<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2000 Commission file number 1-7476
AmSouth Bancorporation
(Exact Name of registrant as specified in its charter)
Delaware 63-0591257
(State or other jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
AmSouth--Sonat Tower
1900 Fifth Avenue North
Birmingham, Alabama 35203
(Address of principal executive offices) (Zip Code)
(205) 320-7151
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
As of October 31, 2000, AmSouth Bancorporation had 375,326,448 shares of
common stock outstanding.
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<PAGE>
AMSOUTH BANCORPORATION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
----
<C> <C> <S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statement of Condition--September 30,
2000, December 31, 1999, and September 30,
1999........................................... 1
Consolidated Statement of Earnings--Three months
and nine months ended September 30, 2000 and
1999........................................... 2
Consolidated Statement of Shareholders' Equity--
Nine months ended September 30, 2000........... 3
Consolidated Statement of Cash Flows--Nine months
ended September 30, 2000 and 1999.............. 4
Notes to Consolidated Financial Statements........ 5
Independent Accountants' Review Report............ 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.................................... 23
Part II. Other Information
Item 1. Legal Proceedings................................. 23
Item 6. Exhibits and Reports on Form 8-K.................. 23
Signatures ......................................................... 24
Exhibit Index....................................................... 25
</TABLE>
Forward-Looking Information. This Quarterly Report on Form 10-Q contains
certain forward-looking statements (as defined in the Private Securities
Litigation Reform Act of 1995) based on current management expectations.
AmSouth's actual results could differ materially from the expectations
expressed in the forward-looking statements. Factors that could cause future
results to vary from current management expectations include, but are not
limited to: the integration of the former First American franchise;
legislation; general economic conditions, especially in the Southeast; changes
in interest rates; deposit flows; the cost of funds; cost of federal deposit
insurance premiums; demand for loan products; demand for financial services;
competition; changes in the quality or composition of AmSouth's loan and
investment portfolios; changes in accounting principles, policies or
guidelines; other economic, competitive, governmental, regulatory, and
technical factors affecting AmSouth's operations, products, services and
prices; and the outcome of litigation, which is inherently uncertain and
depends on the findings of judges and juries. Other factors may be specified
in the comments that include the forward-looking statements.
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
AMSOUTH BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CONDITION
(Unaudited)
<TABLE>
<CAPTION>
September 30 December 31 September 30
2000 1999 1999
------------ ----------- ------------
(In thousands)
<S> <C> <C> <C>
ASSETS
Cash and due from banks................. $ 1,182,521 $ 1,563,335 $ 1,493,199
Time deposits in other banks............ -0- 2,474 -0-
----------- ----------- -----------
Total cash and cash equivalents........ 1,182,521 1,565,809 1,493,199
Federal funds sold and securities
purchased under agreements to resell... 205,465 132,683 185,705
Trading securities...................... 13,079 51,972 75,728
Available-for-sale securities........... 1,939,431 5,964,703 8,197,989
Held-to-maturity securities (market
value of $6,620,957, $6,849,344 and
$4,597,159, respectively).............. 6,754,735 7,050,562 4,703,929
Loans held for sale..................... 1,041,632 172,941 129,045
Other interest-earning assets........... 1,505,579 17,864 10,859
Loans................................... 24,914,228 26,436,359 26,527,197
Less: Allowance for loan losses......... 377,344 363,476 365,427
Unearned income................... 432,436 169,600 271,965
----------- ----------- -----------
Net loans............................ 24,104,448 25,903,283 25,889,805
Premises and equipment, net............. 635,481 678,442 734,403
Customers' acceptance liability......... 2,543 8,617 29,731
Accrued interest receivable and other
assets................................. 2,010,787 1,859,678 1,974,626
----------- ----------- -----------
$39,395,701 $43,406,554 $43,425,019
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits and interest-bearing
liabilities:
Deposits:
Noninterest-bearing demand............. $ 4,601,826 $ 4,739,077 $ 4,777,639
Interest-bearing demand................ 9,503,470 9,227,907 8,967,380
Savings................................ 1,283,441 2,349,793 2,312,526
Time................................... 8,111,633 7,574,119 7,784,812
Foreign time........................... 341,440 1,293,522 545,764
Certificates of deposit of $100,000 or
more.................................. 2,948,621 2,728,025 3,011,479
----------- ----------- -----------
Total deposits....................... 26,790,431 27,912,443 27,399,600
Federal funds purchased and securities
sold under agreements to repurchase... 2,253,812 4,095,747 3,931,056
Other borrowed funds................... 833,421 2,135,720 2,035,062
Long-term Federal Home Loan Bank
advances.............................. 5,013,982 4,612,686 5,281,584
Other long-term debt................... 980,759 990,800 990,928
----------- ----------- -----------
Total deposits and interest-bearing
liabilities......................... 35,872,405 39,747,396 39,638,230
Acceptances outstanding................. 2,543 8,617 29,731
Accrued expenses and other liabilities.. 759,067 691,336 582,001
----------- ----------- -----------
Total liabilities.................... 36,634,015 40,447,349 40,249,962
----------- ----------- -----------
Shareholders' equity:
Preferred stock--no par value:
Authorized--2,000,000 shares; Issued
and outstanding--none................. -0- -0- -0-
Common stock--par value $1 a share:
Authorized--750,000,000 shares;
Issued--416,948,890, 416,948,890 and
417,803,605 shares, respectively...... 416,949 416,949 417,804
Capital surplus........................ 690,953 690,820 782,941
Retained earnings...................... 2,420,968 2,482,477 2,631,061
Cost of common stock in treasury--
41,811,565, 25,574,778 and 25,854,655
shares, respectively.................. (636,395) (376,354) (465,959)
Deferred compensation on restricted
stock................................. (3,324) (5,838) (42,129)
Accumulated other comprehensive loss... (127,465) (248,849) (148,661)
----------- ----------- -----------
Total shareholders' equity............. 2,761,686 2,959,205 3,175,057
----------- ----------- -----------
$39,395,701 $43,406,554 $43,425,019
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
AMSOUTH BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Nine Months Ended Ended
September 30 September 30
---------------------- ------------------
2000 1999 2000 1999
---------- ---------- -------- --------
(In thousands except per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans.............................. $1,699,559 $1,565,671 $569,912 $539,379
Available-for-sale securities...... 295,151 360,167 95,098 127,838
Held-to-maturity securities........ 342,947 212,808 113,449 76,585
Trading securities................. 2,102 3,190 613 1,085
Loans held for sale................ 6,569 8,762 2,285 2,122
Federal funds sold and securities
purchased under agreements to
resell............................ 2,731 4,756 897 1,714
Other interest-earning assets...... 1,270 2,055 416 286
---------- ---------- -------- --------
Total interest income........... 2,350,329 2,157,409 782,670 749,009
---------- ---------- -------- --------
INTEREST EXPENSE
Interest-bearing demand deposits... 238,952 197,228 87,349 65,533
Savings deposits................... 31,806 37,776 5,651 14,629
Time deposits...................... 322,791 302,069 115,863 98,570
Foreign time deposits.............. 58,918 18,794 19,820 8,784
Certificates of deposit of $100,000
or more........................... 124,023 107,460 45,019 38,164
Federal funds purchased and
securities sold under agreements
to repurchase..................... 155,501 135,396 53,015 47,561
Other borrowed funds............... 86,815 29,787 27,131 18,099
Long-term Federal Home Loan Bank
advances.......................... 221,422 154,877 73,370 61,991
Other long-term debt............... 51,114 47,337 17,674 15,331
---------- ---------- -------- --------
Total interest expense.......... 1,291,342 1,030,724 444,892 368,662
---------- ---------- -------- --------
NET INTEREST INCOME................ 1,058,987 1,126,685 337,778 380,347
Provision for loan losses.......... 172,000 67,927 123,800 30,604
---------- ---------- -------- --------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES................... 886,987 1,058,758 213,978 349,743
---------- ---------- -------- --------
NONINTEREST REVENUES
Consumer investment services
income............................ 177,745 165,039 56,154 54,421
Service charges on deposit
accounts.......................... 170,959 173,762 57,273 58,323
Trust income....................... 85,635 81,690 29,083 27,410
Interchange income................. 37,070 33,822 12,123 12,439
Bank owned life insurance
policies.......................... 36,633 19,863 12,204 10,152
Mortgage income.................... 13,144 35,060 (8,478) 11,021
Portfolio income................... (108,164) 14,699 (116,239) (4,078)
Loss on sale of loans held for
accelerated disposition........... (23,414) -0- (21,656) -0-
Dealer securitization loss......... (18,925) -0- (18,925) -0-
Gains(losses) on sales of
businesses........................ 46 8,624 (492) 8,624
Other noninterest revenues......... 99,259 99,189 29,479 38,066
---------- ---------- -------- --------
Total noninterest revenues...... 469,988 631,748 30,526 216,378
---------- ---------- -------- --------
NONINTEREST EXPENSES
Salaries and employee benefits..... 444,643 461,860 149,092 152,378
Equipment expense.................. 92,555 100,052 29,246 35,167
Net occupancy expense.............. 87,137 83,210 29,089 29,459
Subscribers' commissions........... 82,618 76,669 24,739 24,897
Postage and office supplies........ 38,430 37,036 12,725 11,268
Amortization of intangibles........ 28,941 30,195 9,395 10,012
Marketing expense.................. 28,458 35,511 7,480 15,174
Communications expense............. 30,620 29,048 10,593 9,169
Merger-related costs............... 110,178 47,710 -0- 19,671
Other noninterest expenses......... 138,571 166,801 44,261 53,158
---------- ---------- -------- --------
Total noninterest expenses...... 1,082,151 1,068,092 316,620 360,353
---------- ---------- -------- --------
INCOME / (LOSS) BEFORE INCOME
TAXES............................. 274,824 622,414 (72,116) 205,768
Income tax expense/(benefit)....... 72,256 219,392 (35,850) 71,123
---------- ---------- -------- --------
NET INCOME / (LOSS)............. $ 202,568 $ 403,022 $(36,266) $134,645
========== ========== ======== ========
Average common shares outstanding.. 384,808 391,270 376,240 390,171
Earnings/(loss) per common share... $ 0.53 $ 1.03 $ (0.10) $ 0.35
Diluted average common shares
outstanding....................... 387,724 397,054 379,192 395,520
Diluted earnings/(loss) per common
share............................. $ 0.52 $ 1.02 $ (0.10) $ 0.34
Cash dividends per common share.... 0.60 0.51 0.20 0.17
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
AMSOUTH BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Deferred
Compensation Accumulated
on Other
Common Capital Retained Treasury Restricted Comprehensive
Stock Surplus Earnings Stock Stock Loss Total
-------- -------- ---------- --------- ------------ ------------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1,
2000................... $416,949 $690,820 $2,482,477 $(376,354) $(5,838) $(248,849) $2,959,205
Comprehensive income:
Net income............. -0- -0- 202,568 -0- -0- -0- 202,568
Other comprehensive
gain, net of tax:
Unrealized gains on
available-for-sale
securities, net of
reclassification
adjustment............ -0- -0- -0- -0- -0- 121,384 121,384
----------
Comprehensive income.... 323,952
