-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UdmXVAJvKAu5v3TRmxueNDaD/D/D+muj/c1K1hYWfldaagquM5/5YLcQa0xM3h9r vzdv9qUUGT0dOi6YQ5eSVA== 0000931763-96-000498.txt : 19960816 0000931763-96-000498.hdr.sgml : 19960816 ACCESSION NUMBER: 0000931763-96-000498 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMSOUTH BANCORPORATION CENTRAL INDEX KEY: 0000003133 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 630591257 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07476 FILM NUMBER: 96611908 BUSINESS ADDRESS: STREET 1: 1400 AMSOUTH SONAT TOWER CITY: BIRMINGHAM STATE: AL ZIP: 35203 BUSINESS PHONE: 2053207151 MAIL ADDRESS: STREET 1: 1400 AMSOUTH SONAT TOWER CITY: BRIMINGHAM STATE: AL ZIP: 35288 FORMER COMPANY: FORMER CONFORMED NAME: ALABAMA BANCORPORATION DATE OF NAME CHANGE: 19810527 FORMER COMPANY: FORMER CONFORMED NAME: FIRST BIRMINGHAM CORP DATE OF NAME CHANGE: 19741107 10-Q 1 FORM 10-Q - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, COMMISSION FILE NUMBER 1-7476 1996 AMSOUTH BANCORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 63-0591257 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) AMSOUTH--SONAT TOWER 35203 1900 5TH AVENUE NORTH (ZIP CODE) BIRMINGHAM, ALABAMA (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (205) 320-7151 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of August 9, 1996 AmSouth Bancorporation had 56,499,248 shares of common stock outstanding. - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------- AMSOUTH BANCORPORATION FORM 10-Q INDEX
PAGE ---- Part I. Financial Information Item 1. Financial Statements (Unaudited) Consolidated Statement of Condition--June 30, 1996, December 31, 1995, and June 30, 1995.................................. 3 Consolidated Statement of Earnings--Six months and three months ended June 30, 1996 and 1995............................. 4 Consolidated Statement of Shareholders' Equity--Six months ended June 30, 1996.......................... 5 Consolidated Statement of Cash Flows--Six months ended June 30, 1996 and 1995........................ 6 Notes to Consolidated Financial Statements.......... 7 Independent Accountants' Review Report.............. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................... 10 Part II. Other Information Item 1. Legal Proceedings................................... 21 Item 6. Exhibits and Reports on Form 8-K.................... 21 Signatures............................................................. 22 Exhibit Index.......................................................... 23
2 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) AMSOUTH BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CONDITION (UNAUDITED)
JUNE 30 DECEMBER 31 JUNE 30 1996 1995 1995 ----------- ----------- ----------- (IN THOUSANDS) ASSETS Cash and due from banks................. $ 553,049 $ 651,641 $ 684,354 Federal funds sold and securities purchased under agreements to resell... 7,575 1,775 6,750 Trading securities...................... 3,603 2,978 2,193 Available-for-sale securities........... 2,514,195 2,479,813 433,480 Held-to-maturity securities (market value of $2,737,124, $2,193,421 and $3,217,044, respectively).............. 2,770,228 2,167,009 3,205,291 Mortgage loans held for sale............ 115,742 62,017 81,115 Loans................................... 11,613,277 11,819,809 11,989,032 Less:Allowance for loan losses.......... 178,724 178,451 179,002 Unearned income....................... 69,946 76,536 75,507 ----------- ----------- ----------- Net loans............................. 11,364,607 11,564,822 11,734,523 Premises and equipment, net............. 287,489 276,426 276,768 Customers' acceptance liability......... 3,731 2,007 3,200 Accrued interest receivable and other assets................................. 520,228 530,307 577,081 ----------- ----------- ----------- $18,140,447 $17,738,795 $17,004,755 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits and interest-bearing liabilities: Deposits: Noninterest-bearing demand............. $ 1,822,694 $ 1,834,853 $ 1,875,828 Interest-bearing demand................ 3,603,624 3,912,506 3,839,009 Savings................................ 1,035,475 1,005,099 968,136 Time................................... 5,637,413 5,661,130 5,906,759 Certificates of deposit of $100,000 or more.................................. 849,113 995,243 881,504 ----------- ----------- ----------- Total deposits........................ 12,948,319 13,408,831 13,471,236 Federal funds purchased and securities sold under agreements to repurchase... 1,675,240 1,861,090 760,582 Other borrowed funds................... 1,227,425 490,192 908,827 Long-term debt......................... 709,858 440,899 321,100 ----------- ----------- ----------- Total deposits and interest-bearing liabilities.......................... 16,560,842 16,201,012 15,461,745 Acceptances outstanding................. 3,731 2,007 3,200 Accrued expenses and other liabilities.. 183,802 152,301 179,227 ----------- ----------- ----------- Total liabilities..................... 16,748,375 16,355,320 15,644,172 ----------- ----------- ----------- Shareholders' equity: Preferred stock--no par value: Authorized--2,000,000 shares; Issued and outstanding--none........... -0- -0- -0- Common stock--par value $1 a share: Authorized--200,000,000 shares Issued--60,028,607, 60,030,242 and 59,868,582 shares, respectively....... 60,029 60,030 59,869 Capital surplus........................ 589,184 590,882 586,952 Retained earnings...................... 838,846 788,170 739,811 Cost of common stock in treasury-- 3,450,768, 2,765,000, and 1,500,000 shares, respectively.................. (101,267) (73,192) (24,173) Deferred compensation on restricted stock................................. (4,588) (4,120) (4,748) Unrealized gains on available-for-sale securities, net of deferred taxes..... 9,868 21,705 2,872 ----------- ----------- ----------- Total shareholders' equity............ 1,392,072 1,383,475 1,360,583 ----------- ----------- ----------- $18,140,447 $17,738,795 $17,004,755 =========== =========== ===========
See notes to consolidated financial statements. 3 AMSOUTH BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
SIX MONTHS THREE MONTHS ENDED JUNE 30 ENDED JUNE 30 ------------------- ------------------- 1996 1995 1996 1995 --------- --------- --------- --------- (IN THOUSANDS EXCEPT PER SHARE DATA) REVENUE FROM EARNING ASSETS Loans................................ $498,534 $497,901 $247,659 $253,967 Securities: Trading securities.................. 89 253 48 100 Available-for-sale securities....... 79,384 18,507 40,912 8,608 Held-to-maturity securities......... 85,497 107,312 45,276 53,427 --------- --------- --------- --------- Total securities.................... 164,970 126,072 86,236 62,135 Mortgage loans held for sale......... 3,414 3,073 2,008 1,349 Federal funds sold and securities purchased under agreements to resell.............................. 731 985 382 519 --------- --------- --------- --------- Total revenue from earning assets... 667,649 628,031 336,285 317,970 --------- --------- --------- --------- INTEREST EXPENSE Interest-bearing demand deposits..... 59,407 74,959 29,051 36,849 Savings deposits..................... 13,581 13,885 6,899 7,178 Time deposits........................ 164,903 157,161 82,303 84,198 Certificates of deposit of $100,000 or more............................. 25,950 25,142 12,602 13,537 Federal funds purchased and securities sold under agreements to repurchase.......................... 44,278 32,887 22,473 14,518 Other borrowed funds................. 20,767 18,777 12,410 9,157 Long-term debt....................... 20,903 14,148 10,392 6,945 --------- --------- --------- --------- Total interest expense.............. 349,789 336,959 176,130 172,382 --------- --------- --------- --------- NET INTEREST INCOME.................. 317,860 291,072 160,155 145,588 Provision for loan losses............ 