 $ 772,251 $ 852,251 $ 880,032 $ 871,102 $ 747,511 6.94 %
339,326 341,706 486,848 556,404 570,359 469,216 4.99
- ----------- ----------- ----------- ---------- ---------- ---------- ------
501,291 430,545 365,403 323,628 300,743 278,295 9.65
27,966 38,581 48,647 45,407 47,766 19,611 11.48
- ----------- ----------- ----------- ---------- ---------- ---------- ------
473,325 391,964 316,756 278,221 252,977 258,684 9.50
199,237 168,719 169,379 136,619 130,863 128,714 10.41
453,999 396,113 365,124 311,658 294,356 274,398 7.81
- ----------- ----------- ----------- ---------- ---------- ---------- ------
218,563 164,570 121,011 103,182 89,484 113,000 13.63
71,843 47,977 31,785 24,734 17,185 25,128 18.96
- ----------- ----------- ----------- ---------- ---------- ---------- ------
$ 146,720 $ 116,593 $ 89,226 $ 78,448 $ 72,299 $ 87,872 11.57 %
=========== =========== =========== ========== ========== ========== ======
114,408 105,039 98,217 94,401 96,964 96,754 2.12 %
116,260 106,953 99,588 95,400 98,158 97,940 2.16
$1.28 $ 1.11 $ 0.91 $ 0.83 $ 0.75 $ 0.91 9.25
1.26 1.09 0.90 0.82 0.74 0.90 9.23
0.54 0.47 0.43 0.42 0.39 0.37 8.58
- ----------- ----------- ----------- ---------- ---------- ---------- ------
</TABLE>
55
<PAGE>
MANAGEMENT'S STATEMENT ON
RESPONSIBILITY FOR FINANCIAL REPORTING
The management of AmSouth is responsible for the content and integrity of
the financial statements and all other financial information included in this
annual report. Management believes that the financial statements have been
prepared in conformity with generally accepted accounting principles applied on
a consistent basis to reflect, in all material respects, the substance of
events and transactions that should be included, and that the other financial
information in the annual report is consistent with those financial statements.
The financial statements necessarily include amounts that are based on
management's best estimates and judgements.
Management maintains and depends upon AmSouth's accounting systems and
related systems of internal controls. The internal control systems are designed
to ensure that transactions are properly authorized and recorded in the
corporation's financial records and to safeguard the corporation's assets from
material loss or misuse. The corporation maintains an internal audit staff
which monitors compliance with the corporation's systems of internal controls
and reports to management and to the Audit and Community Responsibility
Committee of the Board of Directors.
The Audit and Community Responsibility Committee of the Board of Directors,
composed solely of outside directors, has responsibility for recommending to
the Board of Directors the appointment of the independent auditors for AmSouth.
The Committee meets periodically with the internal auditors and the independent
auditors to review the scope and findings of their respective audits. The
internal auditors, independent auditors and management each have full and free
access to meet privately as well as together with the Committee to discuss
internal controls, accounting, auditing, or other financial reporting matters.
The consolidated financial statements of AmSouth have been audited by Ernst
& Young LLP, independent auditors, who were engaged to express an opinion as to
the fairness of presentation of such financial statements.
/s/ C. Dowd Ritter /s/ Sloan D. Gibson
- --------------------------------- ---------------------------------
C. Dowd Ritter Sloan D. Gibson
Chairman, President and Senior Executive Vice President
Chief Executive Officer Chief Financial Officer
56
<PAGE>
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
Board of Directors
AmSouth Bancorporation
We have audited the accompanying consolidated statement of condition of
AmSouth Bancorporation and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of earnings, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Corporation's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of AmSouth
Bancorporation and subsidiaries at December 31, 1998 and 1997 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
ERNST & YOUNG, LLP
Birmingham, Alabama
January 29, 1999,
except for Note 22
as to which the date
is March 1, 1999
57
<PAGE>
AMSOUTH BANCORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CONDITION
<TABLE>
<CAPTION>
December 31
(Dollars in thousands) -----------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks............................... $ 619,599 $ 658,500
Federal funds sold and securities purchased under
agreements to resell................................. 5,609 19,000
Trading securities.................................... 4,144 1,406
Available-for-sale securities......................... 3,029,372 2,507,690
Held-to-maturity securities (market value of
$2,162,102 and $2,287,004, respectively)............. 2,147,044 2,272,154
Mortgage loans held for sale.......................... 148,461 80,820
Loans................................................. 12,977,467 12,342,825
Less: Allowance for loan losses....................... 176,075 179,197
Unearned income..................................... 107,604 105,157
----------- -----------
Net loans........................................... 12,693,788 12,058,471
Other interest-earning assets......................... 29,276 -0-
Premises and equipment, net........................... 336,772 314,200
Customers' acceptance liability....................... 3,947 10,926
Accrued interest receivable and other assets.......... 883,667 699,089
----------- -----------
$19,901,679 $18,622,256
=========== ===========
</TABLE>
<TABLE>
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits and interest-bearing liabilities:
Deposits:
Noninterest-bearing demand......................... $ 2,215,887 $ 2,062,906
Interest-bearing demand............................ 4,559,470 3,960,968
Savings............................................ 980,829 1,027,557
Time............................................... 4,553,666 5,000,535
Certificates of deposit of $100,000 or more........ 973,952 893,231
----------- -----------
Total deposits.................................... 13,283,804 12,945,197
Federal funds purchased and securities sold under
agreements to repurchase.......................... 1,482,100 1,435,925
Other borrowed funds............................... 88,873 985,918
Long-term Federal Home Loan Bank advances.......... 2,500,117 1,198,146
Other long-term debt............................... 739,642 435,078
----------- -----------
Total deposits and interest-bearing liabilities... 18,094,536 17,000,264
Acceptances outstanding.............................. 3,947 10,926
Accrued expenses and other liabilities............... 375,567 225,821
----------- -----------
Total liabilities.................................. 18,474,050 17,237,011
----------- -----------
Shareholders' equity:
Preferred stock -- no par value:
Authorized -- 2,000,000 shares; Issued and
outstanding -- none............................... -0- -0-
Common stock -- par value $1 a share:
Authorized -- 200,000,000 shares
Issued -- 134,950,301 and 135,031,989 shares,
respectively...................................... 134,950 135,032
Capital surplus..................................... 516,095 517,464
Retained earnings................................... 1,133,046 983,371
Cost of common stock in treasury -- 16,699,154 and
14,227,007 shares, respectively.................... (367,286) (268,019)
Deferred compensation on restricted stock........... (8,272) (9,196)
Accumulated other comprehensive income.............. 19,096 26,593
----------- -----------
Total shareholders' equity......................... 1,427,629 1,385,245
----------- -----------
$19,901,679 $18,622,256
=========== ===========
</TABLE>
- --------
See notes to consolidated financial statements.
58
<PAGE>
AMSOUTH BANCORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
Years Ended December 31
(In thousands except per share data) --------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME
Loans........................................ $1,085,846 $1,052,125 $1,004,480
Available-for-sale securities................ 212,583 155,600 164,473
Held-to-maturity securities.................. 157,951 166,798 178,260
Trading securities........................... 127 78 144
Mortgage loans held for sale................. 4,622 2,223 5,243
Federal funds sold and securities purchased
under agreements to resell.................. 831 964 1,223
Other interest-earning assets................ 581 -0- -0-
---------- ---------- ----------
Total interest income....................... 1,462,541 1,377,788 1,353,823
---------- ---------- ----------
INTEREST EXPENSE
Interest-bearing demand deposits............. 143,144 123,586 115,192
Savings deposits............................. 28,395 29,928 28,432
Time deposits................................ 269,111 281,838 318,410
Certificates of deposit of $100,000 or more.. 58,389 48,735 49,311
Federal funds purchased and securities sold
under agreements to repurchase.............. 71,821 78,461 91,790
Other borrowed funds......................... 25,607 52,837 39,500
Long-term Federal Home Loan Bank advances.... 118,749 53,945 27,210
Other long-term debt......................... 48,355 32,181 31,597
---------- ---------- ----------
Total interest expense...................... 763,571 701,511 701,442
---------- ---------- ----------
NET INTEREST INCOME.......................... 698,970 676,277 652,381
Provision for loan losses.................... 58,134 67,399 65,171
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES...................................... 640,836 608,878 587,210
---------- ---------- ----------
NONINTEREST REVENUES
Service charges on deposit accounts.......... 104,709 98,546 94,765
Trust income................................. 66,473 62,094 57,354
Consumer investment services income.......... 31,191 23,500 16,944
Other noninterest revenues................... 144,253 81,864 66,211
---------- ---------- ----------
Total noninterest revenues.................. 346,626 266,004 235,274
---------- ---------- ----------
NONINTEREST EXPENSES
Salaries and employee benefits............... 290,261 249,655 232,076
Net occupancy expense........................ 56,278 55,791 54,211
Equipment expense............................ 62,245 57,033 55,044
Other noninterest expenses................... 173,333 163,713 192,901
---------- ---------- ----------
Total noninterest expenses.................. 582,117 526,192 534,232
---------- ---------- ----------
INCOME BEFORE INCOME TAXES................... 405,345 348,690 288,252
Income taxes................................. 142,633 122,523 105,576
---------- ---------- ----------
NET INCOME.................................. $ 262,712 $ 226,167 $ 182,676
========== ========== ==========
Average common shares outstanding............ 119,384 123,059 127,362
Earnings per common share.................... $ 2.20 $ 1.84 $ 1.43
Diluted average common shares outstanding.... 121,281 124,120 128,764
Diluted earnings per common share............ $ 2.17 $ 1.82 $ 1.42
---------- ---------- ----------
</TABLE>
- --------
See notes to consolidated financial statements.
59
<PAGE>
AmSouth Bancorporation and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deferred
Compensation Accumulated
on Other
Common Capital Retained Treasury Restricted Comprehensive
Stock Surplus Earnings Stock Stock Income Total
(In thousands) -------- -------- ---------- --------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1,
1996................... $135,068 $515,844 $ 788,170 $ (73,192) $(4,120) $21,705 $1,383,475
Comprehensive income:
Net income............. -0- -0- 182,676 -0- -0- -0- 182,676
Other comprehensive
income, net of tax:
Unrealized gains on
available-for-sale
securities, net of
reclassification
adjustment............ -0- -0- -0- -0- -0- 2,591 2,591
----------
Comprehensive income.... 185,267
Cash dividends declared
($.72 per common
share)................. -0- -0- (91,378) -0- -0- -0- (91,378)
Common stock
transactions:
Employee stock plans... (17) 1,493 (8,796) 36,538 (6,280) -0- 22,938
Dividend reinvestment
plan.................. -0- 105 (106) 5,274 -0- -0- 5,273
Purchase of common
stock................. -0- -0- -0- (113,877) -0- -0- (113,877)
Retirement of debt..... -0- -0- (12,237) 16,368 -0- -0- 4,131
-------- -------- ---------- --------- ------- ------- ----------
BALANCE AT DECEMBER 31,
1996................... 135,051 517,442 858,329 (128,889) (10,400) 24,296 1,395,829
Comprehensive income:
Net income............. -0- -0- 226,167 -0- -0- -0- 226,167
Other comprehensive
income, net of tax:
Unrealized gains on
available-for-sale
securities, net of
reclassification
adjustment............ -0- -0- -0- -0- -0- 2,297 2,297
-------- -------- ---------- --------- ------- ------- ----------
Comprehensive income.... 228,464
Cash dividends declared
($.76 per common
share)................. -0- -0- (93,307) -0- -0- -0- (93,307)
Common stock
transactions:
Employee stock plans... (19) (209) (7,679) 26,421 1,204 -0- 19,718
Dividend reinvestment
plan.................. -0- 231 (139) 5,059 -0- -0- 5,151
Purchase of common
stock................. -0- -0- -0- (170,610) -0- -0- (170,610)
-------- -------- ---------- --------- ------- ------- ----------
BALANCE AT DECEMBER 31,
1997................... 135,032 517,464 983,371 (268,019) (9,196) 26,593 1,385,245
Comprehensive income:
Net income............. -0- -0- 262,712 -0- -0- -0- 262,712
Other comprehensive
income, net of tax:
Unrealized losses on
available-for-sale
securities, net of
reclassification
adjustment............ -0- -0- -0- -0- -0- (7,497) (7,497)
-------- -------- ---------- --------- ------- ------- ----------
Comprehensive income.... 255,215
Cash dividends declared
($.85 per common
share)................. -0- -0- (101,563) -0- -0- -0- (101,563)
Common stock
transactions:
Special rights and
warrants.............. -0- (355) -0- -0- -0- -0- (355)
Employee stock plans... (82) (1,645) (11,408) 32,603 924 -0- 20,392
Dividend reinvestment.. -0- 631 (66) 4,644 -0- -0- 5,209
Purchase of common
stock................. -0- -0- -0- (136,514) -0- -0- (136,514)
-------- -------- ---------- --------- ------- ------- ----------
BALANCE AT DECEMBER 31,
1998................... $134,950 $516,095 $1,133,046 $(367,286) $(8,272) $19,096 $1,427,629
======== ======== ========== ========= ======= ======= ==========
Disclosure of 1998
reclassification
amount:
Unrealized holding
losses on available-
for-sale securities
arising during the
period................ $(2,296)
Less: Reclassification
adjustment for gains
realized in net
income................ 5,201
-------
Net unrealized losses on
available-for-sale
securities, net of
tax.................... $(7,497)
=======
</TABLE>
- --------
See notes to consolidated financial statements.