Cash dividends declared
($0.60 per common
share)................. -0- -0- (229,220) -0- -0- -0- (229,220)
Common stock
transactions:
Purchase of common
stock................. -0- -0- -0- (345,044) -0- -0- (345,044)
Benefit stock plans.... -0- 133 (27,252) 71,615 2,514 -0- 47,010
Dividend reinvestment
plan.................. -0- -0- (7,605) 13,388 -0- -0- 5,783
-------- -------- ---------- --------- ------- --------- ----------
BALANCE AT SEPTEMBER 30,
2000................... $416,949 $690,953 $2,420,968 $(636,395) $(3,324) $(127,465) $2,761,686
======== ======== ========== ========= ======= ========= ==========
Disclosure of
reclassification
amount:
Unrealized holding gains
on available-for-sale
securities arising
during the period...... $ 182,711
Add: Reclassification
adjustment for losses
realized in net
income................. (61,327)
---------
Net unrealized gains on
available-for-sale
securities, net of
tax.................... $ 121,384
=========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
AMSOUTH BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30
------------------------
2000 1999
---------- ------------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income........................................... $ 202,568 $ 403,022
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses........................... 172,000 67,927
Depreciation and amortization of premises and
equipment.......................................... 64,127 72,700
Amortization of premiums and discounts on held-to-
maturity securities and available-for-sale
securities......................................... 4,059 (2,858)
Noncash portion of merger-related costs............. 67,052 21,023
Net gains on branch sales........................... (7,644) -0-
Net decrease in loans held for sale................. 32,349 228,616
Net decrease (increase) in trading securities....... 27,239 (27,910)
Net (losses) gains on sales of available-for-sale
securities......................................... 98,280 (5,428)
Net gains on sales of loans to dealer conduits...... (9,323) -0-
Net loss on dealer securitization................... 18,925 -0-
Net loss on sale of loans held for accelerated
disposition........................................ 23,414 -0-
Write-down of mortgage conduit assets............... 24,751 -0-
Net increase in accrued interest receivable and
other assets....................................... (211,453) (471,925)
Net decrease in accrued expenses and other
liabilities........................................ (42,260) (103,991)
Provision for deferred income taxes................. 72,256 93,538
Amortization of intangible assets................... 28,908 30,158
Other operating activities, net..................... 37,062 1,033
---------- ------------
Net cash provided by operating activities......... 602,310 305,905
---------- ------------
INVESTING ACTIVITIES
Proceeds from maturities and prepayments of
available-for-sale securities....................... 470,549 1,737,942
Proceeds from sales of available-for-sale
securities.......................................... 2,900,801 1,889,016
Purchases of available-for-sale securities........... (769,000) (4,571,821)
Proceeds from maturities, prepayments and calls of
held-to-maturity securities......................... 759,794 1,157,271
Purchases of held-to-maturity securities............. (449,472) (2,020,170)
Net decrease in federal funds sold and securities
purchased under agreements to resell................ (73,273) 172,205
Net increase in other interest-earning assets........ 3,504 18,417
Net increase in loans, excluding sales to dealer
conduits............................................ (588,102) (1,892,231)
Proceeds from sales of loans to dealer conduits...... 1,001,106 -0-
Net purchases of premises and equipment.............. (27,838) (34,341)
Net cash (paid) received from sales and purchases of
branches, business operations, subsidiaries and
other assets........................................ (37,664) 1,378
---------- ------------
Net cash provided (used) by investing activities.. 3,190,405 (3,542,334)
---------- ------------
FINANCING ACTIVITIES
Net decrease in deposits............................. (898,025) (1,128,131)
Net (decrease) increase in federal funds purchased
and securities sold under agreements to repurchase.. (1,841,935) 460,794
Net (decrease) increase in other borrowed funds...... (1,302,299) 1,686,825
Issuance of long-term Federal Home Loan Bank advances
and other long-term debt............................ 5,375,000 2,334,646
Payments for maturing Federal Home Loan Bank advances
and other long-term debt............................ (4,982,144) (457,491)
Cash dividends paid.................................. (230,774) (153,832)
Proceeds from employee stock plans and dividend
reinvestment plan................................... 49,218 38,778
Purchase of common stock............................. (345,044) (147,538)
---------- ------------
Net cash (used) provided by financing activities.. (4,176,003) 2,634,051
---------- ------------
Decrease in cash and cash equivalents................ (383,288) (602,378)
Cash and cash equivalents at beginning of period..... 1,565,809 2,095,577
---------- ------------
Cash and cash equivalents at end of period........... $1,182,521 $ 1,493,199
========== ============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
AMSOUTH BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Nine Months Ended September 30, 2000 and 1999
General--The consolidated financial statements conform to generally
accepted accounting principles and to general industry practices. The
accompanying interim financial statements are unaudited; however, in the
opinion of management, all adjustments necessary for the fair presentation of
the consolidated financial statements have been included. All such adjustments
are of a normal recurring nature. Certain amounts in the prior year's
financial statements have been reclassified to conform with the 2000
presentation. These reclassifications had no effect on net income. The notes
included herein should be read in conjunction with the notes to consolidated
financial statements included in AmSouth Bancorporation's (AmSouth) 1999
annual report on Form 10-K.
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and for Hedging Activities" (Statement
133), was issued by the Financial Accounting Standards Board (FASB). Statement
133 provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. It requires all derivatives
to be recorded on the balance sheet at fair value and establishes unique
accounting treatment for the following three different types of hedges: hedges
of changes in the fair value of assets, liabilities or firm commitments,
referred to as fair value hedges; hedges of the variable cash flows of
forecasted transactions, referred to as cash flow hedges; and hedges of
foreign currency exposures of net investments in foreign operations. The
accounting for each of the three types of hedges results in recognizing
offsetting changes in value or cash flows of both the hedge and the hedged
item in earnings in the same period. Changes in the fair value of derivatives
that do not meet the criteria of one of these three types of hedges are
included in earnings in the period of change. Statement 133 was originally
effective for fiscal years beginning after June 15, 1999. In June 1999, FASB
issued Statement of Financial Accounting Standard No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date
of FASB Statement No. 133", which defers the effective date of Statement 133
to fiscal years beginning after June 15, 2000. In June 2000, the FASB issued
Statement of Financial Accounting Standard No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities--an amendment of FASB
Statement No. 133," which is effective simultaneously with Statement 133.
Statement 138 does not amend any of the fundamental precepts of Statement 133,
but does address a limited number of implementation issues. The impact of
adopting Statement 133 on AmSouth's financial condition or results of
operations is not expected to be material at this time.
In September 2000, Statement of Financial Accounting Standards No. 140,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" (Statement 140), was issued by the FASB.
Statement 140 replaces Statement 125, issued in June 1996. Statement 140
revises the standards for accounting for securitizations and other transfers
of financial assets and collateral and requires certain disclosures, but
carries over most of Statement 125's provisions without reconsideration.
Statement 140 is effective for transfers occurring after March 31, 2001.
However, the expanded disclosures about securitizations and collateral are
effective for fiscal years ending after December 15, 2000. The adoption of
Statement 140 will not have a material impact on AmSouth's financial condition
or results of operations.
Cash Flows--For the nine months ended September 30, 2000 and 1999, AmSouth
paid interest of $1.3 billion and $1.0 billion, respectively. During the nine
months ended September 30, 2000, AmSouth received income tax refunds of $6.3
million, and during the nine months ended September 30, 1999, AmSouth paid
income taxes of $177.6 million. The difference in tax payments between years
was due to a difference in the timing of actual payments and a reduction in
the overall current tax liability associated with the timing of the
deductibility of merger and integration and other expenses. Noncash transfers
from loans to foreclosed properties for the nine months ended September 30,
2000 and 1999, were $22.9 million and $22.1 million, respectively, and noncash
transfers from foreclosed properties to loans were $1.3 million and $413
thousand, respectively. For the nine months ended September 30, 2000, noncash
transfers from loans to available-for-sale securities,
5
<PAGE>
other assets and other liabilities of approximately $30.8 million, $22.7
million and $11.4 million, respectively, were made in connection with the
participation of loans to third-party conduits. For the nine months ended
September 30, 1999 noncash transfers from loans to available-for-sale
securities and to other assets of approximately $6.9 million and $10.4
million, respectively, were made in connection with the participation of
mortgages to third-party conduits.
Mergers and Acquisitions--On October 1, 1999, AmSouth issued 214.5 million
common shares to acquire First American Corporation (First American). AmSouth
exchanged 1.871 shares of its common stock for each share of First American
common stock. First American was a $22.2 billion asset financial services
holding company headquartered in Nashville, Tennessee, with banking offices in
Tennessee, Mississippi, Louisiana, Arkansas, Virginia, and Kentucky. The
transaction was accounted for as a pooling-of-interests, and, accordingly, the
consolidated financial statements have been restated to include the results of
First American for all periods presented.
Net interest income, noninterest revenues and net income as previously
reported individually by AmSouth and First American and the combined company,
reflecting certain reclassifications to conform to the current presentation,
for the three months and nine months ended September 30, 1999, are presented
in the table below:
<TABLE>
<CAPTION>
First
AmSouth American Combined
-------- -------- ----------
(In thousands)
<S> <C> <C> <C>
Three months ended September 30 1999:
Net interest income............................ $195,740 $197,969 $ 380,347
Noninterest revenues........................... 88,980 122,544 216,378
Net income..................................... 77,425 57,220 134,645
Nine months ended September 30, 1999:
Net interest income............................ $565,815 $571,203 $1,126,685
Noninterest revenues........................... 266,174 365,136 631,748
Net income..................................... 222,004 181,018 403,022
</TABLE>
AmSouth recorded merger and integration costs of $77.4 million and $22.8
million during the nine months ended September 30, 2000 and 1999,
respectively. In addition, AmSouth recorded other merger-related costs of
$32.8 million and $24.9 million during the nine months ended September 30,
2000 and 1999, respectively. Merger-related costs during the nine months ended
September 30, 2000, were associated with the acquisition of First American.