29,169 20,651 14,049 12,307 --------- --------- --------- --------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES..................... 288,691 270,421 146,106 133,281 --------- --------- --------- --------- NONINTEREST REVENUES Service charges on deposit accounts.. 47,007 41,198 23,881 20,954 Trust income......................... 27,899 24,472 14,418 13,067 Credit card income................... 6,902 6,092 3,720 3,220 Consumer investment services......... 7,811 2,872 4,323 1,623 Mortgage income...................... 1,831 36,190 709 27,848 Interchange income................... 4,003 2,464 2,320 1,372 Letters of credit income............. 3,954 3,421 1,920 1,627 Portfolio income..................... 4,048 3,449 2,096 49 Other operating revenues............. 11,143 11,373 6,116 4,964 --------- --------- --------- --------- Total noninterest revenues.......... 114,598 131,531 59,503 74,724 --------- --------- --------- --------- NONINTEREST EXPENSES Salaries and employee benefits....... 114,354 120,829 57,115 61,673 Net occupancy expense................ 26,299 29,728 13,109 17,475 Equipment expense.................... 26,066 27,877 13,263 16,763 Marketing expense.................... 8,865 8,575 4,488 4,033 Postage and office supplies.......... 11,671 11,892 5,795 5,757 Telephone expense.................... 7,645 6,328 4,295 3,201 Professional fees.................... 5,600 6,027 3,375 3,750 FDIC premiums........................ 5,238 14,726 2,676 7,515 Foreclosed properties expense........ 876 (413) 423 (477) Amortization......................... 8,602 12,338 4,364 3,469 Other operating expenses............. 35,975 37,211 19,440 20,315 --------- --------- --------- --------- Total noninterest expenses.......... 251,191 275,118 128,343 143,474 --------- --------- --------- --------- INCOME BEFORE INCOME TAXES........... 152,098 126,834 77,266 64,531 Income taxes......................... 56,230 45,866 28,561 23,673 --------- --------- --------- --------- NET INCOME.......................... $ 95,868 $ 80,968 $ 48,705 $ 40,858 ========= ========= ========= ========= Average common shares outstanding.... 56,764 58,199 56,508 58,293 Earnings per common share............ $ 1.69 $ 1.39 $ 0.86 $ 0.70
See notes to consolidated financial statements. 4 AMSOUTH BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
UNREALIZED COMMON CAPITAL RETAINED TREASURY DEFERRED GAINS/(LOSSES) STOCK SURPLUS EARNINGS STOCK COMPENSATION ON SECURITIES TOTAL ------- -------- -------- --------- ------------ -------------- ---------- (IN THOUSANDS) Balance at January 1, 1996................... $60,030 $590,882 $788,170 $ (73,192) $(4,120) $ 21,705 $1,383,475 Net income.............. -0- -0- 95,868 -0- -0- -0- 95,868 Cash dividends declared ($0.80 per common share)................. -0- -0- (45,192) -0- -0- -0- (45,192) Common stock transactions: Purchase of common stock................. -0- -0- -0- (40,506) -0- -0- (40,506) Employee stock plans... (1) (1,684) -0- 9,721 (468) -0- 7,568 Dividend reinvestment.. -0- (14) -0- 2,710 -0- -0- 2,696 Unrealized losses on available-for-sale securities, net of deferred taxes......... -0- -0- -0- -0- -0- (11,837) (11,837) ------- -------- -------- --------- ------- -------- ---------- Balance at June 30, 1996................... $60,029 $589,184 $838,846 $(101,267) $(4,588) $ 9,868 $1,392,072 ======= ======== ======== ========= ======= ======== ==========
See notes to consolidated financial statements. 5 AMSOUTH BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30 -------------------- 1996 1995 --------- --------- (IN THOUSANDS) OPERATING ACTIVITIES Net income............................................... $ 95,868 $ 80,968 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses............................... 29,169 20,651 Foreclosed property recoveries.......................... -0- (322) Depreciation and amortization of premises and equipment.............................................. 13,682 13,619 Amortization of premiums and discounts on held-to- maturity securities and available-for-sale securities.. (1,719) (2,658) Net (increase) decrease in mortgage loans held for sale................................................... (53,725) 49,108 Net( increase) decrease in trading securities........... (631) 6,113 Net gains on sales of available-for-sale securities..... (2,697) (3,228) Net gains on calls of held-to-maturity securities....... (144) (196) Net decrease in accrued interest receivable and other assets................................................. 17,553 28,763 Net increase in accrued expenses and other liabilities.. 21,535 57,232 Provision (benefit) for deferred income taxes........... 12,361 (874) Amortization of intangible assets....................... 8,459 13,037 Other................................................... 1,537 (1,523) --------- --------- Net cash provided by operating activities............... 141,248 260,690 --------- --------- INVESTING ACTIVITIES Proceeds from maturities and prepayments of available- for-sale securities..................................... 342,779 13,222 Proceeds from sales of available-for-sale securities..... 886,509 204,710 Purchases of available-for-sale securities............... (761,850) (272,390) Proceeds from maturities, prepayments and calls of held- to-maturity securities.................................. 213,775 132,741 Purchases of held-to-maturity securities................. (816,469) -0- Net (increase) decrease in federal funds sold and securities purchased under agreements to resell......... (5,800) 145,775 Net increase in loans.................................... (357,538) (405,097) Net purchases of premises and equipment.................. (24,745) (6,609) Net cash used for acquisitions........................... -0- (13,221) --------- --------- Net cash used by investing activities................... (523,339) (200,869) --------- --------- FINANCING ACTIVITIES Net decrease in demand deposits and savings accounts..... (290,665) (220,398) Net (decrease) increase in time deposits................. (169,354) 543,556 Net decrease in federal funds purchased and securities sold under agreements to repurchase..................... (185,850) (452,141) Net increase in other borrowed funds..................... 737,534 234,563 Issuance of long-term debt............................... 420,000 -0- Payments for maturing long-term debt..................... (151,634) (58,526) Cash dividends paid...................................... (45,192) (44,278) Proceeds from employee stock plans....................... 9,166 5,118 Purchase of common stock................................. (40,506) -0- --------- --------- Net cash provided by financing activities............... 283,499 7,894 --------- --------- (Decrease) increase in cash and cash equivalents......... (98,592) 67,715 Cash and cash equivalents at beginning of period......... 651,641 616,639 --------- --------- Cash and cash equivalents at end of period............... $ 553,049 $ 684,354 ========= =========
