-----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, SEXTGb9TdAks5Wrht/C6RoVF5dJTvc/vmyHtZuR9XcN9uZq/GXAm4EZykrQFmsYj LQvYzUriuo8y2z9cAOs09A== 0000931763-01-000676.txt : 20010402 0000931763-01-000676.hdr.sgml : 20010402 ACCESSION NUMBER: 0000931763-01-000676 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMSOUTH BANCORPORATION CENTRAL INDEX KEY: 0000003133 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 630591257 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-07476 FILM NUMBER: 1587853 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-K 1 0001.txt FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Securities and Exchange Commission Washington, D.C. 20549 ---------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 Commission File Number 1-7476 ---------------- AmSouth Bancorporation (Exact Name of registrant as specified in its charter) Delaware 63-0591257 (State or other jurisdiction of (I.R.S. Employer 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) ---------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, par value $1.00 per share New York Stock Exchange Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None ---------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] The aggregate market value of the common equity held by nonaffiliates of the registrant as of February 20, 2001 was $6,356,739,350. (Note 1) As of February 28, 2001, AmSouth Bancorporation had 371,908,809 shares of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference herein: Annual Report to Shareholders for the year ended December 31, 2000: Part I, Part II Proxy Statement for Annual Meeting to be held April 19, 2001: Part III Note 1: In calculating the market value of the common equity held by nonaffiliates of AmSouth as disclosed on the cover page of this Form 10-K, AmSouth has treated as common equity held by affiliates only voting stock owned as of February 20, 2001 by its directors and principal executive officers and voting stock held by AmSouth's employee benefit plans; AmSouth has not treated for purposes of this response stock held by any of AmSouth's subsidiaries as pledgee or in a fiduciary capacity as stock held by affiliates of AmSouth. AmSouth had no nonvoting common equity outstanding at February 20, 2001. AmSouth's response to this item is not intended to be an admission that any person is an affiliate of AmSouth for any purpose other than this response. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- AMSOUTH BANCORPORATION Form 10-K INDEX
PAGE ---- PART I Item 1. Business........................................................ 3 Item 2. Properties...................................................... 9 Item 3. Legal Proceedings............................................... 9 Item 4. Submission of Matters to a Vote of Security Holders............. 9 Executive Officers of the Registrant..................................... 10 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................................................................. 11 Item 6. Selected Financial Data......................................... 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................... 12 Item 7A. Quantitative and Qualitative Disclosures about Market Risk...... 12 Item 8. Financial Statements and Supplementary Data..................... 13 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................................... 14 PART III Item 10. Directors and Executive Officers of the Registrant.............. 14 Item 11. Executive Compensation.......................................... 14 Item 12. Security Ownership of Certain Beneficial Owners and Management.. 14 Item 13. Certain Relationships and Related Transactions.................. 14 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8- K....................................................................... 15 SIGNATURES............................................................... 16 EXHIBIT INDEX............................................................ 18
2 PART I ITEM 1. BUSINESS General AmSouth Bancorporation (AmSouth) is a financial holding company and bank holding company, which was organized in 1970 as a Delaware corporation and began doing business in 1972. AmSouth offers a broad range of bank and bank- related services through its principal subsidiary AmSouth Bank (the Bank) and its other subsidiaries. At December 31, 2000, AmSouth had total consolidated assets of approximately $38.9 billion. The Bank is an Alabama banking corporation and a wholly owned subsidiary of AmSouth. As of December 31, 2000, the Bank had total consolidated assets of approximately $38.9 billion and total consolidated deposits of approximately $26.6 billion. As of December 31, 2000, the assets of the Bank constituted virtually all of the assets of AmSouth. On May 15, 2000, AmSouth announced the successful completion of the merger and systems conversion of all First American National Bank branches into the Bank. In conjunction with the conversion, AmSouth sold its Arkansas banking offices, which were located over 300 miles from other AmSouth markets. In addition, on September 29, 2000, AmSouth sold IFC Holdings, Inc., a third- party nationwide investment marketing subsidiary. During 2000, AmSouth also sold the company's Kentucky and Virginia banking offices. These divestitures and AmSouth's decision to discontinue its out-of-market dealer indirect loan origination business reflect AmSouth's record of exiting non-core businesses that do not meet its internal profitability targets, allowing management to focus on core businesses and execute internal growth strategies. For more information regarding divestitures, see "Management's Discussion and Analysis of Financial Condition and Results of Operations", which is incorporated herein by reference pursuant to Item 7 of this Form 10-K, and the "Notes to Consolidated Financial Statements", which are incorporated herein by reference pursuant to Item 8 of this Form 10-K. AmSouth has three reportable segments: Consumer Banking, Commercial Banking and Wealth Management. Consumer Banking delivers a full range of financial services to individuals and small businesses, including loan products such as residential mortgages, equity lending, credit cards, and loans for automobile and other personal financing needs, and various products designed to meet the credit needs of small businesses. Consumer Banking also offers various deposit products to meet customers' savings and transaction needs. Commercial Banking meets the requirements of large and middle market corporate customers with a comprehensive array of credit, treasury management, international and capital markets services. Included among these are several specialty services such as real estate finance, asset based lending, commercial leasing and healthcare banking. Wealth Management is comprised of fiduciary, retirement and broker/dealer services. This area includes traditional trust services as well as a substantial selection of investment management services such as AmSouth's proprietary mutual fund family. These services are offered to businesses and individuals through the Bank's approximately 600 offices located in Alabama, Florida, Tennessee, Mississippi, Louisiana and Georgia. In addition to these offices, the Bank operates a network of approximately 1,250 automated teller machines that are linked with shared automated tellers in all 50 states. Further segment information is included in Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 22 of the Notes to Consolidated Financial Statements, both of which are incorporated herein by reference pursuant to Item 8 of this Form 10-K. As of December 31, 2000, AmSouth and its subsidiaries had 12,296 full-time employees. Competition AmSouth's subsidiaries compete aggressively with banks located in Alabama, Florida, Tennessee, Mississippi, Louisiana and Georgia, as well as large banks in major financial centers, and with other financial institutions, such as savings and loan associations, credit unions, consumer finance companies, brokerage firms, insurance companies, investment companies, mortgage companies, and financial service operations of major 3 retailers, including automotive retailers. Competition is based on a number of factors, including prices, interest rates, services, and availability of products. At December 31, 2000, AmSouth was the 22nd largest bank holding company headquartered in the United States based on total assets. Competition between financial institutions is affected by the Gramm-Leach- Bliley Act, which was signed into law in November 1999. This Act significantly revised the laws regulating banks and bank holding companies and other providers of financial services, enabling bank holding companies and foreign banks that meet applicable statutory requirements--defined as financial holding companies--to engage in a broader range of services and to compete more efficiently in existing business lines. The Gramm-Leach-Bliley Act authorizes financial holding companies to engage in securities, insurance, and other activities that are financial in nature or incidental or complementary to a financial activity and, in the case of complementary activities, that do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally. AmSouth has qualified as a financial holding company under the Gramm-Leach-Bliley Act. The management of AmSouth cannot currently predict the full impact of the enactment of the Gramm-Leach-Bliley Act on AmSouth. Business Combinations AmSouth continually evaluates business combination opportunities and sometimes conducts due diligence activities in connection with them. As a result, business combination discussions and, in some cases, negotiations take place, and transactions involving the payment of cash, or the issuance of debt or equity securities by AmSouth could occur. Any future business combination or series of business combinations that AmSouth might undertake may be material, in terms of assets acquired or liabilities assumed, to AmSouth's financial condition. Supervision and Regulation The following discussion addresses the regulatory framework applicable to financial holding companies, bank holding companies and their subsidiaries, and provides certain specific information relevant to AmSouth. Regulation of financial institutions such as AmSouth and its subsidiaries is intended primarily for the protection of depositors, the deposit insurance funds of the Federal Deposit Insurance Corporation (the FDIC) and the banking system as a whole, and generally is not intended for the protection of stockholders or other investors. The following is a summary of certain statutes and regulations that apply to the operation of banking institutions. Changes in the applicable laws, and in their application by regulatory agencies, cannot necessarily be predicted, but may have a material effect on the business and results of banking organizations, including AmSouth. General As a financial holding company and bank holding company, AmSouth is subject to regulation and supervision by the Board of Governors of the Federal Reserve System (the Federal Reserve Board) under the Bank Holding Company Act of 1956, as amended (the BHCA). As a consequence of the Gramm-Leach-Bliley Act, a financial holding company may own insured depository institutions and engage through its non-bank affiliates in a broader range of financial activities than previously permissible for a bank holding company. These new activities include securities underwriting, dealing and distribution; insurance underwriting and sales; and "merchant banking." In addition, the new activities include any activity that the Federal Reserve Board, in conjunction with the Secretary of the Treasury, determines by rule or order to be "financial in nature or incidental to such financial activity." Also, the Federal Reserve Board (without the need for concurrence from the Secretary of the Treasury) may approve additional activities that it deems to be "complementary" to financial activities, provided such activities "do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally." The Federal Reserve is responsible for "umbrella" 4 supervision and examination of financial holding companies. Other federal and state regulators will regulate, supervise and examine the "functionally regulated subsidiaries" such as insurance companies and broker-dealers. In order to become a financial holding company, a company must satisfy the following criteria and elect to be treated as a financial holding company: (1) all depository institution subsidiaries of the financial holding company must be "well capitalized" and "well managed" and (2) all FDIC-insured depository institution subsidiaries (other than newly acquired insured depository institution subsidiaries, which are entitled to a limited exception) must have a "Satisfactory" or better rating under the Community Reinvestment Act of 1977 (CRA). If after registration as a financial holding company, any of a financial holding company's depository institution subsidiaries fails to satisfy either the well-capitalized or well-managed criterion, the financial holding company is subject to Federal Reserve Board sanctions that may include divestiture of the financial holding company's depository institution subsidiaries. Any financial holding company that subsequently fails to satisfy the CRA requirement with respect to any FDIC-insured depository institution subsidiary is precluded from engaging in certain financial activities either de novo or by acquisition until the CRA rating has been restored. The Bank is a state bank, chartered under the laws of Alabama, and is a member of the Federal Reserve System. It is generally subject to regulation and supervision by both the Federal Reserve Board and the Office of the Superintendent of Banking of the State of Alabama. The Bank is also an insured depository institution, and, therefore, subject to regulation in some respects by the FDIC. In addition, the Bank is subject to various requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be granted and the interest that may be charged thereon, and limitations on the types of investments that may be made and the types of services that may be offered. Various consumer laws and regulations also affect the operations of the Bank. In addition to the impact of regulation, commercial banks are affected significantly by the actions of the Federal Reserve Board as it attempts to control the money supply and credit availability in order to influence the economy. Payment of Dividends AmSouth is a legal entity separate and distinct from its banking and other subsidiaries. The principal source of cash flow for AmSouth, including cash flow to pay dividends on AmSouth's capital stock and interest and principal on any debt of AmSouth, is dividends from the Bank. There are statutory and regulatory limitations on the payment of dividends by the Bank to AmSouth as well as by AmSouth to its shareholders. The payment of dividends by AmSouth and the Bank also may be affected by other factors, such as the requirement to maintain capital at or above regulatory guidelines. See "Capital Adequacy and Related Matters" below. The Bank is required by Alabama law to obtain approval of the Superintendent of the State Banking Department of Alabama prior to the payment of dividends if the total of all dividends declared by the Bank in any calendar year will exceed the total of (a) the Bank's net earnings (as defined by statute) for that year plus (b) its retained net earnings for the preceding two years, less any required transfers to surplus. Also, no dividends may be paid from the Bank's surplus without the prior written approval of the Superintendent. In addition, the Bank is required by federal law to obtain approval from the Federal Reserve Board for the payment of dividends if the total of all dividends declared by the Board of Directors of the Bank in any year could exceed the total of (a) the Bank's net income (as reportable in its Reports of Condition and Income) for that year, plus (b) the Bank's retained net income (as defined and interpreted by regulation) for the preceding two years, less any net losses incurred in the current or prior two years and any required transfers to surplus or a fund for the retirement of preferred stock. Furthermore, if, in the opinion of the applicable federal bank regulatory authority, a bank under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which, depending on the financial condition of the bank, could include the payment of dividends), such authority may require, after notice and a hearing, that such bank cease and desist from such practice. The Federal Reserve Board has indicated that paying dividends that deplete a bank's capital base to an inadequate level would be an unsafe and unsound 5 banking practice. In addition, the Federal Deposit Insurance Act (the FDI Act) imposes restrictions on the payments of dividends by the Bank, as described under "Capital Adequacy and Related Matters--Prompt Corrective Action" below. Moreover, the Federal Reserve Board has issued a policy statement that provides that bank holding companies and state member banks should generally pay dividends only out of current operating earnings. Under dividend restrictions imposed under federal and Alabama law, including those described above, the Bank, without obtaining government approvals, could declare aggregate dividends in 2001 of an amount equal to its net income for 2001. Capital Adequacy and Related Matters Capital Guidelines AmSouth is subject to risk-based capital guidelines adopted by the Federal Reserve Board. The minimum guideline for the ratio of total regulatory capital (Total Capital) to risk-weighted assets (including certain off-balance-sheet items, such as standby letters of credit) is 8 percent. At least half of the Total Capital must be composed of common stockholders' equity, retained earnings, minority interests in the equity accounts of consolidated subsidiaries, noncumulative perpetual preferred stock, and a limited amount of qualifying cumulative perpetual preferred stock, less goodwill and certain other intangible assets (Tier 1 Capital). The remainder may consist of subordinated debt, other preferred stock and a limited amount of loan loss reserves. At December 31, 2000, AmSouth's consolidated Tier 1 Capital and Total Capital ratios were 7.66 percent and 11.09 percent, respectively. In addition, the Federal Reserve Board has established minimum leverage ratio guidelines for bank holding companies. The guidelines provide for a minimum ratio of Tier 1 Capital to average assets, less goodwill and certain other intangible assets (the Leverage Ratio), of 3 percent for bank holding companies that meet certain specific criteria, including having the highest regulatory rating. All other bank holding companies generally are required to maintain a Leverage Ratio of at least 3 percent, plus an additional cushion of 100 to 200 basis points. AmSouth's Leverage Ratio at December 31, 2000 was 6.72 percent. The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the Federal Reserve Board has indicated that it will consider a "Tangible Tier 1 Capital Leverage Ratio" (deducting all intangibles) and other indicators of capital strength in evaluating proposals for expansion or new activities. The Bank is also subject to risk-based and leverage capital requirements, similar to those described above. The Bank complied with applicable minimum capital requirements as of December 31, 2000. Neither AmSouth nor the Bank has been advised by any federal banking agency of any specific minimum Leverage Ratio requirement applicable to it. At December 31, 2000, the Bank's Tier 1 Capital, Total Capital and Leverage ratios were 9.64 percent, 11.67 percent and 8.44 percent, respectively. The Federal Reserve Board has adopted modifications to the Tier 1 Capital and Total Capital ratios applicable to both banks and bank holding companies that are intended to address "market risk" arising from large trading portfolios. These modifications are applicable only to banks and bank holding companies whose trading activities exceed certain thresholds, and to those that voluntarily comply with the market risk capital requirement. AmSouth is not subject to, and has not voluntarily adopted, these new requirements. Bank regulators have the authority generally to raise capital requirements applicable to banking organizations beyond their current levels. However, the management of AmSouth is unable to predict whether and when higher capital requirements would be imposed, and, if so, at what levels and on what schedule. 6 Prompt Corrective Action The FDI Act requires the federal banking regulators to take prompt corrective action in respect of FDIC-insured depository institutions that do not meet minimum capital requirements. The FDI Act establishes five capital tiers: "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized." Under applicable regulations, a state member bank (such as the Bank) is defined as well capitalized if it maintains a Leverage Ratio of at least 5 percent, a risk-adjusted Tier 1 Capital Ratio of at least 6 percent, and a Total Capital Ratio of at least 10 percent and is not subject to any order or written directive to maintain any specific capital level. A state member bank is defined as adequately capitalized if it maintains a Leverage Ratio of at least 4 percent, a risk-adjusted Tier 1 Capital Ratio of at least 4 percent, and a Total Capital Ratio of at least 8 percent. In addition, a state member bank will be considered: (a) undercapitalized if it fails to meet any minimum required measure; (b) significantly undercapitalized if it is significantly below such measure; and (c) critically undercapitalized if it fails to maintain a level of tangible equity equal to not less than 2 percent of total assets. A state member bank may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it is operating in an unsafe or unsound manner or receives an unsatisfactory examination rating. AmSouth believes that at December 31, 2000, the Bank had capital ratios sufficient to qualify as "well capitalized." The FDI Act generally prohibits an FDIC-insured depository institution from making any capital distribution (including payment of dividends) or paying any management fee to its holding company if the depository institution would thereafter be undercapitalized. Undercapitalized insured depository institutions are subject to restrictions on borrowing from the Federal Reserve System. In addition, undercapitalized depository institutions are subject to growth limitations and are required to submit capital restoration plans. An insured depository institution's holding company must guarantee the capital plan, up to an amount equal to the lesser of 5 percent of the depository institution's assets at the time it becomes undercapitalized or the amount of the capital deficiency when the institution fails to comply with the plan. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution's capital. If an insured depository institution fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized. Significantly undercapitalized insured depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and cessation of receipt of deposits from correspondent banks. Critically undercapitalized insured depository institutions are subject to appointment of a receiver or conservator. Brokered Deposits and Pass-Through Insurance The FDIC has adopted regulations under the FDI Act governing the receipt of brokered deposits. Under the regulations, an FDIC-insured depository institution cannot accept, roll over or renew brokered deposits unless (a) it is well capitalized or (b) it is adequately capitalized and receives a waiver from the FDIC. A depository institution that cannot receive brokered deposits also cannot offer "pass-through" insurance on certain employee benefit accounts. Whether or not it has obtained such a waiver, an adequately capitalized depository institution may not pay an interest rate on any deposits in excess of 75 basis points over certain prevailing market rates specified by regulation. There are no such restrictions on a depository institution that is well capitalized. Because the Bank was well capitalized as of December 31, 2000, AmSouth believes the brokered deposits regulation will have no material effect on the funding or liquidity of the Bank. Holding Company Structure There are various legal restrictions on the extent to which AmSouth and certain of its nonbank subsidiaries may borrow or otherwise obtain funding from the Bank. The Bank (and its subsidiaries) may only engage in lending and other "covered transactions" with such nonbank and nonsavings bank affiliates to the following extent: (a) in the case of any single such affiliate, the aggregate amount of covered transactions of the Bank and 7 its subsidiaries may not exceed 10 percent of the capital stock and surplus of the Bank; and (b) in the case of all affiliates, the aggregate amount of covered transactions of the Bank and its subsidiaries may not exceed 20 percent of the capital stock and surplus of the Bank. Loans and certain other covered transactions also are subject to certain collateralization requirements. "Covered transactions" are defined by statute to include a loan or extension of credit, as well as a purchase of securities issued by an affiliate, a purchase of assets (unless otherwise exempted by the Federal Reserve Board) from the affiliate, the acceptance of securities issued by the affiliate as collateral for a loan, and the issuance of a guarantee, acceptance, or letter of credit on behalf of an affiliate. In addition, all transactions between an insured bank and such affiliates must be on an "arms length" basis. Under Federal Reserve Board policy, AmSouth is expected to act as a source of financial strength to, and to commit resources to support, the Bank. This support may be required at times when, absent such Federal Reserve Board policy, AmSouth may not be inclined to provide it. In addition, any capital loans by a bank holding company to a subsidiary bank are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. In the event of a bank holding company's bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment. The FDI Act provides that, in the event of the "liquidation or other resolution" of an insured depository institution, the claims of depositors of such institution (including claims by the FDIC as subrogee of insured depositors) and certain claims for administrative expenses of the FDIC as receiver would be afforded a priority over other general unsecured claims against the institution including any claims of the bank's holding company as a creditor. If an insured depository institution fails, insured and uninsured depositors, along with the FDIC, will be placed ahead of unsecured, nondeposit creditors, including a parent holding company such as AmSouth, in its capacity as creditor, in order of priority of payment. FDIC Deposit Insurance Assessments The Bank is subject to FDIC deposit insurance assessments pursuant to two separate assessment schedules, one applicable to those deposits insured by the Bank Insurance Fund (BIF) and another applicable to those deposits insured by the Savings Association Insurance Fund (SAIF). The FDIC's current risk-based system places a bank in one of nine risk categories, principally on the basis of its capital level and an evaluation of the bank's risk to the fund, and bases premiums on the probability of loss to the FDIC with respect to each individual bank. Currently, the FDIC's risk- based system provides that the highest and lowest annual assessments per $100 of deposits insured by the BIF or SAIF are $.27 and $0. The assessment rate schedule is subject to change by the FDIC and accordingly assessment rates could increase in the future. The Bank's total FDIC assessments were $1.9 million pretax in 2000. Liability for Affiliate Insured Depository Institutions Under the FDI Act, an insured depository institution, such as the Bank, can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with (a) the default of a commonly controlled FDIC- insured depository institution or (b) any assistance provided by the FDIC to any commonly controlled FDIC-insured depository institution "in danger of default." "Default" is defined generally as the appointment of a conservator or receiver and "in danger of default" is defined generally as the existence of certain conditions indicating that a default is likely to occur in the absence of regulatory assistance. The Bank is currently the only depository institution subsidiary of AmSouth. It is possible, however, that AmSouth will have other depository institution subsidiaries in the future. Privacy Provisions of Gramm-Leach-Bliley Act Under the Gramm-Leach-Bliley Act, federal banking regulators have adopted new rules requiring disclosure of privacy policies and information sharing practices to consumers. These rules prohibit depository institutions 8 from sharing customer information with nonaffiliated third parties without the customer's consent, except in certain limited situations, and require disclosure of privacy policies to consumers and, in some circumstances, enable consumers to prevent disclosure of certain personal information to nonaffiliated third parties. These rules were effective on November 13, 2000 but compliance is optional until July 1, 2001. The disclosure requirements and implementation of the privacy laws will not materially increase AmSouth's operating expenses. Development of risk management systems to comply with all required privacy provisions is underway. ITEM 2. PROPERTIES The executive offices of AmSouth are located in the AmSouth-Sonat Tower in downtown Birmingham, Alabama. An undivided one-half interest in this building is owned by the Bank through an unincorporated joint venture. The Bank is a principal tenant of this building. The Bank is also a principal tenant of other multi-story office buildings and has other banking and operational offices located in its six-state market area. At December 31, 2000, AmSouth and its subsidiaries had 709 offices (principally bank buildings) of which 439 were owned and 270 were either leased or subject to a ground lease. ITEM 3. LEGAL PROCEEDINGS Several of AmSouth's subsidiaries are defendants in legal proceedings arising in the ordinary course of business. Some of these proceedings seek relief or damages that are substantial. The actions relate to AmSouth's lending, collections, loan servicing, deposit taking, investment, trust and other activities. Among the actions which are pending against AmSouth subsidiaries are actions filed as class actions. 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 lawsuits against AmSouth have been filed in Mississippi relative to the amount of deposits held by AmSouth in Mississippi. In addition, lawsuits brought in Alabama and Mississippi against AmSouth and other corporate defendants typically demand higher damages than similar lawsuits brought elsewhere. Legislation has been 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters brought to a vote of security holders during the fourth quarter of 2000. 9 Executive Officers of the Registrant The executive officers of AmSouth, their ages, the positions held by them with AmSouth and certain of its subsidiaries, and their principal occupations for the last five years are as follows: C. Dowd Ritter 53 Chairman of AmSouth (September 1996 to October 1999 and January 2001 to date) and AmSouth Bank (September 1996 to date), President and Chief Executive Officer (January 1996 to date) of AmSouth and AmSouth Bank, and Director (1993 to date) of AmSouth and AmSouth Bank. Sloan D. Gibson 47 Vice Chairman (April 2000 to date), Chief Financial Officer (October 1997 to October 1999 and April 2000 to date) and Finance and Credit Group Head (April 2000 to date) of AmSouth and AmSouth Bank. Formerly, Senior Executive Vice President (October 1994 to April 2000) of AmSouth and AmSouth Bank, Tennessee/Mississippi/Louisiana Banking Group Head (October 1999 to April 2000) of AmSouth Bank, President and Chief Executive Officer (October 1999 to December 1999) of First American National Bank, and Finance, Commercial and Credit Group Head (October 1993 to December 1999) of AmSouth and AmSouth Bank. Candice W. Bagby 51 Senior Executive Vice President and Consumer Banking Group Head of AmSouth and AmSouth Bank (August 1995 to date). Grayson Hall 43 Senior Executive Vice President (December 2000 to date) and Operations and Technology Division Head (January 1993 to date) of AmSouth and AmSouth Bank. Formerly, Executive Vice President (June 1994 to December 2000) of AmSouth and AmSouth Bank. W. Charles Mayer, III 46 Senior Executive Vice President (October 1994 to date) of AmSouth and AmSouth Bank and Alabama Banking Group Head (October 1999 to date) and Commercial Banking Group Head (November 2000 to date) of AmSouth Bank. Formerly, Alabama/ Tennessee/Georgia Banking Group Head (November 1997 to October 1999), Birmingham City President (May 1995 to December 1998) of AmSouth Bank, and Alabama Banking Group Head (May 1995 to October 1997). Beth E. Mooney 46 Senior Executive Vice President of AmSouth and AmSouth Bank and Tennessee/North Louisiana Banking Group Head (June 2000 to date). Formerly, President (June 1999 to June 2000) of Bank One, NA, Chief Operating Officer (June 1998 to June 1999) of DPL Incorporated (electric public utility), and Chairman and Chief Executive Officer (September 1995 to June 1998) Bank One Dayton, NA. E. W. Stephenson, Jr. 54 Senior Executive Vice President of AmSouth (July 1993 to date), Senior Executive Vice President of AmSouth Bank and Florida Banking Group Head (July 1997 to date) and Mississippi Banking Group Head (November 2000 to date). Formerly, Chairman of the Board and Chief Executive Officer of AmSouth Bank of Florida (July 1993 to June 1997). David B. Edmonds 47 Executive Vice President and Human Resources Director of AmSouth and AmSouth Bank (October 1994 to date). Stephen A. Yoder 47 Executive Vice President and General Counsel (August 1995 to date) and Secretary (October 1999 to date) of AmSouth and AmSouth Bank.
10 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AmSouth's common stock, par value $1.00 per share, is listed for trading on the New York Stock Exchange under the symbol ASO. Quarterly high and low sales prices of, and cash dividends declared on, AmSouth common stock are set forth in Note 25 of the Notes to Consolidated Financial Statements, which are incorporated herein by reference pursuant to Item 8 of this Form 10-K. As of February 20, 2001, there were approximately 32,338 holders of record of AmSouth's common stock (including participants in the Dividend Reinvestment and Common Stock Purchase Plan). Restrictions on the ability of the Bank to transfer funds to AmSouth at December 31, 2000, are set forth in Note 18 of the Notes to Consolidated Financial Statements, which are incorporated herein by reference pursuant to Item 8 of this Form 10-K. A discussion of certain limitations on the ability of the Bank to pay dividends to AmSouth, and the ability of AmSouth to pay dividends on its common stock, is set forth in Part I under the headings "Supervision and Regulation--Payment of Dividends" and "Supervision and Regulation--Capital Adequacy and Related Matters." ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data for the last five years.
2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- (Dollars in thousands except per share data) Earnings summary Net interest income..... $ 1,379,103 $ 1,507,944 $ 1,444,284 $ 1,384,729 $ 1,279,138 Provision for loan losses................. 227,600 165,626 99,067 83,508 71,608 ----------- ----------- ----------- ----------- ----------- Net interest income after provision for loan losses............ 1,151,503 1,342,318 1,345,217 1,301,221 1,207,530 Noninterest revenues.... 669,494 847,560 799,854 658,724 542,289 Merger-related costs.... 110,178 301,415 121,725 0 0 Noninterest expenses excluding merger- related costs.......... 1,256,257 1,347,092 1,284,547 1,221,675 1,129,509 ----------- ----------- ----------- ----------- ----------- Income before income taxes.................. 454,562 541,371 738,799 738,270 620,310 Income taxes............ 125,435 200,903 264,725 264,589 223,455 ----------- ----------- ----------- ----------- ----------- Net income............ $ 329,127 $ 340,468 $ 474,074 $ 473,681 $ 396,855 =========== =========== =========== =========== =========== Earnings per common share.................. $ 0.86 $ 0.87 $ 1.22 $ 1.20 $ 1.00 Diluted earnings per common share........... 0.86 0.86 1.20 1.18 0.98 Cash dividends declared............... 0.81 0.71 0.57 0.51 0.48 Return on average assets................. 0.79% 0.81% 1.22% 1.32% 1.14% Return on average equity................. 11.57 10.69 15.33 16.00 13.92 Operating efficiency.... 64.72 69.24 61.97 59.20 61.25 Selected year end balances Loans net of unearned income................. $24,616,435 $26,266,759 $24,445,296 $24,415,004 $23,124,651 Assets.................. 38,935,978 43,415,351 40,639,522 37,381,105 36,070,557 Deposits................ 26,623,304 27,912,443 28,533,760 27,045,700 26,003,593 Long-term debt.......... 5,883,405 5,603,486 4,392,825 2,247,442 1,876,237 Shareholders' equity.... 2,813,407 2,959,205 3,207,424 3,029,138 2,939,725
11
2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- (Dollars in thousands except per share data) Selected average balances Loans net of unearned income................. $25,879,910 $25,471,295 $24,027,839 $23,753,817 $22,318,990 Assets.................. 41,860,171 41,817,240 38,842,481 35,918,328 34,929,393 Deposits................ 27,323,133 27,718,029 27,150,710 26,260,410 25,762,126 Long-term debt.......... 6,031,983 5,292,217 3,791,953 1,869,577 1,369,292 Shareholders' equity.... 2,844,987 3,185,084 3,091,737 2,960,023 2,851,421 Selected ratios Net interest margin..... 3.75% 4.02% 4.14% 4.27% 4.07% Allowance for loan losses to loans net of unearned income........ 1.55 1.35 1.51 1.50 1.60 Nonperforming assets to loans net of unearned income, foreclosed properties and repossessions.......... 0.80 0.61 0.54 0.53 0.61 Ending equity to ending assets................. 7.23 6.82 7.89 8.10 8.15 Average equity to average assets.......... 6.80 7.62 7.96 8.24 8.16 Common stock data Cash dividends declared................ $ 0.81 $ 0.71 $ 0.57 $ 0.51 $ 0.48 Book value.............. 7.53 7.56 8.12 7.75 7.40 Tangible book value..... 6.61 6.48 6.94 6.46 6.20 Market value at year end..................... 15.25 19.31 30.42 24.14 14.33 Total trading volume(1)(2)............ 236,154 195,110 80,164 98,833 83,267 Dividend yield at year end..................... 5.51% 4.14% 2.19% 2.21% 3.47%
- -------- (1) In thousands (2) Amounts prior to 1999 have not been restated to reflect signifcant business combinations. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" of AmSouth's 2000 Annual Report to Shareholders is hereby incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this item is included on pages 51 and 52 of "Management's Discussion and Analysis of Financial Condition and Results of Operations," which is incorporated herein by reference pursuant to Item 7, above. 12 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements of AmSouth and Subsidiaries, the accompanying Notes to Consolidated Financial Statements, Management's Statement on Responsibility for Financial Reporting, and the Report of Independent Auditors contained in AmSouth's 2000 Annual Report to Shareholders are hereby incorporated herein by reference. The Report of Independent Auditors, KPMG LLP, for First American Corporation for the year ended December 31, 1998 is included herein as follows: Independent Auditors' Report The Board of Directors AmSouth Bancorporation: We have audited the consolidated income statement, changes in shareholders' equity, and cash flows of First American Corporation and subsidiaries for the year ended December 31, 1998. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, First American Corporation and subsidiaries' results of operations and their cash flows for the year ended December 31, 1998, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP January 21, 1999 13 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information on the directors and director nominees of AmSouth included at pages 6, 8 and 10 of AmSouth's Proxy Statement for the Annual Meeting of Shareholders to be held on April 19, 2001 (the Proxy Statement) and the information incorporated by reference pursuant to Item 13 below is hereby incorporated herein by reference. Information on AmSouth's executive officers is included in Part I of this report. Information regarding late filings under Section 16(a) of the Securities Exchange Act of 1934 included at page 13 of the Proxy Statement under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" is hereby incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Information regarding compensation of directors and executive officers included at pages 13 through 21 of the Proxy Statement is hereby incorporated herein by reference. However, the information provided in the Proxy Statement under the headings "Executive Compensation Committee Report on Executive Compensation" and "Performance Graph" shall not be deemed to be "soliciting material" or to be "filed" with the Securities and Exchange Commission, or subject to Regulation 14A or 14C, other than as provided in Item 402 of Regulation S-K, or to liabilities of Section 18 of the Securities Exchange Act of 1934. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth under the caption "Voting Securities and Principal Holders Thereof " at pages 2 through 5 of the Proxy Statement is hereby incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth in the Proxy Statement under the caption "Certain Relationships, Related Transactions and Legal Proceedings" at page 13 thereof is hereby incorporated herein by reference. 14 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial Statements and Financial Statement Schedules Financial Statements The following management's statement on responsibility for financial reporting, report of independent auditors and consolidated financial statements of AmSouth and its subsidiaries included in AmSouth's 2000 Annual Report to Shareholders are incorporated herein by reference pursuant to Item 8. Management's Statement on Responsibility for Financial Reporting Report of Ernst & Young LLP, Independent Auditors Consolidated Statement of Condition--December 31, 2000 and 1999 Consolidated Statement of Earnings--Years ended December 31, 2000, 1999 and 1998 Consolidated Statement of Shareholders' Equity--Years ended December 31, 2000, 1999 and 1998 Consolidated Statement of Cash Flows--Years ended December 31, 2000, 1999 and 1998 Notes to Consolidated Financial Statements The Report of Independent Auditors, KPMG LLP, is included herein under Item 8. Financial Statement Schedules All schedules to the consolidated financial statements required by Article 9 of Regulation S-X and all other schedules to the financial statements of AmSouth required by Article 5 of Regulation S-X are not required under the related instructions or are inapplicable and, therefore, have been omitted, or the required information is contained in the Consolidated Financial Statements or the notes thereto, which are incorporated herein by reference pursuant to Item 8, Financial Statements and Supplementary Data. (b) Reports on Form 8-K Two reports on Form 8-K were filed by AmSouth during the period October 1, 2000 to December 31, 2000: (a) A report was filed on October 17, 2000, regarding earnings from operations in the third quarter ended September 30, 2000. (b) A report was filed on October 23, 2000, with respect to a presentation made by management on October 23, 2000 at a conference sponsored by UBS Warburg. (c) Exhibits The exhibits listed in the Exhibit Index at page 18 of this Form 10-K are filed herewith or are incorporated herein by reference. 15 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AmSouth Bancorporation /s/ C. Dowd Ritter By: _________________________________ C. Dowd Ritter Chairman, President and Chief Executive Officer Date: March 29, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ C. Dowd Ritter Chairman, President and March 29, 2001 By: __________________________________ Chief Executive Officer C. Dowd Ritter (Principal Executive Officer) /s/ Sloan D. Gibson Vice Chairman and Chief March 29, 2001 By: __________________________________ Financial Officer Sloan D. Gibson (Principal Financial Officer) /s/ Donald R. Kimble Executive Vice President, March 29, 2001 By: __________________________________ Controller and Donald R. Kimble Chief Accounting Officer (Principal Accounting Officer) * A Director March 29, 2001 By: __________________________________ J. Harold Chandler * A Director March 29, 2001 By: __________________________________ James E. Dalton, Jr. * A Director March 29, 2001 By: __________________________________ Earnest W. Deavenport, Jr. * A Director March 29, 2001 By: __________________________________ Rodney C. Gilbert
16
Signature Title Date --------- ----- ---- * A Director March 29, 2001 By: __________________________________ Elmer B. Harris * A Director March 29, 2001 By: __________________________________ Martha R. Ingram * A Director March 29, 2001 By: __________________________________ Victoria B. Jackson * A Director March 29, 2001 By: __________________________________ Ronald L. Kuehn, Jr.
* A Director March 29, 2001 By: __________________________________ James R. Malone * A Director March 29, 2001 By: __________________________________ Claude B. Nielsen * A Director March 29, 2001 By: __________________________________ John N. Palmer * A Director March 29, 2001 By: __________________________________ Benjamin F. Payton, Ph.D.