Merger-related costs during the nine months ended September 30, 1999, were
associated with the 1998 acquisitions of Deposit Guaranty Corporation, Pioneer
Bancshares, Inc., The Middle Tennessee Bank, CSB Financial Corporation, and
Peoples Bank. The components of the costs are shown below:
<TABLE>
<CAPTION>
Nine Months
Ended September 30
--------------------
2000 1999
---------- ---------
(In millions)
<S> <C> <C>
Merger and integration costs:
Severance and personnel-related costs................ $ 15.9 $ 8.6
Investment banking and other transaction costs....... 0.9 -0-
Occupancy and equipment writedowns................... 40.8 3.5
Systems and operations conversions................... 19.8 10.7
---------- ---------
Total merger and integration costs................. 77.4 22.8
Other merger-related charges........................... 32.8 24.9
---------- ---------
Total merger-related costs......................... $ 110.2 $ 47.7
========== =========
</TABLE>
6
<PAGE>
The following table presents a summary of activity with respect to
AmSouth's merger-related accrual:
<TABLE>
<CAPTION>
2000 1999
----- -----
(In
millions)
<S> <C> <C>
Balance at January 1........................................... $70.7 $18.8
Provision charged to operating expense......................... 44.8 27.2
Cash outlays................................................... (70.0) (20.7)
Noncash writedowns and charges................................. -0- (12.1)
----- -----
Balance at September 30........................................ $45.5 $13.2
===== =====
</TABLE>
The liability balance at September 30, 2000 of $44.5 million represents
$25.2 million of severance and personnel-related costs, $19.6 million of
occupancy and equipment writedowns, $291 thousand of systems and operations
conversions and $379 thousand of other merger-related charges.
Comprehensive Income--Total comprehensive income was $89.6 million and
$324.0 million for the three and nine months ended September 30, 2000 and
$110.8 million and $242.3 million for the three and nine months ended
September 30, 1999. Total comprehensive income consists of net income and the
change in the unrealized gains or losses on AmSouth's available-for-sale
securities portfolio arising during the period.
Earnings Per Common Share--The following table sets forth the computation
of earnings per common share and diluted earnings per common share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------- -----------------
2000 1999 2000 1999
--------- -------- -------- --------
(In thousands except per share data)
<S> <C> <C> <C> <C>
Earnings per common share
computation:
Numerator:
Net income/(loss).................. $ (36,266) $134,645 $202,568 $403,022
Denominator:
Average common shares outstanding.. 376,240 390,171 384,808 391,270
Earnings/(loss) per common share..... $ (0.10) $ .35 $ .53 $ 1.03
Diluted earnings per common share
computation:
Numerator:
Net income/(loss).................. $ (36,266) $134,645 $202,568 $403,022
Denominator:
Average common shares outstanding.. 376,240 390,171 384,808 391,270
Dilutive shares contingently
issuable.......................... 2,952 5,349 2,916 5,784
--------- -------- -------- --------
Average diluted common shares
outstanding....................... 379,192 395,520 387,724 397,054
Diluted earnings/(loss) per common
share............................... $ (0.10) $ .34 $ .52 $ 1.02
</TABLE>
Shareholders' Equity--On April 20, 2000, AmSouth's Board of Directors
approved the repurchase by AmSouth of up to 35.0 million shares of its
outstanding common stock over a two year period for the purpose of funding
employee benefit and dividend reinvestment plans and for general corporate
purposes. Through September 30, 2000, 20.0 million shares have been purchased
under this authorization at a cost of $345.0 million.
Deferred Income Taxes--During the second quarter of 2000, AmSouth
transferred the responsibility for the management of certain operations to a
foreign subsidiary, thereby lowering the effective tax rate on certain
existing leveraged lease investments. In accordance with SFAS 13, Accounting
for Leases, the net income from the leases was recalculated from the inception
based on the new effective tax rate increasing net income for the second
quarter by $3.0 million ($.01 per share). This adjustment included a deferral
of previously recognized pretax leveraged lease earnings to later periods,
which reduced current pretax net interest income by $10.1 million. Year-to-
date, pretax net interest income decreased $12.0 million and net income
increased $3.7 million. Total pretax income over the terms of the leveraged
leases will be unaffected by the change in the effective tax rate. The year-
to-date reduction in net interest income was more than offset by a $15.7
million reduction in deferred income taxes. AmSouth intends to permanently
reinvest earnings of this foreign subsidiary
7
<PAGE>
and, therefore, in accordance with SFAS 109, Accounting for Income Taxes,
deferred taxes of $15.7 million have not been provided as of September 30,
2000.
Business Segment Information--AmSouth has three reportable segments:
Consumer Banking, Commercial Banking, and Wealth Management. Treasury & Other
is comprised of balance sheet management activities that include the
investment portfolio, nondeposit funding and off-balance sheet financial
instruments. Treasury & Other also includes income from bank owned life
insurance policies, net gains on sales of businesses and other assets, net
gains on sales of fixed assets, merger-related costs, the second quarter lease
portfolio restructuring charge, third quarter financial restructuring charges
and corporate expenses such as corporate overhead and goodwill amortization.
As a result of the sale of IFC Holdings, Inc. (IFC) at the end of the third
quarter, all revenues and expenses of IFC have been reclassified into Treasury
& Other from Wealth Management. The following is a summary of the segment
performance for the three and nine months ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Consumer Commercial Wealth Treasury
Banking Banking Management & Other Total
-------- ---------- ---------- --------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Three Months Ended
September 30, 2000
Net interest income from
external customers..... $109,437 $ 185,763 $ (302) $ 42,880 $ 337,778
Internal funding........ 135,552 (88,773) 1,049 (47,828) -0-
-------- --------- -------- --------- ----------
Net interest income..... 244,989 96,990 747 (4,948) 337,778
Noninterest revenues.... 64,424 22,388 52,719 (109,005) 30,526
-------- --------- -------- --------- ----------
Total revenues.......... 309,413 119,378 53,466 (113,953) 368,304
Provision for loan
losses................. 24,071 11,357 -0- 88,372 123,800
Noninterest expenses.... 169,973 40,148 34,950 71,549 316,620
-------- --------- -------- --------- ----------
Income/(loss) before
income taxes........... 115,369 67,873 18,516 (273,874) (72,116)
Income taxes............ 43,379 23,486 6,962 (109,677) (35,850)
-------- --------- -------- --------- ----------
Segment net
income/(loss).......... $ 71,990 $ 44,387 $ 11,554 $(164,197) $ (36,266)
======== ========= ======== ========= ==========
Three Months Ended
September 30, 1999
Net interest income from
external customers..... $ 93,980 $ 215,760 $ (157) $ 70,764 $ 380,347
Internal funding........ 146,955 (104,764) 170 (42,361) -0-
-------- --------- -------- --------- ----------
Net interest income..... 240,935 110,996 13 28,403 380,347
Noninterest revenues.... 84,662 23,606 46,521 61,589 216,378
-------- --------- -------- --------- ----------
Total revenues.......... 325,597 134,602 46,534 89,992 596,725
Provision for loan
losses................. 24,048 6,999 -0- (443) 30,604
Noninterest expenses.... 191,334 45,823 34,190 89,006 360,353
-------- --------- -------- --------- ----------
Income/(loss) before
income taxes........... 110,215 81,780 12,344 1,429 205,768
Income taxes............ 41,476 30,729 4,631 (5,713) 71,123
-------- --------- -------- --------- ----------
Segment net
income/(loss).......... $ 68,739 $ 51,051 $ 7,713 $ 7,142 $ 134,645
======== ========= ======== ========= ==========
Nine Months Ended
September 30, 2000
Net interest income from
external customers..... $350,967 $ 597,893 $ (611) $ 110,738 $1,058,987
Internal funding........ 362,952 (296,037) 2,564 (69,479) -0-
-------- --------- -------- --------- ----------
Net interest income..... 713,919 301,856 1,953 41,259 1,058,987
Noninterest revenues.... 238,685 65,016 154,296 11,991 469,988
-------- --------- -------- --------- ----------
Total revenues.......... 952,604 366,872 156,249 53,250 1,528,975
Provision for loan
losses................. 64,332 19,208 -0- 88,460 172,000
Noninterest expenses.... 527,732 115,825 109,907 328,687 1,082,151
-------- --------- -------- --------- ----------
Income/(loss) before
income taxes........... 360,540 231,839 46,342 (363,897) 274,824
Income taxes............ 135,563 85,137 17,424 (165,868) 72,256
-------- --------- -------- --------- ----------
Segment net
income/(loss).......... $224,977 $ 146,702 $ 28,918 $(198,029) $ 202,568
======== ========= ======== ========= ==========
Nine Months Ended
September 30, 1999
Net interest income from
external customers..... $262,419 $ 630,417 $ (597) $ 234,446 $1,126,685
Internal funding........ 451,472 (309,253) 1,045 (143,264) -0-
-------- --------- -------- --------- ----------
Net interest income..... 713,891 321,164 448 91,182 1,126,685
Noninterest revenues.... 249,344 68,430 138,748 175,226 631,748
-------- --------- -------- --------- ----------
Total revenues.......... 963,235 389,594 139,196 266,408 1,758,433
Provision for loan
losses................. 55,523 20,734 -0- (8,330) 67,927
Noninterest expenses.... 575,544 144,045 96,128 252,375 1,068,092
-------- --------- -------- --------- ----------
Income/(loss) before
income taxes........... 332,168 224,815 43,068 22,363 622,414
Income taxes............ 124,961 84,332 16,156 (6,057) 219,392
-------- --------- -------- --------- ----------
Segment net
income/(loss).......... $207,207 $ 140,483 $ 26,912 $ 28,420 $ 403,022
======== ========= ======== ========= ==========
</TABLE>
8
<PAGE>
Independent Accountants' Review Report
The Board of Directors
AmSouth Bancorporation
We have reviewed the accompanying consolidated statement of condition of
AmSouth Bancorporation and subsidiaries as of September 30, 2000 and 1999, and
the related consolidated statement of earnings for the three-month and nine-
month periods ended September 30, 2000 and 1999, the consolidated statement of
cash flows for the nine-month periods ended September 30, 2000 and 1999, and
the consolidated statement of shareholders' equity for the nine-month period
ended September 30, 2000. These financial statements are the responsibility of
the Company's management.