See notes to consolidated financial statements. 6 AMSOUTH BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1996 AND 1995 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 1996 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) 1995 annual report on Form 10-K. Effective January 1, 1996, AmSouth adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," (Statement 121). The statement requires that long-lived assets and certain identifiable intangibles to be held and used by the entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An impairment loss is recognized when the sum of the future cash flows (undiscounted and without interest charges expected from the use of the asset and its eventual disposition) is less than the carrying amount of the asset. The adoption of Statement 121 resulted in no material impact on AmSouth's financial condition or results of operations. Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights, an amendment of FASB Statement No. 65" (Statement 122) was adopted by AmSouth effective January 1, 1996. In accordance with Statement 122, the cost of mortgage loans purchased or originated with a definitive plan to sell the loans and retain the mortgage servicing rights is allocated between the loans and the servicing rights based on their estimated fair values at the purchase or origination date. The adoption of Statement 122 resulted in no material impact on AmSouth's financial condition or results of operations. In June 1996, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," (Statement 125). Statement 125 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishment of liabilities based on consistent application of a "financial-components approach" that focuses on control. Under that approach, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered and derecognizes liabilities when extinguished. Statement 125 provides standards for consistently distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. The impact of Statement 125, when adopted on January 1, 1997, on AmSouth's financial condition or results of operations has not been determined at this time. Cash Flows--For the six months ended June 30, 1996 and 1995, AmSouth paid interest of $354,698,000 and $328,770,000, respectively, and income taxes of $54,245,000 and $36,926,000, respectively. Noncash transfers from loans to foreclosed properties for the six months ended June 30, 1996 and 1995 were $9,764,000 and $8,144,000, respectively, and noncash transfers from foreclosed properties to loans were $154,000 and $789,000, respectively. For the six months ended June 30, 1996, noncash transfers from loans to available-for-sale securities of approximately $514,522,000 and noncash transfers from loans to other assets of approximately $3,886,000 were made in connection with mortgage loan securitizations. 7 Shareholders' Equity--On March 1, 1996, AmSouth purchased 1,000,000 shares of its common stock at a cost of $40,506,000 for the purpose of satisfying requirements of employee benefit and dividend reinvestment plans. This repurchase was part of a plan approved in October 1995 and all authorized shares have been repurchased. On July 18, 1996, AmSouth's Board of Directors authorized a new plan to repurchase up to five percent of AmSouth's outstanding shares of common stock as of June 30, 1996 or approximately 2.8 million shares from time to time. The shares will be used to fund stock issued under AmSouth's dividend reinvestment and employee benefit plans or for general corporate purposes. 8 INDEPENDENT ACCOUNTANTS' REVIEW REPORT The Board of Directors AmSouth Bancorporation We have reviewed the accompanying consolidated statement of condition of AmSouth Bancorporation and subsidiaries as of June 30, 1996 and 1995, and the related consolidated statement of earnings for the three-month and six-month periods ended June 30, 1996 and 1995, and the consolidated statement of cash flows for the six-month periods ended June 30, 1996 and 1995. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with the standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated statement of condition of AmSouth Bancorporation and subsidiaries as of December 31, 1995, and the related consolidated statements of earnings, shareholders' equity, and cash flows for the year then ended (not presented herein) and in our report dated January 31, 1996, 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, 1995, is fairly stated, in all material respects, in relation to the consolidated statement of condition from which it has been derived. /s/ Ernst & Young LLP August 9, 1996 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AmSouth's net income for the six months ended June 30, 1996 was $95.9 million, an 18.4% increase over net income of $81.0 million for the same period of 1995. On a per common share basis, earnings were $1.69 and $1.39, respectively. Year-to-date net income for 1995 included a pre-tax gain of $25.0 million from the sale of AmSouth's third-party mortgage servicing portfolio. Also included in 1995 year-to-date net income was $22.2 million in nonrecurring expenses primarily associated with productivity initiatives. Year-to-date earnings for 1996 resulted in an annualized return on average assets (ROA) of 1.08% and an annualized return on average equity (ROE) of 14.01% compared to .97% and 12.25%, respectively, for the first six months of 1995. AmSouth's 1996 year-to-date operating efficiency ratio improved to 57.42% compared to 64.20% for the prior year. Net income for the second quarter of 1996 was $48.7 million, or $.86 per common share, compared to $40.9 million, or $.70 per common share, for the same period of 1995. ROA and ROE for the second quarter of 1996 were 1.09% and 14.26%, respectively, compared to .97% and 12.22% for the second quarter of 1995. Net Interest Income Net interest income on a fully taxable equivalent basis for the six months ended June 30, 1996 was $322.8 million, an 8.5% increase over the same period of 1995. The improvement in net interest income was primarily the result of a $1.1 billion increase in year-to-date average earning asset balances. The net interest margin increased five basis points to 3.90%. The increase in year-to-date average earning assets, exclusive of the securitizations of residential first mortgages, was primarily due to increases in average securities and loans. Average securities increased $1.1 billion as a result of the securitization of approximately $850 million of variable rate residential first mortgages during the previous nine months and additional purchases of securities. Average loans net of unearned income decreased $57.8 million, however, exclusive of residential first mortgages, average loans net of unearned income increased $762.7 million, or 10.4%, primarily in commercial, dealer indirect and consumer revolving credit loans. The year-to-date average balance of interest-bearing liabilities increased $892.4 million, funding 82.5% of the growth in average earning assets. An increase of $621.8 million in average Federal funds purchased and securities sold under agreements to repurchase was the primary reason for the increase. Other significant changes included a $271.2 million increase in treasury, tax and loan notes and a $149.8 million increase in parent company subordinated long-term debt, related to the issuance of 6.75% subordinated debentures during the fourth quarter of 1995. The remaining growth in average earning assets was funded by decreases in noninterest-earning assets and an increase in shareholders' equity. 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. This is accomplished through the development and implementation of lending, funding and pricing strategies designed to maximize net interest income performance under varying interest rate environments subject to specific liquidity and interest rate risk guidelines. The primary tool used by AmSouth to measure interest rate risk is an earnings simulation model which evaluates the impact of different interest rate scenarios on the corporation's projected business plan over a 12 to 24 month horizon. Management feels that a more traditional interest sensitivity gap analysis does not provide a complete picture of the corporation's exposure to interest rate changes since static gap models are a point-in-time measurement and, therefore, do not incorporate the effects of future balance sheet trends, changes in the relationship between yields earned and rates paid, patterns of rate movements in general or changes in prepayment speeds due to changes in rates. AmSouth's earnings simulation model incorporates the effect of these 10 factors in addition to the impact of certain embedded interest rate caps and floors on certain assets and liabilities while also reflecting management's anticipated action under varying interest rate environments. Interest rate scenarios are simulated on a regular basis to determine the range of interest rate risk. Net interest income performance is measured under scenarios ranging from plus or minus 100 basis points to plus or minus 300 basis points over 12 months compared to a stable interest rate environment. The net interest income differential is expressed as a percent of net interest income