- -------- * Carl L. Gorday, by signing his name hereto, does sign this document on behalf of each of the persons indicated above pursuant to powers of attorney executed by such persons and filed with the Securities and Exchange Commission. /s/ Carl L. Gorday By: _________________________________ Carl L. Gorday Attorney in Fact 17 EXHIBIT INDEX The following is a list of exhibits including items incorporated by reference. Compensatory plans and arrangements are identified by an asterisk. 2 Agreement and Plan of Merger, dated May 31, 1999 (1) 3-a Restated Certificate of Incorporation of AmSouth Bancorporation (2) 3-b Bylaws of AmSouth Bancorporation (3) 4-a Agreement for Advances and Security Agreement with Blanket Floating Lien 4-b Stockholder Protection Rights Agreement dated as of December 18, 1997, including as Exhibit A the forms of Rights Certificate and of Election to Exercise and as Exhibit B the form of Certificate of Designation and Terms of Series A Preferred Stock (5) *10-a AmSouth Bancorporation Executive Incentive Plan (6) *10-b AmSouth Bancorporation Relocation Policy for Executive Officers (7) *10-c AmSouth Bancorporation Supplemental Retirement Plan (8) *10-d 1989 AmSouth Bancorporation Long Term Incentive Compensation Plan (9) *10-e Amendment No. 1 to the 1989 AmSouth Bancorporation Long Term Incentive Compensation Plan (10) *10-f Amendment No. 2 to the 1989 AmSouth Bancorporation Long Term Incentive Compensation Plan (11) *10-g 1997 Performance Incentive Plan (12) *10-h 1996 Long Term Incentive Compensation Plan (13) Amended and Restated Deferred Compensation Plan for Directors of AmSouth *10-i Bancorporation (14) *10-j AmSouth Bancorporation Supplemental Thrift Plan (15) Amendment Number One to the AmSouth Bancorporation Supplemental Thrift *10-k Plan (16) *10-l Employment Agreement for C. Dowd Ritter (17) *10-m Form of Change-in-Control Agreement for certain Executive Officers (18) *10-n AmSouth Bancorporation Deferred Compensation Plan (19) *10-o Amended and Restated Stock Option Plan for Outside Directors (20) *10-p Life Insurance Agreement (21) *10-q Supplemental Long-Term Disability Plan (22) AmSouth Bancorporation Amended and Restated 1991 Employee Stock *10-r Incentive Plan (23) First American Corporation 1993 Non-Employee Director Stock Option Plan *10-s (24) First American Corporation Directors' Deferred Compensation Plan as *10-t amended October 18, 1996 (25) *10-u First American Corporation Supplemental Executive Retirement Program dated as of January 1, 1989 (26) 13 AmSouth Bancorporation's 2000 Annual Report to Shareholders, excluding the portions thereof not incorporated by reference in this Form 10-K 21 List of Subsidiaries of AmSouth Bancorporation 23-a Consent of Ernst & Young LLP, Independent Auditors 23-b Consent of KPMG LLP, Independent Auditors 24 Powers of Attorney
18 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 (4) Other instruments defining the rights of holders of long-term debt of AmSouth are not filed herewith pursuant to Item 601(b)(4)(iii) of Regulation S-K, and AmSouth hereby agrees to furnish a copy of said instruments to the SEC upon request (5) Filed as Exhibit 4.1 to AmSouth's Report on Form 8-K filed December 18, 1997, incorporated herein by reference (6) Filed as Exhibit 10-a to AmSouth's Form 10-K Annual Report for the year ended December 31, 1997, incorporated herein by reference (7) Filed as Exhibit 10-b to AmSouth's Form 10-K Annual Report for the year ended December 31, 1996, incorporated herein by reference (8) Filed as Exhibit 10-c to AmSouth's Form 10-K Annual Report for the year ended December 31, 1995, incorporated herein by reference (filed with the Securities and Exchange Commission in Washington, D.C., SEC File No. 1- 7476, former File No. 0-6907) (9) Filed as Exhibit 10 to AmSouth's Form 10-Q Quarterly Report for the quarter ended March 31, 1993, incorporated herein by reference (filed with the Securities and Exchange Commission in Washington, D.C., SEC File No. 1-7476, former File No. 0-6907) (10) Filed as Exhibit 10-k to AmSouth's Form 10-K Annual Report for the year ended December 31, 1994, incorporated herein by reference (filed with the Securities and Exchange Commission in Washington, D.C., SEC File No. 1- 7476, former File No. 0-6907) (11) Filed as Exhibit 10-a to AmSouth's Form 10-Q Quarterly Report for the quarter ended September 30, 1995, incorporated herein by reference (filed with the Securities and Exchange Commission in Washington, D.C., SEC File No. 1-7476, former File No. 0-6907) (12) Filed as Appendix A to AmSouth's Proxy Statement, dated March 10, 1997, for the Annual Meeting of Shareholders on April 17, 1997, incorporated herein by reference (13) Filed as Exhibit 10-p to AmSouth's Form 10-K Annual Report for the year ended December 31, 1996, incorporated herein by reference (14) Filed as Exhibit 10-q to AmSouth's Form 10-K Annual Report for the year ended December 31, 1997, incorporated herein by reference (15) Filed as Exhibit 10-q to AmSouth's Form 10-K Annual Report for the year ended December 31, 1995, incorporated herein by reference (filed with the Securities and Exchange Commission in Washington, D.C., SEC File No. 1- 7476, former File No. 0-6907) (16) Filed as Exhibit 10-r to AmSouth's Form 10-K Annual Report for the year ended December 31, 1995, incorporated herein by reference (filed with the Securities and Exchange Commission in Washington, D.C., SEC File No. 1- 7476, former File No. 0-6907) (17) Filed as Exhibit 10-m to AmSouth's Form 10-K Annual Report for the year ended December 31, 1999, incorporated herein by reference (18) Filed as Exhibit 10-n to AmSouth's Form 10-K Annual Report for the year ended December 31, 1999, incorporated herein by reference. Agreements in this form have been entered into with the following Executive Officers: David B. Edmonds, Sloan D. Gibson, Grayson Hall, W. Charles Mayer, III, Candice W. Bagby, E. W. Stephenson, Jr., Beth E. Mooney and Stephen A. Yoder (19) Filed as Exhibit 10-b to AmSouth's Form 10-Q Quarterly Report for the quarter ended March 31, 2000, incorporated herein by reference 19 (20) Filed as Exhibit 10 to AmSouth's Form 10-Q Quarterly Report for the quarter ended June 30, 2000, incorporated herein by reference (21) Filed as Exhibit 10-a to AmSouth's Form 10-Q Quarterly Report for the quarter ended March 31, 1998, incorporated herein by reference (22) Filed as Exhibit 10-b to AmSouth's Form 10-Q Quarterly Report for the quarter ended March 31, 1998, incorporated herein by reference (23) Filed as part of First American Corporation's Proxy Statement dated March 18, 1991 for the Annual Meeting of Shareholders held April 19, 1991 with amendments filed as part of the Proxy Statements for the Annual Meetings held on April 21, 1994 and April 17, 1997, incorporated herein by reference (filed with the Securities and Exchange Commission in Washington, D.C., SEC File No. 0-6198) (24) Filed as part of First American Corporation's Proxy Statement dated March 18, 1993 for the Annual Meeting of Shareholders on April 15, 1993, incorporated herein by reference (filed with the Securities and Exchange Commission in Washington, D.C., SEC File No. 0-6198) (25) Filed as Exhibit 10.3(e) to First American Corporation's Annual Report on Form 10-K for the year ended December 31, 1996, incorporated herein by reference (26) Filed as Exhibit 19.2 to First American Corporation's Annual Report on Form 10-K for the year ended December 31, 1992, incorporated herein by reference (filed with the Securities and Exchange Commission in Washington, D.C., SEC File No. 0-6198). 20 EX-4.A 2 0002.txt AGREEMENT FOR ADVANCES AND SECURITY AGREEMENT EXHIBIT 4-a FEDERAL HOME LOAN BANK OF ATLANTA AGREEMENT FOR ADVANCES AND SECURITY AGREEMENT WITH BLANKET FLOATING LIEN AGREEMENT, dated as of April 26, 1996, between AmSouth Bank of Alabama having its principal place of business at 1900 5th Avenue North Birmingham, Alabama ("Member") and the Federal Home Loan Bank of Atlanta, 1475 Peachtree Street, N.E., Atlanta, Georgia 30309 ("Bank"). WHEREAS, the Member desires from time to time to participate in the Bank's credit programs under the terms of this Agreement, and the Bank is authorized to extend credit to the Member pursuant to the provisions of the Federal Home Loan Bank Act, as now and hereafter amended (the "Act"), and the regulations and guidelines of the Federal Housing Finance Board (the "Board") or any successor entity now and hereafter in effect (collectively, the "Regulations"); and WHEREAS, the Bank requires that advances by the Bank be secured pursuant to this Agreement, and the Member agrees to provide the security the Bank requests in accordance with this Agreement. NOW THEREFORE, the Member and the Bank agree as follows: ARTICLE I: DEFINITIONS Section 1.01 Definitions. As used herein, the following terms shall have the ------------ following meanings: (A) "Advance" or "Advances" means any and all loans or other extensions of credit, including all Commitments, heretofore, now or hereafter granted by the Bank to, on behalf of, or for the account of, the Member. (B) "Application" means a writing, signed by the Member, and in such form or forms as shall be specified by the Bank from time to time, by which the Member requests, and which if executed by the Bank shall together with this Agreement evidence the terms of, an Advance or a commitment for an Advance. (C) "Capital Stock" means all of the capital stock of the Bank held by the Member and all payments which have been or hereafter are made on account of subscriptions to and all unpaid dividends on such capital stock. (D) "Collateral" means all property, including the proceeds thereof, heretofore assigned, transferred or pledged to the Bank by the Member as collateral for Advances or other extensions of credit prior to the date hereof, all Capital Stock, and First Mortgage Collateral, including the proceeds thereof, which is now or hereafter pledged to the Bank pursuant to Section 3.01 hereof. (E) "Collateral Maintenance Level" means the aggregate dollar amount equal to such percentage(s) as the Bank may specify from time to time of (1) the outstanding amounts of all Advances; (2) with respect to each outstanding Swap Transaction, the amount for which the Member is required to maintain Collateral; and (3) any additional obligations and liabilities of the Member to the Bank. The Bank may increase or decrease the Collateral Maintenance Level at any time. (F) "Commitment" or "Commitments" means any and all agreements under which the Bank is contractually obligated to make a loan to, or to make a future payment on behalf or for the account of, the Member (but excluding any obligations that the Bank may now or hereafter have to honor items or transfer orders under a depository or similar agreement between the Bank and the Member), regardless of whether such obligation is contingent in whole or in part, including, without limitation, letters of credit issued for the account of the Member. 1 (G) "Confirmation of Advance" means a writing or machine readable electronic transmission, in such form or forms as the Bank may generate from time to time, by which the Bank agrees to and confirms the Member's request for an Advance or a commitment for an Advance and which, together with this Agreement, shall evidence the terms of such Advance or commitment. (H) "First Mortgage Collateral" means First Mortgage Documents (excluding securitized loans and participation or other fractional interests therein) and all ancillary security agreements, policies and certificates of insurance or guarantees, evidences of recordation, applications, underwriting materials, surveys, appraisals, approvals, permits, notices, opinions of counsel and loan servicing data and all other electronically stored and written records or materials relating to the loans evidenced or secured by the First Mortgage Documents. (I) "First Mortgage Documents" means mortgages and deeds of trust (herein "mortgages") secured by a first lien on one-to-four unit single family dwellings, and all notes, bonds or other instruments (herein "mortgage notes") evidencing fully disbursed loans secured by such mortgages and any endorsements or assignments thereof to the Member. (J) "Indebtedness" means all indebtedness, now or hereafter outstanding, of the Member to the Bank, including, without limitation, all Advances and all other obligations to pay and liabilities of the Member to the Bank. (K) "Lendable Collateral Value" means an amount equal to such percentage as the Bank shall from time to time, in its sole discretion, ascribe to the market value or unpaid principal balances of items of Qualifying Collateral. (L) "Qualifying Collateral" means First Mortgage Collateral which: (i) is eligible as collateral that can be used to support the origination of Advances under the terms and conditions of the Act and the Regulations, and satisfies such other requirements as may be established by the Bank; (ii) is owned by the Member free and clear of any liens, encumbrances or other interests other than the assignment to the Bank hereunder, (iii) has not been in default within the most recent 12-month period excepting only payments which are not past due except as permitted by the Bank's Credit Policy; (iv) relates to residential real property on which is located a one-to-four unit single family dwelling that is covered by fire and hazard insurance in an amount at least sufficient to discharge the mortgage loan in full in case of loss and as to which all real estate taxes are current; (v) has not been classified as substandard, doubtful, or loss by the Member's regulatory authority or its management; and (vi) does not secure an indebtedness on which any director, officer, employee, attorney or agent of the Member or any Federal Home Loan Bank is personally liable unless the acceptance of such Collateral by the Bank has been specifically approved by formal resolution of the Board. (M) "Swap Transaction" means an interest rate swap, interest rate cap, floor or collar, currency exchange transaction or similar transaction entered into between the Bank and the Member. ARTICLE II: ADVANCES AGREEMENT Section 2.01 Advance Documentation. The Member may apply for Advances and ---------------------- commitments for Advances by completing and submitting an Application to the Bank or by telephonic or other unsigned communication. The Bank may suspend the use of telephonic applications at any time. The terms of each Advance or commitment shall be conclusively established by this Agreement and by either (i) the Member's Application when such Application is executed by the Bank without any change, or (ii) in the case of an Application received, completed or modified by the Bank pursuant to a telephonic or other unsigned communication from the Member ("telephonic application"), by a Confirmation of Advance generated by the Bank. The Member shall be estopped from asserting any claim or defense with respect to the terms applicable to an Advance or a commitment for an Advance entered into pursuant to a telephonic application unless, within two (2) business days of receipt of the Bank's Confirmation of Advance, the Member delivers to the Bank a written notice specifying the disputed term(s) or 2 condition(s) of the Advance or commitment. Within three (3) business days of the date of the Member's receipt of the Bank's Confirmation of Advance, the Member shall prepare, sign and submit to the Bank a completed Application conforming to such Confirmation of Advance. Upon the request of the Bank, the Member shall sign and deliver to the Bank a promissory note or notes in such form as the Bank may reasonably require evidencing any Advance. Unless otherwise agreed to by the Bank in writing, each Advance shall be made by crediting the Member's demand deposit account(s) with the Bank. Section 2.02 Repayment of Advances. The Member agrees to repay each Advance in ---------------------- accordance with this Agreement and the terms and conditions of the Application or Confirmation of Advance evidencing such Advance. Interest shall be paid on each Advance at the times specified by the Bank in writing and shall be charged for each day that an Advance is outstanding at the rate applicable to the Advance. The Member shall pay to the Bank, immediately and without demand, interest on any past due principal of and interest on any Advance at an interest rate which is the greater of (i) the rate applicable to such Advance plus one percent (1%) or (ii) the rate in effect and being charged by the Bank from time to time on overdrafts on demand deposit accounts of its Members, but in no event more than any applicable limit set by the Regulations. The Member shall ensure that, on any day on which any payment is due to the Bank with respect to Advances or other Indebtedness, the Member's demand deposit account(s) with the Bank has an available balance in an amount at least equal to the amounts then due and payable to the Bank, and the Member hereby authorizes the Bank to debit the Member's demand deposit account(s) with the Bank for all amounts due and payable with respect to any Advance and for all other amounts due and payable hereunder. In the event that the available balance in the Member's demand deposit account(s) is insufficient to pay such due and payable amounts, the Bank may, without notice to or request from the Member, apply any other deposits, credits, or monies of the Member than in the possession of the Bank to the payment of amounts due and payable. All payments with respect to Advances shall be applied first to any fees or charges applicable thereto and to interest due thereon, in such order as the Bank may determine, and then to any principal amount thereof that is then due and payable. Section 2.03 Right of Bank to Made Advances with Respect to Outstanding ---------------------------------------------------------- Commitments. In the event that there are one or more outstanding Commitments at - ------------ the time of an Event of Default under Section 4.01 hereof, the Bank may at its option, and without notice to or request from the Member, make an Advance by crediting a special account of the Member with the Bank in an amount equal to the outstanding Commitments. Amounts credited to such special account shall be utilized by the Bank for the purpose of satisfying the Bank's obligations under such Commitments. When all such obligations have expired or have been satisfied, the Bank shall disburse the balance, if any, in such special account first to the satisfaction of any amounts then due and owing by the Member to the Bank and then to the Member or its successors in interest. Advances made pursuant to this Section 2.03 shall be payable on demand and shall bear interest from the date the same shall be made until paid at the rate in effect and being charged by the Bank from time to time on overdrafts on demand deposit accounts of its members, but in no event more than any applicable limit set by the Regulations. Section 2.04 Amortization of Advances. In the event that the Bank determines ------------------------- that the creditworthiness of the Member, as determined from time to time by the Bank, does not meet the requirements of the Bank, the Bank may, without limitation of the Bank's rights upon the occurrence of an Event of Default hereunder, require amortization by means of monthly payments of principal on all or part of the Member's Advances. The Member agrees to begin making such monthly amortization payments, upon thirty (30) days written notice from the Bank, in such monthly amounts as the Bank shall specify in writing. No monthly payment shall exceed ten percent (10%) of the original principal balance of the Advance being amortized. Unless otherwise specified by the Bank in writing to the Member, such monthly amortizing payments shall not extend or modify the maturity date or other scheduled payment dates applicable to the Advance being amortized. 3 ARTICLE III: SECURITY AGREEMENT Section 3.01 Creation of Security Interest. As security for all Indebtedness, ------------------------------ the Member hereby assigns, transfers, and pledges to the Bank, and grants to the Bank a security interest in all of the Capital Stock and First Mortgage Collateral now or hereafter owned by the Member, and all proceeds thereof, provided, however, that at First Mortgage Collateral that is encumbered or disposed of by the Member in conformity with the requirements of Section 3.04 (A) hereof shall not be subject to the security interest created hereunder. Without limitation of the foregoing, all property heretofore assigned, transferred or pledged by the Member to the Bank as collateral securing Indebtedness and other obligations of the Member prior to the date hereof is hereby assigned, transferred and pledged to the Bank as Collateral hereunder. Section 3.02 Additional Collateral and Documentation; Required Substitution of ----------------------------------------------------------------- "Advances, Specific Collateral Pledge And Security Agreement". The Member - -------------------------------------------------------------- agrees to assign, transfer and pledge Collateral in conformity with the Bank's "Advances, Specific Collateral Pledge and Security Agreement" (i) at any time the Member shall not have assigned, transferred, or pledged to the Bank under this Agreement First Mortgage Collateral which is Qualifying Collateral and which has a Lendable Collateral Value at least equal to the Collateral Maintenance Level or (ii) at any time the Member does not qualify under the Bank's criteria for member eligibility to secure Advances under this Agreement or (iii) if the Bank determines in good faith that the value of the Member's Qualifying Collateral may not be adequately ascertained, or (iv) at any time the Bank deems itself insecure. In addition, the Member agrees to maintain such additional amounts of Collateral (which may be Collateral that is not Qualifying Collateral) as may be required by the Bank in order to protect its security position with respect to outstanding Indebtedness. If the Bank requires the Member to substitute for this Agreement the Bank's "Advances, Specific Collateral Pledge and Security Agreement," the Member must execute that agreement and comply with the requirements of that agreement in all respects. To assure that the Member provides to the Bank Qualifying Collateral with a Lendable Collateral Value at least equal to the Collateral Maintenance Level at all times, the Bank may require, in connection with the substitution of agreements, that the Member make, execute, record, and deliver to the Bank additional agreements, financing statements, notices, assignments, listings, powers, and other documents with respect to such Collateral and the Bank's security interest therein. Section 3.03 Member's Representation and Warranties Concerning Collateral. The ------------------------------------------------------------- Member represents and warrants to the Bank, as of the date hereof and the date of each Advance hereunder, as follows: (A) The Member owns and has marketable title to the Collateral and has the right and authority to grant a security interest in the Collateral and to subject all of the Collateral to this Agreement; (B) The information given from time to time by the Member as to each item of Collateral is true, accurate and complete in all material respects; (C) All the Collateral meets the standards and requirements with respect thereto from time to time established by the Act, the Regulations and the Bank; (D) The lien of each mortgage pledged as Collateral hereunder is a first, prior, and perfected lien under applicable law; (E) The Member has not conveyed or otherwise