We conducted our reviews in accordance with the standards established by
the American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data, and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with auditing standards generally accepted in the
United States, which will be performed for the full year with the objective of
expressing an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements referred
to above for them to be in conformity with accounting principles generally
accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated statement of condition of
AmSouth Bancorporation and subsidiaries as of December 31, 1999, and the
related consolidated statements of earnings, shareholders' equity, and cash
flows for the year then ended (not presented herein) and in our report dated
February 11, 2000, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated statement of condition as of December 31, 1999 is
fairly stated, in all material respects, in relation to the consolidated
statement of condition from which it has been derived.
/s/ ERNST & YOUNG LLP
November 13, 2000
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
AmSouth Bancorporation (AmSouth) recorded a net loss for the quarter ended
September 30, 2000 of $36.3 million or $.10 per diluted common share compared
with net income of $134.6 million or $.34 per diluted common share in the
third quarter of 1999. Net income for the first nine months of 2000 was $202.6
million compared with $403.0 million in the same period of 1999. Diluted
earnings per share for the first nine months of 2000 was $.52 compared to
$1.02 in the same period of 1999.
On an operating basis, which excludes the impact of third quarter 2000
financial restructuring charges, discussed below, as well as merger-related
and business divestiture charges, net income for the third quarter of 2000 was
$125.2 million, a 20% decrease from the $156.6 million in the same period of
last year. Operating net income for the first nine months of 2000 was $435.8
million, a 1.8% decrease compared with $443.6 million in the same period of
last year. The corresponding diluted earnings per share on an operating basis
was $.33 in the third quarter of 2000, compared to $.40 in the same quarter of
last year, a decrease of 17.5%. Diluted operating earnings per share for the
first nine months of 2000 was $1.12 unchanged from the same period last year.
Return on average assets on an operating basis was 1.19% in the third quarter
of 2000 compared to 1.46% in the same period of last year and 1.36% for the
first nine months of 2000 compared to 1.44% for the same period of last year.
Return on average equity on an operating basis was 17.96% in the third quarter
of 2000 compared to 19.03% in the same period of last year and 20.25% for the
first nine months of 2000 compared to 18.28% for the same period of last year.
The decrease in operating net income for both the quarter and first nine
months of 2000 resulted from lower net interest income and noninterest
revenues partially offset by lower operating costs. See "Net Interest Income"
and "Noninterest Revenues and Noninterest Expenses" for additional discussion.
A comprehensive financial restructuring announced by AmSouth during the
third quarter of 2000 resulted in $259.7 million of pre-tax charges being
recorded. As part of this financial restructuring, AmSouth sold $4 billion of
lower yielding available-for-sale securities and recorded approximately $106
million of losses on the sales. AmSouth also recorded $21.7 million in losses
on the sale of $47 million in loans to Medicare dependent long-term care
providers which were included in assets held for accelerated disposition.
Included in the financial restructuring charges was $88.3 million of
additional provision recorded in the third quarter related to classified
syndicated loans. Of these syndicated loans, $134 million were sold and, in
conjunction with the sale, the allowance for loan losses was reduced by $61.6
million to reflect the allowance specifically allocated to the sold loans.
Impairment losses of $24.8 million on mortgage conduit assets and an $18.9
million loss associated with the decision to securitize and sell approximately
$1 billion of lower yielding automobile loans at the beginning of October were
also part of the financial restructuring charges.
Total assets at September 30, 2000 were $39.4 billion compared to $43.4
billion at December 31, 1999, while total interest-earning assets were $34.4
billion at September 30, 2000 compared to $39.8 billion at last year-end.
These decreases reflect the impact of securities and loan sales associated
with the financial restructuring. Loans net of unearned income at September
30, 2000 decreased $1.8 billion from December 31, 1999 to $24.5 billion.
Managed loans, which include approximately $1 billion in dealer loan held for
securitization and reported in loans held for sale at September 30, 2000 and
commercial, dealer and residential mortgage loans participated to third-party
conduits, increased $1.4 billion from December 31, 1999 to $30.8 billion at
September 30, 2000. Increases in the managed loan portfolio occurred primarily
in home equity, indirect and commercial real estate loans, partially offset by
the balance sheet restructuring transactions. The investment portfolio, which
consists of available-for-sale and held-to-maturity securities, decreased to
$8.7 billion at September 30, 2000, compared to $13.0 billion at December 31,
1999, primarily as a result of the balance sheet restructuring in the third
quarter.
On the funding side of the balance sheet, total deposits at September 30,
2000 decreased by $1.1 billion compared to December 31, 1999. Excluding the
$952 million decrease in foreign time deposits (Eurodollar deposits), domestic
deposits declined by $170 million. Decreases in domestic deposits occurred in
10
<PAGE>
noninterest-bearing demand deposits and savings deposits. These decreases were
partially offset by increases in interest-bearing demand deposits and time
deposits. Federal funds purchased and securities sold under agreements to
repurchase and other borrowed funds decreased by $1.8 billion and $1.3
billion, respectively, compared to December 31, 1999. The decrease reflects
the use of proceeds from the restructuring transactions to reduce short-term
borrowings including foreign time deposits.
Net Interest Income
Net interest income on a taxable equivalent basis was $344.7 million in the
third quarter of 2000, a decrease of $41.6 million, or 10.8%, as compared to
the third quarter of 1999. The decrease in net interest income was primarily
due to a lower net interest margin and a decrease in average interest-earning
assets for the quarter. Average interest-earning assets for the third quarter
of 2000 were $38.5 billion, a decrease of $375 million from the same period of
1999. Net interest income on a taxable equivalent basis, was $1.1 billion for
the first nine months of 2000, a decrease of $66.7 million, or 5.8%, as
compared to the same period of 1999. The decrease in net interest income was
due to a lower net interest margin and a change in the mix on the funding side
away from lower cost and noninterest-bearing liabilities to higher cost
borrowed funds. The inability to continue to attract lower cost deposits as a
funding source in a rising rate environment was an unexpected departure from
the banking industry's prior experience in such rate environments. The
decrease in the net interest margin for the first nine months of 2000 was
partially impacted by several actions taken by AmSouth as a part of its merger
strategy which adversely impacted the net interest margin while benefiting the
company overall. These items included leveraging the investment portfolio and
purchasing additional bank owned life insurance (BOLI) coverage shortly after
AmSouth's merger with First American. AmSouth funded both of these activities
with short-term borrowings. In addition to these factors, a portion of the
leasing portfolio was restructured during the second quarter of 2000 which
permanently lowered the effective tax rate on income from the portfolio. The
effect of this transaction was to lower net interest income for the first nine
months of 2000 by $12.0 million, decreasing the year-to-date net interest
margin by four basis points. The leasing restructuring lowered third quarter
net interest income by approximately $1.9 million resulting in a two basis
point decrease in the net interest margin.
Funds generated from the balance sheet restructuring will be used, over the
next few months, to pay down more expensive borrowings. Management expects
average interest-earning assets in the fourth quarter to range between $35.0
billion and $35.5 billion. Future interest-earning asset growth is expected to
moderate in a range of four to six percent on an annualized basis, with
interest-earning asset levels bottoming in the first or second quarter of
2001. AmSouth's current plan is to shift the mix of interest-earning assets
toward a substantially higher proportion of loans and to allow the investment
portfolio to decline. Management is also actively working to increase core
deposits as a means of funding asset growth and to further reduce the reliance
on borrowed funds. The net interest margin is expected to be in a range of
3.80% to 3.90% for the fourth quarter of 2000 with levels approaching 4.00% in
2001.
Asset/Liability Management
AmSouth maintains a formal asset and liability management process to
quantify, monitor and control interest rate risk and to assist management in
maintaining stability in the net interest margin under varying interest rate
environments. AmSouth accomplishes this process through the development and
implementation of lending, funding, pricing and hedging strategies designed to
maximize net interest income (NII) performance under varying interest rate
environments subject to specific liquidity and interest rate risk guidelines.
An earnings simulation model is the primary tool used to assess the
direction and magnitude of changes in 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 volume, mix and
11
<PAGE>
rate 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 September 30, 2000,
AmSouth would expect NII to decrease $14.5 million or approximately 1.02
percent and increase $4.3 million or approximately .30 percent if interest
rates gradually increase or decrease, respectively, from current rates by 100
basis points over a 12-month period. A gradual increase or decrease is
assumed, under the model, to occur evenly over the 12-month period. This level
of interest rate risk is within AmSouth's policy guidelines. If the increase
or decrease in interest rates is more pronounced or occurs within a shorter
time period, the impact on net interest income will be greater. Prior to
AmSouth's merger with First American, market risk exposure was managed by each
of the previously separate companies. Separate risk management models and
assumptions were used in accordance with each company's unique market profile.
Accordingly, prior period amounts have not been presented as such amounts were
based on the risk profiles of the previously separate companies and are not
comparable to current period amounts.
The significant reduction in AmSouth's interest sensitivity compared to the
second quarter of 2000 is primarily a result of the financial restructuring
implemented in the third quarter of 2000. As part of the financial
restructuring AmSouth sold $4.0 billion in fixed rate investment securities
and securitized and sold approximately $1.0 billion in fixed rate automobile
loans. These fixed rate assets were primarily funded by overnight and other
short-term borrowings. This action should significantly reduce the impact of
interest rate fluctuations on NII going forward.
In connection with the financial restructuring, an independent review was
done of the interest rate risk management process. While AmSouth's existing
simulation model was found to be operating appropriately, management plans to
expand the interest rate sensitivity modeling to include different and more
extreme interest rate scenarios such as those experienced in the past year. In
addition, variations in other key assumptions, such as loan and deposit volume
and pricing, incorporated in the business plan, will also be stress tested in
future net interest income risk modeling.
As part of its activities to manage interest rate risk, AmSouth, from time
to time, utilizes various off-balance sheet instruments such as interest rate
swaps, caps and floors. During the first nine months of 2000, AmSouth entered
into additional interest rate swaps in the notional amount of $818 million.