over twelve months if interest rates are unchanged. As of June 30, 1996, the earnings simulation model results indicated that the corporation was in a relatively neutral interest rate risk position with net interest income in a plus or minus 200 basis point scenario being less than 2% of projected net interest income in a stable interest rate scenario. This level of interest rate risk is well within the corporation's policy guidelines. A very important factor in determining this interest rate risk position is the extent to which pricing on administered rate deposit products, including interest checking, savings, and money market accounts would be affected under varying interest rate scenarios. At AmSouth, pricing for these products is assumed to be more variable in rising rate scenarios than in declining rate scenarios. While these assumptions are somewhat subjective, management reviews the anticipated pricing for these products on a regular basis and alters these assumptions whenever trends or market conditions dictate. Over the last few years, AmSouth has, from time to time, utilized various off-balance sheet instruments such as interest rate swaps, caps and floors to assist in managing interest rate risk. At June 30, 1996, AmSouth had $1.0 billion notional amount of caps outstanding, consisting of $500.0 million of caps sold and $500.0 million of caps purchased, as hedges on $500.0 million of prime rate loans. This transaction effectively locked-in the historically wide 300 basis points spread between Federal funds and the prime rate in a rising rate environment. Additionally, $100.0 million notional amount of caps outstanding hedge the cost of designated liabilities. In addition to the caps, AmSouth had interest rate swaps in the aggregate notional amount of $150.0 million which were purchased to hedge the cost of $150.0 million of 6.75% subordinated debentures issued in the fourth quarter of 1995. These swaps effectively converted the fixed rate applicable to these debentures to a floating rate tied to the one-month LIBOR rate. AmSouth also had $130.0 million notional amount of interest rate swaps to hedge designated securities and deposits. At June 30, 1996, 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. At June 30, 1996, no off-balance sheet instruments were held for trading purposes. Credit Quality AmSouth maintains an allowance for loan losses which it believes is adequate to absorb losses inherent in the loan portfolio. A formal review is prepared quarterly to assess the risk in the portfolio and to determine the adequacy of the allowance for loan losses. The review includes analyses of historical performance, the level of nonperforming and adversely rated loans, specific analyses of certain problem loans, loan activity since the previous quarter, reports prepared by the Loan Review Department, consideration of current economic conditions, and other pertinent information. The level of allowance to net loans outstanding will vary depending on the overall results of this quarterly review. The review is then presented to and subsequently approved by senior management and the Audit and Community Responsibility Committee of the Board of Directors. Table 7 presents a five quarter analysis of the allowance for loan losses. At June 30, 1996, the allowance for loan losses was $178.7 million, or 1.55% of loans net of unearned income, compared to $179.0 million, or 1.50%, for the prior year. The coverage ratio of the allowance for loan losses to nonperforming loans increased from 186.25% at June 30, 1995 to 213.83% for the same period in 1996 as the level of nonperforming loans decreased $12.5 million. For the three months ended June 30, 1996, net charge-offs were $13.3 million, an increase of $5.6 million compared to the same period of 1995. Year-to-date net charge-offs were $28.9 million compared to $14.6 million for the prior year. Increases for both periods were primarily in the consumer revolving credit and dealer indirect loan portfolios which grew 26.8% and 10.8%, respectively, from June 30, 1995 to June 30, 1996. However, these portfolios comprised only 4.2% and 9.5%, respectively, of the total loan portfolio. Declining trends in credit quality in the consumer sector of the economy also contributed to the increase in net charge-offs. Annualized net 11 charge-offs to average loans net of unearned income for the three months ended June 30, 1996 was .46% compared to .26% for the same period of the prior year. Year to date, the ratio was .50% compared to .25% for the prior year. The increased level of net charge-offs, combined with the growth in the consumer loan portfolio, which traditionally has a higher risk of loss, resulted in a provision for loan losses for the three months and six months ended June 30, 1996, of $14.0 million and $29.2 million, respectively. Net charge-offs of impaired loans for the six months ended June 30, 1996 were $127 thousand. Table 8 presents a five quarter comparison of the components of nonperforming assets. As a percentage of loans net of unearned income, foreclosed properties and repossessions, nonperforming assets decreased from .97% at June 30, 1995 to .85% at June 30, 1996. The level of nonperforming assets decreased $18.2 million during the same period. Included in nonperforming assets at June 30, 1996 and 1995 was a recorded investment of $44.5 million and $61.1 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 approximately all of these impaired loans. There was no material balance in the allowance for loan losses specifically allocated to these impaired loans as the recorded investment in these loans approximated the fair value of the collateral at June 30, 1996. The average balance of impaired loans for the three months ended June 30, 1996 and 1995 was $50.6 million and $62.0 million, respectively, and $52.9 million and $64.0 million, respectively, for the six months ended June 30, 1996 and 1995. AmSouth recorded no material interest income on its impaired loans during the three months and six months ended June 30, 1996 and 1995. Noninterest Revenues and Noninterest Expenses Year-to-date noninterest revenues totaled $114.6 million at June 30, 1996 compared to $131.5 million for the same period of the prior year. Included in mortgage income for the prior year was a $25.0 million gain from AmSouth's sale of its third-party mortgage servicing portfolio. Exclusive of the gain, year- to-date noninterest revenues increased 7.6% over the prior year. Compared to the prior year, service charges on deposit accounts increased $5.8 million, or 14.1%. This increase was primarily attributable to a revenue enhancement initiative that was implemented in the second quarter of 1995 to automate the payment of certain demand deposit account service fees. Trust income increased 14.0% to $27.9 million primarily from new employee benefit plan administration accounts, increased personal trust accounts and higher fees. Consumer investment services increased $4.9 million as a result of a higher sales volume of mutual funds and annuity products. The introduction of the AmSouth CheckCardSM in 1995 was the primary reason for a 62.5% increase in interchange income. Credit card income increased 13.3% reflecting a higher level of customer activity and an increased number of cardholder accounts. Noninterest revenues for the second quarter of 1996 were $59.5 million. Excluding the effect of the gain from the sale of the third-party mortgage servicing portfolio during the second quarter of 1995, noninterest revenues for the period increased 19.7% over 1995. Changes were primarily for the same reasons discussed in the year-to-date analysis. Year-to-date noninterest expenses totaled $251.2 million at June 30, 1996 compared to $275.1 million for the same period of the prior year. Exclusive of the $22.2 million in nonrecurring expenses discussed previously, noninterest expenses remained relatively flat. Salaries and employee benefits, net of $6.7 million of expenses related to business and branch consolidations in 1995, increased slightly. Net