created, and there does not otherwise exist, any participation interest or other direct, indirect, legal, or beneficial interest in any Collateral on the part of anyone other than the Bank and the Member; (F) Except as may be approved in writing by the Bank, no account debtor or other obligor owing any obligation to the Member with respect to any item of First Mortgage Collateral has or will have any defenses, offsetting claims, or other rights affecting the right of the Member or the Bank to enforce such mortgage, mortgage note or promissory obligation, and no defaults (or conditions that, with the passage of time or the giving of notice or both, would constitute a default) exist under any such writings; and 4 (G) No part of any real property or interest in real property that is the subject of First Mortgage Collateral which is Qualifying Collateral contains or is subject to the effects of toxic or hazardous materials or other hazardous substances (including those defined in the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, 42 U.S.C. /S/9601, et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. /S/1801 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. /S/6901 et seq.; and in the regulations adopted and publications promulgated pursuant to said laws) the presence of which could subject the Bank to any liability under applicable state or Federal law or local ordinance either at any time that such property is pledged to the Bank or upon the enforcement by the Bank of its security interest therein. The Member hereby agrees to indemnify and hold the Bank harmless against all costs, claims, expenses, damages, and liabilities resulting in any way from the presence or effects of any such toxic or hazardous substances or materials in, on, or under any real property or interest in real property that is subject to or included in the Collateral. Section 3.04 Collateral Maintenance Requirement. ----------------------------------- (A) The Member shall at all times maintain as Collateral an amount of Qualifying Collateral which has a Lendable Collateral Value that is at least equal to the then current required Collateral Maintenance Level. The Member shall not assign, pledge, transfer, create any security interest in, sell, or otherwise dispose of any Collateral if: (i) such Collateral has been specified or identified pursuant to Section 3.05 hereof or is held by or on behalf of the Bank pursuant to Section 3.06 hereof, or the Bank has otherwise perfected its security interest in such Collateral; or (ii) at the time of or immediately after such action, the Member is not or would not be in compliance with the collateral maintenance requirements of the first sentence of this Section 3.04 (A) or is otherwise in default under this Agreement. (B) Except for Collateral delivered pursuant to Section 3.06 hereof, Collateral shall be held by the Member in trust for the benefit of, and subject to the direction and control of, the Bank and will be physically safeguarded by the Member with at least the same degree of care as the Member uses in physically safeguarding its other property. Without limitation of the foregoing, the Member shall take all action necessary or desirable to protect and preserve the Collateral and the Bank's interest therein, including without limitation the maintaining of insurance on property securing First Mortgage Collateral (such policies and certificates of insurance or guaranty relating to such mortgages are herein called "insurance"), the collection of payments under all mortgages and under all insurance, and otherwise assuring that all mortgages are serviced in accordance with the standards of a reasonable and prudent mortgagee. (C) If any Collateral that was Qualifying Collateral ceases to be Qualifying Collateral and, after such event, the Member is not or would not be in compliance of the collateral maintenance requirements of the first sentence of this Section 3.04(A), the Member shall promptly notify the Bank in writing of that fact and, if so requested by the Bank, of the reason that the Collateral has ceased to be Qualifying Collateral. If such Collateral was specified or identified pursuant to Section 3.05 hereof, or delivered to the Bank pursuant to Section 3.06 hereof, the Member shall promptly specify, identify, or deliver, as the case may be, other Qualifying Collateral having at least the same Lendable Collateral Value as the Collateral so requested to be withdrawn. (D) The Bank may review the form and sufficiency of all documents pertaining to the Collateral. Such documents must be satisfactory to the Bank and, if not, such Collateral may not be acceptable as Qualifying Collateral or may have a Lendable Collateral Value applied thereto that is less than the Lendable Collateral Value otherwise applicable under the Bank's Credit Policy, as the Bank may specify. The Bank may require that the Member make any or all documents pertaining to the Collateral available to the Bank for its inspection and approval. 5 Section 3.05 Specification and Identification of Collateral. ----------------------------------------------- (A) Upon the Bank's written or oral request, or at such times as shall be necessary to satisfy the requirements of the Bank, or promptly, at any time that the Member becomes subject to any mandatory collateral specification requirements that may be established in writing by the Bank and in any case from time to time thereafter until such time as may be agreed upon by the Bank in writing, the Member shall deliver to the Bank a status report and accompanying schedules, all in the form(s) prescribed by the Bank, specifying and describing the First Mortgage Collateral that is certified by the Member to be Qualifying Collateral. (B) The Member shall hold each set of First Mortgage Documents which is a part of such specified Collateral in a separate file folder with each file folder clearly labeled with the loan identification number and the name of the borrower(s). Each such file folder shall be clearly marked or stamped with the statement: "The Deed of Trust/Mortgage and Note Relating to This Loan Have been Assigned to the Federal Home Loan Bank of Atlanta." If so requested by the Bank, the Member shall physically segregate any First Mortgage Collateral specified in each status report delivered pursuant to subsection (A) of this Section 3.05 from all other property of the Member in a manner satisfactory to the Bank. Section 3.06 Delivery of Collateral. ----------------------- (A) Upon the Bank's written or oral request, or promptly at any time that the Member becomes subject to any mandatory collateral delivery requirements that may be established in writing by the Bank, and until such time as may be agreed upon by the Bank in writing, the Member shall deliver to the Bank, or to a custodian designated by the Bank, such First Mortgage Collateral as may be necessary so that the Lendable Collateral Value of Qualifying Collateral held by the Bank, or such custodian, meets or exceeds the Collateral Maintenance Level at all times. Collateral delivered to the Bank shall be endorsed or assigned, as appropriate, in recordable form by the Member to the Bank, as specified by the Bank. Unless otherwise indicated by the Bank, such endorsements or assignments may be in blanket form provided that there shall be separate endorsements and assignments for each county or recording district in which the real property covered by an item of First Mortgage Collateral is located. The Member need only deliver the First Mortgage Documents relating to the First Mortgage Collateral delivered hereunder together with recordable assignments of the mortgages, unless otherwise directed by the Bank. Concurrently with the initial delivery of Collateral, the Member shall deliver to the Bank a status report and accompanying schedules, all in the form(s) prescribed by the Bank, specifying and describing the Collateral held by the Bank or its custodian and certifying that such Collateral is Qualifying Collateral. (B) The Member agrees to pay to the Bank such reasonable fees and charges as may be assessed by the Bank to cover the Bank's overhead and other costs relating to the receipt, holding, redelivery and reassignment of Collateral and to reimburse the Bank upon request for all recording fees and other reasonable expenses, disbursements and advances incurred or made by the Bank in connection therewith (including the reasonable compensation and the expenses and disbursements of any custodian, consultant or appraiser that may be appointed by the Bank hereunder, and the agents and legal counsel of the Bank and of such custodian). (C) The Member shall, upon request of the Bank, immediately take such other actions as the Bank shall deem necessary or appropriate to perfect the Bank's security interest in the Collateral or otherwise to obtain, preserve, protect, enforce or collect the Collateral or the proceeds thereof. 6 Section 3.07 Withdrawal of Collateral. Upon receipt by the Bank of writings ------------------------- in the form specified by the Bank constituting (i) a request from the Member for the withdrawal of Collateral which has been specified or identified pursuant to Section 3.05 hereof or has been delivered pursuant to Section 3.06 hereof, or as to which the Bank has otherwise perfected its security interest, (ii) a detailed listing of the Collateral to be withdrawn, and (iii) a certificate of a responsible officer of the Member certifying as to the Qualifying Collateral that is specified and identified by the Member or held by the Bank, as appropriate, after such withdrawal, and upon the Bank's determination that the Lendable Collateral Value of the remaining Qualifying Collateral is not less than the current required Collateral Maintenance Level and that the Bank does not require the Collateral requested to be withdrawn to be maintained as additional Collateral, the Bank shall promptly redeliver, release or reassign to the Member the Collateral specified in the Member's listing of the Collateral to be withdrawn. Notwithstanding anything to the contrary herein contained, while an Event of Default hereunder shall have occurred and be continuing, or at any time that the Bank reasonably and in good faith deems itself insecure, the Member may not obtain any such withdrawal. Section 3.08 Reports: Collateral Audits; Access. ----------------------------------- (A) The Member shall furnish to the Bank annually, and at such other times as the Bank may request, an audit report with respect to the Member's Collateral and Qualifying Collateral, prepared by the Member's external auditor and in form and substance acceptable to the Bank, and such financial reports and other information relating to the Member's financial condition as the Bank may reasonably request. (B) The Member shall furnish to the Bank at such times as the Bank may request, or as necessary to satisfy the requirements of the Bank, a status report with respect to the Member's Collateral prepared by the Member in form and substance acceptable to the Bank, and as of a date within two weeks of the report due date. The status report shall be a written report covering such matters regarding the Collateral as the Bank may require, including listings of mortgages and unpaid principal balances thereof and certifications concerning the status of payments on mortgages and of taxes and insurance on property securing mortgages. (C) If so requested by the Bank, the Member shall promptly report to the Bank any event which reduces the principal balance of any mortgage or other item of Collateral by five percent (5%) or more, whether by prepayment, foreclosure sale, insurance or guaranty payment or otherwise. (D) The Member shall give the Bank access at all reasonable times to Collateral in the Member's possession and to the Member's books and records of account relating to such Collateral, for the purpose of the Bank's examining, verifying or reconciling the Collateral and the Member's reports to the Bank thereon. (E) If the Member becomes aware or has reason to believe that the Lendable Collateral Value of the Member's Qualifying Collateral has fallen below the Collateral Maintenance Level, or that a contingency exists which with the lapse of time could result in the Member failing to meet the Collateral Maintenance Level, the Member shall immediately notify the Bank. (F) All Collateral and any matters relating thereto shall be subject to audit and verification by or on behalf of the Bank. Such audits and verifications may occur without notice during the Member's normal business hours or upon reasonable notice at such other times as the Bank may reasonably request. The Member shall provide access to, and shall make adequate working facilities available to, the representatives or agents of the Bank for purposes of such audits. Reasonable fees and charges may be assessed to the Member by the Bank to cover overhead and other costs relating to such audit and verification. 7 (G) Notwithstanding anything to the contrary, the Member shall be solely responsible for the accuracy and adequacy of all information and data in each audit or status report (or other writing specifying and describing any Collateral) submitted to the Bank, regardless of the form in which submitted. The Bank shall have no duty to make any independent examination of or calculation with respect to the information submitted in an audit or status report (or in any written schedule that may be submitted by the Member) and, without limiting the generality of the foregoing, the Bank makes no representation or warranty as to the validity, accuracy, or completeness of any information contained in any written records of the Bank concerning, or of any response to, such audit or status report. Section 3.09 Additional Documentation. The Member shall make, execute, record ------------------------- and deliver to the Bank such financing statements, notices, assignments, listings, powers, and other documents with respect to the Collateral and the Bank's security interest therein and in such form as the Bank may reasonably require. Section 3.10 Bank's Responsibilities as to Collateral. The Bank's duty as to ----------------------------------------- the Collateral shall be solely to use reasonable care in the custody and preservation of the Collateral in its possession, which shall not include any steps necessary to preserve rights against prior parties nor the duty to send notices, perform services, or take any action in connection with the management of the Collateral. The Bank shall not have any responsibility or liability for the form, sufficiency, correctness, genuineness or legal effect of any instrument or document constituting a part of the Collateral, or any signature thereon or the description or misdescription, or value of property represented, or purported to be represented, by any such document or instrument. The Member agrees that any and all Collateral may be removed by the Bank from the state or location where situated, and may be subsequently dealt with by the Bank as provided in this Agreement. Section 3.11 Bank's Rights as to Collateral; Power of Attorney. At any time or -------------------------------------------------- times, at the expense of the Member, the Bank may in its discretion, before or after the occurrence of an Event of Default as defined in Section 4.01 hereof, in its own name or in the name of its nominee or of the Member, do any or all things and take any and all actions that are pertinent to the protection of the Bank's interest hereunder and are lawful under the laws of the State of Georgia, including, but not limited to, the following: (A) Terminate any consent given hereunder; (B) Notify obligors on any Collateral to make payments thereon directly to the Bank; (C) Endorse any Collateral in the Member's name; (D) Enter into any extension, compromise, settlement, or other agreement relating to or affecting any Collateral; (E) Take any action the Member is required to take or which is otherwise reasonably necessary to (1) sign and record a financing statement or otherwise perfect a security interest in any or all of the Collateral or (2) to obtain, preserve, protect, enforce or collect the Collateral; (F) Take control of any funds or other proceeds generated by the Collateral and use the same to reduce indebtedness as it becomes due; and (G) Cause the Collateral to be transferred to its name or the name of its nominee. 8 The Member hereby appoints the Bank as its true and lawful attorney, for and on behalf of the Member and in its name, place and stead, to prepare, execute and record endorsements and assignments to the Bank of all or any item of Collateral, giving or granting to the Bank, as such attorney, full power and authority to do or perform every lawful act necessary or proper in connection therewith as fully as the Member might or could do. The Member hereby ratifies and confirms all that the Bank shall lawfully do or cause to be done by virtue of this special power of attorney. This special power of attorney is granted for a period commencing on the date hereof and continuing until the discharge of all indebtedness and all obligations of the Member hereunder regardless of any default by the Member, is coupled with an interest, and is irrevocable for the period granted. Section 3.12 Subordination of Other Loans to First Mortgage Collateral. The ---------------------------------------------------------- Member hereby agrees that all mortgage notes which are part of the First Mortgage Collateral ("pledged notes") shall have priority in right and remedy over any other loans, whenever made, and, however evidenced, which are also secured by the mortgages or security agreements securing the pledged notes. The pledged notes shall be satisfied out of the property (or proceeds thereof) covered by such mortgages or security agreements before any payment is made on the loans which are not part of the Collateral. To this end, the Member hereby subordinates the lien of such mortgages and security agreements with respect to such other loans to the lien of such mortgages and security agreements with respect to the pledged notes. The Member further agrees to retain possession of all notes or other instruments evidencing such other loans and not to pledge, assign, or transfer the same, except insofar as such other loans may be pledged to the Bank as part of the Collateral. Section 3.13 Proceeds of Collateral. The Member, as the Bank's agent, shall ----------------------- collect all payments when due on all Collateral. If the Bank so requires, the Member shall hold such collections separate from its other monies in one or more designated cash collateral accounts maintained at the Bank and apply them to the reduction of indebtedness as it becomes due; otherwise, the Bank consents to the Member's use and disposition of all such collections. ARTICLE IV: DEFAULT; REMEDIES Section 4.01 Events of Default: Acceleration. Upon the occurrence of any of the -------------------------------- following events or conditions of default ("Event of Default"), the Bank may at its option, by a notice to the Member, declare all or any part(s) of the indebtedness and accrued interest thereon, including any prepayment fees or charges which are applicable to any Advance, to be immediately due and payable without presentment, demand, protest, or any further notice: (A) Failure of the Member to pay when due any interest on or principal of any Advance; or (B) Failure of the Member to perform any promise or obligation or to satisfy any condition or liability contained herein, in any Application, in any Confirmation of Advance or in any other agreement to which the Member and the Bank are parties; or (C) Evidence coming to the attention of the Bank that any representations, statements, or warranties made or furnished in any manner to the Bank by or on behalf of the Member in connection with any Advance or Swap Transaction, any specification or description of Qualifying Collateral or any report or certification concerning the status, value, or principal balance of any item of Collateral was false in any material respect when made or furnished; or (D) Failure of the Member to maintain adequate Qualifying Collateral free of any encumbrances or claims as required herein; or 9 (E) The issuance of any tax, levy, seizure, attachment, garnishment, levy of execution, or other process with respect to the Collateral; or (F) Any suspension of payment by the Member to any creditor of sums due or the occurrence of any event which results in another creditor having the right to accelerate the maturity of any indebtedness of the Member under any security agreement, indenture, loan agreement, or comparable undertaking; or (G) Appointment of a conservator, receiver, or similar official for the Member or any subsidiary of the Member, of the Member's property, entry of a judgment or decree adjudicating the Member or any subsidiary of the Member insolvent or bankrupt or an assignment by the Member or any subsidiary of the Member for benefit of creditors; or (H) Sale by the Member of all or a material part of the Member's assets or the taking of any other action by the Member to liquidate or dissolve; or (I) Termination for any reason of the Member's membership in the Bank, or the Member's ceasing to be a type of entity that is eligible under the Act to become a member of the Bank; or (J) Merger, consolidation or other combination of the Member with an entity which is not a member of the Bank if the nonmember entity is the surviving entity; or (K) With respect to Advances made pursuant to Section 11(g)(4) of the Act, if the creditor liabilities of the Member, excepting liabilities to the Bank, are increased in any manner to an amount exceeding five percent (5%) of the Member's net assets; or (L) The Bank reasonably and in good faith determines that a material adverse change has occurred in the financial condition of the Member from that disclosed at the time of the making of the Advance or from the condition of the Member as theretofore most recently disclosed to the Bank. Section 4.02 Remedies. Upon the occurrence of any Event of Default, the Bank --------- shall have all of the rights and remedies provided by applicable law which shall include, but not be limited to, all of the remedies of a secured party under the Uniform Commercial Code as in effect in the State of Georgia. In addition, the Bank may take immediate possession of any of the Collateral or any part thereof wherever the same may be found. The Bank may sell, assign and deliver the Collateral or any part thereof at public or private sale for such price as the Bank deems appropriate without any liability for any loss due to decrease in the market value of the Collateral during the period held. The Bank shall have the right to purchase all or part of the Collateral at such sale. If the Collateral includes insurance or securities which will be redeemed by the issuer upon surrender, or any accounts or deposits in the possession of the Bank, the Bank may realize upon such Collateral without notice to the Member. If any notification of intended disposition of any of the Collateral is required by applicable law, such notification shall be deemed reasonable and properly given if given as provided by applicable law or in accordance with Section 5.06 hereof at least 5 days before any such disposition. The proceeds of any sale shall be applied in the order that the Bank, in its sole discretion, may choose. The Member agrees to pay all the costs and expenses of the Bank in the collection of the Indebtedness and enforcement of the Bank's rights and remedies in case of default, including, without limitation, reasonable attorneys' fees. The Bank shall, to the extent required by law, apply any surplus, after (i) payment of the Indebtedness, (ii) provision for repayment to the Bank of any amounts to be paid or advanced under Outstanding Commitments, and (iii) payment of all costs of collection and enforcement, to the claims of person(s) legally entitled thereto, with any remaining surplus paid to the Member. The Member shall be liable to the Bank for any deficiency remaining. 