There were maturities, calls and closeouts of interest rate swaps totaling
$154 million during the same period. At September 30, 2000, AmSouth had
interest rate swaps, all of which receive fixed rates, totaling a notional
amount of $4.0 billion. Of the swaps added in 2000, swaps with a notional
amount of $350 million were designated as hedging the October dealer
securitization transaction. The swaps were effectively unwound concurrent with
the closing of the securitization. The remaining swaps added in 2000 were
designated as hedges to certain deposits and commercial loans. At September
30, 2000, AmSouth also held other off-balance sheet instruments to provide
customers and AmSouth a means of managing the risks of changing interest and
foreign exchange rates. These other off-balance sheet instruments were
immaterial.
Credit Quality
AmSouth maintains an allowance for loan losses which management believes is
adequate to absorb losses inherent in the loan portfolio. A formal review is
prepared quarterly to assess the risk in the portfolio and to determine the
adequacy of the allowance for loan losses. The review includes analyses of
historical performance, the level of nonperforming and adversely rated loans,
specific analyses of certain problem loans, loan activity since the previous
quarter, reports prepared by the Credit Review Department, consideration of
current economic conditions, and other pertinent information. The level of
allowance to net loans outstanding will vary depending on the overall results
of this quarterly review. The review is presented to and subsequently approved
by senior management and reviewed by the Audit and Community Responsibility
Committee of the Board of Directors.
12
<PAGE>
Table 6 presents a five-quarter analysis of the allowance for loan losses.
At September 30, 2000, the allowance for loan losses was $377.3 million, or
1.54% of loans net of unearned income, compared to $363.5 million, or 1.38%,
at December 31, 1999. The coverage ratio of the allowance for loan losses to
nonperforming loans increased slightly from 257.54% at December 31, 1999, to
258.33% at September 30, 2000.
Net charge-offs for the quarter ended September 30, 2000, were $35.4
million, an increase of $4.4 million or 14.1% from $31.0 million a year
earlier. For the nine months ended September 30, 2000, net charge-offs were
$83.5 million compared to $76.3 million for the same period of 1999.
Annualized net charge-offs to average loans net of unearned income were .55%
and .42%, respectively, for the three months and nine months ended September
30, 2000, compared to .48% and .41% for the same periods of the prior year.
The increase in net charge-offs occurred primarily in the commercial loan and
the dealer indirect portfolios. Commercial loan net charge-offs increased $6.9
million and $4.1 million, respectively, for the three months and nine months
versus the same periods of 1999. Third quarter 2000 included $10.5 million of
net charge-offs associated with three syndicated loans. Net charge-offs in
AmSouth's dealer indirect portfolio increased $2.3 million and $8.2 million,
respectively, for the three months and nine months versus the same periods of
the prior year. In addition, net charge-offs for the other residential
mortgage portfolio remained level and increased $2.6 million, respectively,
for the three months and nine months versus the same periods of the prior
year. Year-to-date, these increases were partially offset by decreases of $2.0
million and $1.3 million, respectively, in net charge-offs in AmSouth's
residential first mortgage loan and revolving credit portfolios. Annualized
net charge-offs for the commercial and consumer loan portfolios were .73% and
.63%, respectively, for the three months ended September 30, 2000, compared to
.40% and .64%, respectively, for the same period of 1999. Annualized net
charge-offs for the commercial and consumer loan portfolios were .43% and
.59%, respectively, for the nine months ended September 30, 2000, compared to
.37% and .56% for the prior year. Total loan net charge-offs for the full year
of 2000 are expected to range between 40 and 45 basis points of average net
loans.
The provision for loan losses for the third quarter was $123.8 million and
$172.0 million for the first nine months of 2000 compared to $30.6 million and
$67.9 million for the year-earlier periods. The 2000 provision reflects loan
loss exposure related to the overall growth in the loan portfolio, a change in
the mix of the loan portfolio and a deterioration in credit quality, primarily
in the commercial portfolio. Credit quality has been negatively impacted by
the slowing economy and the higher interest rate environment. Included in the
2000 provision for loan losses is an $88.3 million charge in the third quarter
of 2000 associated with deterioration in certain classified syndicated loans.
As part of its financial restructuring, AmSouth sold approximately $134
million of these classified syndicated loans. In conjunction with the sale,
AmSouth reduced its loan loss allowance to reflect the $61.6 million of
allowance specifically allocated to the syndicated loans sold. At September
30, 2000, there remained approximately $176 million of classified syndicated
loans on AmSouth's balance sheet. Reserve levels on this specific group of
loans represented approximately 25 percent of the outstanding balance on these
loans. The allowance for loan losses was also impacted by AmSouth's decision
to securitize approximately $1.0 billion of lower yielding automobile loans in
October 2000. As a result of the decision to securitize these loans, AmSouth
transferred the book balance of these loans to the held for sale category on
the balance sheet. As part of this loan reclassification, AmSouth transferred
$7.5 million of the allowance for loan losses allocated to these loans to the
loans held for sale category.
Table 7 presents a five-quarter comparison of the components of
nonperforming assets. At September 30, 2000, nonperforming assets as a
percentage of loans net of unearned income, foreclosed properties and
repossessions increased five basis points to .66% compared to .61% at December
31, 1999. The level of nonperforming assets increased $1.1 million during the
same period. Compared to June 30, 2000, nonperforming assets increased $28.0
million. As a percentage of loans net of unearned income, foreclosed
properties and repossessions, nonperforming assets increased 13 basis points
from the June 30, 2000 level of .53%. The increase was primarily the result of
five syndicated loans being placed on nonaccrual status.
At December 31, 1999, AmSouth decided to exit the portion of its commercial
loan portfolio related to loans to Medicare dependent long-term care
providers. The decision was based primarily on the adverse effects of the
13
<PAGE>
implementation by the United States government of the Prospective Payment
System for the Medicare system. This and other changes in the Medicare program
resulted in significantly lower Medicare revenues for healthcare service
providers. As a result of the decision, loans totaling $149.3 million were
transferred from the commercial loan portfolio to assets held for accelerated
disposition (AHAD) during the fourth quarter of 1999. A transfer of $71.0
million was also made from the allowance for loan losses to AHAD to reflect a
net realizable value of $78.3 million for these loans. As a part of the third
quarter 2000 restructuring, the remaining $47 million of loans in AHAD were
sold at a loss of $21.7 million.
Included in nonperforming assets at September 30, 2000 and 1999, was $80.2
million and $75.4 million, respectively, in loans that were considered to be
impaired, substantially all of which were on a nonaccrual basis. Collateral-
dependent loans, which were measured at the fair value of the collateral,
constituted a majority of these impaired loans. At September 30, 2000 and
1999, there was $42.5 million and $20.6 million, respectively, in the
allowance for loan losses specifically allocated to these impaired loans. The
average balance of impaired loans for the three months ended September 30,
2000 and 1999, was $61.9 million and $56.2 million, respectively, and $60.6
million and $52.4 million, respectively, for the nine months ended September
30, 2000 and 1999. AmSouth recorded no material interest income on its
impaired loans during the three months and nine months ended September 30,
2000.
Noninterest Revenues and Noninterest Expenses
Year-to-date noninterest revenues (NIR) totaled $470.0 million at September
30, 2000, compared to $631.7 million for the prior-year period, a 25.6%
decrease. Excluding the impact of the financial restructuring and business
divestitures, year-to-date NIR was $640.8 million at September 30, 2000 or
approximately equal to the same period of 1999 exclusive of First American
acquisition related charges of $8.8 million. The acquisition related charges
recorded in the third quarter of 1999 included $8.0 million associated with
the impairment of a portfolio investment and $.8 million of conforming
accounting adjustments. The decreases in NIR for the first nine months of 2000
compared with the same period of 1999 occurred in portfolio investment income,
mortgage income and service charges on deposit accounts. Portfolio income in
2000 included net losses of $105.6 million on the sale of $4.0 billion of
investment securities and a $12.1 million write-down of "interest-only strips"
associated with prior sales to third-party mortgage conduits. Portfolio income
in 1999 included an $8.0 million impairment charge recorded in the third
quarter on a portfolio investment held at First American. This charge was
related to the First American acquisition. Exclusive of these amounts,
portfolio income for the first nine months of 2000 decreased $13.2 million
over the same period of 1999. This decline was primarily due to fewer sales of
available-for-sale securities in 2000. Mortgage income decreased $22.0 million
due to a $12.7 million impairment loss on mortgage servicing rights related to
loans sold during 1999 and early in 2000 to mortgage conduits. The remainder
of the decrease in mortgage income was primarily due to a decrease in net
servicing income due to the sale of AmSouth's third-party servicing portfolio
in the third quarter of 1999. AmSouth anticipates that mortgage income will be
about half of what it has been over the past several quarters due to lower
projected conduit activity and higher funding costs. The decline in service
charges on deposit accounts reflects a general decline in deposits compared to
the prior year. NIR in 2000 also included $23.4 million of losses on the sale
of loans in AHAD and an $18.9 million loss associated with the transfer of
automobile loans to loans held for sale as a result of a decision to
securitize these loans. Gains on sales of businesses of $8.6 million were
recorded during the first nine months of 1999 versus only $46 thousand of net
gains on sales of businesses in 2000.
Partially offsetting the decreases in NIR were increases in consumer
investment services income, trust income and income from BOLI. Consumer
investment services income for the first nine months of 2000 increased $12.7
million compared to the same period of 1999 primarily due to increased income
from annuity sales, increased mutual fund fees and higher sales volume at IFC
Holdings, Inc. (IFC), a subsidiary third-party marketer of investment and
insurance products through banks and other financial services providers.
AmSouth sold IFC on September 29, 2000. The sale was the result of a strategic
decision by management to focus the company's wealth management business on
investment and fiduciary services primarily within its existing Southeastern
markets. While noninterest revenues are expected to decrease as a result of
the IFC sale, the divestiture is expected to free up resources to support
AmSouth's on-going strategic initiatives and should
14
<PAGE>
improve AmSouth's operating efficiency. Trust income also increased for the
first nine months of 2000 by $3.9 million, or 4.8%, due in part to new pricing
policies. Income from BOLI increased $16.8 million due to normal increases in
cash surrender value on policies purchased in prior years by AmSouth and on
additional policies purchased since September 30, 1999. Other NIR for the nine
months ended September 30, 2000, included $9.3 million of gains associated
with sales of dealer indirect loans to third-party conduits, while other NIR
in 1999 included $8.1 million of gains on sales of branches and other
property. Gains on sales of dealer loans are not expected in future quarters
as dealer conduit sales activity is not anticipated. Changes for the quarter
were primarily for the same reasons discussed in the year-to-date analysis.
Management anticipates that sustainable noninterest revenue growth in a range
of five to eight percent may be achievable with the strongest growth coming in
the trust and investment services areas.
