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Exhibit 99.2
AMSOUTH BANCORPORATION
THIRD QUARTER CONFERENCE CALL COMMENTS
OCTOBER 17, 2000
The presentation that follows 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 those management expectations. Factors that could cause future
results to vary from current management expectations include, but are not
limited to, the integration of former First American franchise, general economic
conditions, 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 and other economic, competitive, governmental,
regulatory, and technical factors affecting AmSouth's operations, products,
services and prices. Other factors may be specified in the comments that
includes the forward looking statements. AmSouth undertakes no duty to update
the contents of
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this presentation.
Discussion by Dowd Ritter, President and Chief Executive Officer:
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In the third quarter, AmSouth posted diluted earnings per share of 33 cents on
net income of $125.2 million, excluding the charges related to the recently
announced financial restructuring. Return on equity, excluding the special
charges, was 18.0 percent and return on assets was 1.19 percent. The operating
efficiency ratio was 57.92 percent for the quarter.
We have completed all transactions related to the restructuring plan.
. We completed the sale of $4.0 billion of investment securities, of
which $2.5 billion was settled prior to the end of the quarter.
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. We sold $200 million in syndicated loans on September 21.
. On October 12, the securitization of approximately $1 billion of low
yielding auto loans was completed.
. Funds from these transactions were used to paydown overnight
borrowings, and the balance of the funds will be used to pay down
other short-term borrowings as they mature.
. Total charges in the quarter were $259.7 million, $20.3 million lower
than we originally projected due primarily to better than expected
results on the sale of the investment securities.
The restructuring produces a number of benefits:
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. It significantly reduces interest rate sensitivity. In fact,
sensitivity to a 200 basis point rise has been cut by more than half
from -5.1 percent to -2.3 percent after the restructuring.
. The restructuring will produce significant improvement in the net
interest margin, to levels approaching 4.0 percent in 2001.
. It creates balance sheet capacity for more profitable loan growth.
. It reduces credit quality uncertainty in the syndicated loan
portfolio.
. The restructuring also substantially improves our capital
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ratios. For example, our pro forma equity to assets ratio improves to
approximately 7.50 percent from current levels, and finally,
. The restructuring reduces the potential for earnings volatility in the
future.
The completion of this financial restructuring deals with high interest rate
sensitivity and syndicated loan quality issues today and allows our management
team to more sharply focus on growing AmSouth's core businesses in our primary
southeast markets.
Discussion by Sloan Gibson, Chief Financial Officer:
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The following comments focus on core operating results and financial highlights
in the quarter.
We posted diluted earnings per share, before charges related to the financial
restructuring, of 33 cents on net income of $125.2 million.
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Return on equity was 18.0 percent and return on assets was 1.19 percent.
The efficiency ratio was 57.92 percent but reflects the inclusion of IFC
Holdings for the entire quarter. Removing the effects of IFC, the efficiency
ratio for the quarter, on a proforma basis, would have been 55.23 percent a full
269 basis point improvement.
Also, during the third quarter, we repurchased approximately five million shares
of AmSouth stock. To date, we have repurchased 20 million of the original 35.0
million share authorization. Although we continue to see share repurchases as an
important capital management tool, our repurchases in the near term will be more
modest to ensure our strong capital position is maintained.
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We recorded during the quarter a $259.7 million pre-tax charge for the financial
restructuring. The primary components of the charge were . . . .
. A $106 million loss on the sale of $4 billion of investment
securities. Transactions representing $4.0 billion of securities were
completed during the quarter, of which $2.5 billion were settled prior
to quarter-end. The entire charge was already factored into equity by
virtue of the available-for-sale portfolio valuation adjustment so the
transaction was equity neutral.
. We recognized a $24.8 million impairment loss on the valuation of
mortgage conduit assets related to the $2.5 billion of mortgage loans
sold over the last two years. The write down reflects permanent
impairment associated with
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higher funding costs consistent with today's rate environment.
. We recorded an $18.9 million charge associated with the decision to
securitize approximately $1 billion of lower yielding auto loans. The
securitization took place on Thursday October 12.
. We recorded $83.3 million in pre-tax charges associated with the sale
of $200 million of classified syndicated loans and commitments.
Included in the charge was a loss of $21.7 million on the sale of the
remaining $47 million of loans in Assets Held for Accelerated
Disposition. The agreement for the loan sale was signed at the time of
the restructuring announcement.
. Finally, we recorded a special provision of $26.7 million
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primarily for additional reserves on $150 million of classified
syndicated loans, bringing reserve levels on this specific group of
loans up to approximately 24 percent of outstandings.
All restructuring transactions have been completed and use of the proceeds to
pay down borrowed funds will continue as term borrowings mature. The full
benefits of the financial restructuring will be evident during the first half of
2001.
Net interest income was $337.8 million in the third quarter, a decline of $14.9
million from the second quarter. Average earning assets were lower by $1.4
billion to $38.5 billion during the quarter, while the net interest margin
narrowed six basis points to 3.57 percent.
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As a result of the financial restructuring we begin the fourth quarter with
lower earning assets. We expect average earning assets in the fourth quarter to
range between $35.0 and $35.5 billion. We anticipate the net interest margin for
the fourth quarter will be in a range of 3.80 to 3.90 percent, reaching 4.00
percent during 2001.
From this lower base, we expect future earning asset growth to moderate in a
range of four to six percent on an annualized basis, with earning asset levels
bottoming in the first or second quarter of 2001. In an effort to shift the mix
of earning assets toward a substantially higher proportion of loans, we will
continue to let the investment portfolio decline while emphasizing growth in
more profitable loan categories.