10 Section 4.03 Payment of Prepayment Charges. Any prepayment fees or charges ------------------------------ applicable to an Advance shall be payable at the time of any voluntary or involuntary payment of all or part of the principal of such Advance prior to the originally scheduled maturity thereof, including without limitation, payments that are made as part of a liquidation of the Member or that become due by operation of law or as a result of an acceleration pursuant to Section 4.01 hereof, whether such payment is made by the Member, by a conservator, receiver, liquidator or trustee of or for the Member, or by any successor to or any assignee of the Member. ARTICLE V: MISCELLANEOUS Section 5.01 General Representations and Warranties by the Member. The Member ----------------------------------------------------- hereby represents and warrants that, as of the date hereof and the date of each Advance hereunder: (A) The Member is not, and neither the execution of nor the performance of any of the transactions or obligations of the Member under this Agreement shall, with the passage of time, the giving of notice or otherwise, cause the Member to be: (i) in violation of its charter or articles of incorporation, by-laws, the Act or the Regulations, any other law or administrative regulation, or any court decree; or (ii) in default under or in breach of any material indenture, contract or other instrument or agreement to which the Member is a party or by which it or any of its property is bound. (B) The Member has full corporate power and authority and has received all corporate and governmental authorizations and approvals (including without limitation those required under the Act and the Regulations) as may be required to enter into and perform its obligations under this Agreement, to borrow each Advance and to obtain each commitment for Advance. (C) The information given by the Member in any document provided, or in any oral statement made, in connection with an application or request for an Advance or commitment for Advance, is true, accurate and complete in all material respects. Section 5.02 Assignment. The Bank may assign or negotiate to any other Federal ----------- Home Loan Bank or to any other person or entity, with or without recourse, any Indebtedness of the Member or participations therein, and the Bank may assign or transfer all or any part of the Bank's right, title, and interest in and to this Agreement and may assign and deliver the whole or any part of the Collateral to the transferee, which shall succeed to all the powers and rights of the Bank in respect thereof, and the Bank shall thereafter be forever relieved and fully discharged from any liability or responsibility with respect to the transferred Collateral. The Member may not assign or transfer any of its rights or obligations hereunder without the express prior written consent of the Bank. Section 5.03 Discretion of the Bank to Grant or Deny Advances. Nothing ------------------------------------------------- contained herein or in any documents describing or setting forth the Bank's credit program and credit policies shall be construed as an agreement or commitment on the part of the Bank to grant Advances or extend commitments for Advances hereunder, the right and power of the Bank in its discretion to either grant or deny any Advance or commitment for an Advance requested hereunder being expressly reserved. The determination by the Bank of Lendable Collateral Value shall not constitute a determination by the Bank that the Member may obtain Advances or commitments for Advances in amounts up to such Lendable Collateral Value. Section 5.04 Amendment: Waivers. No modification, amendment or waiver of any ------------------- provision of this Agreement or consent to any departure therefrom shall be effective unless in a writing executed by a responsible officer of the party against whom such change is asserted and shall be effective only in the specific instance and for the purpose of which given. No notice to or demand on the Member in any case shall entitle the Member to any other or further notice or demand in the same, or similar or other 11 circumstances. Any forebearance, failure or delay by the Bank in exercising any right, power or remedy hereunder shall not be deemed to be a waiver thereof, and any single or partial exercise by the Bank of any right, power or remedy hereunder shall not preclude the further exercise thereof. Every right, power and remedy of the Bank shall continue in full force and effect until specifically waived by the Bank in writing. Section 5.05 Jurisdiction; Legal Fees. In any action or proceeding brought by ------------------------- the Bank or the Member in order to enforce any right or remedy under this Agreement, the parties hereby consent to, and agree that they will submit to, the jurisdiction of the United States District Court for the Northern District of Georgia or, if such action or proceeding may not be brought in Federal court, the jurisdiction of the courts of the State of Georgia located in the City of Atlanta. The Member agrees that if any action or proceeding is brought by the Member seeking to obtain any legal or equitable relief against the Bank under or arising out of this Agreement or any transaction contemplated hereby and such relief is not granted by the final decision, after any and all appeals, of a court of competent jurisdiction, the Member will pay all attorneys' fees and other costs incurred by the Bank in connection therewith. Section 5.06 Notices. Except as provided in the last sentence of this Section, -------- any written notice, advice, request, consent or direction given, made or withdrawn pursuant to this Agreement shall be either in writing or transmitted electronically and reproduced mechanically by the addressee, and shall be given by first class mail, postage prepaid, by telecopy or other facsimile transmission, or by private courier or delivery service. All non-oral notices shall be deemed given when actually received at the principal office of the Bank or the Member, as appropriate. All notices shall be designated to the attention of an office or section of the Bank or of the Member if the Bank or the Member has made a request for the notice to be so addressed. Any notice by the Bank to the Member pursuant to Sections 3.05 and 3.06 hereof may be oral and shall be deemed to have been duly given to and received by the Member at the time of the oral communication. Section 5.07 Signatures of Member. For purposes of this Agreement, documents --------------------- shall be deemed signed by the Member when a signature of an authorized signatory or an authorized facsimile thereof appears on the document. The Bank may rely on any signature or facsimile thereof which reasonably appears to the Bank to be the signature of an authorized person, including signatures appearing on documents transmitted electronically to and reproduced mechanically at the Bank. The Secretary or an Assistant Secretary of the Member shall from time to time certify to the Bank on forms provided by the Bank the names and specimen signatures of the persons authorized to apply on behalf of the Member to the Bank for Advances and commitments for Advances and otherwise act for and on behalf of the Member in accordance with this Agreement. Such certifications are incorporated herein and made a part of this Agreement and shall continue in effect until expressly revoked in writing by the Member notwithstanding that subsequent certifications may authorize additional persons to act for and on behalf of the Member. Section 5.08 Applicable Law; Severability. In addition to the terms and ----------------------------- conditions specifically set forth herein and in any application or confirmation of Advance between the Bank and the Member, this Agreement and all Advances and all commitments for Advances shall be governed by the statutory and common law of the United States and, to the extent Federal law incorporates or defers to state law, the laws (exclusive of the choice of law provisions) of the State of Georgia. Notwithstanding the foregoing, the Uniform Commercial Code as in effect in the State of Georgia shall be deemed applicable to this Agreement and to any Advance hereunder and shall govern the attachment and perfection of any security interest granted hereunder. In the event that any portion of this Agreement conflicts with applicable law, such conflict shall not affect other provisions of this Agreement which can be given effect without the conflicting provision, and to this end the provisions of this Agreement are declared to be severable. 12 Section 5.09 Successors and Assigns. This Agreement shall be binding upon and ----------------------- inure to the benefit of the successors and permitted assigns of the Member and the Bank. Section 5.10 Entire Agreement. This Agreement embodies the entire agreement and ----------------- understanding between the parties hereto relating to the subject matter hereof and supersedes all prior agreements between such parties which relate to such subject matter. Notwithstanding the above, rates of interest, repayment schedules, and fees and other charges applicable to Advances and commitments for Advances made by the Bank to the Member prior to the execution of this Agreement shall continue to be governed exclusively by the terms of the prior agreements pursuant to which such Advances and commitments for Advances were made, provided, however, that Section 4.03 hereof shall apply to all Advances. WITNESS WHEREOF, Member and Bank have caused this Agreement to be signed in their names by their duly authorized officers as of the date first above mentioned. AmSouth Bank of Alabama ------------------------------- (Full Corporate Name of Member) By: /s/ John D. Kottmeyer John D. Kottmeyer - Executive Vice President ------------------------- -------------------------------------------- (Authorized Signature) (Typed Name and Title of Signer) By: /s/ Joel Steven Alexander Joel Steven Alexander - Vice President ------------------------- -------------------------------------------- (Authorized Signature) (Typed Name and Title of Signer) (SEAL) FEDERAL HOME LOAN BANK OF ATLANTA Senior Vice President By: Cane Jackson and Chief Credit Officer ------------------------- -------------------------------- (Authorized Officer) (Title) Vice President and By: William C. Buss Director of Collateral Services ------------------------- -------------------------------- (Authorized Officer) (Title) 13 FEDERAL HOME LOAN BANK OF ATLANTA ADDENDUM TO THE "AGREEMENT FOR ADVANCES AND SECURITY AGREEMENT WITH BLANKET --------------------------------------------------------------------------- FLOATING LIEN" AND "ADVANCES, SPECIFIC COLLATERAL PLEDGE AND SECURITY AGREEMENT" - -------------------------------------------------------------------------------- MEMBER and BANK, as those terms are defined in the Agreement for Advances and Security Agreement with Blanket Floating Lien or the Advances, Specific Collateral Pledge and Security Agreement ("Agreement") dated as of April 26, 1996, between the Member and the Bank, desire to modify the Agreement with regard to the means by which the Member may apply for advances. Accordingly, the Member and the Bank have executed this Addendum as of May 3, 1996, and agree that it shall be a part of and modify the Agreement, as follows: A. The fifth sentence of Section 2.01 is amended by inserting the phrase ", if required by the Bank," following the word "shall". B. Section 5.01 is amended by inserting the following paragraph: (D) If the Member is a saving association and, pursuant to the Qualified Thrift Lender requirements of the Office of Thrift Supervision, it becomes ineligible for Bank advances, the Member shall immediately provide the Bank with written notice of such ineligibility. C. Section 5.03 is amended by inserting the following at the end thereof: The Bank shall not honor advance commitments previously made to the Member if the Member's access to Bank advances is subsequently restricted pursuant to the Federal Home Loan Bank Act or the regulations or guidelines of the Federal Housing Finance Board. IN WITNESS WHEREOF, Member and Bank have caused this Addendum to be signed in their name by their duly authorized officers. AmSouth Bank of Alabama - -------------------------------------------------------------------------------- (Full Corporate Name of Member) By: /s/ John D. Kottmeyer John D. Kottmeyer Executive Vice President --------------------------- ------------------------------------------- (Authorized Signature) (Typed Name and Title of Signer) By: /s/ Joel Steven Alexander Joel Steven Alexander Vice President --------------------------- ------------------------------------------- (Authorized Signature) (Typed Name and Title of Signer) (Member's Corporate Seal) FEDERAL HOME LOAN BANK OF ATLANTA By: -------------------------- ------------------------------------------- (Authorized Officer) (Title) By: -------------------------- ------------------------------------------- (Authorized Officer) (Title) EX-13 3 0003.txt 2000 ANNUAL REPORT EXHIBIT 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview General This section of the annual report provides a narrative discussion and analysis of AmSouth's financial condition and results of operations for the previous three years. All tables, graphs and financial statements included in this report should be considered an integral part of this analysis. AmSouth's discussion and analysis will be based on reported financial information; however, certain information will also be provided which excludes the impact of certain large or unusual amounts. This additional information is provided to either enhance comparability of financial information between years or to provide trend information which AmSouth believes to be more indicative of continuing operations. Financial information that excludes items will either specifically indicate the items being excluded or will state that the amount shown excludes merger-related and other charges. "Other charges" for the year ended December 31, 2000, included the following losses that occurred as a part of AmSouth's third-quarter financial restructuring: dealer securitization losses of $18.5 million; $21.7 million of losses from the sale of healthcare-related loans included in assets held for accelerated disposition (AHAD); losses of $105.6 million on the sale of $4.0 billion of investment securities; $88.3 million of provision charges related to AmSouth's syndicated commercial loan portfolio; and $24.8 million of mortgage conduit asset writedowns. Finally, AmSouth incurred $4.2 million of after-tax losses associated with the sales of IFC Holdings, Inc. (IFC), a third-party marketer of investment and insurance products through other financial institutions, and the Arkansas branch network. 1999 results do not include pretax charges of $7.6 million to conform First American Corporation's (First American) accounting policies to AmSouth's policies; an $8.0 million impairment loss on a First American portfolio investment; and $71.0 million in loan impairment charges associated with certain healthcare-related loans transferred to AHAD. The following discussion contains forward-looking statements that involve inherent risks and uncertainties. Actual results may differ materially from those contained in these forward-looking statements. For additional information regarding forward-looking statements, see "Forward-Looking Statements" on page 59 of this annual report. AmSouth is a regional bank holding company headquartered in Birmingham, Alabama, with $38.9 billion in assets, approximately 600 branch banking offices and 1,250 automated teller machines (ATM). AmSouth operates in Tennessee, Alabama, Florida, Mississippi, Louisiana, and Georgia. AmSouth is a leader among regional banks in the Southeast in several key business areas, including consumer and commercial banking, small business banking, mortgage lending, equipment leasing, annuity and mutual fund sales, and other wealth management services. AmSouth also offers an extensive line of banking products and services at the Web site, www.amsouth.com.
DILUTED EARNINGS RETURN ON RETURN ON PER SHARE AVERAGE EQUITY AVERAGE ASSETS (1) (2) (1) (2) (1) (2) 96 $0.98 $1.03 13.92% 14.63% 1.14% 1.19% 97 $1.18 $1.18 16.00% 16.00% 1.32% 1.32% 98 $1.20 $1.40 15.33% 17.96% 1.22% 1.43% 99 $0.86 $1.53 10.69% 18.99% 0.81% 1.45% 00 $0.86 $1.46 11.57% 19.76% 0.79% 1.34% (1) As reported (2) Excludes Merger-related and other charges
33 COMPOSITION OF INTEREST-EARNING ASSETS TABLE 1
- ---------------------------------------------------------------------------------------------------------- 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------- Average Percent Average Percent Average Percent (Dollars in thousands) Balance of Total Balance of Total Balance of Total - ---------------------------------------------------------------------------------------------------------- Loans net of unearned income $25,879,910 67.4% $25,471,295 66.7% $24,027,839 67.7% Held-to-maturity securities 6,862,355 17.8 4,899,856 12.8 3,594,397 10.1 Available-for-sale securities 4,946,905 12.9 7,369,119 19.3 7,365,385 20.8 Other interest-earning assets 723,182 1.9 422,907 1.2 513,290 1.4 ---------------------------------------------------------------------------- $38,412,352 100.0% $38,163,177 100.0% $35,500,911 100.0% ==========================================================================================================
Note: Available-for-sale securities excludes adjustment for market valuation and certain noninterest-earning marketable equity securities. Earnings Overview AmSouth reported diluted earnings per common share of $.86 in 2000 compared to $.86 in 1999 and $1.20 in 1998. Net income totaled $329.1 million in 2000, $340.5 million in 1999 and $474.1 million in 1998. AmSouths' reported earnings in 2000 were impacted by charges associated with the integration of First American following its merger with AmSouth in 1999 (the Merger), rapidly rising interest rates, a slowing economy and related deterioration in credit quality. The Federal Reserve raised short-term interest rates 175 basis points in a little more than ten months during 1999 and 2000, resulting in slower loan growth and higher rates paid on interest-bearing deposits and floating rate borrowed funds. To address the impact of rapidly rising rates, AmSouth in the third quarter initiated a comprehensive financial restructuring, substantially reducing low-yielding investments and loans and, as a result, significantly reducing earning assets. AmSouth sold approximately $4.0 billion of low-yield securities from its available-for-sale portfolio and securitized approximately $1.0 billion of lower yielding automobile loans. The proceeds were used to reduce wholesale borrowings. These actions significantly reduced interest rate risk while improving the net interest margin and capital ratios and created substantial balance sheet capacity for more profitable earning asset growth. At the same time, AmSouth, as a result of the higher interest rates, recorded a permanent impairment loss of $24.8 million associated with mortgage conduit-related assets. Together, these items produced pretax charges of $148.8 million. See further discussion in the Noninterest Revenues Section beginning on page 40. As interest rates rose and the economy slowed during 2000, credit quality began to rapidly deteriorate, particularly among syndicated commercial loans-loans to large corporate borrowers that AmSouth shares with other banks. To address these credit quality issues, AmSouth, as part of the restructuring, sold approximately $200 million of problem syndicated loans, including $47 million that were recorded in AHAD, and strengthened the allowance for loan losses. Together, these steps resulted in pretax charges totaling $110.0 million. AmSouth also completed the integration and conversion of First American's systems and branches, incurring pretax charges of $110.2 million. As part of the integration of First American, AmSouth evaluated each business unit and, as a result, decided to sell IFC and the branch network located in Arkansas. Together, these sales resulted in after-tax charges totaling $4.2 million. Adjusting for the impact of merger-related and other charges mentioned above, earnings were $562.1 million in 2000. This represented a 7.0 percent decrease from 1999 earnings, adjusted for merger-related and other charges, of $604.7 million. On the same basis, fully diluted earnings per share were $1.46 in 2000 versus $1.53 in 1999. Earnings in 1999 declined compared to 1998 due to merger-related charges, increases in noninterest expenses, and higher credit costs. Higher net interest income and noninterest revenues partially offset the negative variances and merger-related charges. AmSouth's reported earnings in 1999 reflected the impact of the Merger, credit quality issues brought on by federal legislation that reduced Medicare reimbursements to healthcare providers, and an impairment loss on a portfolio investment. Reported earnings in 1999 included pretax charges of $258.3 million resulting from the merger with First American and $43.1 million in connection with First American's 1998 mergers with various banks including Deposit Guaranty Corporation. 34 Earnings also included pretax charges of $7.6 million to conform First American's accounting policies to AmSouth's policies, an $8.0 million impairment loss on a First American portfolio investment and $71.0 million in loan impairment losses associated with certain healthcare-related loans transferred to AHAD. On an after-tax basis, these items totaled $264.3 million. Excluding the merger-related and other charges, 1999 diluted earnings per share were $1.53 on income of $604.7 million. Refer to Note 3 in the Notes to Consolidated Financial Statements for a more detailed discussion of merger and other related charges. Two key measures of profitability in the banking industry are return on average equity (ROE) and return on average assets (ROA). ROE measures the profitability of a company's shareholders' equity, while ROA measures how effectively a company utilizes its assets. Based on reported earnings, ROE was 11.57 percent in 2000 compared to 10.69 percent in 1999 and 15.33 percent in 1998. ROA was 0.79 percent in 2000, 0.81 percent in 1999 and 1.22 percent in 1998. Earnings Analysis Net Interest Income Net interest income (NII), defined as the amount of revenue generated by interest-earning assets less the interest cost of funding those assets, is the principal source of earnings for AmSouth. Interest-earning assets represent assets that generate interest income or yield-related fee income, such as loans and investment securities. NII constituted 68.3 percent of total net revenues in 2000, 64.4 percent in 1999 and 64.8 percent in 1998. For purposes of this earnings analysis, NII has been adjusted to a fully taxable equivalent basis for certain tax-exempt loans, leases, and investment securities included in interest-earning assets. AVERAGE EARNING ASSET MIX 2000 LOANS 67.4% [_] [PIE CHART] INVESTMENT SECURITIES 30.7% [_] OTHER INTEREST-EARNING ASSETS 1.9% [_] 1999 LOANS 66.7% [_] [PIE CHART] INVESTMENT SECURITIES 32.1% [_] OTHER INTEREST-EARNING ASSETS 1.2% [_] The amount of NII earned is determined primarily by variations in the volume and mix of interest-earning assets and interest-bearing liabilities and changes in their related yields and interest rates paid. Net interest income was $1.4 billion in 2000, a decrease of $91.6 million or 6.0 percent from 1999. The decline was primarily caused by a decrease in the net interest margin (NIM), the result of higher interest rates and lower volumes of interest-free funding sources. The NIM declined 27 basis points in 2000 to 3.75 percent versus 4.02 percent in 1999. It is expressed as a percentage and is computed by dividing fully taxable equivalent NII by average interest-earning assets. The NIM measures how effectively the bank utilizes its interest-earning assets in relationship to the interest cost of funding them. The decline in the NIM during 2000 was a result of higher funding costs caused by rapidly rising interest rates. Further compounding the impact of rising interest rates was AmSouth's sensitivity to rising rates caused by the mix of earning assets and funding sources on the balance sheet. AmSouth had a substantial portion of fixed-rate earning assets, such as investment securities and automobile loans, while relying on floating rate funding sources, such as interest-bearing deposits and wholesale borrowings. As interest rates rose in 1999 and 2000, rates paid on funding liabilities increased more rapidly than yields on interest-earning assets. The result was margin compression and a narrowing net interest spread. The NIM compression and NII decline were partially offset by benefits resulting from restructuring a portion of the leasing portfolio during 2000 which permanently lowered the effective tax rate on income from the portfolio. These transactions resulted in an increase to the taxable equivalent adjustment of $35.4 million and an increase to NII on a fully taxable equivalent basis of $10.9 million compared to 1999. Interest-earning assets are primarily composed of loans and investment securities and were relatively flat compared to 1999. Average loans net of unearned income (net loans) were slightly higher in 2000 due to growth primarily in commercial real estate and equity lending. See further discussion of loans in the Balance Sheet Analysis. 35 YIELDS EARNED ON AVERAGE EARNING ASSETS AND RATES PAID ON AVERAGE INTEREST-BEARING LIABILITIES TABLE 2