occupancy expense increased $2.1 million, net of costs of $5.5 million for branch consolidations in 1995. This increase is primarily related to a new office complex lease. Adjusted for $4.7 million for development costs of new financial systems and the write-off of various leases, equipment expense in 1996 increased $2.9 million primarily due to investments in technology for the consumer and commercial lines of business. Telephone expense increased $1.3 million as the network was established for the consumer and commercial technology projects. Other significant changes in noninterest expenses included a $9.5 million decrease in Federal Deposit Insurance Corporation (FDIC) premiums and a $3.7 million decrease in amortization expense. FDIC premiums were lower as a result of the FDIC reducing the premium rate on deposits insured by the Bank Insurance Fund (BIF) to zero beginning in 12 1996. The reduction in amortization expense was due to the decrease in purchased mortgage servicing rights as a result of AmSouth's third-party mortgage servicing portfolio sale in June 1995. Noninterest expenses for the second quarter of 1996 increased $7.1 million, net of the $22.2 million in nonrecurring expenses previously discussed. For the quarter, salaries and employee benefits increased $2.2 million, net of the $6.7 million discussed previously. This increase was primarily due to a higher company match of employee thrift plan contributions and enhancements to employee life insurance benefits. Other changes were primarily for the same reasons discussed in the year-to-date analysis. Capital Adequacy At June 30, 1996, shareholders' equity totaled $1.4 billion or 7.67% of total assets. Since December 31, 1995, shareholders' equity has increased $8.6 million due to net income of $95.9 million, reduced by dividends of $45.2 million and partially offset by the purchase of 1,000,000 shares of AmSouth common stock for $40.5 million. This purchase completed a program approved by the Board of Directors in 1995 to repurchase 2,265,000 shares to provide shares for AmSouth's employee benefit and dividend reinvestment plans. In July 1996, the Board of Directors approved an additional program to repurchase from time to time up to five percent of AmSouth's outstanding shares of common stock as of June 30, 1996 or approximately 2.8 million shares. The shares will be used for AmSouth's employee benefit and dividend reinvestment plans or for general corporate purposes. Table 11 presents the calculation of the risk-adjusted capital ratios for AmSouth at June 30, 1996 and 1995. At June 30, 1996, AmSouth remained above the regulatory minimum required risk-adjusted Tier 1 Capital Ratio of 4.00% and the regulatory minimum required risk-adjusted Total Capital Ratio of 8.00%. In addition, the risk-adjusted capital ratios for AmSouth's banking subsidiaries were above the regulatory minimum and each subsidiary was well-capitalized at June 30, 1996. Deposit Insurance Assessments Effective January 1, 1996, the FDIC assessment schedule for BIF deposits ranged from 0 to 27 cents per $100 of such deposits, based on each institution's risk classification. AmSouth's current assessment for BIF deposits is zero. The FDIC has maintained the assessment rate schedule of 23 to 31 cents per $100 of deposits insured by the Savings Association Insurance Fund (SAIF). AmSouth's SAIF assessment rate is currently 23 cents per $100 of deposits. At June 30, 1996, AmSouth had a BIF deposit assessment base of $8.5 billion and a SAIF deposit base of $4.6 billion. Legislation has been under consideration in the U.S. Congress which would charge a special one-time assessment on SAIF insured deposits to recapitalize the SAIF to its statutorily mandated minimum designated reserve ratio of 1.25 percent. Under one proposal, an assessment at a rate between 75 and 85 cents per $100 of SAIF insured deposits would be imposed. Included in this proposed legislation under consideration is a proposal to lower the special assessment for those institutions with SAIF deposits meeting certain qualifications. The reduction would be achieved by lowering the SAIF deposit assessment base for such institutions by 20 percent prior to the calculation of the special charge. AmSouth believes that most of its SAIF deposits would qualify for this treatment under that version of this legislation and, as a result, would incur a one-time cost of approximately $26.0 to $34.0 million on a pre-tax basis if such legislation is passed. The charge to earnings would not occur until the law has been enacted. Due to the uncertain nature of legislative affairs, management cannot predict with any degree of accuracy when the legislation would be enacted, if at all, or what form (including whether any reduction as described above would be included) the final legislation may take. 13 TABLE 1--FINANCIAL SUMMARY
JUNE 30 ------------------------------ % 1996 1995 CHANGE -------------- -------------- ------------- (IN THOUSANDS EXCEPT PER SHARE DATA) BALANCE SHEET SUMMARY End-of-period balances: Loans net of unearned income........ $ 11,543,331 $ 11,913,525 (3.1)% Total securities.................... 5,288,026* 3,640,964* 45.2 Total assets........................ 18,140,447 17,004,755 6.7 Total deposits...................... 12,948,319 13,471,236 (3.9) Shareholders' equity................ 1,392,072 1,360,583 2.3 Year-to-date average balances: Loans net of unearned income........ $ 11,624,393 $ 11,682,181 (0.5)% Total securities.................... 4,936,591* 3,789,089* 30.3 Total assets........................ 17,840,806 16,906,483 5.5 Total deposits...................... 13,120,077 13,269,191 (1.1) Shareholders' equity................ 1,375,691 1,332,943 3.2
SIX MONTHS THREE MONTHS ENDED JUNE 30 ENDED JUNE 30 ---------------- % ---------------- % 1996 1995 CHANGE 1996 1995 CHANGE ------- ------- ------ ------- ------- ------ EARNINGS SUMMARY Net income.................. $95,868 $80,968 18.4% $48,705 $40,858 19.2% Per common share............ 1.69 1.39 21.6 0.86 0.70 22.9 SELECTED RATIOS Return on average assets (annualized)............... 1.08% 0.97% 1.09% 0.97% Return on average equity (annualized)............... 14.01 12.25 14.26 12.22 Average equity to average assets..................... 7.71 7.88 7.63 7.92 Allowance for loan losses to loans net of unearned income..................... 1.55 1.50 1.55 1.50 Efficiency ratio............ 57.42 64.20 57.79 64.26 COMMON STOCK DATA Cash dividends declared..... $ 0.80 $ 0.76 $ 0.40 $ 0.38 Book value at end of period..................... 24.60 23.31 24.60 23.31 Market value at end of period..................... 36.12 32.63 36.12 32.63 Average common shares outstanding................ 56,764 58,199 56,508 58,293
- -------- * Includes adjustment for market valuation on available-for-sale securities of $15,093 and $4,612 for end of period balances and $26,636 and $(203) for year-to-date average balances for 1996 and 1995, respectively. 14 TABLE 2--YEAR-TO-DATE YIELDS EARNED ON AVERAGE EARNING ASSETS AND RATES PAID ON AVERAGE INTEREST-BEARING LIABILITIES