Year-to-date noninterest expenses excluding merger-related costs decreased
4.7% to $972.0 million at September 30, 2000, compared to $1.0 billion for the
prior year. Salaries and employee benefits decreased $17.2 million when
compared to the same period a year ago. This decrease reflects synergies
achieved as a result of the merger with First American partially offset by
merit increases and higher employee benefits. Marketing expense decreased
19.9% to $28.5 million primarily due to cost control initiatives implemented
in 2000. Equipment expense decreased 7.5% to $92.6 million, primarily due to
synergies achieved as a result of the merger. Other noninterest expenses
decreased $28.2 million reflecting a reduction in the use of temporary and
contract personnel and lower noncredit losses. Partially offsetting these
decreases was an increase of $5.9 million in subscribers' commissions.
Subscribers' commissions are fees paid on sales of investment products
marketed through IFC and are paid to subscribing (client) institutions. This
increase was directly related to the IFC increase in consumer investment
services income. Net occupancy expense increased $3.9 million due to the
addition of new leased facilities and annual rent increases. Changes for the
quarter were primarily for the same reasons discussed in the year-to-date
analysis.
Capital Adequacy
At September 30, 2000, shareholders' equity totaled $2.8 billion or 7.01%
of total assets. Since December 31, 1999, shareholders' equity decreased
$197.5 million primarily due to dividends of $229.2 million and the purchase
of 20,335,000 shares of AmSouth common stock for $345.0 million, partially
offset by the increase from net income of $202.6 million.
Table 10 presents the capital amounts and risk-adjusted capital ratios for
AmSouth and AmSouth Bank at September 30, 2000 and 1999. At September 30,
2000, AmSouth exceeded the regulatory minimum required risk-adjusted Tier 1
Capital Ratio of 4.00% and risk-adjusted Total Capital Ratio of 8.00%. In
addition, the risk-adjusted capital ratios for AmSouth Bank were above the
regulatory minimums, and the Bank was well capitalized at September 30, 2000.
Other
During the third quarter of 2000, AmSouth became a financial holding
company under the provisions of the recently enacted Gramm-Leach-Bliley Act
(the Act). This legislation enables bank holding companies and foreign banks
that meet applicable statutory requirements to engage in a broader range of
services and to compete more efficiently in existing business lines. In
general, the Act authorizes financial holding companies to engage in
securities, insurance, and other activities that are financial in nature or
incidental to or complementary to a financial activity and that do not pose a
substantial risk to the safety and soundness of depository institutions or the
financial system generally. These expanded powers may include securities
underwriting, dealing and market making; acting as principal, agent or broker
for the sale of insurance products; providing management consulting services;
and organizing, sponsoring or managing mutual funds.
15
<PAGE>
Table 1--Financial Summary
<TABLE>
<CAPTION>
September 30
----------------------- %
2000 1999 Change
----------- ----------- ------
(In thousands)
<S> <C> <C> <C>
Balance sheet summary
End-of-period balances:
Loans net of unearned income.................. $24,481,792 $26,255,232 (6.8)%
Total assets.................................. 39,395,701 43,425,019 (9.3)
Total deposits................................ 26,790,431 27,399,600 (2.2)
Shareholders' equity.......................... 2,761,686 3,175,057 (13.0)
Year-to-date average balances:
Loans net of unearned income.................. $26,309,699 $25,106,129 4.8%
Total assets.................................. 42,933,016 41,263,284 4.0
Total deposits................................ 27,686,327 27,563,251 0.4
Shareholders' equity.......................... 2,874,424 3,244,820 (11.4)
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
------------------ % --------------------- %
2000 1999 Change 2000 1999 Change
-------- -------- ------ --------- --------- ------
(In thousands except per share data)
<S> <C> <C> <C> <C> <C> <C>
Operating earnings
summary (1)
Net income............. $435,795 $443,619 (1.8)% $ 125,226 $ 156,553 (20.0)%
Earnings per common
share................. 1.13 1.13 -- 0.33 0.40 (17.5)
Diluted earnings per
common share.......... 1.12 1.12 -- 0.33 0.40 (17.5)
Return on average
assets (annualized)... 1.36% 1.44% 1.19% 1.46%
Return on average
equity (annualized)... 20.25 18.28 17.96 19.03
Operating efficiency... 56.50 56.90 57.92 55.09
Earnings summary as
reported
Net income/(loss)...... $202,568 $403,022 (49.7)% $ (36,266) $ 134,645 (126.9)%
Earnings/(loss) per
common share.......... 0.53 1.03 (48.5) (0.10) 0.35 (128.6)
Diluted earnings/(loss)
per common share...... 0.52 1.02 (49.0) (0.10) 0.34 (129.4)
Return on average
assets (annualized)... 0.63% 1.31% (0.34)% 1.25%
Return on average
equity (annualized)... 9.41 16.61 (5.20) 16.37
Operating efficiency... 69.84 60.08 84.38 59.79
Selected ratios
Average equity to
assets................ 6.70% 7.86% 6.63% 7.66%
End-of-period equity to
assets................ 7.01 7.31 7.01 7.31
End-of-period tangible
equity to assets...... 6.16 6.38 6.16 6.38
Allowance for loan
losses to loans net of
unearned income....... 1.54 1.39 1.54 1.39
Common stock data
Cash dividends
declared.............. $ 0.60 $ 0.51 $ 0.20 $ 0.17
Book value at end of
period................ 7.36 8.10 7.36 8.10
Market value at end of
period................ 12.50 23.44 12.50 23.44
Average common shares
outstanding........... 384,808 391,270 376,240 390,171
Average common shares
outstanding-diluted... 387,724 397,054 379,192 395,520
</TABLE>
--------
(1) Excludes merger-related costs and other special items.
16
<PAGE>
Table 2--Year-to-Date Yields Earned on Average Interest-Earning Assets
and Rates Paid on Average Interest-Bearing Liabilities
<TABLE>
<CAPTION>
2000 1999
------------------------------ ------------------------------
Nine Months Ended Nine Months Ended
September 30 September 30
------------------------------ ------------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/
Balance Expense Rate Balance Expense Rate
----------- ---------- ------ ----------- ---------- ------
(Taxable equivalent basis-dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans net of unearned
income................ $26,309,699 $1,703,154 8.65% $25,106,129 $1,569,419 8.36%
Available-for-sale
securities:
Taxable................ 5,893,425 294,251 6.67 7,274,530 353,006 6.49
Tax-free............... 65,708 3,428 6.97 289,842 14,380 6.63
----------- ---------- ----------- ----------
Total available-for-
sale securities....... 5,959,133 297,679 6.67 7,564,392 367,386 6.49
----------- ---------- ----------- ----------
Held-to-maturity
securities:
Taxable................ 6,526,727 335,945 6.88 4,241,198 208,572 6.58
Tax-free............... 392,090 21,279 7.25 199,135 12,545 8.42
----------- ---------- ----------- ----------
Total held-to-maturity
securities............ 6,918,817 357,224 6.90 4,440,333 221,117 6.66
----------- ---------- ----------- ----------
Total investment
securities.......... 12,877,950 654,903 6.79 12,004,725 588,503 6.55
Other interest-earning
assets................ 253,919 12,672 6.67 483,245 18,887 5.23
----------- ---------- ----------- ----------
Total interest-earning
assets................ 39,441,568 2,370,729 8.03 37,594,099 2,176,809 7.74
Cash and other assets... 4,072,226 4,050,843
Allowance for loan
losses................. (363,503) (369,031)
Market valuation on
available-for-sale
securities............. (217,275) (12,627)
----------- -----------
$42,933,016 $41,263,284
=========== ===========
Liabilities and
Shareholders' Equity
Interest-bearing
liabilities:
Interest-bearing demand
deposits.............. $ 9,368,217 238,952 3.41 $ 9,342,263 197,228 2.82
Savings deposits....... 1,801,328 31,806 2.36 2,138,813 37,776 2.36
Time deposits.......... 7,677,021 322,791 5.62 7,856,749 302,069 5.14
Foreign time deposits.. 1,319,208 58,918 5.97 539,703 18,794 4.66
Certificates of deposit
of $100,000 or more... 2,817,904 124,023 5.88 2,809,172 107,460 5.11
Federal funds purchased
and securities sold
under agreements to
repurchase............ 3,767,508 155,501 5.51 3,974,925 135,396 4.55
Other interest-bearing
liabilities........... 7,946,193 359,351 6.04 5,849,450 232,001 5.30
----------- ---------- ----------- ----------
Total interest-bearing
liabilities........... 34,697,379 1,291,342 4.97 32,511,075 1,030,724 4.24
---------- ---- ---------- ----
Net interest spread..... 3.06% 3.50%
==== ====
Noninterest-bearing
demand deposits........ 4,702,649 4,876,551
Other liabilities....... 658,564 630,838
Shareholders' equity.... 2,874,424 3,244,820
----------- -----------
$42,933,016 $41,263,284
=========== ===========
Net interest
income/margin on a
taxable equivalent
basis.................. 1,079,387 3.66% 1,146,085 4.08%
==== ====
Taxable equivalent
adjustment:
Loans.................. 3,595 3,748
Available-for-sale
securities............ 2,528 7,219
Held-to-maturity
securities............ 14,277 8,309
Trading securities..... -0- 124
---------- ----------
Total taxable
equivalent
adjustment............ 20,400 19,400
---------- ----------
Net interest income... $1,058,987 $1,126,685
========== ==========
</TABLE>
--------
NOTE: The taxable equivalent adjustment has been computed based on a 35%
federal income tax rate and has given effect to the disallowance of
interest expense, for federal income tax purposes, related to certain
tax-free assets. Loans net of unearned income includes nonaccrual loans
for all periods presented. Available-for-sale securities excludes
certain noninterest-earning, marketable equity securities.