- --------------------------------------------------------------------------------------------------------------- (Taxable equivalent basis-dollars in thousands) 2000 ----------------------------------------- AVERAGE REVENUE/ YIELD/ BALANCE EXPENSE RATE ----------------------------------------- ASSETS Interest-earning assets: Loans net of unearned income...................................... $ 25,879,910 $ 2,277,775 8.80% Available-for-sale securities: Taxable......................................................... 4,882,055 328,612 6.73 Tax-free........................................................ 64,850 4,564 7.04 ------------ ------------ Total available-for-sale securities........................... 4,946,905 333,176 6.74 Held-to-maturity securities: Taxable......................................................... 6,469,385 444,682 6.87 Tax-free........................................................ 392,970 28,357 7.22 ------------ ------------ Total held-to-maturity securities............................. 6,862,355 473,039 6.89 ------------ ------------ Total investment securities................................. 11,809,260 806,215 6.83 Trading securities................................................ 31,955 2,122 6.64 Federal funds sold and securities purchased under agreements to resell...................................... 417,709 27,455 6.57 Loans held for sale............................................... 168,836 12,582 7.45 Other interest-earning assets..................................... 104,682 6,966 6.65 ------------ ------------ Total interest-earning assets................................... 38,412,352 3,133,115 8.16 Cash and other assets............................................... 3,968,747 Allowance for loan losses........................................... (356,006) Market valuation on available-for-sale securities................... (164,922) ------------ $ 41,860,171 ============ LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Interest-bearing demand deposits.................................. $ 9,376,473 327,664 3.49 Savings deposits.................................................. 1,661,398 37,030 2.23 Time deposits..................................................... 7,760,806 445,713 5.74 Foreign time deposits............................................. 1,087,636 64,540 5.93 Certificates of deposit of $100,000 or more....................... 2,778,184 166,224 5.98 Federal funds purchased and securities sold under agreements to repurchase.................................. 3,420,781 188,410 5.51 Other borrowed funds.............................................. 1,547,155 96,808 6.26 Long-term Federal Home Loan Bank advances......................... 5,048,876 296,158 5.87 Subordinated debt................................................. 885,445 61,194 6.91 Senior notes...................................................... 91,482 7,321 8.00 Other long-term debt.............................................. 6,180 261 4.22 ------------ ------------ Total interest-bearing liabilities.............................. 33,664,416 1,691,323 5.02 ------------ ---- Net interest spread........................................... 3.14% ==== Noninterest-bearing demand deposits................................. 4,658,636 Other liabilities................................................... 692,132 Shareholders' equity................................................ 2,844,987 ------------ $ 41,860,171 ============ Net interest income/margin on a taxable equivalent basis...... 1,441,792 3.75% ==== Taxable equivalent adjustment: Loans............................................................. 40,227 Available-for-sale securities..................................... 3,410 Held-to-maturity securities....................................... 19,052 Trading securities................................................ -0- ------------ Total taxable equivalent adjustment............................. 62,689 ------------ Net interest income........................................... $ 1,379,103 ============
Note: The taxable equivalent adjustment has been computed based on the statutory federal income tax rate, adjusted for applicable state income taxes net of the related federal tax benefit. Loans net of unearned income includes nonaccrual loans for all years presented. Certain noninterest-earning marketable equity securities are not included in available-for-sale securities. 36
- -------------------------------------------------------------------------------------------------------------------------- 1999 1998 - -------------------------------------------------------------------------------------------------------------------------- AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/ BALANCE EXPENSE RATE BALANCE EXPENSE RATE - -------------------------------------------------------------------------------------------------------------------------- $ 25,471,295 $ 2,132,983 8.37% $ 24,027,839 $ 2,085,546 8.68% 7,123,385 459,571 6.45 7,073,480 486,927 6.88 245,734 16,339 6.65 291,905 22,000 7.54 ------------ ------------ ------------ ----------- 7,369,119 475,910 6.46 7,365,385 508,927 6.91 4,667,059 308,136 6.60 3,441,212 227,945 6.62 232,797 18,808 8.08 153,185 15,063 9.83 ------------ ------------ ------------ ----------- 4,899,856 326,944 6.67 3,594,397 243,008 6.76 ------------ ------------ ------------ ----------- 12,268,975 802,854 6.54 10,959,782 751,935 6.86 67,333 4,203 6.24 61,368 4,303 7.01 124,381 5,694 4.58 145,554 7,650 5.26 179,276 10,148 5.66 278,506 16,457 5.91 51,917 2,343 4.51 27,862 1,204 4.32 ------------ ------------ ------------ ----------- 38,163,177 2,958,225 7.75 35,500,911 2,867,095 8.08 4,076,897 3,665,989 (362,410) (365,564) (60,424) 41,145 ------------ ------------ $ 41,817,240 $ 38,842,481 ============ ============ $ 9,269,643 266,155 2.87 $ 9,201,511 302,208 3.28 2,191,546 53,933 2.46 1,968,461 51,354 2.61 7,821,761 402,576 5.15 8,823,928 475,426 5.39 703,421 34,262 4.87 203,084 10,048 4.95 2,837,027 146,422 5.16 2,246,605 131,231 5.84 4,051,451 187,946 4.64 3,359,865 168,435 5.01 939,831 47,894 5.10 837,742 43,287 5.17 4,290,904 222,036 5.17 2,882,891 153,122 5.31 881,207 55,321 6.28 769,107 52,999 6.89 101,120 7,458 7.38 101,305 7,471 7.37 18,986 801 4.22 38,650 2,042 5.28 ------------ ------------ 4.30 ----------- ----------- 4.59 33,106,897 1,424,804 ---- 30,433,149 1,397,623 ---- ------------ 3.45% ----------- 3.49% ==== ==== 4,894,631 4,707,121 630,628 610,474 3,185,084 3,091,737 ------------ ------------ $ 41,817,240 $ 38,842,481 ============ ============ 1,533,421 4.02% 1,469,472 4.14% ==== ==== 4,838 5,481 8,411 12,055 12,076 7,527 152 125 ------------ ----------- 25,477 25,188 ------------ ----------- $ 1,507,944 $ 1,444,284 ============ ===========
37 VOLUME AND YIELD/RATE VARIANCES TABLE 3
- ------------------------------------------------------------------------------------------------------------------------------------ 2000 COMPARED TO 1999 1999 COMPARED TO 1998 (Taxable equivalent basis-in thousands) CHANGE DUE TO CHANGE DUE TO --------------------------------------- ------------------------------------------- YIELD/ YIELD/ VOLUME RATE NET VOLUME RATE NET --------------------------------------- ------------------------------------------- INTEREST EARNED ON: Loans net of unearned income .................. $ 34,639 $ 110,153 $ 144,792 $ 122,501 $ (75,062) $ 47,439 Available-for-sale securities: Taxable ..................................... (150,105) 19,146 (130,959) 3,413 (30,769) (27,356) Tax-free .................................... (12,678) 903 (11,775) (3,245) (2,416) (5,661) ----------------------------------- ---------------------------------- Total available-for-sale securities ........... (162,783) 20,049 (142,734) 168 (33,185) (33,017) Held-to-maturity securities: Taxable ..................................... 123,419 13,127 136,546 80,936 (745) 80,191 Tax-free .................................... 11,744 (2,195) 9,549 6,789 (3,044) 3,745 ----------------------------------- ---------------------------------- Total held-to-maturity securities ............. 135,163 10,932 146,095 87,725 (3,789) 83,936 ----------------------------------- ---------------------------------- Total investment securities ................... (27,620) 30,981 3,361 87,893 (36,974) 50,919 Trading securities ............................ (2,334) 253 (2,081) 396 (496) (100) Federal funds sold and securities purchased under agreements to resell .................. 18,367 3,394 21,761 (1,037) (919) (1,956) Loans held for sale ........................... (620) 3,054 2,434 (5,643) (666) (6,309) Other interest-earning assets ................. 3,151 1,472 4,623 1,084 55 1,139 ----------------------------------- ---------------------------------- Total interest-earning assets ................. 25,583 149,307 174,890 205,194 (114,062) 91,132 ----------------------------------- ---------------------------------- INTEREST PAID ON: Interest-bearing demand deposits .............. 3,101 58,408 61,509 2,222 (38,275) (36,053) Savings deposits .............................. (12,160) (4,743) (16,903) 5,599 (3,020) 2,579 Time deposits ................................. (3,160) 46,297 43,137 (52,266) (20,584) (72,850) Foreign time deposits ......................... 21,633 8,645 30,278 24,372 (158) 24,214 Certificates of deposit of $100,000 or more.... (3,093) 22,895 19,802 31,705 (16,514) 15,191 Federal funds purchased and securities sold under agreements to repurchase .............. (31,744) 32,208 464 32,769 (13,258) 19,511 Other borrowed funds .......................... 36,163 12,751 48,914 5,210 (603) 4,607 Long-term Federal Home Loan Bank advances ..... 42,206 31,916 74,122 72,955 (4,041) 68,914 Subordinated debt ............................. 267 5,606 5,873 7,298 (4,976) 2,322 Senior notes .................................. (743) 606 (137) (14) 1 (13) Other long-term debt .......................... (541) 1 (540) (889) (352) (1,241) ----------------------------------- ---------------------------------- Total interest-bearing liabilities ............ 51,929 214,590 266,519 128,961 (101,780) 27,181 ----------------------------------- ---------------------------------- Net interest income on a taxable equivalent basis .................... $ (26,346) $ (65,283) (91,629) $ 76,233 $ (12,282) 63,951 ====================== ====================== Add taxable equivalent adjustment ............. (37,212) (289) --------- -------- Net interest income ........................... $(128,841) $ 63,662 ========= ========
Notes: 1. The change in interest not due solely to volume or yield/rate has been allocated to the volume column and yield/rate column in proportion to the relationship of the absolute dollar amounts of the change in each. 2. The computation of the taxable equivalent adjustment is based on the statutory federal income tax rate, adjusted for applicable state income taxes net of the related federal tax benefit. 3. Certain noninterest-earning marketable equity securities are not included in available-for-sale securities. 38 Average investment securities were lower in 2000. The majority of the decrease occurred in the available-for-sale investment category and resulted from the sale of approximately $4.0 billion of investment securities as part of the comprehensive financial restructuring late in the third quarter of 2000. Interest-earning asset growth was further controlled through the use of off-balance sheet loan-funding vehicles during 2000. In an effort to reduce the amount of lower yielding commercial loans maintained on the balance sheet while retaining the customer relationships, AmSouth sells loans to third-party commercial loan conduits. AmSouth also sells residential first mortgages and, beginning in 2000, dealer indirect automobile loans to third-party conduits. Sales to conduits reduce the amount of loans on the balance sheet and accordingly the interest revenue associated with those loans. However, because the loans that are sold to the conduits typically have lower yields, the net interest margin expands and AmSouth retains higher yielding assets on the balance sheet, while expanding funding capacity. In addition, the decision to securitize almost $1 billion of automobile loans at the beginning of the fourth quarter limited reported loan growth in 2000. On a managed loan basis, average loans grew by $2.8 billion versus 1999 managed loans. The increase in average interest-earning assets was funded by a $716 million increase in borrowed funds while average deposits decreased between periods by approximately $395 million. The primary areas of increase in borrowing were long-term Federal Home Loan Bank (FHLB) advances and short-term bank notes. PROFITABILITY OF INTEREST-EARNING ASSETS [GRAPH]
NET INTEREST MARGIN INTEREST-EARNING ASSETS 96 4.05% $ 31.9 97 4.27% $ 32.9 98 4.14% $ 35.5 99 4.02% $ 38.2 00 3.75% $ 38.4
In 1999, NII grew $63.9 million to more than $1.5 billion, an increase of 4.4 percent. The growth was attributable to a higher level of average interest-earning assets, partially offset by a decrease in the net interest margin. Average interest-earning assets were $38.2 billion in 1999 compared to $35.5 billion in 1998, an increase of $2.7 billion. The growth in average interest-earning assets occurred in both loans and investment securities. Net loans grew $1.4 billion in 1999 to $25.5 billion and represented 54.2 percent of the growth in average interest-earning assets. The growth occurred primarily in commercial real estate, home equity and dealer indirect lending. Growth in investment securities accounted for the remainder of the increase in average interest-earning assets for 1999. The increase, primarily in the held-to-maturity category, was the result of a planned expansion during the second half of 1999 in connection with the Merger. The increase in average interest-earning assets was funded by a $567.3 million increase in deposits and a $2.3 billion increase in borrowings. Primary sources for the increase in borrowed funds were short-term federal funds purchased and securities sold under agreements to repurchase, long-term FHLB advances and subordinated debt. The effects of the growth in average interest-earning assets on NII in 1999 were partially offset by a 12-basis-point decline in the NIM from 4.14 percent in 1998 to 4.02 percent. The decline in the NIM was the result of a 33-basis-point decline in the yield on interest-earning assets due, primarily, to the higher level of investment securities and a decline in the yield on loans during the year. The decrease was partially offset by a 29-basis-point decrease in rates paid for interest-bearing liabilities. Growth in NII during 1999 was also reduced by the use of commercial and residential first mortgage conduits discussed earlier. Management anticipates modest expansion in the NIM in 2001 provided the economy experiences modest growth and AmSouth's balance sheet management strategy is successful. Provision for Loan Losses The provision for loan losses is the charge to earnings necessary to maintain the allowance for loan losses at an adequate level to absorb losses inherent in the loan portfolio. In 2000, AmSouth recorded provision charges for loan losses totaling $227.6 million, compared to $165.6 million recorded in 1999 and $99.1 million in 1998. AmSouth recorded provision charges in the third quarter of 2000 totaling $88.3 million, specifically related to deterioration in 39 its syndicated loan portfolio caused by higher interest rates and a slowing economy. See the sections entitled "Loans" and "Allowance for Loan Losses" for further discussion. The provision for 1999 reflected credit quality deterioration among long-term healthcare providers caused by federal legislation reducing Medicare reimbursements to healthcare providers. This legislation had a material adverse financial impact on certain companies in this sector which heavily rely on such reimbursements. Both AmSouth and First American have been lenders to the healthcare industry. During 1999, management decided to exit the Medicare-dependent long-term care segment of the healthcare loan portfolio and transferred to AHAD $149 million in loans, net of a $71.0 million valuation allowance. Loan impairment charges associated with these loans of $71.0 million were included in the loan loss provision for 1999. Another item in the loan loss provision for 1999 was a $3.0 million charge to conform First American's accounting policies with AmSouth's. Net charge-offs of loans in 2000 were higher compared to 1999. Increases occurred in the commercial and consumer loan portfolios, primarily the dealer indirect automobile and equity lending portfolios, and reflected the impact of higher interest rates and slowing economic growth. The increase in 1999 charge-offs over 1998 was primarily the result of higher charge-offs among commercial loans and within consumer loans, dealer indirect and equity loans. Measured as a percentage of average net loans, net charge-offs followed the same pattern as the absolute amount of loan losses during the past three years. In 2000, net charge-offs were 0.48 percent of average net loans versus 0.40 percent in 1999 and 0.35 percent in 1998. Management expects net charge-offs to increase in 2001 while the net charge-off ratio should be in a range more consistent with fourth quarter 2000 charge-offs of 0.66 percent. This reflects AmSouth's expectation of more modest economic growth in 2001 compared to the above-average economic growth rates experienced from 1998 through 2000. For additional details on net charge-offs, see Tables 16 and 18. Also, additional discussion of asset quality trends may be found in the section of this report entitled Credit Risk Management Process and Loan Quality. Noninterest Revenues Noninterest revenues (NIR) represent fees and income derived from sources other than interest-earning assets such as deposit account service charges or consumer investment services. NIR totaled $669.5 million in 2000 compared to $847.6 million in 1999 and $799.9 million in 1998. Noninterest revenues represented 31.7 percent of total tax equivalent net revenues in 2000 versus 35.6 percent in 1999 and 35.2 percent in 1998. The decrease in NIR during 2000 reflected decreases in service charges on deposit accounts, investment services income and other NIR, partially offset by an increase in trust income. Service charges in 2000 were lower compared to 1999 primarily as a result of fewer consumer service charges resulting from the popularity of AmSouth's free checking products. The decrease in consumer investment services income reflected the loss of revenue from the sale, at the end of the third quarter, of IFC. Excluding the impact of the IFC sale, 2000 consumer investment services income was $87.0 million versus $74.8 million in 1999, a 16.4 percent increase. The growth was the result of higher sales of annuities, traditional brokerage services and mutual funds. At the end of 2000, AmSouth had approximately 1,300 trained and licensed professionals selling annuity products in branches across the franchise and more than 190 trained and licensed investment sales representatives. In addition, AmSouth had $7.2 billion in mutual fund assets under management in 28 proprietary mutual funds at the end of 2000. Trust income was higher in 2000 due to growth in AmSouth's wealth management business, new employee benefit plan administration business and increases in fees. Discretionary trust assets under management were $15.6 billion at the end of 2000. Total trust assets were $26.2 billion. The decrease in other NIR reflected decreases in portfolio income, mortgage income and other NIR, partially offset by increases in interchange income, income from bank-owned life insurance (BOLI) and gains on sales of businesses. During 2000, AmSouth recorded $105.3 million of portfolio losses versus $21.3 million of portfolio income in 1999. The decrease reflects $105.6 million of portfolio losses resulting from management's decision to sell $4.0 billion of lower yielding securities as part of the third-quarter financial restructuring. Also included in the portfolio losses was a $12.1 million writedown in the third quarter of interest-only "strips" related to mortgage loan sales to third-party conduits. Portfolio income in 1999 included $8.0 million associated with the impairment of a First American portfolio investment. This charge was related to the Merger. Exclusive of these amounts, portfolio income for 2000 was 40 $12.4 million, a decrease of $17.0 million compared to 1999. The decline primarily reflected the lower level of gains on the sale of available-for-sale securities during 2000 due to the overall decline in investment portfolio values caused by higher interest rates. Mortgage income in 2000 was $18.0 million, a decrease of $27.0 million versus $45.0 million in 1999. The decrease reflected $12.7 million of impairment charges related to mortgage conduit servicing assets. Due to the structure of the mortgage conduits, AmSouth retains the related interest rate risk. Consequently, the valuation of both the mortgage conduit servicing asset and the interest-only strips related to mortgage loan sales to third-party conduits mentioned in the preceding paragraph is based on the projection of future net cash flows from those assets. As a result of the rapid rise in interest rates beginning in 1999 and continuing through the second quarter of 2000, a cash flow deficit from these assets began to occur in the third quarter of 2000. At that time, management determined, based on its economic forecast of future interest rates, that the cash flow deficit occurring was other than a temporary event and required an impairment charge. The remaining decrease in mortgage income reflected a decline in net gains from the sale of mortgages and servicing in 2000 as well as a reduction in mortgage servicing fees due to the sale of a third-party servicing portfolio in the third quarter of 1999. Other NIR in 2000 also included $23.4 million of losses on the sale of Medicare-dependent loans held in AHAD and $18.5 million of losses related to the securitization of approximately $1.0 billion of automobile loans. These losses were primarily the result of AmSouth's financial restructuring during the third quarter of 2000. Partially offsetting the decreases in other NIR was interchange income, which increased $3.6 million in 2000 to $50.2 million due to higher ATM and CheckCard fees. AmSouth now has approximately 1,250 ATMs and more than one million CheckCards outstanding. The growth was the result of higher sales of convenience services through AmSouth's strategic initiative to aggressively grow consumer banking. Income from BOLI increased $17.6 million in 2000 to $48.8 million. The increase reflected normal increases in cash surrender value on policies purchased in prior years and additional purchases in 2000. In connection with the merger integration of First American, AmSouth decided to sell IFC and the Arkansas banking operations, resulting in net pretax gains of $584 thousand. AmSouth subsequently decided to exit its Kentucky and Virginia markets through the sale of its branches in those markets, producing net pretax gains totaling $19.9 million. In 2000, excluding the revenues generated from IFC of $117.6 million, the losses on the asset sales and securitization