1996 1995 ---------------------------- ---------------------------- SIX MONTHS SIX MONTHS ENDED JUNE 30 ENDED JUNE 30 ---------------------------- ---------------------------- AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/ BALANCE EXPENSE RATE BALANCE EXPENSE RATE ----------- -------- ------ ----------- -------- ------ (TAXABLE EQUIVALENT BASIS-DOLLARS IN THOUSANDS) ASSETS Earning assets: Loans net of unearned income................ $11,624,393 $499,710 8.64% $11,682,181 $499,442 8.62% Trading securities..... 4,072 89 4.40 9,792 263 5.42 Available-for-sale securities............ 2,386,999 79,384 6.69 506,230 18,507 7.37 Held-to-maturity securities: Taxable................ 2,310,210 77,790 6.77 2,994,540 97,148 6.54 Tax-free............... 208,674 11,506 11.09 278,730 15,169 10.97 ----------- -------- ----------- -------- Total held-to-maturity securities............ 2,518,884 89,296 7.13 3,273,270 112,317 6.92 ----------- -------- ----------- -------- Total securities...... 4,909,955 168,769 6.91 3,789,292 131,087 6.98 Other earning assets... 129,607 4,145 6.43 111,000 4,058 7.37 ----------- -------- ----------- -------- Total earning assets.. 16,663,955 672,624 8.12 15,582,473 634,587 8.21 Cash and other assets.. 1,328,653 1,498,293 Allowance for loan losses................ (178,438) (174,080) Market valuation on available-for-sale securities............ 26,636 (203) ----------- ----------- $17,840,806 $16,906,483 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Interest-bearing demand deposits.............. $ 3,773,580 59,407 3.17 $ 3,961,497 74,959 3.82 Savings deposits....... 1,019,952 13,581 2.68 926,918 13,885 3.02 Time deposits.......... 5,680,496 164,903 5.84 5,714,885 157,161 5.55 Certificates of deposit of $100,000 or more... 904,240 25,950 5.77 888,745 25,142 5.70 Federal funds purchased and securities sold under agreements to repurchase......... 1,721,049 44,278 5.17 1,099,205 32,887 6.03 Other interest-bearing liabilities........... 1,408,934 41,670 5.95 1,024,609 32,925 6.48 ----------- -------- ----------- -------- Total interest-bearing liabilities........... 14,508,251 349,789 4.85 13,615,859 336,959 4.99 -------- ----- -------- ----- Incremental interest spread................. 3.27% 3.22% ===== ===== Noninterest-bearing demand deposits........ 1,741,809 1,777,146 Other liabilities....... 215,055 180,535 Shareholders' equity.... 1,375,691 1,332,943 ----------- ----------- $17,840,806 $16,906,483 =========== =========== Net interest income/margin on a taxable equivalent basis.................. 322,835 3.90% 297,628 3.85% ===== ===== Taxable equivalent adjustment: Loans.................. 1,176 1,541 Securities............. 3,799 5,015 -------- -------- Total taxable equivalent adjustment............ 4,975 6,556 -------- -------- Net interest income... $317,860 $291,072 ======== ========
- -------- Note: The taxable equivalent adjustment has been computed based on a 35% federal income tax rate. 15 TABLE 3--QUARTERLY YIELDS EARNED ON AVERAGE EARNING ASSETS AND RATES PAID ON AVERAGE INTEREST-BEARING LIABILITIES
1996 ---------------------------------------------------------- SECOND QUARTER FIRST QUARTER ---------------------------- ---------------------------- AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/ BALANCE EXPENSE RATE BALANCE EXPENSE RATE ----------- -------- ------ ----------- -------- ------ (TAXABLE EQUIVALENT BASIS--DOLLARS IN THOUSANDS) ASSETS Earning assets: Loans net of un- earned income...... $11,575,473 $248,233 8.63% $11,673,313 $251,472 8.66% Trading securi- ties............... 4,366 48 4.42 3,778 41 4.36 Available-for-sale securities......... 2,419,311 40,912 6.80 2,354,687 38,472 6.57 Held-to-maturity securities: Taxable........... 2,477,564 41,531 6.74 2,142,855 36,259 6.81 Tax-free.......... 201,702 5,594 11.15 215,647 5,912 11.03 ----------- -------- ----------- -------- Total held-to-ma- turity securi- ties.............. 2,679,266 47,125 7.07 2,358,502 42,171 7.19 ----------- -------- ----------- -------- Total securi- ties............. 5,102,943 88,085 6.94 4,716,967 80,684 6.88 Other earning as- sets............... 152,586 2,390 6.30 106,629 1,760 6.64 ----------- -------- ----------- -------- Total earning assets.......... 16,831,002 338,708 8.09 16,496,909 333,916 8.14 Cash and other as- sets............... 1,324,032 1,333,274 Allowance for loan losses............. (178,475) (178,402) Market valuation on available-for-sale securities......... 21,508 31,764 ----------- ----------- $17,998,067 $17,683,545 =========== =========== LIABILITIES AND SHAREHOLDERS' EQ- UITY Interest-bearing liabilities: Interest-bearing demand deposits.... $ 3,700,373 29,051 3.16 $ 3,846,787 30,356 3.17 Savings deposits... 1,025,627 6,899 2.71 1,014,277 6,682 2.65 Time deposits...... 5,697,113 82,303 5.81 5,663,879 82,600 5.87 Certificates of deposit of $100,000 or more... 880,157 12,602 5.76 928,322 13,348 5.78 Federal funds pur- chased and securi- ties sold under agreements to re- purchase........... 1,767,378 22,473 5.11 1,674,720 21,805 5.24 Other interest- bearing liabili- ties............... 1,566,497 22,802 5.85 1,251,371 18,868 6.06 ----------- -------- ----------- -------- Total interest- bearing liabili- ties.............. 14,637,145 176,130 4.84 14,379,356 173,659 4.86 -------- ----- -------- ----- Incremental inter- est spread......... 3.25% 3.28% ===== ===== Noninterest-bearing demand deposits.... 1,767,696 1,715,922 Other liabilities.. 219,469 211,581 Shareholders' equi- ty................. 1,373,757 1,376,686 ----------- ----------- $17,998,067 $17,683,545 =========== =========== Net interest income/margin on a taxable equivalent basis.............. 162,578 3.89% 160,257 3.91% ===== ===== Taxable equivalent adjustment: Loans.............. 574 602 Securities......... 1,849 1,950 -------- -------- Total taxable equivalent ad- justment.......... 2,423 2,552 -------- -------- Net interest in- come............. $160,155 $157,705 ======== ========
1995 ---------------------------------------------------------------------------------------- FOURTH QUARTER THIRD QUARTER SECOND QUARTER ---------------------------- ---------------------------- ---------------------------- AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/ BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE ----------- -------- ------ ----------- -------- ------ ----------- -------- ------ ASSETS Earning assets: Loans net of un- earned income...... $11,806,113 $257,968 8.67% $11,816,908 $256,878 8.62% $11,801,298 $254,751 8.66% Trading securi- ties............... 5,348 29 2.15 2,797 27 3.83 9,194 106 4.62 Available-for-sale securities......... 642,444 10,627 6.56 496,588 8,900 7.11 477,809 8,608 7.23 Held-to-maturity securities: Taxable........... 3,158,591 52,453 6.59 2,908,333 48,044 6.55 2,970,284 48,378 6.53 Tax-free.......... 232,750 6,315 10.76 255,893 6,957 10.79 273,382 7,531 11.05 ----------- -------- ----------- -------- ----------- -------- Total held-to-ma- turity securi- ties.............. 3,391,341 58,768 6.88 3,164,226 55,001 6.90 3,243,666 55,909 6.91 ----------- -------- ----------- -------- ----------- -------- Total securi- ties............. 4,039,133 69,424 6.82 3,663,611 63,928 6.92 3,730,669 64,623 6.95 Other earning as- sets............... 73,533 1,310 7.07 87,315 1,205 5.48 90,660 1,868 8.26 ----------- -------- ----------- -------- ----------- -------- Total earning assets.......... 15,918,779 328,702 8.19 15,567,834 322,011 8.21 15,622,627 321,242 8.25 Cash and other as- sets............... 1,413,087 1,404,025 1,479,463 Allowance for loan losses............. (178,948) (179,588) (175,616) Market valuation on available-for-sale securities......... 5,761 4,324 1,985 ----------- ----------- ----------- $17,158,679 $16,796,595 $16,928,459 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQ- UITY Interest-bearing liabilities: Interest-bearing demand deposits.... $ 3,823,303 31,756 3.30 $ 3,830,799 33,139 3.43 $ 3,901,245 36,849 3.79 Savings deposits... 1,002,444 6,810 2.70 986,486 6,805 2.74 949,737 7,178 3.03 Time deposits...... 5,709,120 84,805 5.89 5,792,071 85,870 5.88 5,874,024 84,198 5.75 Certificates of deposit of $100,000 or more... 997,469 15,120 6.01 919,357 14,018 6.05 911,668 13,537 5.96 Federal funds pur- chased and securi- ties sold under agreements to re- purchase........... 1,388,274 19,329 5.52 1,044,177 14,966 5.69 946,492 14,518 6.15 Other interest- bearing liabili- ties............... 894,723 14,911 6.61 913,192 14,908 6.48 993,363 16,102 6.50 ----------- -------- ----------- -------- ----------- -------- Total interest- bearing liabili- ties.............. 13,815,333 172,731 4.96 13,486,082 169,706 4.99 13,576,529 172,382 5.09 -------- ----- -------- ----- -------- ----- Incremental inter- est spread......... 3.23% 3.22% 3.16% ===== ===== ===== Noninterest-bearing demand deposits.... 1,738,426 1,730,937 1,798,087 Other liabilities.. 221,993 213,217 212,513 Shareholders' equi- ty................. 1,382,927 1,366,359 1,341,330 ----------- ----------- ----------- $17,158,679 $16,796,595 $16,928,459 =========== =========== =========== Net interest income/margin on a taxable equivalent basis.............. 155,971 3.89% 152,305 3.88% 148,860 3.82% ===== ===== ===== Taxable equivalent adjustment: Loans.............. 682 745 784 Securities......... 2,083 2,295 2,488 -------- -------- -------- Total taxable equivalent ad- justment.......... 2,765 3,040 3,272 -------- -------- -------- Net interest in- come............. $153,206 $149,265 $145,588 ======== ======== ========
