-----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, Ga1/MIdRTDTqRDe9t4nmlM0Jeug8GX5uAogOAA7x8LQjDgUpoceKtslU/QoYuRFm /ZOnILbCgk29ydh6d+Is8w== /in/edgar/work/0000931763-00-002571/0000931763-00-002571.txt : 20001116 0000931763-00-002571.hdr.sgml : 20001116 ACCESSION NUMBER: 0000931763-00-002571 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMSOUTH BANCORPORATION CENTRAL INDEX KEY: 0000003133 STANDARD INDUSTRIAL CLASSIFICATION: [6022 ] IRS NUMBER: 630591257 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07476 FILM NUMBER: 768258 BUSINESS ADDRESS: STREET 1: 1900 FIFTH AVENUE NORTH STREET 2: AMSOUTH SONAT TOWER CITY: BIRMINGHAM STATE: AL ZIP: 35203 BUSINESS PHONE: 2053207151 MAIL ADDRESS: STREET 1: 1900 FIFTH AVENUE STREET 2: AMSOUTH SONAT TOWER CITY: BRIMINGHAM STATE: AL ZIP: 35203 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 0001.txt 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 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. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- AMSOUTH BANCORPORATION FORM 10-Q INDEX
Page ---- 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
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. PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) AMSOUTH BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CONDITION (Unaudited)
September 30 December 31 September 30 2000 1999 1999 ------------ ----------- ------------ (In thousands) 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 =========== =========== ===========
See notes to consolidated financial statements. 1 AMSOUTH BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS (Unaudited)
Three Months Nine Months Ended Ended September 30 September 30 ---------------------- ------------------ 2000 1999 2000 1999 ---------- ---------- -------- -------- (In thousands except per share data) 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
See notes to consolidated financial statements. 2 AMSOUTH BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited)
Deferred Compensation Accumulated on Other Common Capital Retained Treasury Restricted Comprehensive Stock Surplus Earnings Stock Stock Loss Total -------- -------- ---------- --------- ------------ ------------- ---------- (In thousands) 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 =========
See notes to consolidated financial statements. 3 AMSOUTH BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Nine Months Ended September 30 ------------------------ 2000 1999 ---------- ------------ (In thousands) 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 ========== ============
See notes to consolidated financial statements. 4 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 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:
First AmSouth American Combined -------- -------- ---------- (In thousands) 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
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:
Nine Months Ended September 30 -------------------- 2000 1999 ---------- --------- (In millions) 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 ========== =========
6 The following table presents a summary of activity with respect to AmSouth's merger-related accrual:
2000 1999 ----- ----- (In millions) 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 ===== =====
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:
Three Months Ended Nine Months Ended September 30 September 30 ------------------- ----------------- 2000 1999 2000 1999 --------- -------- -------- -------- (In thousands except per share data) 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
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 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:
Consumer Commercial Wealth Treasury Banking Banking Management & Other Total -------- ---------- ---------- --------- ---------- (In thousands) 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 ======== ========= ======== ========= ==========
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 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 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 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 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 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 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 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 Table 1--Financial Summary
September 30 ----------------------- % 2000 1999 Change ----------- ----------- ------ (In thousands) 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)
Nine Months Ended Three Months Ended September 30 September 30 ------------------ % --------------------- % 2000 1999 Change 2000 1999 Change -------- -------- ------ --------- --------- ------ (In thousands except per share data) 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
- -------- (1) Excludes merger-related costs and other special items. 16 Table 2--Year-to-Date Yields Earned on Average Interest-Earning Assets and Rates Paid on Average Interest-Bearing Liabilities
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) 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 ========== ==========
- -------- 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 Table 3--Quarterly Yields Earned on Average Interest-Earning Assets and Rates Paid on Average Interest-Bearing Liabilities
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) 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 ======== ======== ======== ======== 1999 ----------------------------------- Third Quarter -------------------------------- Yield/ Average Revenue/ Yield/ Rate Balance Expense Rate ------ ------------ -------- ------ 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 ========
- ---- 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 Table 4--Maturities and Interest Rates Exchanged on Swaps
Mature During ---------------------------------------------------------------- 2000 2001 2002 2003 2004 2005 2008 2009 Total ------ ----- ------ ----- ----- ----- ----- ----- ------ (Dollars in millions) 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%
- -------- 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