NONINTEREST REVENUES AND NONINTEREST EXPENSES TABLE 4 - ---------------------------------------------------------------------------------------------------------------- Years Ended December 31 (Dollars in thousands) 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------- NONINTEREST REVENUES: Service charges on deposit accounts $ 229,383 $ 233,045 $ 234,849 $ 216,085 $ 191,430 Consumer investment services income 199,270 213,292 183,831 149,205 86,300 Trust income 114,353 109,223 109,453 102,506 93,229 Other noninterest revenues 126,488 292,000 271,721 190,928 171,330 -------------------------------------------------------------- $ 669,494 $ 847,560 $ 799,854 $ 658,724 $ 542,289 ============================================================== NONINTEREST EXPENSES: Salaries and employee benefits $ 583,794 $ 612,687 $ 596,050 $ 572,903 $ 527,614 Equipment expense 121,798 135,590 123,480 113,716 102,544 Net occupancy expense 114,783 111,432 106,497 103,698 97,512 Subscribers' commissions 82,618 99,588 89,918 70,785 35,075 SAIF assessment -0- -0- -0- -0- 32,296 Merger-related costs 110,178 301,415 121,725 -0- -0- Other noninterest expenses 353,264 387,795 368,602 360,573 334,468 -------------------------------------------------------------- $1,366,435 $1,648,507 $1,406,272 $1,221,675 $1,129,509 ==============================================================
41 arising from the financial restructuring, the loss on the mortgage conduit assets and the net gains on the sale of IFC and the Arkansas branch network in 2000, NIR were $722.3 million compared to $709.6 million in 1999, exclusive of IFC revenues of $146.8 million, and charges related to the First American acquisition of $8.8 million associated with a portfolio investment impairment charge and conforming accounting adjustments. On the same basis, NIR represented 33.4 percent of total tax equivalent revenue in 2000 and 31.8 percent in 1999. Management expects total NIR in 2001 to exceed these levels, provided the economy experiences modest growth, AmSouth's strategic initiatives are successfully implemented and sales production levels continue to improve. Performance of the stock and bond markets will also influence management's ability to achieve its NIR goals, especially with respect to consumer investment services and trust revenues. For 1999, leading growth categories in NIR included consumer investment services income and other noninterest revenues. Partially offsetting the growth in these categories were decreases in service charges on deposit accounts and trust income. Consumer investment services income was the leading growth category among NIR for 1999 compared to 1998. The growth was attributable to strong sales across all categories of investment products and services. Within consumer investment services, sales of annuities and mutual fund products were leading growth areas. Also contributing to the increase in consumer investment services income in 1999 was an increase in commissions from higher brokerage sales and higher sales volume in IFC. Growth in other NIR in 1999 reflected increases in interchange income, BOLI, mortgage income, and other NIR. Fees from interchange services increased $10.1 million to $46.5 million in 1999, a 27.8 percent increase. The growth reflected growth in the ATM network and an increase in debit cards outstanding. Income from BOLI increased in 1999 as a result of normal increases in cash surrender value on policies purchased in prior years by AmSouth and new policies purchased in 1999. In 1999, income from BOLI was $31.2 million compared to $17.4 million in 1998, an increase of $13.8 million, or 79.2 percent. Mortgage income was another area of growth among NIR in 1999. The growth was the result of a very favorable residential mortgage environment during the first half of 1999 and the continued benefit from the expansion of the mortgage lending program in 1998. Mortgage income consisted of income from the sale of mortgage loans and related servicing rights. In 1999, mortgage income was $45.0 million versus $39.7 million in 1998, an increase of 13.5 percent. Other NIR also included an $8.6 million pretax gain on the sale of First American's third-party mortgage servicing business and a $13.3 million pretax gain associated with the outsourcing of the merchant card processing operation. The remainder of the increase in other NIR was primarily from an increase in fees from commercial loan conduit activity. The growth in 1999 among these categories was partially offset by decreases in service charges on deposit accounts, primarily due to increased sales of free consumer checking products and lower trust income due to the sale in 1998 of AmSouth's bond administration and stock transfer business. Each of the major categories of NIR for 1996 through 2000 is shown in Table 4. Noninterest Expenses In 2000, noninterest expenses (NIE) were $1.4 billion, a decrease of $282.1 million, or 17.1 percent. Decreases occurred primarily in salaries and employee benefits, equipment expense, subscribers' commissions, merger-related costs and other NIE. NIE included merger-related charges totaling $110.2 million in 2000 and $301.4 million in 1999. Excluding merger-related charges, NIE were $1.3 billion in 2000, a decrease of $90.8 million or 6.7 percent compared to 1999. The decline occurred across most major categories reflecting cost savings from the Merger. Each of the major categories of NIE for 1996 through 2000 is shown in Table 4. Salaries and employee benefits were lower in 2000 due to a reduction in the number of employees as a result of the Merger. At December 31, 2000, AmSouth had 12,300 full-time employees compared to 13,896 at December 31, 1999, a net reduction of 1,596 employees. Reductions occurred primarily in administrative and operational areas and, to a lesser extent, from branch closings and sales that resulted from the Merger. Equipment expense was lower in 2000 compared to 1999 due to the elimination of certain duplicate technology and equipment associated with the Merger, as well as the elimination in 2000 of expenses incurred in 1999 in preparation for the Year 2000 conversion. Net occupancy expense was higher in 2000 as a result of higher net rent expense and depreciation. The increases were partially offset by reductions from the consolidation of office and branch space associated with the Merger. As a result of the Merger, 60 branches were closed or consolidated. 42 Subscribers' commissions consist of fees which were paid on sales of investment products marketed through IFC and were paid to subscribing (client) institutions. These fees were lower in 2000 due to the sale of IFC at the end of September 2000. Other NIE were lower in 2000 primarily due to decreases in marketing expense, FDIC assessments and professional and outside services fees. The overall reduction of other NIE was a result of cost savings achieved through the Merger. In 1999, NIE were $1.6 billion, an increase of $242.2 million over 1998. Increases occurred across most major categories with the primary increases occurring in merger-related costs, salary and employee benefits expense, subscribers' commissions, net occupancy expense, and equipment expense. Salaries and employee benefits expense increased in 1999 due primarily to merit increases, higher performance-based compensation and an increase in the number of employees. The increase in performance-based compensation in 1999 correlated directly with improvement in operating earnings and revenues. Investments in technology supporting the consumer, commercial and capital management lines of business resulted in higher equipment expense in 1999 compared to 1998. Net occupancy expense increased in 1999 due to branch expansion in Florida, higher net rent expense and depreciation expense on leasehold improvements. EFFICIENCY RATIO [GRAPH]
EXCLUDES MERGER-RELATED AS REPORTED AND OTHER CHARGES 96 61.3% 59.5% 97 59.2% 59.2% 98 62.0% 56.6% 99 69.2% 56.2% 00 64.7% 55.1%
The increase in 1999 subscribers' commissions reflected higher investment sales volume in 1999 over 1998. Other NIE increased in 1999 due to higher marketing expenses associated with increased promotions and direct marketing projects and costs for other professional and outsourced services. Operating Efficiency Productivity in the banking industry is commonly measured by the operating efficiency ratio. It measures the amount of expense dollars utilized to generate a dollar of revenue. The ratio is calculated by dividing total NIE by the sum of NII, on a taxable equivalent basis, and total NIR. Based on reported earnings, AmSouth's operating efficiency ratio was 64.7 percent in 2000 compared to 69.2 percent in 1999 and 62.0 percent in 1998. Excluding the revenues and expenses of IFC as well as merger-related and other charges, the efficiency ratio was 53.0 percent in 2000 compared to 53.9 percent in 1999. Improvement in the ratio primarily reflected lower expenses due to synergies created by the Merger. Management's ability to improve operating efficiency during 2001 will depend upon its ability to meet its revenue growth objectives while maintaining control across all noninterest expense categories. Income Taxes AmSouth's income tax expense was $125.4 million in 2000, $200.9 million in 1999 and $264.7 million in 1998. The decrease in 2000 and 1999 was the result of lower pretax income. The effective tax rate for 2000 was 27.6 percent compared to 37.1 percent in 1999 and 35.8 percent in 1998. The decrease in the effective tax rate for 2000 is primarily due to the restructuring of a portion of AmSouth's lease portfolio in 2000 which lowered the effective tax rate on income from leases. In addition, the reduction in the effective tax rate reflected a decrease in nondeductible acquisition cost in 2000 and the increase in the cash surrender value of bank-owned life insurance as compared to 1999. Details of the deferred tax assets and liabilities are included in Note 20 of the Notes to Consolidated Financial Statements. Balance Sheet Analysis At December 31, 2000, AmSouth reported total assets of $38.9 billion compared to $43.4 billion at the end of 1999. Average total assets were $41.9 billion in 2000, basically unchanged compared to 1999. The comprehensive balance sheet restructuring, completed late in the third quarter of 2000, 43 resulted in a substantial reduction in assets on the balance sheet at the end of 2000. Loans and securities totaling $5.1 billion were sold as part of the financial restructuring. Interest-Earning Assets In banking, the predominant interest-earning assets are loans and investment securities. The proportion of interest-earning assets to total assets measures the effectiveness of management's effort to invest available funds into the most profitable interest-earning assets. In 2000, interest-earning assets were 91.8 percent of total average assets compared to 91.3 percent in 1999. The categories which comprise interest-earning assets are shown in Table 1. Securities AmSouth classifies its debt and equity securities as either held-to-maturity, available-for-sale or trading securities. Securities are classified as held-to-maturity and carried at amortized cost only if AmSouth has the positive intent and ability to hold those securities to maturity. If not classified as held-to-maturity, such securities are classified as trading securities or available-for-sale securities. Trading securities are carried at market value with unrealized gains and losses included in other noninterest revenues. Available-for-sale securities are also carried at market value with unrealized gains and losses, net of deferred taxes, reported in accumulated other comprehensive income within shareholders' equity. At December 31, 2000, available-for-sale securities totaled $1.9 billion and represented 22.3 percent of the total securities portfolio compared to $6.0 billion or 45.6 percent in available-for-sale securities at the end of 1999. The decrease in 2000 was primarily the result of the sale of $4.0 billion of securities as part of the comprehensive financial restructuring in the third quarter. The securities at year-end 2000 consisted of U.S. Treasury and federal agency securities, variable and fixed rate mortgage-backed securities, state and municipal securities, other private asset-backed securities, and equities. The average life of the portfolio is estimated to be 4.6 years with a duration of approximately 3.0 years. Total net realized losses of $95.3 million from the sale of available-for-sale securities were included in other noninterest revenues in 2000, compared to $11.4 million of net realized gains in 1999. Included in 2000 were losses totaling $105.6 million on the sale of $4.0 billion of securities associated with the comprehensive financial restructuring. Unrealized gains on the available-for-sale portfolio of $7.1 million, net of deferred taxes, and $114.6 million of unrealized losses net of deferred taxes, associated with the transfer of available-for-sale securities to the held-to-maturity portfolio in 1999, were included in accumulated other comprehensive income within shareholders' equity at December 31, 2000. Held-to-maturity securities were $6.7 billion at the end of 2000 compared to $7.1 billion at year-end 1999. Securities classified as held-to-maturity at the end of 2000 consisted primarily of collateralized mortgage obligations, U.S. Treasury and federal agency securities, mortgage-backed securities and state, county and municipal obligations. The average life of these securities is estimated to be 5.4 years with a duration of 3.1 years. SECURITIES TABLE 5 - -------------------------------------------------------------------------------- December 31 (In millions) 2000 1999 1998 - -------------------------------------------------------------------------------- Trading securities $ 12 $ 52 $ 48 Available-for-sale securities: U.S. Treasury and federal agency securities 1,304 5,135 5,975 Other securities 538 756 1,170 State, county and municipal securities 67 74 380 --------------------------- 1,909 5,965 7,525 --------------------------- Held-to-maturity securities: U.S. Treasury and federal agency securities 4,798 5,284 2,459 Other securities 1,465 1,390 1,197 State, county and municipal securities 387 377 222 --------------------------- 6,650 7,051 3,878 --------------------------- $ 8,571 $13,068 $11,451 ================================================================================ 44 At December 31, 2000, the held-to-maturity portfolio had unrealized gains, before taxes, of $79.4 million. On January 1, 2001, AmSouth, as permitted by Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and for Hedging Activities" (Statement 133), transferred approximately $2.1 billion of securities from held-to-maturity to available-for-sale. In conjunction with this transfer, AmSouth recorded an after-tax increase to other comprehensive income of $26.6 million to reflect the fair value of the securities transferred on January 1, 2001. See Note 1 of the Notes to Consolidated Financial Statements for further discussion of the transfer. AmSouth's policy requires all securities purchased for the securities portfolio, except state, county and local municipal obligations, to be rated investment grade or better. Securities backed by the U.S. Government and its agencies, both on a direct and indirect basis, represented approximately 76 percent of the portfolio at December 31, 2000. Approximately 95 percent of state, county and local municipal securities at year-end 2000 were rated either single A or above by the rating agencies or were escrowed in U.S. Treasury obligations. Management anticipates that investment securities will remain relatively stable in 2001 from ending 2000 levels and will fluctuate mainly based on loan funding needs and liquidity levels. AVAILABLE-FOR-SALE SECURITIES AND HELD-TO-MATURITY SECURITIES RELATIVE CONTRACTUAL MATURITIES AND WEIGHTED AVERAGE YIELDS TABLE 6
- ----------------------------------------------------------------------------------------------------------------------------------- Due Within Due After One but Due After Five but Due After One Year Within Five Years Within Ten Years Ten Years - ----------------------------------------------------------------------------------------------------------------------------------- (Taxable equivalent basis-dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield - ----------------------------------------------------------------------------------------------------------------------------------- AVAILABLE-FOR-SALE SECURITIES: U.S. Treasury and federal agency securities $ 33,065 7.96% $ 30,683 5.10% $104,509 6.70% $1,116,677 6.99% State, county and municipal obligations 5,585 6.92 15,679 6.86 26,319 7.61 18,259 7.77 Other securities 73,913 5.67 52,045 0.00 8,074 6.81 73,151 7.08 ------------------------------------------------------------------------------- $112,563 6.40% $ 98,407 2.68% $138,902 6.88% $1,208,087 7.00% =============================================================================== Taxable equivalent adjustment for calculation of yield $ 126 $ 358 $ 664 $ 363 HELD-TO-MATURITY SECURITIES: U.S. Treasury and federal agency securities $ 36,151 6.93% $ 97,623 6.17% $876,108 6.72% $3,787,982 6.57% State, county and municipal obligations 5,166 10.00 15,052 8.72 36,881 7.03 329,734 6.53 Other securities 925 7.03 15,272 6.57 17,539 7.13 1,432,006 6.82 ------------------------------------------------------------------------------- $ 42,242 7.31% $127,947 6.51% $930,528 6.74% $5,549,722 6.63% =============================================================================== Taxable equivalent adjustment for calculation of yield $ 188 $ 455 $ 744 $ 5,825 - -----------------------------------------------------------------------------------------------------------------------------------
Notes: 1. The weighted average yields were computed by dividing the taxable equivalent interest income by the amortized cost of the appropriate securities. The taxable equivalent interest income has been computed based on the statutory federal income tax rate and does not give effect to the disallowance of interest expense, for federal income tax purposes, related to certain tax-free assets. 2. The amount of available-for-sale securities indicated as maturing after five but within ten years includes $67 million of mortgage-backed securities, and those indicated as maturing after ten years includes $1.2 billion of mortgage-backed securities. Although these securities have stated long-term final maturities, according to mortgage industry standards, the estimated weighted average remaining life of these securities held in AmSouth's investment portfolio is approximately 3.8 years. 3. The amount of held-to-maturity securities indicated as maturing after five but within ten years includes $460 million of mortgage-backed securities, and those indicated as maturing after ten years includes $5.1 billion of mortgage-backed securities. Although these securities have stated long-term final maturities, according to mortgage industry standards, the estimated weighted average remaining life of these securities held in AmSouth's investment portfolio is approximately 6.1 years. 4. Federal Reserve Bank stock, Federal Home Loan Bank stock, and equity stock of other corporations held by AmSouth are not included in the above table. 45 Loans Loans are the single largest category of interest-earning assets for AmSouth and produce the highest level of revenues. At December 31, 2000, loans, net of unearned income, totaled $24.6 billion, a decrease of 6.3 percent from the $26.3 billion reported at the end of 1999. The decline in the loan portfolio at December 31, 2000, was primarily the result of increased sales of participations in certain narrow-spread loans to third-party conduits, as well as the securitization of $1.0 billion of automobile dealer indirect loans during the year. The residential mortgage portfolio continued to decline in 2000 as the result of management's decision in 1997 to reduce the amount of these loans on the balance sheet. This was accomplished through normal runoff, selling a portion of new originations into the secondary market and participating loans into third-party conduits. At the end of 2000, there were approximately $2.7 billion of outstanding mortgage loans that had been sold to conduits, or approximately $1.0 billion higher than at year-end 1999. During 2000, AmSouth continued to reduce the amount of low-yield commercial loans on the balance sheet through the use of commercial loan conduits. At the end of 2000, there were approximately $1.8 billion of commercial loans in third-party conduits, approximately 24.9 percent higher than at the end of 1999. TOTAL LOANS (in billions) [GRAPH] 96 $23.1 97 $24.4 98 $24.4 99 $26.3 00 $24.6
AmSouth also sold, in 2000, low-spread dealer indirect automobile loans to conduits. At the end of 2000, there were approximately $793.6 million of outstanding dealer indirect loans in conduits. MAJOR LOAN CATEGORIES TABLE 7