60
<PAGE>
AmSouth Bancorporation and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31
(In thousands) -------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.............................. $ 262,712 $ 226,167 $ 182,676
Adjustments to reconcile net income to
net cash provided by operating
activities:
Provision for loan losses.............. 58,134 67,399 65,171
Depreciation and amortization of
premises and equipment................ 38,881 34,149 27,696
Amortization of premiums and discounts
on held-to-maturity securities and
available-for-sale securities......... (2,107) (2,590) (3,802)
Net (increase) decrease in mortgage
loans held for sale.................... (67,641) (20,238) 1,435
Net (increase) decrease in trading
securities............................. (2,738) 2,473 (901)
Net gains on sales of available-for-sale
securities............................. (8,336) (7,883) (7,530)
Net increase in accrued interest
receivable and other assets............ (193,982) (163,338) (933)
Net increase (decrease) in accrued
expenses and other liabilities......... 51,305 (36,744) 2,000
Provision for deferred income taxes..... 41,069 54,008 54,806
Amortization of intangible assets....... 16,438 16,556 16,642
Other operating activities, net......... 8,913 9,411 4,473
----------- ----------- -----------
Net cash provided by operating
activities............................ 202,648 179,370 341,733
----------- ----------- -----------
INVESTING ACTIVITIES
Proceeds from maturities and prepayments
of available-for-sale securities....... 808,252 349,132 512,102
Proceeds from sales of available-for-
sale securities........................ 745,892 1,137,413 1,678,997
Purchases of available-for-sale
securities............................. (1,969,358) (1,337,136) (1,282,598)
Proceeds from maturities, prepayments
and calls of held-to-maturity
securities............................. 1,159,806 577,942 407,397
Purchases of held-to-maturity
securities............................. (1,007,629) (204,262) (883,502)
Net decrease (increase) in federal funds
sold and securities purchased under
agreements to resell................... 13,391 (4,000) (13,225)
Net increase in other interest-earning
assets................................. (29,276) -0- -0-
Net increase in loans................... (780,210) (598,793) (1,132,183)
Net purchases of premises and
equipment.............................. (61,453) (46,757) (52,862)
----------- ----------- -----------
Net cash used by investing activities.. (1,120,585) (126,461) (765,874)
----------- ----------- -----------
FINANCING ACTIVITIES
Net increase (decrease) in demand
deposits and savings accounts.......... 704,755 431,396 (133,073)
Net (decrease) increase in time
deposits............................... (365,880) 46,734 (819,362)
Net increase (decrease) in federal funds
purchased and securities sold under
agreements to repurchase............... 46,175 (436,361) 11,196
Net (decrease) increase in other
borrowed funds......................... (897,045) (64,465) 486,757
Issuance of long-term Federal Home Loan
Bank advances and other long-term
debt................................... 1,878,973 1,140,400 1,245,000
Payments for maturing long-term debt.... (272,039) (917,960) (186,655)
Cash dividends paid..................... (101,563) (93,307) (91,378)
Cash payment for special rights and
warrants on common stock............... (355) -0- -0-
Proceeds from employee stock plans and
dividend reinvestment plan............. 22,529 21,270 22,386
Purchase of common stock................ (136,514) (170,610) (113,877)
----------- ----------- -----------
Net cash provided (used) by financing
activities............................ 879,036 (42,903) 420,994
----------- ----------- -----------
(Decrease) increase in cash and cash
equivalents............................ (38,901) 10,006 (3,147)
Cash and cash equivalents at beginning
of period.............................. 658,500 648,494 651,641
----------- ----------- -----------
Cash and cash equivalents at end of
period................................. $ 619,599 $ 658,500 $ 648,494
=========== =========== ===========
</TABLE>
- --------
See notes to consolidated financial statements.
61
<PAGE>
Notes to Consolidated Financial Statements
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AmSouth Bancorporation (AmSouth), through its wholly owned subsidiaries,
provides a broad array of financial products and services throughout Alabama,
Florida, Tennessee, and Georgia. AmSouth's principal activities include retail
and commercial banking and trust operations. On June 25, 1997, AmSouth merged
its five subsidiary banks with the resulting bank operating under the name
"AmSouth Bank." The accounting policies of AmSouth and the methods of applying
those policies which materially affect the accompanying financial statements
are presented below.
Basis of Presentation
The consolidated financial statements include the accounts of AmSouth and
its subsidiaries. All significant intercompany balances and transactions have
been eliminated. Certain amounts in the prior years' financial statements have
been reclassified to conform with the 1998 presentation. These
reclassifications are immaterial and had no effect on net income.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash Flows
For the Consolidated Statement of Cash Flows, AmSouth has defined cash and
cash equivalents as those amounts included in the Consolidated Statement of
Condition caption as "Cash and due from banks." For the years ended December
31, 1998, 1997 and 1996, AmSouth paid interest of $749,419,000, $701,796,000
and $703,449,000, respectively. For the years ended December 31, 1998, 1997 and
1996, noncash transfers from loans to foreclosed properties were $13,663,000,
$17,377,000 and $20,469,000, respectively. Noncash transfers from foreclosed
properties to loans for the years ended December 31, 1998, 1997 and 1996 were
$496,000, $2,399,000 and $1,284,000, respectively. For the years ended December
31, 1998, 1997 and 1996, noncash transfers from loans to available-for-sale
securities of approximately $67,755,000, $351,946,000 and $704,525,000,
respectively, were made in connection with mortgage loan securitizations. In
addition, for the years ended December 31, 1998, 1997 and 1996, respectively,
$471,000, $2,657,000 and $5,309,000 of noncash transfers were made from loans
to other assets in connection with mortgage loan securitizations. For the year
ended December 31, 1998, noncash transfers from loans to available-for-sale
securities and to other assets of approximately $4,038,000 and $3,567,000,
respectively, were made in connection with the participation of mortgages to
third-party conduits. For the year ended December 31,1996, a transfer of
$4,131,000 from long-term debt to shareholders' equity was made in connection
with the redemption of convertible debt.
Securities
Securities are classified as either held-to-maturity, available-for-sale or
trading. AmSouth defines held-to-maturity securities as debt securities which
management has the intent and ability to hold to maturity. Held-to-maturity
securities are stated at cost, adjusted for amortization of premiums and
accretion of discounts on the constant effective yield method. Trading
securities are carried at market. Market adjustments and realized gains or
losses on the sale of trading securities are reported as other noninterest
revenues. Available-for-sale securities are defined as equity securities and
debt securities not classified as trading securities or held-to-maturity
securities. Available-for-sale securities are carried at fair value. Unrealized
holding gains or losses, net of deferred taxes, on available-for-sale
securities are excluded from earnings and reported in accumulated other
comprehensive income within shareholders' equity. AmSouth
62
<PAGE>
determines the appropriate classification of debt securities at the time of
purchase. Gains and losses from sales of available-for-sale securities are
computed using the specific identification method.
Mortgage Loans Held for Sale
Mortgage loans held for sale are carried at the lower of aggregate cost or
market value. Market adjustments and realized gains and losses are classified
as other noninterest revenues.
Securities Purchased Under Agreements to Resell and Securities Sold Under
Agreements to Repurchase
Securities purchased under agreements to resell and securities sold under
agreements to repurchase are generally treated as collateralized financing
transactions and are recorded at the amount at which the securities were
acquired or sold plus accrued interest. It is AmSouth's policy to take
possession of securities purchased under resale agreements. The market value of
the collateral is monitored and additional collateral obtained when deemed
appropriate. Securities sold under repurchase agreements are delivered to
either broker-dealers or to custodian accounts for customers. The broker-
dealers may sell, loan or otherwise dispose of such securities to other parties
in the normal course of their operations, but have agreed to resell to AmSouth
identical securities at the maturity of the agreements.
Interest Rate Contracts and Other Off-Balance Sheet Financial Instruments
AmSouth has from time to time utilized various off-balance sheet instruments
such as interest rate swaps and caps which are designated to hedge imbalances
in sensitivity to fluctuating interest rates for designated assets and
liabilities. To qualify as a hedge used to manage interest rate risk, the
following criteria must be met: (1) the asset or liability to be hedged exposes
the institution, as a whole, to the interest rate risk, (2) the instrument
alters or reduces sensitivity to interest rate changes and (3) the instrument
is designated and effective as a hedge. Accrual accounting is applied for off-
balance sheet investment products classified as a hedge. Under accrual
accounting, any gains or losses realized as a result of termination of an off-
balance sheet investment product are deferred and amortized as yield/rate
adjustments of the hedged assets or liabilities over the original life of the
contract. If the designated asset or liability being hedged is terminated,
matures or is sold, any realized or unrealized gain or loss from the related
off-balance sheet investment product would be recognized in income coincident
with the extinguishment or termination. If the balance of the related balance
sheet item falls below that of the related off-balance sheet investment
product, the excess portion of the off-balance sheet investment product is
marked to market and the resulting gain or loss included in income. If an off-
balance sheet investment product does not satisfy the criteria for a hedge,
including those to be used in trading activities, it is carried at market
value. Any changes in market value are recognized in other noninterest
revenues.
AmSouth has entered into interest rate swap agreements to modify the
interest characteristics of some of its subordinated debt and mortgage-backed
securities held in its available-for-sale portfolio. These interest rate swap
agreements are designated to hedge a portion or all of the principal balance
and term of a specific debt obligation or mortgage-backed securities. These
agreements involve the exchange of amounts based on a fixed interest rate for
amounts based on variable interest rates over the life of the agreement without
an exchange of the notional amount upon which the payments are based. The
differential to be paid or received as interest rates change is accrued and
recognized as an adjustment of interest expense related to the debt or interest
income related to the mortgage-backed securities (the accrual accounting method
described above). The related amounts payable to or receivable from
counterparties are included in other liabilities or assets.
Loans
Interest income on commercial and real estate loans is accrued daily based
upon the outstanding principal amounts except for those classified as
nonaccrual loans. Interest income on certain consumer loans is accrued monthly
based upon the outstanding principal amounts except for those classified as
nonaccrual loans. Interest accrual is discontinued when it appears that future
collection of principal or interest according to the contractual terms may be
doubtful. Interest collections on nonaccrual loans for which the ultimate
collectibility of principal is uncertain are applied as principal reductions.
Otherwise, such collections are credited to income when received.
Impaired loans are specifically reviewed loans for which it is probable that
the creditor will be unable to collect all amounts due according to the terms
of the loan agreement. Impairment
63
<PAGE>
of a loan is measured by comparing the recorded investment in the loan with the
present value of expected future cash flows discounted at the loan's effective
interest rate, the loan's observable market price, or the fair value of the
collateral if the loan is collateral dependent. A valuation allowance is
provided to the extent that the measure of the impaired loans is less than the
recorded investment. A loan is not considered impaired during a period of delay
in payment if the ultimate collectibility of all amounts due is expected. Larger
groups of homogeneous loans such as consumer installment, bankcard and
residential real estate mortgage loans are collectively evaluated for
impairment. Impaired loans are, therefore, primarily commercial loans and
commercial real estate loans. Payments received on impaired loans for which the
ultimate collectibility of principal is uncertain are generally applied first as
principal reductions.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level which is considered
to be adequate to reflect estimated credit losses for specifically identified
loans, as well as estimated probable credit losses inherent in the remainder of
the loan portfolio at the balance sheet date. A formal review of the allowance
for loan losses is prepared quarterly to assess the risk in the portfolio and
to determine the adequacy of the allowance for loan losses. For purposes of the
quarterly review, the consumer loan portfolios are separated by loan type, and
each loan type is treated as a homogeneous pool. In accordance with the
Interagency Policy Statement on the Allowance for Loan and Lease Losses, issued
by the Federal Financial Institutions Examination Council, the allowance
allocated to each of these pools is based upon trends in quarterly annualized
charge-off rates for each pool, adjusted for anticipated changes in these pools
which includes current information on the payment performance of each pool of
loans. Every commercial and commercial real estate loan is assigned a risk
rating on a numerical scale of one to nine by loan officers using established
credit policy guidelines. These risk ratings are periodically reviewed, and all
risk ratings are subject to review by an independent Credit Review Department.
Each risk rating is assigned an allocation percentage which, when multiplied
times the dollar value of loans in that risk category, results in the amount of
the allowance for loan losses allocated to these loans. In addition, every
nonperforming loan in excess of $500,000 is reviewed quarterly by AmSouth's
Special Asset Department for the potential for additional specific allocation
above that already allocated to it as a result of its loan grade. The
allocation of allowance for loans with a grade of one through six is based upon
historical loss rates adjusted for current conditions which included current
economic developments. The allocation for loans with a grade of seven through
nine is based upon regulatory guidance. The allocation for unfunded commitments
is based on the type of unfunded commitment and historical loss information
updated to reflect current conditions and information. The allowance allocated
to standby letters of credit is determined by historical loss information
associated with these off-balance sheet items. Management reviews its
allocation of the loan losses versus actual performance of each of its
portfolios and adjusts allocation rates to reflect the recent performance of
the portfolio as well as current underwriting standards and other factors which
might impact the estimated losses in the portfolio.