- ---- Note: The taxable equivalent adjustment has been computed based on a 35% federal income tax rate. 16 TABLE 4--INTEREST RATE SWAPS, CAPS AND FLOORS
SWAPS ------------------------------------ CAPS RECEIVE FIXED PAY FIXED BASIS OTHER & FLOORS TOTAL ------------- --------- ----- ----- -------- ------ (IN MILLIONS) Balance at January 1, 1996................... $150 $ -0- $ -0- $ -0- $1,110 $1,260 Additions............. 130 -0- -0- -0- -0- 130 Maturities............ -0- -0- -0- -0- -0- -0- Calls................. -0- -0- -0- -0- -0- -0- Terminations.......... -0- -0- -0- -0- -0- -0- ---- ----- ----- ----- ------ ------ Balance at June 30, 1996................... $280 $ -0- $ -0- $ -0- $1,110 $1,390 ==== ===== ===== ===== ====== ====== TABLE 5--MATURITIES ON CAPS AND INTEREST RATES EXCHANGED ON SWAPS MATURE DURING ---------------------------------------------- 1996 1997 1998 1999 2000 TOTAL ------------- --------- ----- ----- -------- ------ (DOLLARS IN MILLIONS) Receive fixed swaps: Notional amount....... $150 $ 65 $ 50 $ 15 $ -0- $ 280 Receive rate.......... 6.28% 6.89% 6.34% 6.78% 0.00% 6.46% Pay rate.............. 5.47% 5.50% 5.52% 5.50% 0.00% 5.49% Caps: Notional amount....... $ 33 $ 77 $ -0- $ -0- $1,000 $1,110
- -------- Note: The maturities and interest rates exchanged are calculated assuming that interest rates remain unchanged from average June 1996 rates. The information presented could change as future interest rates increase or decrease. TABLE 6--LOANS AND CREDIT QUALITY
LOANS NONPERFORMING LOANS* NET CHARGE-OFFS JUNE 30 JUNE 30 JUNE 30 ----------------------- --------------------- ---------------- 1996 1995 1996 1995 1996 1995 ----------- ----------- ---------- ---------- ------- ------- (IN THOUSANDS) Commercial.............. $ 3,288,848 $ 3,015,616 $14,420 $16,017 $ 250 $ 2,455 Commercial real estate: Commercial real estate mortgages............ 1,583,633 1,457,113 26,282 32,778 144 312 Real estate construction......... 645,877 423,723 2,556 12,328 (267) 273 ----------- ----------- ---------- ---------- ------- ------- Total commercial real estate........ 2,229,510 1,880,836 28,838 45,106 (123) 585 ----------- ----------- ---------- ---------- ------- ------- Consumer: Residential first mortgages............ 3,110,198 4,380,941 33,402 27,049 1,513 362 Other residential mortgages............ 747,462 650,292 1,147 -0- 73 80 Dealer indirect....... 1,102,343 995,327 4,435 3,472 7,789 2,796 Revolving credit...... 490,617 387,012 -0- -0- 12,773 6,392 Other consumer........ 644,299 679,008 1,341 4,467 6,621 1,899 ----------- ----------- ---------- ---------- ------- ------- Total consumer....... 6,094,919 7,092,580 40,325 34,988 28,769 11,529 ----------- ----------- ---------- ---------- ------- ------- $11,613,277 $11,989,032 $83,583 $96,111 $28,896 $14,569 =========== =========== ========== ========== ======= =======
- -------- * Exclusive of accruing loans 90 days past due. 17 TABLE 7--ALLOWANCE FOR LOAN LOSSES
1996 1995 ----------------------- ----------------------------------- 2ND QUARTER 1ST QUARTER 4TH QUARTER 3RD QUARTER 2ND QUARTER ----------- ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Balance at beginning of period................. $ 177,930 $ 178,451 $ 179,550 $ 179,002 $ 174,398 Loans charged off....... (18,442) (20,626) (13,998) (12,290) (11,833) Recoveries of loans pre- viously charged off.... 5,187 4,985 2,809 3,440 4,130 --------- --------- --------- --------- --------- Net charge-offs......... (13,255) (15,641) (11,189) (8,850) (7,703) Addition to allowance charged to expense..... 14,049 15,120 10,090 9,398 12,307 --------- --------- --------- --------- --------- Balance at end of peri- od..................... $ 178,724 $ 177,930 $ 178,451 $ 179,550 $ 179,002 ========= ========= ========= ========= ========= Allowance for loan losses to loans net of unearned income........ 1.55% 1.55% 1.52% 1.51% 1.50% Allowance for loan losses to nonperforming loans.................. 213.83% 195.70% 185.41% 200.94% 186.25% Allowance for loan losses to nonperforming assets................. 182.29% 163.06% 154.49% 171.73% 153.98% Net charge-offs to aver- age loans net of un- earned income (annualized)........... 0.46% 0.54% 0.38% 0.30% 0.26%
TABLE 8--NONPERFORMING ASSETS
1996 1995 ----------------- --------------------------------- JUNE 30 MARCH 31 DECEMBER 31 SEPTEMBER 30 JUNE 30 ------- -------- ----------- ------------ -------- (DOLLARS IN THOUSANDS) Nonaccrual loans......... $83,583 $ 90,919 $ 96,246 $ 89,355 $ 96,111 Foreclosed properties.... 12,845 14,764 16,150 13,144 18,112 Repossessions............ 1,614 3,439 3,114 2,052 2,028 ------- -------- -------- -------- -------- Total nonperforming as- sets*................. $98,042 $109,122 $115,510 $104,551 $116,251 ======= ======== ======== ======== ======== Nonperforming assets* to loans net of unearned income, foreclosed properties and repossessions........... 0.85% 0.95% 0.98% 0.88% 0.97% Accruing loans 90 days past due................ $39,944 $ 40,110 $ 39,618 $ 45,548 $ 34,663
- -------- *Exclusive of accruing loans 90 days past due. 18 TABLE 9--SECURITIES
JUNE 30, 1996 JUNE 30, 1995 --------------------- --------------------- CARRYING MARKET CARRYING MARKET AMOUNT VALUE AMOUNT VALUE ---------- ---------- ---------- ---------- (IN THOUSANDS) Held-to-maturity U.S. Treasury and federal agency securities...................... $2,293,413 $2,255,713 $2,927,748 $2,925,946 State, county and municipal securities...................... 202,873 211,318 270,993 284,370 Other securities................. 273,942 270,093 6,550 6,728 ---------- ---------- ---------- ---------- $2,770,228 $2,737,124 $3,205,291 $3,217,044 ========== ========== ========== ========== Available-for-sale U.S. Treasury and federal agency securities...................... $2,284,508 $ 287,773 Other securities................. 229,687 145,707 ---------- ---------- $2,514,195 $ 433,480 ========== ==========
- -------- Notes: 1. The weighted average remaining life, which reflects the amortization on mortgage related and other asset-backed securities, and the weighted average yield on the combined held-to-maturity and available-for-sale portfolios at June 30, 1996 were approximately 4.4 years and 6.98%, respectively. Included in the balance was $3.9 billion of mortgage-backed securities, $1.3 billion of which were variable rate. The weighted average remaining life and the weighted average yield of mortgage-backed securities at June 30, 1996 were approximately 4.7 years and 6.94%, respectively. The duration of the combined portfolios, which considers the repricing frequency of variable rate securities, was approximately 2.5 years. 2. The available-for-sale portfolio included a net unrealized gain of $15.1 million and $4.6 million at June 30, 1996 and 1995, respectively. TABLE 10--OTHER INTEREST-BEARING LIABILITIES
JUNE 30 --------------------- 1996 1995 ---------- ---------- (IN THOUSANDS) Short-term: Treasury, tax, and loan notes.......................... $ 997,210 $ 429,958 Federal Home Loan Bank advances........................ 205,000 293,950 Term federal funds purchased........................... -0- 165,030 Floating Rate Notes Due 1999........................... 6,804 7,147 Other.................................................. 18,411 12,742 ---------- ---------- Total short-term..................................... 1,227,425 908,827 ---------- ---------- Long-term: Federal Home Loan Bank advances........................ 284,079 45,727 6.75% Subordinated Debentures Due 2025................. 149,836 -0- 7.75% Subordinated Notes Due 2004...................... 149,274 149,183 Subordinated Capital Notes Due 1999.................... 99,634 99,505 7.50% Convertible Subordinated Debentures.............. 4,152 3,931 Other.................................................. 22,883 22,754 ---------- ---------- Total long-term...................................... 709,858 321,100 ---------- ---------- Total other interest-bearing liabilitites............ $1,937,283 $1,229,927 ========== ==========