17
<PAGE>
Table 3--Quarterly Yields Earned on Average Interest-Earning Assets and Rates
Paid on Average Interest-Bearing Liabilities
<TABLE>
<CAPTION>
2000
--------------------------------------------------------------------------------------
Third Quarter Second Quarter First Quarter Fourth Quarter
---------------------------- ---------------------------- ---------------------------- ---------------------
Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/
Balance Expense Rate Balance Expense Rate Balance Expense Rate Balance Expense
----------- -------- ------ ----------- -------- ------ ----------- -------- ------ ----------- --------
(Taxable equivalent basis-dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning
assets:
Loans net of
unearned income... $25,613,223 $571,306 8.87% $26,642,183 $568,657 8.58% $26,681,345 $563,191 8.49% $26,554,884 $563,564
Available-for-
sale securities:
Taxable.......... 5,678,994 94,775 6.64 5,989,040 99,186 6.66 6,014,598 100,290 6.71 6,674,819 106,565
Tax-free......... 64,747 1,145 7.04 66,625 1,100 6.64 65,763 1,183 7.24 114,849 1,959
----------- -------- ----------- -------- ----------- -------- ----------- --------
Total available-
for-sale
securities....... 5,743,741 95,920 6.64 6,055,665 100,286 6.66 6,080,361 101,473 6.71 6,789,668 108,524
----------- -------- ----------- -------- ----------- -------- ----------- --------
Held-to-maturity
securities:
Taxable.......... 6,445,507 110,990 6.85 6,522,650 112,119 6.91 6,612,916 112,836 6.86 5,930,758 99,565
Tax-free......... 397,506 7,170 7.18 391,612 7,147 7.34 387,092 6,962 7.23 332,685 6,262
----------- -------- ----------- -------- ----------- -------- ----------- --------
Total held-to-
maturity
securities....... 6,843,013 118,160 6.87 6,914,262 119,266 6.94 7,000,008 119,798 6.88 6,263,443 105,827
----------- -------- ----------- -------- ----------- -------- ----------- --------
Total investment
securities...... 12,586,754 214,080 6.77 12,969,927 219,552 6.81 13,080,369 221,271 6.80 13,053,111 214,351
Other interest-
earning assets.... 258,080 4,211 6.49 232,846 3,740 6.46 270,785 4,721 7.01 243,857 3,503
----------- -------- ----------- -------- ----------- -------- ----------- --------
Total interest-
earning assets... 38,458,057 789,597 8.17 39,844,956 791,949 7.99 40,032,499 789,183 7.93 39,851,852 781,418
Cash and other
assets............ 3,929,663 4,149,891 4,138,693 4,154,211
Allowance for loan
losses............ (360,976) (364,339) (365,223) (366,218)
Market valuation
on available-for-
sale securities... (178,535) (252,612) (221,106) (202,257)
----------- ----------- ----------- -----------
$41,848,209 $43,377,896 $43,584,863 $43,437,588
=========== =========== =========== ===========
Liabilities and
Shareholders'
Equity
Interest-bearing
liabilities:
Interest-bearing
demand deposits... $ 9,502,341 87,349 3.66 $ 9,514,403 79,878 3.38 $ 9,086,434 71,725 3.17 $ 9,054,153 68,926
Savings
deposits.......... 1,333,857 5,651 1.69 1,722,267 9,566 2.23 2,352,997 16,589 2.84 2,348,024 16,158
Time deposits..... 7,816,704 115,863 5.90 7,593,438 105,684 5.60 7,619,385 101,244 5.34 7,717,934 100,506
Foreign time
deposits.......... 1,234,991 19,820 6.38 1,427,241 21,341 6.01 1,296,318 17,757 5.51 1,189,238 15,468
Certificates of
deposit of
$100,000 or
more.............. 2,861,681 45,019 6.26 2,813,227 40,744 5.83 2,778,322 38,260 5.54 2,919,684 38,962
Federal funds
purchased and
securities sold
under agreements
to repurchase..... 3,540,942 53,015 5.96 3,720,045 51,032 5.52 4,044,026 51,454 5.12 4,278,534 52,550
Other interest-
bearing
liabilities....... 7,411,097 118,175 6.34 8,266,919 124,080 6.04 8,166,443 117,096 5.77 7,367,364 101,509
----------- -------- ----------- -------- ----------- -------- ----------- --------
Total interest-
bearing
liabilities...... 33,701,613 444,892 5.25 35,057,540 432,325 4.96 35,343,925 414,125 4.71 34,874,931 394,079
-------- ---- -------- ---- -------- ---- --------
Net interest
spread............ 2.92% 3.03% 3.22%
==== ==== ====
Noninterest-
bearing demand
deposits.......... 4,640,946 4,770,285 4,697,394 4,948,282
Other
liabilities....... 732,217 646,355 596,310 606,553
Shareholders'
equity............ 2,773,433 2,903,716 2,947,234 3,007,822
----------- ----------- ----------- -----------
$41,848,209 $43,377,896 $43,584,863 $43,437,588
=========== =========== =========== ===========
Net interest
income/margin on a
taxable equivalent
basis............. 344,705 3.57% 359,624 3.63% 375,058 3.77% 387,339
==== ==== ====
Taxable equivalent
adjustment:
Loans............. 1,394 1,317 884 1,090
Available-for-
sale securities... 822 848 858 1,192
Held-to-maturity
securities........ 4,711 4,823 4,743 3,767
Trading
securities........ -0- -0- -0- 28
-------- -------- -------- --------
Total taxable
equivalent
adjustment....... 6,927 6,988 6,485 6,077
-------- -------- -------- --------
Net interest
income.......... $337,778 $352,636 $368,573 $381,262
======== ======== ======== ========
<CAPTION>
1999
-----------------------------------
Third Quarter
--------------------------------
Yield/ Average Revenue/ Yield/
Rate Balance Expense Rate
------ ------------ -------- ------
<S> <C> <C> <C> <C> <C>
Assets
Interest-earning
assets:
Loans net of
unearned income... 8.42% $25,716,024 $540,535 8.34%
Available-for-
sale securities:
Taxable.......... 6.33 7,822,171 126,722 6.43
Tax-free......... 6.77 209,093 2,867 5.44
------------ --------
Total available-
for-sale
securities....... 6.34 8,031,264 129,589 6.40
------------ --------
Held-to-maturity
securities:
Taxable.......... 6.66 4,524,385 74,955 6.57
Tax-free......... 7.47 224,628 4,636 8.19
------------ --------
Total held-to-
maturity
securities....... 6.70 4,749,013 79,591 6.65
------------ --------
Total investment
securities...... 6.52 12,780,277 209,180 6.49
Other interest-
earning assets.... 5.70 336,785 5,239 6.17
------------ --------
Total interest-
earning assets... 7.78 38,833,086 754,954 7.71
Cash and other
assets............ 4,217,786
Allowance for loan
losses............ (365,636)
Market valuation
on available-for-
sale securities... (65,350)
------------
$42,619,886
============
Liabilities and
Shareholders'
Equity
Interest-bearing
liabilities:
Interest-bearing
demand deposits... 3.02 $ 9,101,838 65,533 2.86
Savings
deposits.......... 2.73 2,265,805 14,629 2.56
Time deposits..... 5.17 7,701,634 98,570 5.08
Foreign time
deposits.......... 5.16 716,723 8,784 4.86
Certificates of
deposit of
$100,000 or
more.............. 5.29 2,946,034 38,164 5.14
Federal funds
purchased and
securities sold
under agreements
to repurchase..... 4.87 4,013,532 47,561 4.70
Other interest-
bearing
liabilities....... 5.47 7,189,087 95,421 5.27
------------ --------
Total interest-
bearing
liabilities...... 4.48 33,934,653 368,662 4.31
------ -------- ------
Net interest
spread............ 3.30% 3.40%
====== ======
Noninterest-
bearing demand
deposits.......... 4,799,827
Other
liabilities....... 621,397
Shareholders'
equity............ 3,264,009
------------
$42,619,886
============
Net interest
income/margin on a
taxable equivalent
basis............. 3.86% 386,292 3.95%
====== ======
Taxable equivalent
adjustment:
Loans............. 1,156
Available-for-
sale securities... 1,751
Held-to-maturity
securities........ 3,006
Trading
securities........ 32
--------
Total taxable
equivalent
adjustment....... 5,945
--------
Net interest
income.......... $380,347
========
</TABLE>
----
NOTE: The taxable equivalent adjustment has been computed based on a 35%
federal income tax rate and has given effect to the disallowance of
interest expense, for federal income tax purposes, related to certain
tax-free assets. Loans net of unearned income includes nonaccrual loans
for all periods presented. Available-for-sale securities excludes
certain noninterest-earning, marketable equity securities.
18
<PAGE>
Table 4--Maturities and Interest Rates Exchanged on Swaps
<TABLE>
<CAPTION>
Mature During
----------------------------------------------------------------
2000 2001 2002 2003 2004 2005 2008 2009 Total
------ ----- ------ ----- ----- ----- ----- ----- ------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Receive fixed swaps:
Notional amount....... $1,175 $ 642 $1,071 $ 455 $ 175 $ 150 $ 125 $ 190 $3,983
Receive rate.......... 6.76% 6.63% 6.66% 6.61% 5.95% 6.25% 6.15% 6.32% 6.60%
Pay rate.............. 6.62% 6.39% 6.64% 6.64% 6.65% 6.63% 6.66% 6.62% 6.59%
</TABLE>
--------
NOTE: The interest rates exchanged are calculated assuming that interest
rates remain unchanged from September 30, 2000. Call option expiration
date is used as maturity date until the option expires. The information
presented could change as LIBOR rates change and call options are
exercised or expire.
Table 5--Loans and Credit Quality
<TABLE>
<CAPTION>
Net Charge-offs
Nonperforming Nine Months
Loans* Loans** Ended
September 30 September 30 September 30
----------------------- ----------------- ----------------
2000 1999 2000 1999 2000 1999
----------- ----------- -------- -------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial:
Commercial &
industrial........... $ 7,478,921 $ 8,247,501 $ 78,168 $ 72,856 $20,933 $26,027
Commercial loans--
secured by real
estate............... 1,748,927 2,189,142 21,246 21,896 10,700 1,479
----------- ----------- -------- -------- ------- -------
Total commercial..... 9,227,848 10,436,643 99,414 94,752 31,633 27,506
----------- ----------- -------- -------- ------- -------
Commercial real estate:
Commercial real estate
mortgages............ 2,367,155 2,124,010 20,316 18,307 (345) 2,081
Real estate
construction......... 2,355,264 2,216,272 5,496 10,034 489 959
----------- ----------- -------- -------- ------- -------
Total commercial real
estate.............. 4,722,419 4,340,282 25,812 28,341 144 3,040
----------- ----------- -------- -------- ------- -------
Consumer:
Residential first
mortgages............ 1,324,406 1,954,270 11,528 24,193 733 2,742
Other residential
mortgages............ 4,604,648 3,594,701 7,532 12,501 5,709 3,123
Dealer indirect....... 2,845,271 3,981,791 4 601 27,113 18,942
Revolving credit...... 478,810 495,296 -0- -0- 10,986 12,284
Other consumer........ 1,278,390 1,452,249 1,779 1,455 7,223 8,618
----------- ----------- -------- -------- ------- -------
Total consumer....... 10,531,525 11,478,307 20,843 38,750 51,764 45,709
----------- ----------- -------- -------- ------- -------
$24,481,792 $26,255,232 $146,069 $161,843 $83,541 $76,255
=========== =========== ======== ======== ======= =======
</TABLE>
--------
* Net of unearned income.