In determining the appropriate level for the allowance, management ensures
that the overall allowance appropriately reflects a margin for the imprecision
inherent in most estimates of expected credit losses. This additional allowance
is reflected in the unallocated portion of the allowance. Based on management's
periodic evaluation of the allowance for loan losses, a provision for loan
losses is charged to operations if additions to the allowance are required.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. The provisions for depreciation and amortization are computed
generally by the straight-line method over the estimated useful lives of the
assets or terms of the leases, as applicable. The annual provisions for
depreciation and amortization have been computed principally using estimated
lives of five to forty years for premises and three to twelve years for
furniture and equipment.
Intangible Assets
Intangible assets, primarily goodwill, are included in other assets.
Goodwill is amortized on a straight-line basis primarily over twenty to twenty-
five years. As events or changes in circumstances warrant, AmSouth reviews the
carrying value of goodwill to determine if any impairment has occurred or if
the period of recoverability has changed. If this review indicates that
goodwill will not be recoverable, as determined
64
<PAGE>
based on the undiscounted cash flows of the entity acquired over the remaining
amortization period, AmSouth's carrying value of the goodwill will be reduced by
the estimated shortfall of such cash flows. At December 31, 1998, 1997 and 1996,
goodwill, net of amortization, totaled $234,688,000, $250,922,000 and
$267,157,000, respectively.
Income Taxes
The consolidated financial statements have been prepared on the accrual
basis. When income and expenses are recognized in different periods for
financial reporting purposes and for purposes of computing income taxes
currently payable, deferred taxes are provided on such temporary differences.
Deferred tax assets and liabilities are recorded for the expected future tax
consequences of events that have been recognized in the financial statements or
tax returns. Deferred tax assets and liabilities are measured using the enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be realized or settled.
Pension and Other Postretirement Employee Benefit Plans
AmSouth has a pension plan for the benefit of substantially all regular,
full-time employees. The plan is trusteed and noncontributory. Costs of
AmSouth's pension plan are actuarially determined by the projected unit credit
method with actuarial gains or losses recognized each year and amortized
separately. AmSouth adopted Statement of Financial Accounting Standards No.
132, "Employers' Disclosures about Pension and Other Postretirement Benefits --
an amendment of FASB Statements No. 87, 88, and 106" (Statement 132) as of
December 31, 1998. This statement revises employers' disclosures about pension
and other postretirement benefit plans, but does not change the measurement or
recognition of those plans. Accordingly, its adoption did not impact AmSouth's
financial condition or results of operations. See Note 17 for AmSouth's pension
disclosures as required by Statement 132.
Stock-Based Compensation
AmSouth adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
(Statement 123) which allows an entity to continue to measure compensation cost
for those plans using the intrinsic value based method of accounting prescribed
by APB Opinion No. 25, "Accounting for Stock Issued to Employees" (Opinion 25).
AmSouth has elected to follow Opinion 25 and related interpretations in
accounting for its employee stock options. Under Opinion 25, because the
exercise price of AmSouth's employee stock options equals the market price of
the underlying stock on the date of grant, no compensation expense is
recognized. See Note 15 for a further description of the assumptions used for
preparing the pro forma disclosures as prescribed by Statement 123.
Earnings Per Common Share
As of December 31, 1997, AmSouth adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (Statement 128). Statement 128 requires
a dual presentation of earnings per share using a basic and diluted
computation. The basic calculation of earnings per common share is obtained by
dividing net income available to common stockholders by the weighted average
outstanding shares of common stock. The diluted calculation of earnings per
share is obtained by dividing net income by the weighted average outstanding
shares of common stock adjusted for effects of stock options outstanding and
convertible debentures assumed issued under Statement 128. Application of
Statement 128 had no material effect on reported earnings per common share. See
Note 14 for reconciliations of the numerators and denominators of the basic and
diluted earnings per common share computations.
Three-for-two stock splits were completed on April 30, 1998 and 1997 to
common stockholders. All common stock and per share data included in the
consolidated financial statements and in the notes to consolidated financial
statements have been retroactively adjusted to reflect these splits.
Transfer of Assets and Liabilities
On January 1, 1997, AmSouth adopted Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" (Statement 125), except for the provisions
relating to repurchase agreements, securities lending and other similar
transactions and
65
<PAGE>
pledged collateral, which were delayed until after December 31, 1997, by
Statement of Financial Accounting Standards No. 127, "Deferral of the Effective
Date of Certain Provisions of FASB Statement No. 125, an amendment of FASB
Statement No. 125" (Statement 127). On January 1, 1998, those provisions of
Statement 125 deferred by Statement 127 were adopted. Statement 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities based on a consistent application of a
"financial-components approach" that focuses on control. Under that approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered and derecognizes liabilities
when extinguished. Statement 125 provides standards for consistently
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. The adoption of Statement 125 and the additional
provisions deferred by Statement 127 resulted in no material impact on AmSouth's
financial condition or results of operations.
Recent Accounting Pronouncements
On January 1, 1998, AmSouth adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (Statement 130). This
statement establishes standards for reporting the components of comprehensive
income and requires that all items which are required to be recognized under
accounting standards as components of comprehensive income be included in a
financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income includes net income as well as
certain items that are reported directly within a separate component of
shareholders' equity and bypass net income. The adoption of Statement 130 had
no impact on AmSouth's financial condition or results of operations.
On December 31, 1998, AmSouth adopted Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" (Statement 131). The provisions of this statement require
disclosure of financial and descriptive information about an enterprise's
operating segments in annual and interim financial reports issued to
shareholders. The statement defines an operating segment as a component of an
enterprise that engages in business activities that generate revenue and incur
expense, whose operating results are reviewed by the chief operating decision
maker in the determination of resource allocation and performance, and for
which discrete financial information is available. The disclosure requirements
of Statement 131 had no impact on AmSouth's financial condition or results of
operations.
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and for Hedging Activities" (Statement
133), was issued. Statement 133 requires all derivatives to be recorded on the
balance sheet at fair value. The statement continues to allow derivative
instruments to be used to hedge various risks and sets forth specific criteria
to be used to determine when hedge accounting can be used. It also establishes
special accounting treatment for fair value hedges, cash flow hedges and foreign
currency hedges. The accounting for qualifying 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 a qualifying hedge or that represent the ineffective
portion of a hedge are required to be recognized in earnings in the period of
change. The provisions of this statement become effective for quarterly and
annual reporting beginning January 1, 2000. Although the statement allows for
early adoption in any quarterly period after June 1998, AmSouth has no plans to
adopt the provisions of Statement 133 prior to the effective date. The impact of
adopting Statement 133 on AmSouth's financial condition or results of operations
has not been determined at this time.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1
identifies the characteristics of internal use computer software and provides
guidance on accounting for its costs. The provisions of this SOP are to be
applied to costs incurred for all projects, including those in progress upon
initial application. AmSouth is required to adopt this SOP in 1999. The
application of SOP 98-1 will not have a material effect on AmSouth's financial
condition or results of operations.
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<PAGE>
In March 1998, the AICPA also issued Statement of Position 98-5, "Reporting
the Costs of Start-Up Activities" (SOP 98-5). SOP 98-5 applies to all
nongovernmental entities and requires that costs of start-up activities and
organization costs be expensed as incurred. AmSouth is required to adopt this
SOP in 1999. The adoption of SOP 98-5 will not have a material effect on
AmSouth's financial condition or results of operations.
NOTE 2 -- CASH AND DUE FROM BANKS
AmSouth's banking subsidiary is required to maintain reserve balances with
the Federal Reserve Bank based on a percentage of deposits reduced by its cash
on hand. The average amount of those reserves was approximately $15,300,000 and
$24,000,000 for the years ended December 31, 1998 and 1997, respectively.
NOTE 3 -- AVAILABLE-FOR-SALE SECURITIES
The following is a summary of available-for-sale securities at December 31:
<TABLE>
<CAPTION>
1998 1997
------------------------------------------- -------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Carrying Amortized Unrealized Unrealized Carrying
Cost Gains Losses Amount Cost Gains Losses Amount
(In thousands) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
federal agency
securities............. $ 135,161 $ 1,928 $ 2 $ 137,087 $ 171,965 $ 1,876 $ 525 $ 173,316
Mortgage-backed
securities............. 2,670,996 27,788 5,905 2,692,879 2,190,163 42,931 1,512 2,231,582
Equity securities....... 192,491 6,915 -0- 199,406 102,792 -0- -0- 102,792
---------- ------- ------ ---------- ---------- ------- ------ ----------
$2,998,648 $36,631 $5,907 $3,029,372 $2,464,920 $44,807 $2,037 $2,507,690
========== ======= ====== ========== ========== ======= ====== ==========
</TABLE>
The carrying amount and amortized cost of available-for-sale securities by
maturity at December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Amortized Carrying
Cost Amount
(In thousands) ---------- ----------
<S> <C> <C>
Due within 1 year..................................... $ 49,976 $ 50,512
Due after 1 year through 5 years...................... 17,501 17,753
Due after 5 years through 10 years.................... 39,987 40,665
Due after 10 years.................................... 27,697 28,157
Mortgage-backed securities............................ 2,670,996 2,692,879
Equity securities..................................... 192,491 199,406
---------- ----------
$2,998,648 $3,029,372
========== ==========
</TABLE>
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<PAGE>
Sales of available-for-sale securities were $737,556,000, $1,129,530,000 and
$1,671,010,000 during 1998, 1997 and 1996, respectively. Gross gains of
$8,642,000, $9,447,000 and $9,977,000 and gross losses of $306,000, $1,564,000
and $2,447,000 were realized on these sales for 1998, 1997 and 1996,
respectively.
Available-for-sale securities with a carrying amount of $2,774,572,000 and
$2,128,547,000 at December 31, 1998 and 1997, respectively, were pledged to
secure short-term borrowings, public deposits, trust funds and for other
purposes as required or permitted by law.
NOTE 4 -- HELD-TO-MATURITY SECURITIES
The amounts at which held-to-maturity securities are carried and their
approximate fair market values at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------------------- -------------------------------------------
Gross Gross Gross Gross
Carrying Unrealized Unrealized Market Carrying Unrealized Unrealized Market
Amount Gains Losses Value Amount Gains Losses Value
(In thousands) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
federal agency
securities............. $ 117,522 $ 1,490 $ -0- $ 119,012 $ 325,597 $ 1,367 $ 564 $ 326,400
State, county and
municipal securities... 131,216 3,081 264 134,033 127,167 4,354 2 131,519
Mortgage-backed
securities............. 1,846,145 18,959 8,297 1,856,807 1,818,113 18,641 8,946 1,827,808
Other securities........ 52,161 89 -0- 52,250 1,277 -0- -0- 1,277
---------- ------- ------ ---------- ---------- ------- ------ ----------
$2,147,044 $23,619 $8,561 $2,162,102 $2,272,154 $24,362 $9,512 $2,287,004
========== ======= ====== ========== ========== ======= ====== ==========
</TABLE>
The carrying amount and approximate fair market value of held-to-maturity
securities by maturity at December 31, 1998, are as follows:
<TABLE>
<S> <C> <C>
<CAPTION>
Carrying Market
Amount Value
(In thousands) ---------- ----------
<S> <C> <C>
Due within 1 year........................................ $ 48,620 $ 49,092
Due after 1 year through 5 years......................... 73,006 74,421
Due after 5 years through 10 years....................... 73,579 74,976
Due after 10 years....................................... 105,694 106,806
Mortgage-backed securities............................... 1,846,145 1,856,807
---------- ----------
$2,147,044 $2,162,102
========== ==========
</TABLE>
There were no sales of held-to-maturity securities during 1998, 1997 and
1996. Held-to-maturity securities with a carrying amount of $2,026,921,000 and
$2,090,466,000 at December 31, 1998 and 1997, respectively, were pledged to
secure short-term borrowings, public deposits, trust funds and for other
purposes as required or permitted by law.
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<PAGE>
NOTE 5 -- LOANS
The major categories of loans net of unearned income at December 31 are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
Amount Percent Amount Percent
(Dollars in thousands) ----------- ------- ----------- -------
<S> <C> <C> <C> <C>
Commercial:
Commercial and industrial............ $ 3,683,340 28.6% $ 3,737,550 30.5%
Commercial real estate mortgages --
owner occupied...................... 535,840 4.2 549,667 4.5
Commercial real estate mortgages --
nonowner occupied................... 1,457,558 11.3 1,161,426 9.5
Real estate construction............. 1,281,974 10.0 867,255 7.1
----------- ----- ----------- -----
Total commercial................... 6,958,712 54.1 6,315,898 51.6
----------- ----- ----------- -----
Consumer:
Residential first mortgages.......... 2,163,797 16.8 2,603,474 21.3
Other residential mortgages.......... 1,302,015 10.1 1,114,133 9.1
Dealer indirect...................... 1,735,619 13.5 1,242,771 10.2
Revolving credit..................... 265,809 2.1 454,889 3.7
Other consumer....................... 443,911 3.4 506,503 4.1
----------- ----- ----------- -----
Total consumer..................... 5,911,151 45.9 5,921,770 48.4
----------- ----- ----------- -----
$12,869,863 100.0% $12,237,668 100.0%
=========== ===== =========== =====
</TABLE>
At December 31, 1998 and 1997, nonaccrual loans totaled $66,072,000 and
$71,358,000, respectively. The amount of interest income actually recognized on
these loans during 1998 and 1997 was approximately $1,792,000 and $1,662,000,
respectively. The additional amount of interest income that would have been
recorded during 1998 and 1997 if these loans had been current in accordance
with their original terms was approximately $5,285,000 and $5,664,000,
respectively.