19 TABLE 11--CAPITAL RATIOS
JUNE 30 ------------------------ 1996 1995 ----------- ----------- (DOLLARS IN THOUSANDS) Risk-adjusted capital ratios: Total assets....................................... $18,140,447 $17,004,755 Adjusted allowance for loan losses................. 166,726 163,991 Adjustment for risk-weighting of balance sheet items............................................. (6,344,062) (5,776,819) Adjustment for off-balance sheet items............. 1,654,438 2,003,619 Unrealized gains on available-for-sale securities.. (15,093) (4,612) Less certain intangible assets..................... (276,409) (293,028) ----------- ----------- Total risk-adjusted assets....................... $13,326,047 $13,097,906 =========== =========== Shareholders' equity............................... $ 1,392,072 $ 1,360,583 Unrealized gains on available-for-sale securities (net of deferred taxes)........................... (9,868) (2,872) Less certain intangible assets..................... (276,409) (293,028) ----------- ----------- Tier I capital..................................... 1,105,795 1,064,683 ----------- ----------- Adjusted allowance for loan losses................. 166,726 163,991 Qualifying long-term debt.......................... 338,964 209,672 ----------- ----------- Tier II capital.................................... 505,690 373,663 ----------- ----------- Total capital.................................... $ 1,611,485 $ 1,438,346 =========== =========== Tier I capital to total risk-adjusted assets....... 8.30% 8.13% Total capital to risk-adjusted assets.............. 12.09% 10.98% Other capital ratios: Leverage........................................... 6.24% 6.40% Equity to assets................................... 7.67% 8.00% Tangible equity to assets.......................... 6.24% 6.39%
20 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, servicing, investment, trust and other activities. Among the actions which are pending against AmSouth subsidiaries are actions filed as class actions in the State of Alabama. The actions are similar to others that have been brought in recent years in Alabama against financial institutions in that they seek punitive damage awards in transactions involving relatively small amounts of actual damages. In recent years, juries in Alabama state courts have made large punitive damage awards in such cases. Legislation which would limit these lawsuits has been proposed from time to time in the Alabama legislature but has not been enacted into law. AmSouth cannot predict whether any such legislation will be enacted. It may take a number of years to finally resolve some of these legal proceedings pending against AmSouth subsidiaries, due to their complexity and for other reasons. It is not possible to determine with any certainty at this time the corporation's potential exposure from the proceedings. However, 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 23 of this Form 10-Q are filed herewith or are incorporated by reference herein. ITEM 6(B)--REPORTS ON FORM 8-K No report on Form 8-K was filed by AmSouth during the period March 31, 1996 to June 30, 1996. 21 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AMSOUTH HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED. August 13, 1996 /s/ C. Dowd Ritter By__________________________________: C. Dowd Ritter President and Chief Executive Officer August 13, 1996 /s/ Dennis J. Dill By__________________________________: Dennis J. Dill Executive Vice President and Chief Accounting Officer 22 EXHIBIT INDEX The following is a list of exhibits including items incorporated by reference: 3-a Restated Certificate of Incorporation of AmSouth Bancorporation (1) 3-b By-Laws of AmSouth Bancorporation, as amended (2) 11 Statement Re: Computation of Earnings per Share 15 Letter Re: Unaudited Interim Financial Information 27 Financial Data Schedule NOTES TO EXHIBITS (1) Filed as Exhibit 3-b to AmSouth's Form 10-Q Quarterly Report for the quarter ended March 31, 1993, and incorporated herein by reference. (2) Filed as Exhibit 3-b to AmSouth's Form 10-Q Quarterly Report for the quarter ended March 31, 1996, and incorporated herein by reference. 23 EX-11 2 STATEMENT REGARDING COMPUTATION OF EARNINGS PER CO EXHIBIT 11 AMSOUTH BANCORPORATION STATEMENT REGARDING COMPUTATION OF EARNINGS PER COMMON SHARE
SIX MONTHS ENDED THREE MONTHS ENDED JUNE 30 JUNE 30 ----------------- ------------------- 1996 1995 1996 1995 -------- -------- --------- --------- (IN THOUSANDS EXCEPT PER SHARE DATA) Net income.............................. $ 95,868 $ 80,968 $ 48,705 $ 40,858 ======== ======== ========= ========= Average shares of common stock outstand- ing.................................... 56,764 58,199 56,508 58,293 ======== ======== ========= ========= Earnings per common share............... $ 1.69 $ 1.39 $ 0.86 $ 0.70 ======== ======== ========= =========
EX-15 3 LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION Exhibit 15--Letter Re: Unaudited Interim Financial Information Board of Directors AmSouth Bancorporation We are aware of the incorporation by reference in the following Registration Statements and in their related Prospectuses, of our report dated August 9, 1996 relating to the unaudited consolidated financial statements of AmSouth Bancorporation and subsidiaries which are included in its Form 10-Q for the quarter ended June 30, 1996: Form S-3 No. 33-55683 pertaining to the Dividend Reinvestment and Common Stock Purchase Plan; Form S-8 No. 33-52243 pertaining to the assumption by AmSouth Bancorporation of FloridaBank Stock Option Plan and FloridaBank Stock Option Plan- 1993; Form S-8 No. 33-52113 pertaining to the 1989 Long Term Incentive Compensation Plan; Form S-8 No. 33-35218 pertaining to the 1989 Long Term Incentive Compensation Plan; Form S-8 No. 33-37905 pertaining to the AmSouth Bancorporation Thrift Plan; Form S-8 No. 33-9368 pertaining to the Long Term Incentive Compensation Plan; Form S-8 No. 33-2927 (as amended) pertaining to the Employee Stock Purchase Plan; Form S-8 No. 2-97464 pertaining to the Long Term Incentive Compensation Plan; Form S-3 No. 33-35280 pertaining to the Dividend Reinvestment and Common Stock Purchase Plan; Form S-8 No. 33-19016 pertaining to the Long Term Incentive Compensation Plan; Form S-8 No. 33-18653 pertaining to the 1987 Substitute Stock Option Plan; Form S-8 No. 33-58777 pertaining to the Director Restricted Stock Plan; Form S-8 No. 333-02099 pertaining to the AmSouth Bancorporation Thrift Plan; Form S-3 No. 333-06641 pertaining to the AmSouth Bancorporation 7 1/2% Convertible Subordinated Debentures; and Form S-8 No. 333-05631 pertaining to the AmSouth Bancorporation 1996 Long Term Incentive Compensation Plan. Pursuant to Rule 436(c) of the Securities Act of 1933 our reports are not a part of the registration statements prepared or certified by accountants within the meaning of Sections 7 or 11 of the Securities Act of 1933. /s/ Ernst & Young LLP August 9, 1996 EX-27 4 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF CONDITION, THE CONSOLIDATED STATEMENT OF EARNINGS, AND TABLES 3, 7 AND 8 OF ITEM 2 OF THE AMSOUTH BANCORPORATION FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1996 JAN-31-1996 JUN-30-1996 553,049 0 7,575 3,603 2,514,195 2,770,228 2,737,124 11,613,277 178,724 18,140,447 12,948,319 2,902,665 187,533 709,858 0 0 60,029 1,332,043 18,140,447 498,534 164,970 4,145 667,649 263,841 349,789 317,860 29,169 2,841 251,191 152,098 152,098 0 0 95,868 1.69 1.69 3.90 83,583 39,944 0 0 178,451 39,068 10,172 178,724 0 0 0
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