Quarterly average managed loans, excluding residential first
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mortgages, were $54.2 million lower compared to the second quarter, or a decline
of less than one percent on an annualized, linked-quarter basis. All of the
decline occurred in the commercial and commercial real estate loan category. On-
balance sheet loans were $1.0 billion lower on a linked-quarter basis reflecting
the full impact of second quarter loan sales to conduits.
Average managed consumer loans, which include loans participated to off-balance
sheet conduits, grew $482.1 million to $15.0 billion representing annualized,
linked-quarter growth of 13.3 percent. Home equity loans continued to be the
catalyst for growth in the consumer category, achieving growth of 17.0 percent
on a linked-quarter basis.
Total managed commercial and commercial real estate loans were $15.9 billion
during the third quarter, a decrease of $330 million
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compared to the second quarter. The decrease continues to reflect increased
pricing discipline in the face of a general slowdown in the economy.
Within the commercial portfolio, small business banking loans continued to show
strength with year-over-year growth of 12.5 percent.
Future loan growth will be driven by home equity lending and loans to small
businesses.
On the funding side of the balance sheet, average core deposits, were $24.9
billion, a decline of $271.5 million from the second quarter.
We believe that our increased focus and a more stable rate environment in the
near term will provide support for deposit
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growth. Stimulating deposit growth will be an important initiative in the coming
quarters. We are in the early stages of implementing two new strategic
initiatives designed to support these efforts. They include programs that target
growth in low cost deposits and increase the emphasis on cross selling.
Turning now to credit quality, non-performing assets were $162.7 million, a
$28.0 million increase compared to the second quarter. The increase was due
almost entirely to the syndicated loans on which we recorded a special provision
in the financial restructuring. Net charge-offs were 0.55 percent of net loans
and the ratio of loan loss reserves to net loans was higher at 1.54 percent. At
the same time, total non-performing assets to net loans plus foreclosed
properties and repossessions for the quarter was .66 percent. The loan loss
reserve coverage of non-performing loans was 258.3 percent for the quarter.
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With the financial restructuring complete, $1.4 billion remains in the
syndicated loan portfolio. The average size of these loans, $7.7 million,
reflects granularity in the portfolio with no industry concentration. In
addition, over half of the remaining syndicated loans are rated investment grade
equivalent.
While NPA's for the third quarter stand at 66 basis points, removing the
syndicated credits reduces the total to 44 basis points. Also, charge-offs for
the first nine months of 2000 were 42 basis points. Excluding the syndicated
credits, net charge-offs would have been 35 basis points. Both of these points
provide evidence that these credit problems are primarily isolated to syndicated
loans.
Excluding special charges, total noninterest revenues were $201.9 million in the
third quarter - a decline of $17.5 million on a linked-
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quarter basis. Further adjusting for gains from conduit activity and, declines
in revenues from Invest, the third-party marketing subsidiary of IFC Holdings,
noninterest revenues increased $1.5 million between quarters.
Included in noninterest revenues in the third quarter were approximately $34.4
million of revenues from Invest, the third-party marketing subsidiary sold at
the end of the quarter. Excluding the impact of Invest, investment services
revenues were $2.2 million higher in the third quarter compared to the second
quarter, an increase of 10.2 percent. The increase was primarily the result of
improving fixed rate annuity sales across the franchise.
Looking ahead, we see sustainable noninterest revenue growth in a range of 5 to
8 percent with the strongest growth coming in the trust and investment services
income segments. Growth in these areas
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will be driven by our wealth management initiative which includes plans to
substantially grow the private banking portfolio, trust services, sales of
investment products and traditional brokerage services. To a lesser extent,
sales of AmSouth convenience services will provide growth opportunities in
service charges and interchange income.
Noninterest expenses were $316.6 million during the quarter, down $5.3 million
or 6.6 percent on an annualized basis versus second quarter expenses excluding
merger related charges. Invest contributed approximately $34.0 million of
noninterest expense during the quarter. Decreases occurred across most expense
categories reflecting the full impact of merger related cost savings during the
quarter.
We have achieved our targeted run rate of $133 million in cost
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savings from the merger. This is based on comparing third quarter 2000 expenses
to second quarter 1999 expenses, adjusted for a nominal three percent assumed
growth rate. The expense savings reflect additional headcount reductions from
the original estimate of 1,400 to 1,650, and a higher level of branch closings,
from the original estimate of 24 to 60 branch closings.
Customer retention continues to be on par with AmSouth's traditional retention
rates. In fact, our net household retention rates indicate the number of
households served in new markets through the end of the third quarter has
declined by less than one percent in spite of the fact that production rates are
still growing to levels consistent with the traditional franchise.
Finally, we continue to see sales production improve throughout the new markets,
but there is still potential for substantial improvement.
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Per-branch production levels in the new markets versus AmSouth's traditional
production levels indicate percentage growth potential of 60 to 70 percent in
areas such as consumer and equity lending, business banking loans and consumer
checking accounts.
Sales production levels will continue to be a major area of focus over the next
several quarters. To this point, the merger integration has largely been a
success, but there is still room for substantial improvement in performance.
Discussion by Dowd Ritter, President and Chief Executive Officer:
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We realize that we face a number of challenges over the next several quarters to
rebuild AmSouth's earnings momentum and restore investor confidence. The
financial restructuring creates a good
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foundation to begin that process, but our ability to execute our growth plans
and produce positive results that benefit AmSouth shareholders will be the key
measure of our success.
To that end, our Board of Directors will shortly be holding its annual strategic
planning meeting. From that meeting, we expect to emerge with a streamlined
strategic plan that will focus management's efforts on executing a few, well
defined strategic initiatives and maximizing revenue growth opportunities across
AmSouth's franchise. We have a strong franchise in excellent markets, and we
will focus our efforts now on plans that will restore AmSouth's performance to
higher levels.