At December 31, 1998 and 1997, the recorded investment in loans that were
considered to be impaired was $38,178,000 and $35,887,000, respectively
(primarily all of which were on a nonaccrual basis). Collateral dependent
loans, which were measured at the fair value of the collateral, constituted
approximately all of impaired loans at December 31, 1998 and 1997. There was
approximately $7,776,000 and $6,742,000 at December 31, 1998 and 1997,
respectively, in the allowance for loan losses specifically allocated to
$23,881,000 and $21,726,000 of impaired loans, respectively. No specific
reserve was required for $14,297,000 and $14,161,000 of impaired loans at
December 31,1998 and 1997, respectively. The average recorded investment in
impaired loans for the years ended December 31, 1998, 1997 and 1996 was
approximately $46,159,000, $40,669,000 and $48,133,000, respectively. No
material amount of interest income was recognized on impaired loans for the
years ended December 31, 1998, 1997 and 1996.
Certain executive officers and directors of AmSouth and their associates
were loan customers of AmSouth during 1998 and 1997. Such loans are made in the
ordinary course of business at normal credit terms, including interest rates
and collateral, and do not represent more than a normal risk of collection.
Total loans to these persons at December 31, 1998 and 1997 amounted to
approximately $108,368,000 and $79,209,000, respectively. Activity during 1998
in loans to related parties included loans of approximately $359,222,000,
payments of approximately $313,937,000 and net reductions of approximately
$16,126,000 representing other changes.
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<PAGE>
NOTE 6 -- ALLOWANCE FOR LOAN LOSSES
A summary of changes in the allowance for loan losses is shown below:
<TABLE>
<CAPTION>
1998 1997 1996
(In thousands) -------- -------- --------
<S> <C> <C> <C>
Balance at January 1.............................. $179,197 $179,049 $178,451
Loans charged-off................................. (69,265) (93,985) (83,279)
Recoveries of loans previously charged-off........ 22,909 26,734 18,706
-------- -------- --------
Net charge-offs................................... (46,356) (67,251) (64,573)
Addition to allowance charged to expense.......... 58,134 67,399 65,171
Allowance sold.................................... (14,900) -0- -0-
-------- -------- --------
Balance at December 31............................ $176,075 $179,197 $179,049
======== ======== ========
</TABLE>
NOTE 7 -- PREMISES AND EQUIPMENT
Premises and equipment at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
(In thousands) -------- --------
<S> <C> <C>
Land......................................................... $ 59,247 $ 54,039
Buildings.................................................... 153,248 142,348
Furniture and fixtures....................................... 66,950 61,953
Equipment.................................................... 231,017 201,709
Leasehold improvements....................................... 75,386 72,272
-------- --------
585,848 532,321
Less: Allowances for depreciation and amortization........... 249,076 218,121
-------- --------
$336,772 $314,200
======== ========
</TABLE>
NOTE 8 -- DEPOSITS
The aggregate amounts of time deposits of $100,000 or more, excluding
certificates of deposit of $100,000 or more, in domestic bank offices at
December 31, 1998 and 1997 were $28,925,000 and $34,420,000, respectively.
At December 31, 1998, the aggregate maturities, in thousands, of time
deposits are summarized as follows:
<TABLE>
<S> <C>
1999................................................................. $4,033,400
2000................................................................. 1,049,687
2001................................................................. 161,231
2002................................................................. 72,218
2003 and thereafter.................................................. 211,082
----------
$5,527,618
==========
</TABLE>
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<PAGE>
NOTE 9 -- OTHER BORROWED FUNDS
Other borrowed funds at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
(In thousands) ------- --------
<S> <C> <C>
Treasury, tax and loan notes.................................. $66,399 $576,464
Short-term Federal Home Loan Bank advances.................... -0- 65,000
Short-term bank notes......................................... -0- 325,000
Commercial paper.............................................. 10,039 8,386
Floating Rate Notes due 1999.................................. 6,389 6,619
Other short-term debt......................................... 6,046 4,449
------- --------
$88,873 $985,918
======= ========
</TABLE>
At December 31, 1998, AmSouth had a line of credit arrangement for short-
term debt enabling it to borrow up to $25,000,000 subject to such terms as
AmSouth and the lender may mutually agree. The arrangement is reviewed annually
for renewal of the credit line. The line is available solely to support
commercial paper borrowings and was not in use at December 31, 1998.
The interest rate on the treasury, tax and loan notes at December 31, 1998,
was 4.92%. All other borrowed funds at December 31, 1998, had interest rates
ranging from 3.00% to 6.00%.
NOTE 10 -- LONG-TERM DEBT
Long-term debt at December 31 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
(In thousands) ---------- ----------
<S> <C> <C>
Long-term Federal Home Loan Bank advances................ $2,500,117 $1,198,146
---------- ----------
Other long-term debt:
6.45% Subordinated Notes Due 2018...................... 304,517 -0-
6.75% Subordinated Debentures Due 2025................. 149,880 149,863
7.75% Subordinated Notes Due 2004...................... 149,504 149,412
Subordinated Capital Notes Due 1999.................... 99,957 99,828
Long-term notes payable................................ 35,784 35,975
---------- ----------
Total other long-term debt............................... 739,642 435,078
---------- ----------
$3,239,759 $1,633,224
========== ==========
</TABLE>
Advances from the Federal Home Loan Bank (FHLB) had maturities ranging from
1999 to 2013 and interest rates ranging from 3.00% to 6.89%. Of the balances
outstanding at December 31, 1998, $1,400,000,000 is callable by the FHLB during
the first quarter of 1999. Under the Blanket Agreement for Advances and
Security Agreement with the FHLB, residential mortgage loans and mortgage-
backed securities are pledged as collateral for the FHLB advances outstanding.
The 6.45% Subordinated Notes Due 2018 were issued February 1, 1998, by
AmSouth's bank subsidiary at a price of 101.702%. The net proceeds to AmSouth's
bank subsidiary after commissions totaled $303,156,000. The notes will mature
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<PAGE>
February 1, 2018, and were issued with embedded put and call options that could
require AmSouth's bank subsidiary to repurchase the notes at face value on
February 1, 2008. If the bank does not repurchase the debt, the interest rate
on the notes will be reset on February 1, 2008, based on a set formula. AmSouth
purchased interest rate swaps in the notional amount of $175,000,000 to hedge
these notes. These swaps require AmSouth to pay variable rates based on the 30-
day and 90-day London Interbank Offered Rate (LIBOR) on notional amounts of
$75,000,000 and $100,000,000, respectively. These swaps effectively convert the
fixed rate debt to floating rate.
The 6.75% Subordinated Debentures Due November 1, 2025, were issued November
6, 1995, at a discounted price of 99.883%. The net proceeds to AmSouth after
commissions totaled $148,900,000. The debentures will mature on November 1,
2025, and may be redeemed on November 1, 2005, at the option of the registered
holders thereof. AmSouth purchased interest rate swaps in the notional amount
of $150,000,000 to hedge these debentures. These swaps require AmSouth to pay a
variable rate based on the 30-day LIBOR while receiving a fixed rate. These
swaps effectively convert the fixed rate debt to floating rate.
The 7.75% Subordinated Notes Due 2004 were issued May 19, 1994, at a
discounted price of 99.389%. The net proceeds to AmSouth after commissions
totaled $148,100,000. The notes will mature on May 15, 2004, and are not
redeemable prior to maturity.
The Subordinated Capital Notes Due 1999 were issued in 1987 at a discounted
price of 99.125%. The net proceeds to AmSouth after commissions totaled
$98,450,000 for an effective rate to maturity of 9.60%. The notes will mature
on May 1, 1999.
Long-term notes payable at December 31, 1998, included notes maturing from
1999 to 2000 with interest rates ranging from 3.30% to 4.25%.
The aggregate stated maturities, in thousands, of long-term debt outstanding
at December 31, 1998, are summarized as follows:
<TABLE>
<S> <C>
1999............................................................ $ 177,411
2000............................................................ 458,330
2001............................................................ -0-
2002............................................................ 525,000
2003............................................................ 25,000
Thereafter...................................................... 2,054,018
----------
$3,239,759
==========
</TABLE>
NOTE 11 -- OFF-BALANCE SHEET FINANCIAL AGREEMENTS
AmSouth enters into a variety of financial instrument agreements to help
customers manage their exposure to interest rate and foreign currency
fluctuations and to finance international activities. AmSouth also uses similar
instruments to manage its exposure to changes in interest and foreign exchange
rates, as well as to profit from arbitrage opportunities.
Futures and forward contracts provide customers and AmSouth a means of
managing the risks of changing interest and foreign exchange rates. These
contracts represent commitments either to purchase or sell securities, other
money market instruments or foreign currency at a future date and at a
specified price. AmSouth is subject to the market risk associated with changes
in the value of the underlying financial instrument as well as the risk that
another party will fail to perform. The gross contract amount of futures and
forward contracts represents the extent of AmSouth's involvement. However,
those amounts significantly exceed the future cash requirements as AmSouth
intends to close out open trading positions prior to settlement and thus is
subject only to the change in value of the instruments. The gross amount of
contracts represents AmSouth's maximum exposure to credit risk.
Interest rate swaps are agreements to exchange interest payments computed on
notional amounts. Swaps subject AmSouth to market risk associated with changes
in interest rates, as well as the risk that another party will fail to perform.
Interest rate caps and floors are contracts in which a counterparty pays or
receives a cash payment from another counterparty if a floating rate index
rises above or falls below a predetermined level. The
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<PAGE>
present value of purchased caps and floors in a gain position represents the
potential credit risk to AmSouth.
Market risk resulting from a position in a particular off-balance sheet
financial instrument may be offset by other on or off-balance sheet
transactions. AmSouth monitors overall sensitivity to interest rate changes by
analyzing the net effect of potential changes in interest rates on the market
value of both on and off-balance sheet financial instruments and the related
future cash flow streams. AmSouth manages the credit risk of counterparty
defaults in these transactions by limiting the total amount of arrangements
outstanding, both by individual counterparty and in the aggregate, and by
monitoring the size and maturity structure of the off-balance sheet portfolio.
AmSouth requires collateralization by a counterparty on credit exposure above a
specified credit limit. Trading and dealer activities in the aggregate are not
material to AmSouth and are not separately disclosed.
The following table identifies the gross contract or notional amounts of
off-balance sheet financial instruments at December 31:
<TABLE>
<CAPTION>
1998 1997
(In millions) -------- ------
<S> <C> <C>
Forward contracts-commitments to sell....................... $ 78.5 $ 52.6
Notional amount of interest rate swaps:
Receive fixed rate......................................... 1,047.2 927.1
Receive variable rate...................................... 168.5 32.3
Notional amount of interest rate caps and floors............ 7.4 -0-
Forward foreign exchange contracts:
Commitments to purchase.................................... 69.8 43.2
Commitments to sell........................................ 72.9 43.5
Written options sold........................................ 95.0 190.0
Written options purchased................................... 19.5 13.4
</TABLE>
The notional amounts of interest rate contracts used by AmSouth to hedge
balance sheet items at December 31 are shown below:
<TABLE>
<CAPTION>
1998 1997
(In millions) ---- ----
<S> <C> <C>
Loans.............................................................. $295 $185
Securities......................................................... 130 305
Deposits........................................................... 129 255
Long-term debt..................................................... 325 150
---- ----
$879 $895
==== ====
</TABLE>
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
AmSouth and its subsidiaries lease land, premises and equipment under
cancelable and noncancelable leases, some of which contain renewal options
under various terms. The leased properties are used primarily for banking
purposes.
The total rental expense on operating leases for the years ended December
31, 1998, 1997 and 1996 was $38,143,000, $39,563,000 and $38,379,000,
respectively. There were no material contingent rental expenses for 1998, 1997
or 1996.
73
<PAGE>
Future minimum payments, in thousands, by year and in the aggregate, for
noncancelable operating leases with initial or remaining terms of one year or
more consisted of the following at December 31, 1998:
<TABLE>
<S> <C>
1999................................................................ $ 38,143
2000................................................................ 34,084
2001................................................................ 30,470
2002................................................................ 24,659
2003................................................................ 23,775
Thereafter.......................................................... 137,843
--------
$288,974
========
</TABLE>
AmSouth and its subsidiaries are contingently liable with respect to various
loan commitments and other contingent liabilities in the normal course of
business. AmSouth's maximum exposure to credit risk for loan commitments
(unfunded loans and unused lines of credit) and standby letters of credit, at
December 31, 1998, was as follows (in millions):
<TABLE>
<S> <C>
Commitments to extend credit....................................... $9,230.8
Standby letters of credit.......................................... 914.7
</TABLE>
The credit risk associated with loan commitments and standby letters of
credit is essentially the same as that involved in extending loans to customers
and is subject to AmSouth's credit policies. Collateral is obtained based on
management's assessment of the customer.
Various legal proceedings are pending against AmSouth and its subsidiaries.
Some of these proceedings seek relief or allege damages that are substantial.
The actions arise in the ordinary course of AmSouth's business and include
actions relating to its lending, collections, loan servicing, deposit taking,
investment, trust, and other activities. Because some of these actions are
complex and for other reasons, it may take a number of years to finally resolve
them. Based upon legal counsel's opinion, management considers that any
liability resulting from the proceedings would not have a material impact on
the financial condition or results of operations of AmSouth.