Net Charge-offs Nonperforming Nine Months Loans* Loans** Ended September 30 September 30 September 30 ----------------------- ----------------- ---------------- 2000 1999 2000 1999 2000 1999 ----------- ----------- -------- -------- ------- ------- (In thousands) 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 =========== =========== ======== ======== ======= =======
- -------- * Net of unearned income. ** Exclusive of accruing loans 90 days past due. 19 Table 6--Allowance for Loan Losses
2000 1999 ----------------------------------- ----------------------- 3rd Quarter 2nd Quarter 1st Quarter 4th Quarter 3rd Quarter ----------- ----------- ----------- ----------- ----------- (Dollars in thousands) 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%
- -------- * 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
2000 1999 ------------------------------- ------------------------ September 30 June 30 March 31 December 31 September 30 ------------ -------- -------- ----------- ------------ (Dollars in thousands) 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
- -------- * 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 Table 8--Investment Securities
September 30, 2000 September 30, 1999 --------------------- --------------------- Carrying Market Carrying Market Amount Value Amount Value ---------- ---------- ---------- ---------- (In thousands) 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 ========== ==========
- -------- 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
September 30 ------------------- 2000 1999 -------- ---------- (In thousands) 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 ======== ==========
21 Table 10--Capital Amounts and Ratios
September 30 ---------------------------------- 2000 1999 ---------------- ---------------- Amount Ratio Amount Ratio ---------- ----- ---------- ----- (Dollars in thousands) 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
22 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 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 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 EX-15 2 0002.txt LETTER RE- UNAUDITED FINANCIAL INFORMATION EXHIBIT 15 Exhibit 15 -- Letter Re: Unaudited Interim Financial Information Board of Directors AmSouth Bancorporation We are aware of the incorporation by reference in the following Registration Statements and in their related Prospectuses, of our report dated November 13, 2000, relating to the unaudited consolidated financial statements of AmSouth Bancorporation and subsidiaries which are included in its Form 10-Q for the quarter ended September 30, 2000: Form S-3 No. 33-55683 pertaining to the AmSouth Bancorporation 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 AmSouth Bancorporation 1989 Long Term Incentive Compensation Plan; Form S-8 No. 33-35218 pertaining to the AmSouth Bancorporation 1989 Long Term Incentive Compensation Plan; Form S-8 No. 33-37905 pertaining to the AmSouth Bancorporation Thrift Plan; Form S-8 No. 33-2927 (as amended) pertaining to the AmSouth Bancorporation Employee Stock Purchase Plan; Form S-3 No. 33-35280 pertaining to the AmSouth Bancorporation Dividend Reinvestment and Common Stock Purchase Plan; Form S-8 No. 333-02099 pertaining to the AmSouth Bancorporation Thrift Plan; Form S-8 No. 333-05631 pertaining to the AmSouth Bancorporation 1996 Long Term Incentive Compensation Plan; Form S-8 No. 333-27107 pertaining to the AmSouth Bancorporation Employee Stock Purchase Plan; Form S-8 No. 333-41599 pertaining to the AmSouth Bancorporation Deferred Compensation Plan and the Amended and Restated Deferred Compensation Plan for Directors of AmSouth Bancorporation; Form S-3 No. 333-44263 pertaining to the AmSouth Bancorporation Shelf Registration Statement; Form S-8 No. 333-76283 pertaining to the AmSouth Bancorporation Stock Option Plan for Outside Directors; Form S-8 No. 333-89451 pertaining to the First American Corporation 1993 Non-Employee Director Stock Option Plan; Form S-8 No. 333-89455 pertaining to the First American Corporation 1999 Broad-Based Employee Stock Option Plan; Form S-8 No. 333-89457 pertaining to the First American Corporation Star Award Plan; Form S-8 No. 333-89459 pertaining to the Deposit Guaranty Corporation Long Term Incentive Plans; Form S-8 No. 333-89461 pertaining to the First American Corporation 1991 Employee Stock Incentive Plan; Form S-8 No. 333-89463 pertaining to the Heritage Federal Bancshares, Inc. 1994 Stock Option Plan for Non-Employee Directors and 1992 Stock Option Plan and Incentive Compensation Plan for Non-Employee Directors; Form S-8 No. 333-89633 pertaining to the First American Corporation First Incentives Reward Savings Thrift Plan; Form S-3 No. 333-42542 pertaining to the AmSouth Bancorporation Dividend Reinvestment and Common Stock Purchase Plan; Form S-8 No. 333-42554 pertaining to the AmSouth Bancorporation Thrift Plan; Form S-8 No. 333-42556 pertaining to the AmSouth Bancorporation Employee Stock Purchase Plan; Form S-8 No. 333-42558 pertaining to the AmSouth Bancorporation Amended and Restated 1991 Employee Stock Incentive Plan; and Form S-8 No. 333-42560 pertaining to the Pioneer Bancshares, Inc. Long-Term Incentive 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 Birmingham, Alabama November 13, 2000 EX-27 3 0003.txt FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED STATEMENT OF CONDITION, THE CONSOLIDATED STATEMENT OF EARNINGS, THE CONSOLIDATED STATEMENT OF CASH FLOWS OF ITEM 1 OF PART I AND TABLES 2, 6, 7, AND 8 OF ITEM 2 OF PART I OF THE AMSOUTH BANCORPORATION FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000. 1,000 9-MOS 9-MOS DEC-31-2000 DEC-31-1999 JAN-01-2000 JAN-01-1999 SEP-30-2000 SEP-30-1999 1,182,521 1,493,199 0 0 205,465 185,705 13,079 75,728 1,939,431 8,197,989 6,754,735 4,703,929 6,620,957 4,597,159 24,481,792 26,255,232 377,344 365,427 39,395,701 43,425,019 26,790,431 27,399,600 3,087,233 5,966,118 761,610 611,732 5,994,741 6,272,512 0 0 0 0 416,949 417,804 2,344,737 2,757,253 39,395,701 43,425,019 1,699,559 1,565,671 638,098 572,975 12,672 18,763 2,350,329 2,157,409 776,490 663,327 1,291,342 1,030,724 1,058,987 1,126,685 172,000 67,927 (98,280) 5,688 1,082,151 1,068,092 274,824 622,414 274,824 622,414 0 0 0 0 202,568 403,022 0.53 1.03 0.52 1.02 3.66 4.08 146,069 161,843 78,314 44,644 0 0 0 0 363,476 373,756 123,167 108,929 39,626 32,673 377,344 365,427 377,344 365,427 0 0 0 0
-----END PRIVACY-ENHANCED MESSAGE-----