** Exclusive of accruing loans 90 days past due.
19
<PAGE>
Table 6--Allowance for Loan Losses
<TABLE>
<CAPTION>
2000 1999
----------------------------------- -----------------------
3rd Quarter 2nd Quarter 1st Quarter 4th Quarter 3rd Quarter
----------- ----------- ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of
period................. $358,064 $363,492 $363,476 $365,427 $365,869
Loans charged off....... (48,319) (34,471) (40,377) (39,358) (41,202)
Recoveries of loans
previously charged
off.................... 12,890 11,743 14,993 12,707 10,157
-------- -------- -------- -------- --------
Net charge-offs......... (35,429) (22,728) (25,384) (26,651) (31,045)
Addition to allowance
charged to expense..... 123,800 22,800 25,400 97,700 30,603
Allowance
sold/transferred, net.. (69,091) (5,500) -0- (73,000) -0-
-------- -------- -------- -------- --------
Balance at end of
period................. $377,344 $358,064 $363,492 $363,476 $365,427
======== ======== ======== ======== ========
Allowance for loan
losses to loans net of
unearned income........ 1.54% 1.40% 1.37% 1.38% 1.39%
Allowance for loan
losses to nonperforming
loans*................. 258.33% 300.69% 297.06% 257.54% 225.79%
Allowance for loan
losses to nonperforming
assets*................ 231.94% 265.88% 249.86% 225.00% 196.12%
Net charge-offs to
average loans net of
unearned income
(annualized)........... 0.55% 0.34% 0.38% 0.40% 0.48%
</TABLE>
--------
* Exclusive of accruing loans 90 days past due and $35.6 million, $29.2
million and $38.1 million of nonperforming assets classified as held for
accelerated disposition at June 30, 2000, March 31, 2000 and December 31,
1999, respectively.
Table 7--Nonperforming Assets
<TABLE>
<CAPTION>
2000 1999
------------------------------- ------------------------
September 30 June 30 March 31 December 31 September 30
------------ -------- -------- ----------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans........ $146,069 $119,082 $122,365 $141,134 $161,843
Foreclosed properties... 12,714 13,780 19,839 17,767 22,991
Repossessions........... 3,906 1,810 3,274 2,644 1,496
-------- -------- -------- -------- --------
Total nonperforming
assets*............... $162,689 $134,672 $145,478 $161,545 $186,330
======== ======== ======== ======== ========
Nonperforming assets* to
loans net of unearned
income, foreclosed
properties and
repossessions.......... 0.66% 0.53% 0.55% 0.61% 0.71%
Accruing loans 90 days
past due............... $ 78,314 $ 70,800 $ 66,375 $ 61,050 $ 44,644
</TABLE>
--------
* Exclusive of accruing loans 90 days past due and $35.6 million, $29.2
million and $38.1 million of nonperforming assets classified as held for
accelerated disposition at June 30, 2000, March 31, 2000 and December 31,
1999, respectively.
20
<PAGE>
Table 8--Investment Securities
<TABLE>
<CAPTION>
September 30, 2000 September 30, 1999
--------------------- ---------------------
Carrying Market Carrying Market
Amount Value Amount Value
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Held-to-maturity:
U.S. Treasury and federal agency
securities...................... $4,940,612 $4,834,171 $3,394,778 $3,302,397
State, county and municipal
securities...................... 389,566 380,193 247,730 240,434
Other securities................. 1,424,557 1,406,593 1,061,421 1,054,328
---------- ---------- ---------- ----------
$6,754,735 $6,620,957 $4,703,929 $4,597,159
========== ========== ========== ==========
Available-for-sale:
U.S. Treasury and federal agency
securities...................... $1,378,344 $6,864,311
State, county and municipal
securities...................... 68,948 195,630
Other securities................. 492,139 1,138,048
---------- ----------
$1,939,431 $8,197,989
========== ==========
</TABLE>
--------
NOTES:
1. The weighted average remaining life, which reflects the amortization on
mortgage related and other asset-backed securities, and the weighted
average yield on the combined held-to-maturity and available-for-sale
portfolios at September 30, 2000, were approximately 6.7 years and 6.72%,
respectively. Included in the combined portfolios was $7.1 billion of
mortgage-backed securities, $822 million of which were variable rate. The
weighted-average remaining life and the weighted-average yield of mortgage-
backed securities at September 30, 2000, were approximately 6.4 years and
6.71%, respectively. The duration of the combined portfolios, which
considers the repricing frequency of variable rate securities, is
approximately 4.0 years.
2. The available-for-sale portfolio included net unrealized losses of $15.0
million and $239.0 million at September 30, 2000 and 1999, respectively.
Table 9--Other Interest-Bearing Liabilities
<TABLE>
<CAPTION>
September 30
-------------------
2000 1999
-------- ----------
(In thousands)
<S> <C> <C>
Other borrowed funds:
Short-term Federal Home Loan Bank advances............... $ -0- $ 648,000
Treasury, tax and loan notes............................. 25,000 258,579
Short-term bank notes.................................... 500,000 250,000
Term Federal Funds purchased............................. 250,000 820,000
Commercial paper......................................... 13,803 8,611
Other short-term debt.................................... 44,618 49,872
-------- ----------
Total other borrowed funds............................. $833,421 $2,035,062
======== ==========
Other long-term debt:
6.45% Subordinated Notes Due 2018........................ $303,647 $ 304,144
6.125% Subordinated Notes Due 2009....................... 174,459 174,315
6.75% Subordinated Debentures Due 2025................... 149,911 149,893
7.75% Subordinated Notes Due 2004........................ 149,664 149,572
7.25% Senior Notes Due 2006.............................. 99,548 99,536
6.875% Subordinated Notes Due 2003....................... 49,944 49,887
6.625% Subordinated Notes Due 2005....................... 49,722 49,697
Long-term notes payable.................................. 3,864 13,884
-------- ----------
Total other long-term debt............................. $980,759 $ 990,928
======== ==========
</TABLE>
21
<PAGE>
Table 10--Capital Amounts and Ratios
<TABLE>
<CAPTION>
September 30
----------------------------------
2000 1999
---------------- ----------------
Amount Ratio Amount Ratio
---------- ----- ---------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Tier 1 capital:
AmSouth................................... $2,528,159 7.15% $2,884,487 8.03%
AmSouth Bank.............................. 3,079,995 8.73 3,311,396 8.23
Total capital:
AmSouth................................... $3,689,371 10.44% $3,993,880 10.99%
AmSouth Bank.............................. 3,757,339 10.65 3,974,138 10.68
Leverage:
AmSouth................................... $2,528,159 6.09% $2,884,487 6.86%
AmSouth Bank.............................. 3,079,995 7.43 3,311,396 7.79
</TABLE>
22
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item is included on pages 11 and 12 of
Part 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Several of AmSouth's subsidiaries are defendants in legal proceedings
arising in the ordinary course of business. Some of these proceedings seek
relief or damages that are substantial. The actions relate to AmSouth's
lending, collections, loan servicing, deposit taking, investment, trust, and
other activities.
Among the actions which are pending against AmSouth subsidiaries are
actions filed as class actions. The actions are similar to others that have
been brought in recent years against financial institutions in that they seek
punitive damage awards in transactions involving relatively small amounts of
actual damages. A disproportionately higher number of the lawsuits against
AmSouth have been filed in Alabama and Mississippi relative to the amount of
deposits held by AmSouth in those states. Legislation was recently enacted in
Alabama that is designed to limit the potential amount of punitive damages
that can be recovered in individual cases in the future. However, AmSouth
cannot predict the exact effect of the legislation at this time.
It may take a number of years to finally resolve some of these legal
proceedings pending against AmSouth subsidiaries, due to their complexity and
for other reasons. It is not possible to determine with any certainty at this
time the corporation's potential exposure from the proceedings. At times,
class actions are settled by defendants without admission or even an actual
finding of wrongdoing but with payment of some compensation to purported class
members and large attorney's fees to plaintiff class counsel. Nonetheless,
based upon the advice of legal counsel, AmSouth's management is of the opinion
that the ultimate resolution of these legal proceedings will not have a
material adverse effect on AmSouth's financial condition or results of
operations.
Item 6. Exhibits and Reports on Form 8-K
Item 6(a) -- Exhibits
The exhibits listed in the Exhibit Index at page 25 of this Form 10-Q are
filed herewith or are incorporated by reference herein.
Item 6(b) -- Reports on Form 8-K
Two reports on Form 8-K were filed by AmSouth during the period July 1,
2000 to September 30, 2000:
(i) A report was filed on July 25, 2000 to report AmSouth's preliminary
results of operations for the second quarter of 2000.
(ii) A report was filed on September 22, 2000 with information regarding
a financial restructuring and future earnings expectations.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, AmSouth
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
/s/ C. Dowd Ritter
November 14, 2000 By: _________________________________
C. Dowd Ritter
President and
Chief Executive Officer
/s/ Robert R. Windelspecht
November 14, 2000 By: _________________________________
Robert R. Windelspecht
Executive Vice President,
Chief Accounting Officer
and Controller
24
<PAGE>
EXHIBIT INDEX
The following is a list of exhibits including items incorporated by
reference.
2 Agreement and Plan of Merger, dated May 31, 1999 (1)
3-a Restated Certificate of Incorporation of AmSouth Bancorporation (2)
3-b By-Laws of AmSouth Bancorporation (3)
15 Letter Re: Unaudited Interim Financial Information
27 Financial Data Schedule
NOTES TO EXHIBITS
(1) Filed as Exhibit 2.1 to AmSouth's Report on Form 8-K filed June 8, 1999,
incorporated herein by reference.
(2) Filed as Exhibit 3.1 to AmSouth's Report on Form 8-K filed October 15,
1999, incorporated herein by reference.
(3) Filed as Exhibit 3-b to AmSouth's Form 10-Q Quarterly Report for the
quarter ended June 30, 1997, incorporated herein by reference.
25