NOTE 13 -- SHAREHOLDERS' EQUITY
AmSouth offers a Dividend Reinvestment and Common Stock Purchase Plan,
whereby shareholders can reinvest dividends to acquire shares of common stock.
Shareholders may also invest additional cash up to $5,000 per quarter with no
brokerage commissions or fees charged.
On December 18, 1997, AmSouth's Board of Directors (Board) approved a
Stockholder Protection Rights Agreement that extended and updated the existing
plan effective March 13, 1998. Existing Rights outstanding on March 13, 1998,
were redeemed for $355,000, and at the same time, a dividend was declared of
one new Right for each outstanding share of common stock. Each new Right
entitles its registered holder, upon occurrence of certain events, to purchase
from AmSouth one one-hundredth of a share of Series A Preferred Stock, without
par value, for $133.33, subject to adjustment for certain events. The Rights
will be exercisable only if a person or group acquires 15% or more of AmSouth's
common stock or commences a tender offer that will result in such person or
group owning 15% or more of AmSouth's common stock. The Rights may be redeemed
by action of the Board for $.0067 per Right.
On July 18, 1996, AmSouth's Board authorized a plan to repurchase up to five
percent of AmSouth's outstanding shares of common stock as of June 30, 1996, or
approximately 6,300,000 shares, from time to time. The shares will be used
74
<PAGE>
to issue stock under AmSouth's dividend reinvestment and employee benefit plans
or for general corporate purposes. Under this plan, AmSouth purchased 3,712,500
shares at a cost of $74,285,000 during 1996. The remaining 2,587,500 shares were
purchased during the first half of 1997 at a cost of $60,343,000.
On March 20, 1997, AmSouth's Board authorized a three-for-two common stock
split in the form of a 50 percent stock dividend. The stock dividend was paid
April 30, 1997, to shareholders of record as of April 4, 1997. The Board also
approved the repurchase by AmSouth of up to 9,000,000 shares of its common
stock. During 1997 and 1998, AmSouth purchased 3,906,000 and 3,531,000 shares,
respectively, at a cost of $110,267,000 and $136,514,000, respectively, under
this plan.
On March 19, 1998, AmSouth's Board approved a three-for-two common stock
split in the form of a 50 percent stock dividend. The stock dividend was paid
April 30, 1998, to shareholders of record as of April 3, 1998.
At December 31, 1998, there were 1,214,265 shares reserved for issuance
under the Dividend Reinvestment and Common Stock Purchase Plan, 9,015,947
shares reserved for issuance under stock compensation plans (1,989,379 shares
represent stock options outstanding) and 234,842 shares reserved for issuance
under the employee stock purchase plan for a total of 10,465,054 shares.
NOTE 14 -- EARNINGS PER COMMON SHARE
The following table sets forth the computation of earnings per common share
and diluted earnings per common share:
<TABLE>
<CAPTION>
1998 1997 1996
(Dollars in thousands except per share data) -------- -------- --------
<S> <C> <C> <C>
Earnings per common share computation:
Numerator:
Net income........................................ $262,712 $226,167 $182,676
Denominator:
Average common shares outstanding................. 119,384 123,059 127,362
Earnings per common share........................... $ 2.20 $ 1.84 $ 1.43
Diluted earnings per common share computation:
Numerator:
Net income........................................ $262,712 $226,167 $182,676
Add interest on convertible long-term debt (net of
tax)............................................. -0- -0- 90
-------- -------- --------
Adjusted net income.............................. $262,712 $226,167 $182,766
Denominator:
Average common shares outstanding................. 119,384 123,059 127,362
Dilutive shares contingently issuable............. 1,897 1,061 934
Convertible long-term debt assumed converted...... -0- -0- 468
-------- -------- --------
Average diluted common shares outstanding......... 121,281 124,120 128,764
Diluted earnings per common share................... $ 2.17 $ 1.82 $ 1.42
-------- -------- --------
</TABLE>
NOTE 15 -- LONG-TERM INCENTIVE COMPENSATION PLANS
AmSouth has long-term incentive compensation plans which permit the granting
of incentive awards in the form of stock options, restricted stock awards and
stock appreciation rights. Generally, the terms of these plans stipulate that
the exercise price of options may not be less than the fair market value of
AmSouth's common stock at the date the options are granted. Options granted
generally vest one year from the date of the grant. Options granted generally
expire not later than ten years from the date of the grant.
75
<PAGE>
FASB Statement 123 requires pro forma information regarding net income and
earnings per share. This pro forma information has been determined as if
AmSouth had accounted for its employee stock options under the fair value
method of that statement. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1998 and 1997, respectively: a risk-free
interest rate of 5.66% and 6.34%, a dividend yield of 2.34% and 3.33%, a
volatility factor of 17.74% and 19.51%, and a weighted-average expected life of
the options of seven years. The weighted-average fair value of options granted
during 1998 and 1997 was $8.78 and $7.74, respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. AmSouth's pro
forma information follows (in thousands except for earnings per common share
information):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net income:
As reported........................................ $262,712 $226,167 $182,676
Pro forma.......................................... 260,671 224,595 181,064
Earnings per common share:
As reported........................................ $ 2.20 $ 1.84 $ 1.43
Pro forma.......................................... 2.18 1.83 1.42
Diluted earnings per common share:
As reported........................................ $ 2.17 $ 1.82 $ 1.42
Pro forma.......................................... 2.15 1.81 1.41
</TABLE>
The following table summarizes AmSouth's stock option activity and related
information during 1996, 1997 and 1998:
<TABLE>
<CAPTION>
Number of Option Price Weighted-Average
Shares per Share Exercise Price
---------- -------------- ----------------
<S> <C> <C> <C>
Balance at January 1, 1996......... 2,894,929 $ 3.09--$17.78 $11.15
Options exercised.................. (1,270,234) 3.09-- 17.95 10.69
Options forfeited.................. (33,582) 12.78-- 17.95 15.89
Options granted.................... 810,450 17.22-- 21.17 17.99
---------- -------------- ------
Balance at December 31, 1996....... 2,401,563 3.09-- 21.17 13.64
Options exercised.................. (641,424) 3.09-- 17.95 13.06
Options forfeited.................. (39,540) 3.09-- 22.78 20.32
Options granted.................... 507,337 22.05-- 32.04 22.87
---------- -------------- ------
Balance at December 31, 1997....... 2,227,936 7.00-- 32.04 15.79
Options exercised.................. (615,369) 7.00-- 36.38 15.29
Options forfeited.................. (31,513) 7.00-- 37.67 31.77
Options granted.................... 408,325 33.33-- 40.44 36.54
---------- -------------- ------
Balance at December 31, 1998....... 1,989,379 $ 7.00--$40.44 $19.94
========== ============== ======
</TABLE>
76
<PAGE>
Of the options outstanding at December 31, 1998, those granted since January
1, 1998, have a one-year restriction period from the date of grant. All other
options outstanding were exercisable. At December 31, 1998 and 1997, options
exercisable totaled 1,607,271 and 1,746,225, respectively, and had a weighted-
average option price per share of $15.98 and $13.84, respectively.
The following table presents the weighted-average remaining life as of
December 31, 1998, for options outstanding within the stated exercise price
ranges.
<TABLE>
<CAPTION>
Outstanding Exercisable
---------------------------------------- -------------------------
Weighted- Weighted- Weighted-
Exercise Price Average Average Average
Range Per Number of Exercise Remaining Number of Exercise
Share Options Price Life Options Price
- -------------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ 7.00--$ 7.71 141,673 $ 7.35 1.81 years 141,673 $ 7.35
11.78-- 17.95 1,114,947 14.94 6.07 years 1,114,947 14.94
19.22-- 27.21 348,851 22.73 8.17 years 348,851 22.73
32.04-- 40.44 383,908 36.58 9.20 years 1,800 32.04
</TABLE>
AmSouth also has issued common stock as restricted stock awards to key
officers with the restriction that they remain employed with AmSouth for
periods of three years or longer. During 1996, 409,905 restricted shares were
awarded with a weighted-average fair value of $21.29; 17,718 restricted shares
were forfeited and the restrictions were removed on 212,760 shares. During
1997, 105,322 restricted shares were awarded with a weighted-average fair value
of $23.32; 56,362 restricted shares were forfeited and the restrictions were
removed on 92,418 shares. During 1998, 85,815 restricted shares were awarded
with a weighted-average fair value of $36.90; 16,835 restricted shares were
forfeited and the restrictions were removed on 131,986 shares. During 1996,
5,512 restricted shares with a weighted-average fair value of $17.12 were
granted to nonemployee members of the Boards of Directors of AmSouth and its
subsidiaries. The restrictions were removed from 13,819 shares held by
nonemployee members of the Boards of Directors. There were no forfeitures by
nonemployee members of the Boards of Directors during 1996. During 1997, 1,401
restricted shares with a weighted-average fair value of $36.04 were granted to
nonemployee members of the Boards of Directors of AmSouth and its subsidiaries.
The restrictions were removed on 24,975 shares held by nonemployee members of
the Boards of Directors and 19,350 shares were forfeited. During 1998, 651
restricted shares with a weighted-average fair value of $36.00 were granted to
nonemployee members of the Boards of Directors of AmSouth and its subsidiaries.
The restrictions were removed on 4,752 shares held by nonemployee members of
the Boards of Directors and 540 shares were forfeited. At December 31, 1998,
AmSouth had 637,536 shares of common stock outstanding representing restricted
stock awards.
At December 31, 1998, there were no stock appreciation rights outstanding.
In addition, effective January 1, 1997, AmSouth adopted the 1997 Performance
Incentive Plan (PI Plan). The PI Plan permits the granting of cash-based, long-
term incentive opportunities. The amounts that may be earned depend on the
extent to which predetermined performance goals are achieved. To date, there
have been two sets of grants under the plan.
77
<PAGE>
NOTE 16 -- REGULATORY CAPITAL REQUIREMENTS AND RESTRICTIONS
Capital is the primary tool used by regulators to monitor the financial
health of insured banks and savings institutions. The Federal Reserve Board and
the Federal Deposit Insurance Corporation have historically had similar capital
adequacy guidelines involving minimum leverage capital and risk-based capital
requirements. Under the capital adequacy guidelines and the regulatory
framework for prompt corrective action, AmSouth and its banking subsidiary must
meet specific capital guidelines that involve quantitative measures of their
assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The capital amounts and classification are
also subject to qualitative judgments by the regulators about components, risk
weightings and other factors. Based on the risk-based capital rules and
definitions prescribed by the banking regulators, should an institution's
capital ratios decline below predetermined levels, it would become subject to a
series of increasingly restrictive regulatory actions. AmSouth and its
subsidiary bank are required to have core capital (Tier 1) of at least 4% of
risk-weighted assets, total capital of 8% of risk-weighted assets and a
leverage ratio of 3% of adjusted quarterly average assets. Tier 1 capital
consists principally of shareholders' equity, excluding unrealized gains and
losses on securities available-for-sale, less goodwill and certain other
intangibles. Total capital consists of Tier 1 capital plus certain debt
instruments and the reserve for credit losses, subject to limitation. The
regulations also define well capitalized levels of Tier 1 capital, total capital
and leverage as ratios of 6%, 10% and 5%, respectively, for banking entities.
AmSouth's banking subsidiary had Tier 1 capital, total capital and leverage
ratios above the well-capitalized levels at December 31, 1998 and 1997.
Management believes that no changes in condition or events have occurred since
December 31, 1998, which would result in changes to the bank's categories. The
actual capital ratios and amounts for AmSouth and its subsidiary bank are as
follows:
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
Amount Ratio Amount Ratio
(Dollars in thousands) ---------- ----- ---------- -----
<S> <C> <C> <C> <C>
Tier 1 capital:
AmSouth.................................... $1,173,145 6.55% $1,106,995 7.16%
AmSouth Bank............................... 1,481,247 8.30 1,446,633 9.33
---------- ----- ---------- -----
Total capital:
AmSouth.................................... $1,935,794 10.81% $1,605,433 10.38%
AmSouth Bank............................... 1,957,322 10.96 1,625,830 10.49
---------- ----- ---------- -----
Leverage:
AmSouth.................................... $1,173,145 6.00% $1,106,995 6.19%
AmSouth Bank............................... 1,481,247 7.58 1,446,633 8.08
---------- ----- ---------- -----
</TABLE>
Certain restrictions exist regarding the ability of banking subsidiaries to
transfer funds to the parent company as loans, advances or dividends. The
subsidiary bank can initiate dividend payments in 1999, without prior
regulatory approval, of approximately $19,200,000 plus an additional amount
equal to its net profits for 1999, as defined by statute. Substantially all of
the parent company's retained earnings at December 31, 1998 and 1997
represented undistributed earnings of its banking subsidiary.
78
<PAGE>
NOTE 17 -- PENSION AND OTHER EMPLOYEE BENEFIT PLANS
As of December 31, 1998, AmSouth maintained a corporate pension plan, which
covers substantially all regular full-time employees. The pension plan benefits
are based on years of service and the employee's compensation during the last
120 months of employment. AmSouth's funding policy is to contribute an amount
that meets the minimum funding requirements set forth in the Employee
Retirement Income Security Act of 1974, plus such additional amounts as the
corporation determines to be appropriate.
The following table summarizes the change in benefit obligation and plan
assets and the funded status of the plan at December 31:
<TABLE>
<CAPTION>
1998 1997
(Dollars in thousands) -------- --------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at January 1........................... $188,391 $166,997
Service cost.............................................. 6,719 5,702
Interest cost............................................. 13,294 12,699
Actuarial loss............................................ 7,373 14,647
Benefits and expenses paid................................ (11,371) (11,654)
-------- --------
Benefit obligation at December 31........................ 204,406 188,391
-------- --------
Change in plan assets:
Fair value of plan assets at January 1.................... 237,348 183,059
Actual return on plan assets.............................. 27,973 40,216
Company contribution...................................... 3,098 25,727
Benefits and expenses paid................................ (11,371) (11,654)
-------- --------
Fair value of plan assets at December 31................. 257,048 237,348
-------- --------
Funded status of the plan................................. 52,642 48,957
Unrecognized actuarial gain............................... (36,737) (35,096)
Unamortized prior service cost............................ 965 1,505
-------- --------
Prepaid benefit cost..................................... $ 16,870 $ 15,366
======== ========
Assumptions:
Discount rate............................................. 7.00% 7.25%
Expected return on plan assets............................ 9.25 9.00
Rate of compensation increase............................. 5.50 4.50
</TABLE>
Net periodic pension cost includes the following components for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
(In thousands) -------- -------- --------
<S> <C> <C> <C>
Service cost...................................... $ 6,719 $ 5,702 $ 6,010
Interest cost..................................... 13,294 12,699 12,073
Expected return on plan assets.................... (18,959) (17,180) (14,843)
Amortization of prior service cost................ 540 540 540
Amortization of transitional asset................ -0- (1,159) (1,656)
Recognized actuarial gain......................... -0- -0- (28)
-------- -------- --------
Net periodic pension cost........................ $ 1,594 $ 602 $ 2,096
======== ======== ========
</TABLE>
79
<PAGE>
The plan has a portion of its investments in AmSouth common stock. The
number of shares and the market value of the common stock were 316,350 and
$14,433,000, respectively, as of December 31, 1998. Dividends received on
AmSouth common stock totaled $271,000 during 1998.
AmSouth also maintains a thrift plan and an employee stock purchase plan
which cover substantially all regular full-time employees. AmSouth matches
pretax contributions dollar for dollar on the first 6% of base pay that each
employee contributes to the thrift plan. After-tax contributions to the thrift
plan are matched at 50 cents for every dollar contributed by an employee
through the first 6% of base pay. Employees may make both pretax and after-tax
contributions, but no matching contributions are made on any employee
contributions above 6%, with pretax contributions being matched first. All
company-matching contributions are allocated to the AmSouth common stock
investment option. The cost of the thrift plan for the years ended December 31,
1998, 1997 and 1996 was $6,479,000, $6,032,000 and $5,632,000, respectively.
Under the employee stock purchase plan, an employee may invest up to $2,000
each calendar year in purchases of AmSouth common stock and AmSouth will
contribute a matching 25% toward the purchase. Additional purchases of up to
$8,000 may be made on an unmatched basis with no administrative or brokerage
fees charged. Under the employee stock purchase plan, 86,722 and 97,691 shares
of AmSouth common stock were purchased during 1998 and 1997, respectively, with
weighted-average fair values of $38.78 and $26.73, respectively.
In addition, AmSouth sponsors certain postretirement benefit plans. In
accordance with Statement of Financial Accounting Standards No. 106, "Employers
Accounting for Postretirement Benefits Other than Pensions," the effect of
these plans did not have a material impact on the financial condition or
results of operations of AmSouth for the years ended December 31, 1998, 1997
and 1996.
NOTE 18 -- INCOME TAXES
The provisions for income taxes charged to earnings are summarized as
follows:
<TABLE>
<CAPTION>
Years Ended December 31
--------------------------
1998 1997 1996
(In thousands) -------- -------- --------
<S> <C> <C> <C>
Current tax expense:
Federal............................................. $ 91,931 $ 63,336 $ 47,262
State............................................... 9,633 5,179 3,508
-------- -------- --------
101,564 68,515 50,770
-------- -------- --------
Deferred tax expense:
Federal............................................. 36,678 48,473 49,388
State............................................... 4,391 5,535 5,418
-------- -------- --------
41,069 54,008 54,806
-------- -------- --------
$142,633 $122,523 $105,576
======== ======== ========
</TABLE>
80
<PAGE>
The differences between the actual income tax expense and the amount
computed by applying the statutory federal income tax rate to income before
income taxes were as follows:
<TABLE>
<CAPTION>
Years Ended December 31
----------------------------
1998 1997 1996
(In thousands) -------- -------- --------
<S> <C> <C> <C>
Tax at federal income tax rate.................. $141,871 $122,041 $100,888
State and local income taxes, net of federal tax
benefits....................................... 9,116 6,964 5,802
Goodwill amortization........................... 5,565 5,581 5,558
Tax exempt interest............................. (3,478) (4,481) (6,169)
Bank owned life insurance....................... (6,527) (3,972) -0-
Other........................................... (3,914) (3,610) (503)
-------- -------- --------
$142,633 $122,523 $105,576
======== ======== ========
</TABLE>
The significant temporary differences which create deferred tax assets and
liabilities at December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
(In thousands) --------- ---------
<S> <C> <C>
Deferred tax assets:
Accrued expenses........................................ $ 3,811 $ 6,466
Loan loss reserves...................................... 66,250 67,378
Interest income on nonaccruing loans.................... 2,306 1,555
Other................................................... 7,031 7,756
--------- ---------
79,398 83,155
--------- ---------
Deferred tax liabilities:
Employee benefits....................................... 1,655 (798)
Leasing activities...................................... (159,053) (115,123)
Depreciation............................................ (5,460) (8,071)
Discount accretion...................................... (1,275) (1,612)
Recapture tax loan loss reserves........................ (2,166) (6,384)
Statement 115 equity adjustment......................... (11,547) (16,101)
Other................................................... (5,791) (7,255)
--------- ---------
(183,637) (155,344)
--------- ---------
Net deferred tax liability............................. $(104,239) $ (72,189)
========= =========
</TABLE>
Income taxes paid were $82,737,000, $72,428,000 and $59,054,000, for the
years ended December 31, 1998, 1997 and 1996, respectively. Applicable income
tax expense of $3,131,000, $2,964,000 and $2,946,000 on securities gains and
losses for the years ended December 31, 1998, 1997 and 1996, respectively, is
included in the provision for income taxes.
81
<PAGE>
NOTE 19 -- OTHER NONINTEREST REVENUES AND OTHER NONINTEREST EXPENSES
The components of other noninterest revenues and other noninterest expenses
are as follows:
<TABLE>
<CAPTION>
Years Ended December 31
--------------------------
1998 1997 1996
(In thousands) -------- -------- --------
<S> <C> <C> <C>
Other noninterest revenues:
Gains on sale of businesses......................... $ 27,974 $ -0- $ -0-
Bank owned life insurance policies.................. 18,649 11,349 -0-
Mortgage income..................................... 18,346 6,583 3,087
Gains on sale of available-for-sale securities...... 8,336 7,883 7,530
Other portfolio income.............................. 2,013 859 1,416
Other............................................... 68,935 55,190 54,178
-------- -------- --------
$144,253 $ 81,864 $ 66,211
======== ======== ========
Other noninterest expenses:
Postage and office supplies......................... $ 24,013 $ 22,199 $ 23,072
Communications...................................... 22,926 20,665 16,466
Marketing........................................... 21,306 18,055 16,755
Amortization of intangibles......................... 16,438 16,556 16,642
SAIF assessment..................................... -0- -0- 24,196
Other............................................... 88,650 86,238 95,770
-------- -------- --------
$173,333 $163,713 $192,901
======== ======== ========
</TABLE>
NOTE 20 -- BUSINESS SEGMENT INFORMATION
AmSouth has three reportable segments: Consumer Banking, Commercial Banking
and Capital Management. Consumer Banking delivers a full range of financial
services to individuals and small businesses. Services include loan products
such as residential mortgages, equity lending, credit cards, and loans for
automobile and other personal financing needs, and various products designed to
meet the credit needs of small businesses. In addition, Consumer Banking offers
various deposit products that meet customers' savings and transaction needs.
Commercial Banking meets corporate and middle market customers' needs with a
comprehensive array of credit, treasury management, international, and capital
market services. Included among these are several specialty services such as
real estate finance, asset based lending, commercial leasing, and health care
banking. Capital Management is comprised of client fiduciary services and
broker-dealer services and provides primarily fee-based income. This area
includes not only traditional trust services, but also a substantial selection
of investment management services including our proprietary mutual fund family.
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 corporate expenses such
as corporate overhead and goodwill amortization. BOLI income is included in
Treasury & Other for 1998 and 1997. In addition, Treasury & Other includes the
gain on sale of businesses in 1998 and a one time SAIF assessment in 1996. All
revenue and expenses related to the bond administration and stock transfer
businesses, sold in 1998, are included in Treasury & Other for all years shown.
Measurement of Segment Profit or Loss and Segment Assets
The bank evaluates performance and allocates resources based on profit or
loss from operations. The accounting policies of the reportable segments are
the same as those described in Note 1 except that AmSouth uses matched maturity
transfer pricing to fairly and consistently assign funds costs to assets and
earnings credits to liabilities with a corresponding offset in Treasury &
Other. AmSouth allocates noninterest expenses based on various activity
statistics. AmSouth is disclosing net interest income in lieu of interest
income. Performance is assessed primarily on net interest income by the chief
operating decision makers.
82
<PAGE>
Excluding the internal funding, AmSouth does not have intracompany revenues or
expenses. Noninterest expenses are allocated to match revenues. The provision
for loan losses for each segment reflects the net charge-offs in each segment.
The difference between net charge-offs and the provision is included in Treasury
& Other. Additionally, segment income tax expense is calculated using the
marginal tax rate. The difference between the marginal and effective tax rate is
included in Treasury & Other. Management reviews average assets by segment.
AmSouth implemented a new internal performance reporting model near the end
of 1997. Accordingly, segment information for 1997 and 1996 was restated to
reflect this new methodology. AmSouth's segments are not necessarily comparable
with similar information for any other financial institution.
<TABLE>
<CAPTION>
Consumer Commercial Capital Treasury &
Banking Banking Management Other Total
(In thousands) ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
1998
Net interest income from
external customers..... $ 191,662 $ 378,851 $(2,498) $ 130,955 $ 698,970
Internal funding........ 245,868 (159,757) 5,097 (91,208) -0-
---------- ---------- ------- ---------- -----------
Net interest income..... 437,530 219,094 2,599 39,747 698,970
Noninterest revenues.... 149,765 34,010 94,653 68,198 346,626
---------- ---------- ------- ---------- -----------
Total revenues.......... 587,295 253,104 97,252 107,945 1,045,596
Provision for loan
losses................. 38,569 7,786 -0- 11,779 58,134
Noninterest expenses.... 341,043 95,783 67,246 78,045 582,117
---------- ---------- ------- ---------- -----------
Income before income
taxes.................. 207,683 149,535 30,006 18,121 405,345
Income taxes............ 78,089 56,225 11,282 (2,963) 142,633
---------- ---------- ------- ---------- -----------
Segment net income...... $ 129,594 $ 93,310 $18,724 $ 21,084 $ 262,712
========== ========== ======= ========== ===========
Average assets.......... $7,601,718 $5,770,319 $19,335 $6,132,834 $19,524,206
---------- ---------- ------- ---------- -----------
1997
Net interest income from
external customers..... $ 200,547 $ 351,323 $(2,023) $ 126,430 $ 676,277
Internal funding........ 235,949 (143,431) 5,030 (97,548) -0-
---------- ---------- ------- ---------- -----------
Net interest income..... 436,496 207,892 3,007 28,882 676,277
Noninterest revenues.... 130,225 25,958 80,117 29,704 266,004
---------- ---------- ------- ---------- -----------
Total revenues.......... 566,721 233,850 83,124 58,586 942,281
Provision for loan
losses................. 64,416 2,837 -0- 146 67,399
Noninterest expenses.... 318,046 85,323 57,293 65,530 526,192
---------- ---------- ------- ---------- -----------
Income before income
taxes.................. 184,259 145,690 25,831 (7,090) 348,690
Income taxes............ 69,281 54,780 9,712 (11,250) 122,523
---------- ---------- ------- ---------- -----------
Segment net income...... $ 114,978 $ 90,910 $16,119 $ 4,160 $ 226,167
========== ========== ======= ========== ===========
Average assets.......... $7,528,821 $5,243,203 $19,050 $5,251,069 $18,042,143
---------- ---------- ------- ---------- -----------
1996
Net interest income from
external customers..... $ 180,157 $ 315,593 $(2,125) $ 158,756 $ 652,381
Internal funding........ 239,049 (114,674) 5,111 (129,486) -0-
---------- ---------- ------- ---------- -----------
Net interest income..... 419,206 200,919 2,986 29,270 652,381
Noninterest revenues.... 119,812 25,920 72,623 16,919 235,274
---------- ---------- ------- ---------- -----------
Total revenues.......... 539,018 226,839 75,609 46,189 887,655
Provision for loan
losses................. 61,038 3,536 -0- 597 65,171
Noninterest expenses.... 307,237 79,591 53,132 94,272 534,232
---------- ---------- ------- ---------- -----------
Income before income
taxes.................. 170,743 143,712 22,477 (48,680) 288,252
Income taxes............ 64,199 54,036 8,451 (21,110) 105,576
---------- ---------- ------- ---------- -----------
Segment net income...... $ 106,544 $ 89,676 $14,026 $ (27,570) $ 182,676
========== ========== ======= ========== ===========
Average assets.......... $7,625,216 $4,690,513 $19,889 $5,654,003 $17,989,621
========== ========== ======= ========== ===========
</TABLE>
83
<PAGE>
NOTE 21 -- CONDENSED PARENT COMPANY INFORMATION
Statement of Condition
<TABLE>
<CAPTION>
December 31
---------------------
1998 1997
(In thousands) ---------- ----------
<S> <C> <C>
ASSETS
Investment in subsidiaries.............................. $1,726,857 $1,719,883
Securities purchased from bank subsidiary under
agreements to resell................................... 61,315 67,318
Available-for-sale securities........................... 45,611 -0-
Other assets............................................ 14,787 16,632
---------- ----------
$1,848,570 $1,803,833
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Commercial paper........................................ $ 10,039 $ 8,386
Subordinated debt....................................... 399,341 399,102
Other borrowed funds.................................... 6,389 6,619
Accrued interest payable and other liabilities.......... 5,172 4,481
---------- ----------
Total liabilities...................................... 420,941 418,588
Shareholders' equity.................................... 1,427,629 1,385,245
---------- ----------
$1,848,570 $1,803,833
========== ==========
</TABLE>
Statement of Earnings
<TABLE>
<CAPTION>
Years Ended December 31
--------------------------
1998 1997 1996
(In thousands) -------- -------- --------
<S> <C> <C> <C>
INCOME
Dividends from subsidiaries....................... $263,000 $246,241 $125,809
Interest and other................................ 7,980 3,429 5,761
-------- -------- --------
270,980 249,670 131,570
-------- -------- --------
EXPENSES
Interest.......................................... 31,012 31,266 31,059
Other............................................. 4,177 5,317 4,922
-------- -------- --------
35,189 36,583 35,981
-------- -------- --------
Income before income taxes and equity in
undistributed earnings of subsidiaries............ 235,791 213,087 95,589
Income tax credit.................................. 9,326 11,565 10,462
-------- -------- --------
Income before equity in undistributed earnings of
subsidiaries...................................... 245,117 224,652 106,051
Equity in undistributed earnings of subsidiaries... 17,595 1,515 76,625
-------- -------- --------
NET INCOME........................................ $262,712 $226,167 $182,676
======== ======== ========
</TABLE>
84
<PAGE>
Statement of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31
-------------------------------
1998 1997 1996
(In thousands) --------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................... $ 262,712 $ 226,167 $ 182,676
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of goodwill.................... 2,386 2,386 2,386
Other amortization and depreciation......... 1,270 1,615 1,375
Net decrease in accrued interest receivable
and other assets........................... 62 2,817 1,116
Net (decrease) increase in accrued expenses
and other liabilities...................... (1,887) 965 4,243
Equity in undistributed earnings of
subsidiaries............................... (17,595) (1,515) (76,625)
--------- --------- ---------
Net cash provided by operating activities.. 246,948 232,435 115,171
--------- --------- ---------
INVESTING ACTIVITIES
Net (increase) decrease in available-for-sale
securities.................................. (45,611) -0- 55,148
Net decrease in short-term investments....... 12,917 9,227 8,055
--------- --------- ---------
Net cash (used) provided by investing
activities................................ (32,694) 9,227 63,203
--------- --------- ---------
FINANCING ACTIVITIES
Net increase in commercial paper............. 1,653 1,586 4,949
Net decrease in other borrowed funds......... (230) (300) (130)
Payments on long-term debt................... -0- -0- (150)
Cash dividends paid.......................... (101,563) (93,307) (91,378)
Cash payment for special rights and warrants
on common stock............................. (355) -0- -0-
Proceeds from employee stock plans and
dividend reinvestment plan.................. 22,529 21,270 22,386
Purchase of common stock..................... (136,514) (170,610) (113,877)
--------- --------- ---------
Net cash used by financing activities...... (214,480) (241,361) (178,200)
--------- --------- ---------
(Decrease) increase in cash................... (226) 301 174
Cash at beginning of year..................... 802 501 327
--------- --------- ---------
Cash at end of year........................... $ 576 $ 802 $ 501
========= ========= =========
</TABLE>
NOTE 22 -- SUBSEQUENT EVENT
On March 1, 1999, AmSouth issued $175,000,000 of 6.125% Subordinated Notes
due March 1, 2009, at a price of 99.175%. The net proceeds to AmSouth after
commissions totaled $172,419,000. The proceeds from this issuance will be
partially utilized to repay $100,000,000 of Subordinated Capital Notes maturing
on May 1, 1999. The remaining proceeds will be used for general corporate
purposes.
85
<PAGE>
NOTE 23 -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Selected quarterly results of operations for the four quarters ended
December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------------- -----------------------------------
(In thousands except per Fourth Third Second First Fourth Third Second First
share data) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- ------------------------ -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income......... $365,907 $372,869 $368,283 $355,482 $348,216 $346,283 $346,621 $336,668
Interest expense........ 186,740 199,355 193,661 183,815 178,194 176,821 176,995 169,501
Net interest income..... 179,167 173,514 174,622 171,667 170,022 169,462 169,626 167,167
Provision for loan
losses................. 12,300 8,000 23,434 14,400 15,780 16,102 17,800 17,717
Income before income
taxes.................. 104,446 103,395 101,346 96,158 90,090 87,822 86,270 84,508
Net income.............. 68,375 66,844 65,470 62,023 58,892 56,802 55,900 54,573
Earnings per common
share.................. .58 .56 .55 .51 .49 .47 .45 .43
Diluted earnings per
common share........... .57 .55 .54 .51 .48 .46 .45 .43
Cash dividends declared
per common share....... .25 .20 .20 .20 .20 .19 .19 .19
Market price range:
High.................... 45.63 41.88 41.88 40.67 37.67 32.58 26.92 24.28
Low..................... 32.13 33.75 37.56 33.00 30.67 25.50 21.44 21.11
</TABLE>
- --------
Note: Quarterly amounts may not add to year-to-date amounts due to rounding.
NOTE 24 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
For purposes of this disclosure, the estimated fair value of financial
instruments with immediate and shorter-term maturities (generally 90 days or
less) is assumed to be the same as the recorded book value. These instruments
include the consolidated statement of condition lines captioned cash and due
from banks, federal funds sold and securities purchased under agreements to
resell, other interest-earning assets, customers' acceptance liability, federal
funds purchased and securities sold under agreements to repurchase, other
borrowed funds, and acceptances outstanding.
The carrying amount and estimated fair value of other financial instruments
not disclosed elsewhere in the consolidated statement of condition at December
31 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
Carrying Estimated Carrying Estimated
(In thousands) Amount Fair Value Amount Fair Value
- -------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial assets:
Net loans................... $12,693,788 $12,756,868 $12,058,471 $12,100,554
Mortgage loans held for
sale....................... 148,461 148,461 80,820 80,820
----------- ----------- ----------- -----------
Financial liabilities:
Deposits.................... 13,283,804 13,339,976 12,945,197 12,959,864
Long-term FHLB advances..... 2,500,117 2,688,007 1,198,146 1,213,058
Other long-term debt........ 739,642 775,209 435,078 455,161
----------- ----------- ----------- -----------
Off-balance sheet:
Off-balance sheet financial
instruments (net receivable
position).................. -- 14,154 -- 14,544
Commitments to extend credit
and standby letters of
credit..................... -- (4,008) -- (3,108)
----------- ----------- ----------- -----------
</TABLE>
86
<PAGE>
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" (Statement 107), requires the disclosure of
estimated fair values for all financial instruments, both assets and
liabilities on and off-balance sheet, for which it is practicable to estimate
their value along with pertinent information on those financial instruments for
which such values are not available.
Fair value estimates are made at a specific point in time and are based on
relevant market information which is continuously changing. Because no quoted
market prices exist for a significant portion of AmSouth's financial
instruments, fair values for such instruments are based on management's
assumptions with respect to future economic conditions, estimated discount
rates, estimates of the amount and timing of future cash flows, expected loss
experience and other factors. These estimates are subjective in nature
involving uncertainties and matters of significant judgment; therefore, they
cannot be determined with precision. Changes in the assumptions could
significantly affect the estimates.
Statement 107 fair value estimates include certain on and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. For example, AmSouth has a substantial trust department
that contributes net fee income annually. The trust department is not
considered a financial instrument, and its value has not been incorporated into
the fair value estimates. Other significant assets and liabilities that are not
considered financial assets or liabilities include the mortgage banking
operation, brokerage network, premises and equipment, core deposit intangible,
and goodwill. In addition, the tax ramifications related to the realization of
the unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in the estimates. As a result, the
Statement 107 fair value disclosures should not be considered an indication of
the fair value of the company taken as a whole.
The following methods and assumptions were used by AmSouth in estimating its
fair value disclosures for financial instruments:
Loans The fair values of variable rate loans that reprice frequently and
have no significant change in credit risk are assumed to approximate carrying
amounts. For credit card loans and equity lines of credit, the carrying value
reduced by an estimate of credit losses inherent in the portfolio is a
reasonable estimate of fair value. The fair values for other loans (e.g.,
commercial and industrial, commercial real estate, certain mortgage loans and
consumer loans) are estimated using discounted cash flow analyses, using
interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality and estimates of maturity based on
AmSouth's historical experience. The carrying amount of accrued interest
receivable approximates its fair value.
Securities and Mortgage Loans Held for Sale Fair values for securities and
mortgage loans held for sale are based on quoted market prices, where
available. Where quoted market prices are not available, fair values are based
on quoted market prices of similar instruments, adjusted for any significant
differences between the quoted instruments and the instruments being valued.
Commitments to Extend Credit and Standby Letters of Credit The fair value of
commitments to extend credit is estimated based on the amount of unamortized
deferred loan commitment fees. The fair value of letters of credit is based on
the amount of unearned fees plus the estimated cost to terminate the letters of
credit.
Off-balance Sheet Instruments The fair value of interest rate swaps,
financial futures and interest rate caps and floors are obtained from dealer
quotes. These values represent the estimated amount the company would receive
or pay to terminate the contracts or agreements, taking into account current
interest rates and, when appropriate, the current creditworthiness of the
counterparties.
Deposit Liabilities The fair value of deposits with no stated maturity, such
as noninterest-bearing demand deposits, savings accounts and money market and
interest-bearing checking accounts is, by definition, equal to the amount
payable on demand (carrying amount). The fair values for variable rate fixed-
term money market accounts and certificates of deposit approximate their
carrying amounts. Fair values for fixed rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest rates
currently being offered on certificates of deposit to a schedule of aggregated
expected monthly maturities on time deposits.
Long-term Borrowings The fair values of long-term borrowings (other than
deposits) are estimated using discounted cash flow analyses, based on AmSouth's
current incremental borrowing rates for similar types of borrowing
arrangements.
87
<PAGE>
Exhibit 21
AMSOUTH BANCORPORATION
LIST OF SUBSIDIARIES
The following is a list of all subsidiaries of AmSouth Bancorporation and the
jurisdiction in which they were organized. Each subsidiary does business under
its own name.
Name Jurisdiction Where Organized
---- ----------------------------
ALABANC PROPERTIES, INC. Delaware
AMSOUTH BANK Alabama
AmSouth Capital Corporation Delaware
AmSouth Finance Corporation Alabama
AmSouth Leasing Corporation Alabama
AmSouth Leasing, Ltd. Alabama
AmSouth Insurance Agency, Inc. Florida
AmSouth Investment Services, Inc. Alabama
AmSouth Retirement Services, Inc. Florida
AmSouth Riverchase, Inc. Alabama
Cahaba Holdings, Inc. Delaware
Cahaba Corporation Delaware
Fifth Avenue Realty Company (unincorporated joint venture)
FirstGulf Insurance Agency, Inc. Alabama
Five Points Capital Advisors, Inc. Alabama
FMLS, Inc. Tennessee
Fortune Mortgage Corporation Florida
National Properties and Mining Company, Inc. Delaware
OakBrook Investments, LLC Delaware
Rockhaven Asset Management, LLC Delaware
Sawgrass Asset Management LLC Delaware
Service Mortgage and Insurance Agency, Inc. Florida
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following Registration
Statements of AmSouth Bancorporation and in the related Prospectuses of our
report dated January 29, 1999, with respect to the consolidated financial
statements and schedules of AmSouth Bancorporation and subsidiaries incorporated
by reference in this Annual Report (Form 10-K) for the year ended December 31,
1998:
Form S-3 No. 33-55683 pertaining to the Dividend Reinvestment and Common
Stock Purchase Plan;
Form S-8 No. 33-52243 pertaining to the assumption by AmSouth Bancorporation
of FloridaBank Stock Option Plan and FloridaBank Stock Option Plan -
1993;
Form S-8 No. 33-52113 pertaining to the 1989 Long Term Incentive
Compensation Plan;
Form S-8 No. 33-35218 pertaining to the 1989 Long Term Incentive
Compensation Plan;
Form S-8 No. 33-37905 pertaining to the AmSouth Bancorporation Thrift Plan;
Form S-8 No. 33-9368 pertaining to the Long Term Incentive Compensation
Plan;
Form S-8 No. 33-2927 (as amended) pertaining to the Employee Stock Purchase
Plan;
Form S-8 No. 2-97464 pertaining to the Long Term Incentive Compensation
Plan;
Form S-3 No. 33-35280 pertaining to the Dividend Reinvestment and Common
Stock Purchase Plan;
Form S-8 No. 33-19016 pertaining to the Long Term Incentive Compensation
Plan;
Form S-8 No. 33-58777 pertaining to the Director Restricted Stock Plan;
Form S-8 No. 333-02099 pertaining to the AmSouth Bancorporation Thrift Plan;
Form S-8 No. 333-05631 pertaining to the AmSouth Bancorporation 1996 Long
Term Incentive Compensation Plan;
Form S-8 No. 333-27107 pertaining to the AmSouth Bancorporation Employee
Stock Purchase Plan;
Form S-8 No. 333-41599 pertaining to the Amsouth Bancorporation Deferred
Compensation Plan and the Amended and Restated Deferred Compensation Plan
for Directors of AmSouth Bancorporation;
Form S-3 No. 333-44263 pertaining to the AmSouth Bancorporation Shelf
Registration Statement; and
Form S-8 No. 33-48218 pertaining to the Long Term Incentive Compensation
Plan.
/s/ ERNST & YOUNG LLP
Birmingham, Alabama
March 25, 1999
<PAGE>
DIRECTOR'S
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of AmSouth
Bancorporation, a Delaware corporation ("Company"), by his execution hereof or
upon an identical counterpart hereof, does hereby constitute and appoint Stephen
A. Yoder, John W. Hopper or Carl L. Gorday and any of them, his true and lawful
attorney-in-fact and agent, for him and in his name, place and stead, to execute
and sign the Annual Report on Form 10-K for the year ended December 31, 1998 to
be filed by the Company with the Securities and Exchange Commission, and,
further, to execute and sign any and all amendments to such Form 10-K and any
and all other documents in connection therewith, and to cause any and all such
documents to be filed with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all the acts of said attorney-in-
fact and agent which he may lawfully do in the premises or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 1st day
of March, 1999.
/s/ J. HAROLD CHANDLER
----------------------
J. HAROLD CHANDLER
<PAGE>
DIRECTOR'S
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of AmSouth
Bancorporation, a Delaware corporation ("Company"), by his execution hereof or
upon an identical counterpart hereof, does hereby constitute and appoint Stephen
A. Yoder, John W. Hopper or Carl L. Gorday and any of them, his true and lawful
attorney-in-fact and agent, for him and in his name, place and stead, to execute
and sign the Annual Report on Form 10-K for the year ended December 31, 1998 to
be filed by the Company with the Securities and Exchange Commission, and,
further, to execute and sign any and all amendments to such Form 10-K and any
and all other documents in connection therewith, and to cause any and all such
documents to be filed with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all the acts of said attorney-in-
fact and agent which he may lawfully do in the premises or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 26th day
of February, 1999.
/s/JAMES E. DALTON, JR.
-----------------------
JAMES E. DALTON, JR.
<PAGE>
DIRECTOR'S
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of AmSouth
Bancorporation, a Delaware corporation ("Company"), by his execution hereof or
upon an identical counterpart hereof, does hereby constitute and appoint Stephen
A. Yoder, John W. Hopper or Carl L. Gorday and any of them, his true and lawful
attorney-in-fact and agent, for him and in his name, place and stead, to execute
and sign the Annual Report on Form 10-K for the year ended December 31, 1998 to
be filed by the Company with the Securities and Exchange Commission, and,
further, to execute and sign any and all amendments to such Form 10-K and any
and all other documents in connection therewith, and to cause any and all such
documents to be filed with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all the acts of said attorney-in-
fact and agent which he may lawfully do in the premises or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 1st day
of March, 1999.
/s/RODNEY C. GILBERT
----------------------
RODNEY C. GILBERT
<PAGE>
DIRECTOR'S
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of AmSouth
Bancorporation, a Delaware corporation ("Company"), by his execution hereof or
upon an identical counterpart hereof, does hereby constitute and appoint Stephen
A. Yoder, John W. Hopper or Carl L. Gorday and any of them, his true and lawful
attorney-in-fact and agent, for him and in his name, place and stead, to execute
and sign the Annual Report on Form 10-K for the year ended December 31, 1998 to
be filed by the Company with the Securities and Exchange Commission, and,
further, to execute and sign any and all amendments to such Form 10-K and any
and all other documents in connection therewith, and to cause any and all such
documents to be filed with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all the acts of said attorney-in-
fact and agent which he may lawfully do in the premises or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 1st day
of March, 1999.
/s/ELMER B. HARRIS
----------------------
ELMER B. HARRIS
<PAGE>
DIRECTOR'S
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of AmSouth
Bancorporation, a Delaware corporation ("Company"), by his execution hereof or
upon an identical counterpart hereof, does hereby constitute and appoint Stephen
A. Yoder, John W. Hopper or Carl L. Gorday and any of them, her true and lawful
attorney-in-fact and agent, for her and in her name, place and stead, to execute
and sign the Annual Report on Form 10-K for the year ended December 31, 1998 to
be filed by the Company with the Securities and Exchange Commission, and,
further, to execute and sign any and all amendments to such Form 10-K and any
and all other documents in connection therewith, and to cause any and all such
documents to be filed with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all the acts of said attorney-in-
fact and agent which he may lawfully do in the premises or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand this 1st day
of March, 1999.
/s/VICTORIA B. JACKSON
----------------------
VICTORIA B. JACKSON
<PAGE>
DIRECTOR'S
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of AmSouth
Bancorporation, a Delaware corporation ("Company"), by his execution hereof or
upon an identical counterpart hereof, does hereby constitute and appoint Stephen
A. Yoder, John W. Hopper or Carl L. Gorday and any of them, his true and lawful
attorney-in-fact and agent, for him and in his name, place and stead, to execute
and sign the Annual Report on Form 10-K for the year ended December 31, 1998 to
be filed by the Company with the Securities and Exchange Commission, and,
further, to execute and sign any and all amendments to such Form 10-K and any
and all other documents in connection therewith, and to cause any and all such
documents to be filed with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all the acts of said attorney-in-
fact and agent which he may lawfully do in the premises or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 1st day
of March, 1999.
/s/RONALD L. KUEHN, JR.
-----------------------
RONALD L. KUEHN, JR.
<PAGE>
DIRECTOR'S
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of AmSouth
Bancorporation, a Delaware corporation ("Company"), by his execution hereof or
upon an identical counterpart hereof, does hereby constitute and appoint Stephen
A. Yoder, John W. Hopper or Carl L. Gorday and any of them, his true and lawful
attorney-in-fact and agent, for him and in his name, place and stead, to execute
and sign the Annual Report on Form 10-K for the year ended December 31, 1998 to
be filed by the Company with the Securities and Exchange Commission, and,
further, to execute and sign any and all amendments to such Form 10-K and any
and all other documents in connection therewith, and to cause any and all such
documents to be filed with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all the acts of said attorney-in-
fact and agent which he may lawfully do in the premises or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 1st day
of March, 1999.
/s/JAMES R. MALONE
----------------------
JAMES R. MALONE
<PAGE>
DIRECTOR'S
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of AmSouth
Bancorporation, a Delaware corporation ("Company"), by his execution hereof or
upon an identical counterpart hereof, does hereby constitute and appoint Stephen
A. Yoder, John W. Hopper or Carl L. Gorday and any of them, his true and lawful
attorney-in-fact and agent, for him and in his name, place and stead, to execute
and sign the Annual Report on Form 10-K for the year ended December 31, 1998 to
be filed by the Company with the Securities and Exchange Commission, and,
further, to execute and sign any and all amendments to such Form 10-K and any
and all other documents in connection therewith, and to cause any and all such
documents to be filed with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all the acts of said attorney-in-
fact and agent which he may lawfully do in the premises or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 1st day
of March, 1999.
/s/FRANCIS A. NEWMAN
----------------------
FRANCIS A. NEWMAN
<PAGE>
DIRECTOR'S
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of AmSouth
Bancorporation, a Delaware corporation ("Company"), by his execution hereof or
upon an identical counterpart hereof, does hereby constitute and appoint Stephen
A. Yoder, John W. Hopper or Carl L. Gorday and any of them, his true and lawful
attorney-in-fact and agent, for him and in his name, place and stead, to execute
and sign the Annual Report on Form 10-K for the year ended December 31, 1998 to
be filed by the Company with the Securities and Exchange Commission, and,
further, to execute and sign any and all amendments to such Form 10-K and any
and all other documents in connection therewith, and to cause any and all such
documents to be filed with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all the acts of said attorney-in-
fact and agent which he may lawfully do in the premises or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 27th day
of February, 1999.
/s/CLAUDE B. NIELSEN
----------------------
CLAUDE B. NIELSEN
<PAGE>
DIRECTOR'S
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of AmSouth
Bancorporation, a Delaware corporation ("Company"), by his execution hereof or
upon an identical counterpart hereof, does hereby constitute and appoint Stephen
A. Yoder, John W. Hopper or Carl L. Gorday and any of them, his true and lawful
attorney-in-fact and agent, for him and in his name, place and stead, to execute
and sign the Annual Report on Form 10-K for the year ended December 31, 1998 to
be filed by the Company with the Securities and Exchange Commission, and,
further, to execute and sign any and all amendments to such Form 10-K and any
and all other documents in connection therewith, and to cause any and all such
documents to be filed with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all the acts of said attorney-in-
fact and agent which he may lawfully do in the premises or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 1st day
of March, 1999.
/s/BENJAMIN F. PAYTON
----------------------
BENJAMIN F. PAYTON
<PAGE>
DIRECTOR'S AND OFFICER'S
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and Officer
of AmSouth Bancorporation, a Delaware corporation ("Company"), by his execution
hereof or upon an identical counterpart hereof, does hereby constitute and
appoint Stephen A. Yoder, John W. Hopper or Carl L. Gorday and any of them, his
true and lawful attorney-in-fact and agent, for him and in his name, place and
stead, to execute and sign the Annual Report on Form 10-K for the year ended
December 31, 1998 to be filed by the Company with the Securities and Exchange
Commission, and, further, to execute and sign any and all amendments to such
Form 10-K and any and all other documents in connection therewith, and to cause
any and all such documents to be filed with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as
the undersigned might or could do in person, hereby ratifying and confirming all
the acts of said attorney-in-fact and agent which he may lawfully do in the
premises or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 1st day
of March, 1999.
/s/C. DOWD RITTER
----------------------
C. DOWD RITTER
<PAGE>
DIRECTOR'S
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of AmSouth
Bancorporation, a Delaware corporation ("Company"), by his execution hereof or
upon an identical counterpart hereof, does hereby constitute and appoint Stephen
A. Yoder, John W. Hopper or Carl L. Gorday and any of them, his true and lawful
attorney-in-fact and agent, for him and in his name, place and stead, to execute
and sign the Annual Report on Form 10-K for the year ended December 31, 1998 to
be filed by the Company with the Securities and Exchange Commission, and,
further, to execute and sign any and all amendments to such Form 10-K and any
and all other documents in connection therewith, and to cause any and all such
documents to be filed with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all the acts of said attorney-in-
fact and agent which he may lawfully do in the premises or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 24th day
of February, 1999.
/s/HERBERT A. SKLENAR
----------------------
HERBERT A. SKLENAR
<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 8, AND TABLES 2, 16, 18 AND 19 OF
ITEM 7 OF THE AMSOUTH BANCORPORATION FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 619,599
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,609
<TRADING-ASSETS> 4,144
<INVESTMENTS-HELD-FOR-SALE> 3,029,372
<INVESTMENTS-CARRYING> 2,147,044
<INVESTMENTS-MARKET> 2,162,102
<LOANS> 12,869,863
<ALLOWANCE> 176,075
<TOTAL-ASSETS> 19,901,679
<DEPOSITS> 13,283,804
<SHORT-TERM> 1,570,973
<LIABILITIES-OTHER> 379,514
<LONG-TERM> 3,239,759
0
0
<COMMON> 134,950
<OTHER-SE> 1,292,679
<TOTAL-LIABILITIES-AND-EQUITY> 19,901,679
<INTEREST-LOAN> 1,085,846
<INTEREST-INVEST> 370,534
<INTEREST-OTHER> 6,161
<INTEREST-TOTAL> 1,462,541
<INTEREST-DEPOSIT> 499,039
<INTEREST-EXPENSE> 763,571
<INTEREST-INCOME-NET> 698,970
<LOAN-LOSSES> 58,134
<SECURITIES-GAINS> 8,336
<EXPENSE-OTHER> 582,117
<INCOME-PRETAX> 405,345
<INCOME-PRE-EXTRAORDINARY> 405,345
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 262,712
<EPS-PRIMARY> 2.20
<EPS-DILUTED> 2.17
<YIELD-ACTUAL> 3.92
<LOANS-NON> 66,072
<LOANS-PAST> 23,832
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 179,197
<CHARGE-OFFS> 69,265
<RECOVERIES> 22,909
<ALLOWANCE-CLOSE> 176,075
<ALLOWANCE-DOMESTIC> 133,840
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 42,235
</TABLE>