- -------------------------------------------------------------------------------------------------------------- December 31 (In millions) 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------- Commercial: Commercial and industrial $ 7,313 $ 7,967 $ 7,943 $ 7,653 $ 7,014 Commercial loans secured by real estate 1,765 2,036 1,833 2,496 2,407 ------------------------------------------------------------ Total commercial 9,078 10,003 9,776 10,149 9,421 ------------------------------------------------------------ Commercial real estate: Commercial real estate mortgages 2,323 2,295 2,221 1,465 1,337 Real estate construction 2,517 2,417 1,800 1,321 1,091 ------------------------------------------------------------ Total commercial real estate 4,840 4,712 4,021 2,786 2,428 ------------------------------------------------------------ Consumer: Residential first mortgages 1,358 1,701 2,306 3,482 3,755 Other residential mortgages 4,656 3,874 3,346 3,378 3,108 Dealer indirect 2,990 4,149 2,909 1,883 1,834 Revolving credit 505 489 477 682 688 Other consumer 1,189 1,339 1,610 2,055 1,891 ------------------------------------------------------------ Total consumer 10,698 11,552 10,648 11,480 11,276 ------------------------------------------------------------ Total loans net of unearned income $24,616 $26,267 $24,445 $24,415 $23,125 ==============================================================================================================
46 LOAN PORTFOLIO DISTRIBUTION 2000 CONSUMER 37.9% [PIE CHART] COMMERCIAL REAL ESTATE 19.7% RESIDENTIAL 5.5% COMMERCIAL 36.9% 1999 CONSUMER 38.1% [PIE CHART] COMMERCIAL REAL ESTATE 17.9% RESIDENTIAL 6.5% COMMERCIAL 37.5% At the end of 2000, total managed loans net of unearned income, which include loans contained in the conduits and loans securitized, grew 4.6 percent to $30.7 billion compared to year-end 1999. The loan portfolio at AmSouth includes four main components: commercial loans, commercial real estate loans, consumer loans, and, within the consumer loan category, residential first mortgage loans. At the end of 2000, commercial loans represented 36.9 percent of the total portfolio, commercial real estate loans were 19.7 percent, while consumer loans, excluding residential first mortgages, were 37.9 percent and residential first mortgages represented 5.5 percent. This compared with 38.1 percent, 17.9 percent, 37.5 percent, and 6.5 percent at the end of 1999 for commercial loans, commercial real estate loans, consumer loans, and residential first mortgages, respectively. Total commercial loans were $9.1 billion at the end of 2000 compared to $10.0 billion at year-end 1999. In 2000, the level of commercial loans declined 9.2 percent and reflected AmSouth's strategy to exit a substantial portion of its syndicated commercial loan portfolio. This strategy resulted in the sale or runoff of approximately $500 million of loans. In addition, the increased level of commercial loan participations to commercial loan conduits in 2000 reduced the level of commercial loans on the balance sheet. Further controlling growth in AmSouth's commercial loan portfolio was the application of more selective pricing standards in response to rising interest rate environments during the first half of 2000. SELECTED LOAN MATURITIES AND SENSITIVITY TO CHANGE IN INTEREST RATES TABLE 8
- ------------------------------------------------------------------------------------------------------------------------------ Due in One Due After One Year or Less but Within Five Years Due After Five Years - ------------------------------------------------------------------------------------------------------------------------------ Fixed Variable Fixed Variable (In millions) Rate Rate Total Rate Rate Total Total - ------------------------------------------------------------------------------------------------------------------------------ Commercial and industrial $1,986 $2,044 $2,869 $4,913 $1,815 $364 $2,179 $ 9,078 Commercial real estate mortgages 488 728 521 1,249 383 203 586 2,323 Real estate construction 1,019 270 722 992 406 100 506 2,517 ------------------------------------------------------------------------------------ Total $3,493 $3,042 $4,112 $7,154 $2,604 $667 $3,271 $ 13,918 ==============================================================================================================================
Management expects modest growth in commercial loans in 2001 due to new business development resulting from the initiative to aggressively grow high growth markets where AmSouth has relatively low market share, expansion of services to small businesses through the business banking initiative, continued growth of commercial lease financing and asset-based lending, and further application of its relationship banking concept in all of its markets. For this growth to occur, the economy must experience modest growth throughout 2001 for loan demand to be sufficient to meet the company's goals. In addition, management must be able to provide satisfactory sales results and service quality and develop new products in the commercial lending area. Commercial real estate loans are composed of two primary categories: commercial real estate mortgages and real estate construction loans. The growth in commercial real estate lending reflects the strength of the real estate markets in AmSouth's Southeastern markets, particularly Florida, and 47 growth in commercial real estate loans among business banking customers. The increase, since 1996, was also indicative of AmSouth's efforts to systematically grow the real estate portfolio while improving loan quality. Substantially all of AmSouth's real estate growth was made up of loans to finance local home builders within AmSouth's markets; loans for construction projects that have been presold, preleased or otherwise have secured permanent financing; and loans to real estate companies that have significant equity invested in each project and offer substantive and meaningful guarantees. Management anticipates a relatively stable balance of commercial real estate loans during 2001, compared to 2000, as loans that pay off are replaced during the year. Fulfillment of this strategy is based, in part, on continued strength in commercial real estate in AmSouth's markets. Consumer loans primarily include home equity loans and lines of credit, dealer indirect loans, revolving credit, and other direct consumer loans, but exclude residential first mortgage loans. AmSouth's consumer lending programs produced strong growth in 2000. Among the leading areas of growth, home equity loans and lines of credit experienced strong growth in all of AmSouth's markets during 2000. The growth is the result of selling home equity loans and lines of credit in the branches and acquiring new customers from direct mail marketing promotions in our primary markets. Dealer indirect loans consisted primarily of loans made to individuals to finance the purchase of new and used automobiles. Dealer indirect loans on the balance sheet were lower at the end of 2000 due to the sale during the year of dealer loans to conduits and the securitization of approximately $1 billion of dealer loans. At December 31, 2000, there were approximately $793.6 million of dealer loans in conduits and $861.2 million of dealer loans outstanding which had been securitized and sold. On a managed basis, which includes loans securitized and in conduits, dealer indirect loans as of December 31, 2000, increased $496.0 million, or 12.0 percent over the 1999 level. New loan production in 2000 continued to be strong, with more than $2.5 billion in new loans originated during the year. Revolving credit, which consists primarily of bankcard outstandings, was limited in 2000 by normal portfolio runoff and more emphasis on promoting home equity loans and lines of credit. Management anticipates that in 2001 consumer loans will grow, provided the economy experiences modest growth, consumer borrowing patterns improve through 2001 and AmSouth's strategic initiative to aggressively grow consumer banking is successful. TOTAL DEPOSITS (in billions) [GRAPH] 96 $26.0 97 $27.0 98 $28.5 99 $27.9 00 $26.6
Deposits Deposits are AmSouth's primary source of funding, and their cost is the largest category of interest expense. There are five principal categories of deposits: noninterest-bearing demand, interest-bearing demand and money market, savings, time, and certificates of deposit of $100,000 or more. See Table 9 for the detailed amounts. Total average deposits in 2000 were $27.3 billion compared to $27.7 billion in 1999, a decline of $394.9 million or 1.4 percent. Most categories of deposits were lower during 2000, compared to 1999, primarily because consumers shifted toward higher yielding or more aggressive financial products such as mutual funds and annuities and because consumer spending and debt were higher. Also contributing to the decline were higher levels of capital spending by businesses in 2000, thereby reducing their investable assets. These factors contributed to a highly competitive market for deposits in 2000, especially among banks. A number of factors controlled by AmSouth also contributed to the decline in deposits during the year. AmSouth sold 16 branches that were outside of its primary markets with deposits totaling approximately $490 million at the time of the sales. Additionally, AmSouth aggressively managed down its "cash and due from" balances during the year and allowed certain foreign 48 AVERAGE DEPOSITS TABLE 9
- --------------------------------------------------------------------------------------------------- December 31 (In thousands) 2000 1999 1998 - --------------------------------------------------------------------------------------------------- Noninterest-bearing demand $ 4,658,636 $ 4,894,631 $ 4,707,121 Interest-bearing demand and money market 9,376,473 9,269,643 9,201,511 Savings 1,661,398 2,191,546 1,968,461 Time: Retail 6,142,485 6,203,375 7,142,064 Individual retirement accounts 1,411,165 1,541,838 1,581,439 Other 207,156 76,548 100,425 ------------------------------------------------ Total time 7,760,806 7,821,761 8,823,928 ------------------------------------------------ Foreign time 1,087,636 703,421 203,084 Certificates of deposit of $100,000 or more 2,778,184 2,837,027 2,246,605 ------------------------------------------------ $ 27,323,133 $ 27,718,029 $ 27,150,710 ===================================================================================================
time and public funds deposits totaling $1.3 billion to run off during the fourth quarter as a result of the financial restructuring. Average noninterest-bearing checking deposits were 4.8 percent lower in 2000 as a result of lower balances from commercial and consumer customers. Interest-bearing demand deposits were higher in 2000 primarily due to growth in money market and interest checking products. Through promotions and campaigns throughout the year, AmSouth offered highly competitive interest rates to attract new deposits in these categories. Average savings deposits declined by 24.2 percent as customers moved their money to higher paying interest checking and money market accounts. Time deposits were lower in 2000, primarily due to a growing trend by consumers toward uninsured financial products. While AmSouth experienced strong growth in alternative financial products such as annuities and mutual fund sales, as indicated by growth in consumer investment services income during the year, sales of core time deposits declined. To a lesser extent, a tendency toward more frequent "rate shopping" by consumers as interest rates rose during the year resulted in a highly competitive rate environment for time deposits in 2000. Certificates of deposit of $100,000 or more and foreign time deposits were higher in 2000 as the result of offers of more attractive rates during the year. These deposits, for the most part, are competitively bid and fluctuate based on the average level of interest rates and management's determination of the need for such deposits from time to time. Table 10 provides a maturity schedule for domestic time deposits of $100,000 or more at December 31, 2000. AmSouth expects deposit growth to improve in 2001, provided consumer demand for insured deposit products improves, AmSouth's strategic initiatives to double the contribution from business banking and aggressively grow consumer banking are successful, and AmSouth is able to offer competitive products and prices in each of its markets. MATURITY OF TIME DEPOSITS OF $100,000 OR MORE TABLE 10
- --------------------------------------------------------------------------------------------------- December 31 (In thousands) 2000 1999 1998 - --------------------------------------------------------------------------------------------------- Three months or less $ 635,263 $1,329,618 $1,312,931 Over three through six months 454,478 493,883 550,072 Over six through twelve months 918,331 533,104 666,806 Over twelve months 741,904 603,530 391,098 ---------------------------------------------- $2,749,976 $2,960,135 $2,920,907 ===================================================================================================
49 Other Interest-Bearing Liabilities Other interest-bearing liabilities include all interest-bearing liabilities except deposits. Short-term liabilities included in this category consist of federal funds purchased and securities sold under agreements to repurchase (repurchase agreements) and other borrowed funds. Average other borrowed funds, which include master notes, short-term FHLB advances, term fed fund purchases, bank notes, and treasury, tax and loan notes, increased in 2000 to $1.5 billion versus $939.8 million in 1999, an increase of 64.6 percent. These sources were utilized in 2000 primarily to fund lending activities in light of the lower level of deposits during the year. However, AmSouth began reducing its short-term borrowings in the fourth quarter with funds received from the sale of securities and loans as part of its third-quarter financial restructuring. Average federal funds purchased and repurchase agreements were $3.4 billion in 2000, a 15.6 percent decrease from $4.1 billion in 1999. At December 31, 2000, 1999 and 1998, federal funds purchased and repurchase agreements totaled $2.3 billion, $4.1 billion and $3.5 billion, respectively, with weighted-average interest rates of 5.37 percent, 4.57 percent and 4.37 percent, respectively. The maximum amount outstanding at any month end during each of the last three years was $4.5 billion, $4.8 billion and $3.8 billion, respectively. The average daily balance and average interest rates for each year are presented in Table 2. Long-term debt consists of long-term FHLB advances, subordinated notes and debentures, and various long-term notes payable. The most significant increase during the year occurred in FHLB advances as average long-term FHLB advances grew by $758.0 million. The result was average long-term borrowings in 2000 of $6.0 billion, an increase of $739.8 million or 14.0 percent over 1999. These funds were utilized in 2000 because of their relatively low cost and the ability to match their maturities with those of the assets being funded. Shareholders' Equity Shareholders' equity was reduced by cash dividends declared of $307.2 million and the purchase of 22.7 million shares of AmSouth common stock for $375.8 million to provide shares for employee benefit plans, dividend reinvestment and other corporate purposes. Partially offsetting these items during 2000 were the retention of net income, issuances of common stock under the various stock-based employee benefit plans and the dividend reinvestment plan, and a $141.3 million decrease in unrealized losses on available-for-sale securities as the result of improved market values in the CAPITAL RATIOS TABLE 11
- ---------------------------------------------------------------------------------------------- December 31 (Dollars in thousands) 2000 1999 - ---------------------------------------------------------------------------------------------- RISK-BASED CAPITAL: Shareholders' equity $ 2,813,407 $ 2,959,205 Unrealized losses on available-for-sale securities 107,550 248,849 Less certain intangible assets (344,286) (438,397) ----------------------------------- Tier I capital 2,576,671 2,769,657 Adjusted allowance for loan losses 380,434 354,679 Qualifying long-term debt 773,981 823,570 ----------------------------------- Tier II capital 1,154,415 1,178,249 ----------------------------------- Total capital $ 3,731,086 $ 3,947,906 =================================== Risk-adjusted assets $ 33,655,620 $ 37,119,733 =================================== CAPITAL RATIOS: Tier I capital to total risk-adjusted assets 7.66% 7.46% Total capital to total risk-adjusted assets 11.09 10.64 Leverage 6.72 6.21 Ending equity to assets 7.23 6.82 Ending tangible equity to assets 6.41 5.96 - -----------------------------------------------------------------------------------------------
50 available-for-sale portion of the investment portfolio. Information on prior years may be found in the Consolidated Statement of Shareholders' Equity. AmSouth maintains a capital and dividend policy based on industry standards, regulatory requirements, perceived risk of the various lines of business, and future growth opportunities. At least annually, management reevaluates the policy and presents its findings to the Board of Directors to ensure that the policy continues to support corporate objectives and be consistent with the regulatory environment and changes in market conditions. At December 31, 2000, AmSouth met or exceeded all of the minimum capital standards for the parent company and its banking subsidiary as established by regulatory requirements and the Company's capital policy. Refer to Table 11 and Notes 15 and 18 of the Notes to Consolidated Financial Statements for specific information. Risk Management Risk identification and management are key elements in the overall management of AmSouth. Management believes the primary risk exposures are interest rate, liquidity and credit risk. Interest rate risk is the risk to NII represented by the impact of higher or lower interest rates. Liquidity risk is the possibility that the Company will not be able to fund present and future obligations, and credit risk represents the possibility that borrowers may not be able to repay loans. External factors beyond management's control may from time to time result in losses despite risk management efforts. Some of the more significant processes used to manage and control these risks are described in the following paragraphs. Asset and Liability Management AmSouth maintains a formal asset and liability management process to quantify, monitor and control interest rate risk and to assist management in maintaining stability in the NIM under varying interest rate environments. This is accomplished through the development and implementation of lending, funding, pricing and hedging strategies designed to maximize net interest income performance under varying interest rate environments subject to specific liquidity and interest rate risk guidelines. Interest Rate Risk AmSouth uses a number of measures to monitor and manage interest rate risk. An earnings simulation model is the primary tool used to assess the direction and magnitude of the changes in NII caused by changes in interest rates. Key INTEREST RATE SWAPS, CAPS AND FLOORS TABLE 12
- -------------------------------------------------------------------------------------------------------------------- Receive Fixed Pay Fixed Forward Swaps Caps & (In millions) Rate Swaps Rate Swaps Basis Swaps Pay Fixed Floors Total - -------------------------------------------------------------------------------------------------------------------- Balance at January 1, 1998 $ 1,670 $ 256 $ 50 $ 1,350 $ 300 $ 3,626 Additions 469 300 - 1,300 - 2,069 Maturities (130) (1) - (150) - (281) Calls (255) - - - - (255) Terminations (250) (50) (50) (450) (300) (1,100) --------------------------------------------------------------------------------- Balance at December 31, 1998 1,504 505 - 2,050 - 4,059 Additions 2,389 - - 800 - 3,189 Maturities (125) (1) - - - (126) Calls (450) - - - - (450) Terminations - (504) - (2,850) - (3,354) --------------------------------------------------------------------------------- Balance at December 31, 1999 3,318 - - - - 3,318 Additions 818 - - - - 818 Maturities (259) - - - - (259) Calls (850) - - - - (850) Terminations (360) - - - - (360) --------------------------------------------------------------------------------- Balance at December 31, 2000 $ 2,667 $ - $ - $ - $ - $ 2,667 ====================================================================================================================
51 MATURITIES AND INTEREST RATES EXCHANGED ON SWAPS TABLE 13
- ------------------------------------------------------------------------------------------------- Mature During (Dollars in millions) 2001 2002 2003 2004 2005 2008 2009 Total - ------------------------------------------------------------------------------------------------- RECEIVE FIXED SWAPS: Notional amount $ 607 $ 970 $ 290 $ 350 $ 150 $ 125 $ 175 $2,667 Receive rate 6.44% 6.62% 6.34% 6.21% 6.25% 6.15% 6.22% 6.43% Pay rate 6.41% 6.72% 6.73% 6.73% 6.82% 6.80% 6.82% 6.67% - -------------------------------------------------------------------------------------------------
assumptions in the model include prepayment speeds on mortgage-related assets; cash flows and maturities of derivatives and other financial instruments held for purposes other than trading; changes in market conditions, loan volumes and pricing; deposit sensitivity; customer preferences; and management's financial and capital plans. These assumptions are inherently uncertain and, as a result, the model cannot precisely estimate NII or precisely predict the impact of higher or lower interest rates on NII, but it can indicate the likely direction of change. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes and changes in market conditions and management's strategies, among other factors. Based on the results of the simulation model as of December 31, 2000, NII would decrease $2.0 million or 0.10 percent if interest rates gradually increased from then-current rates by 100 basis points over a 12-month period and would be unchanged if interest rates gradually decreased under the same scenario. This level of interest rate risk is well within the Company's policy guidelines. As of December 31, 1999, the simulation model indicated that NII would decrease $38.4 million or 2.3 percent and increase $25.3 million or 1.5 percent if interest rates gradually increased or decreased, respectively, from their current rates by 100 basis points over a 12-month period. For June 1999 through May 2000, interest rates rose 175 basis points. The significant reduction in AmSouth's interest sensitivity compared to 1999 is primarily the result of the financial restructuring initiated in the third quarter of 2000. As part of the financial restructuring, AmSouth sold $4.0 billion of low-yielding fixed-rate investment securities and securitized and sold approximately $1.0 billion of low-yielding fixed-rate automobile loans. These fixed-rate assets were primarily funded by floating-rate overnight and other short-term borrowings. This action has significantly reduced the impact of interest rate fluctuations on NII. 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 began expanding the interest rate sensitivity model to include different and more extreme interest rate scenarios such as those experienced in 1999 and 2000. In addition, variations in other key assumptions, such as loan and deposit volume and pricing, are also being stress-tested in net interest income risk modeling. AmSouth uses various off-balance sheet financial instruments to assist in managing interest rate risk. AmSouth had interest rate swaps as of December 31, 2000, in the notional amount of $2.7 billion. Of these swaps, $1.0 billion of notional value was used to hedge the cash flow of variable-rate securities and commercial loans. The remaining $1.7 billion of notional value of swaps was used to hedge the fair value of fixed-rate consumer certificates of deposit and corporate and bank debt. See Note 1 and Note 13 to the Consolidated Financial Statements for further discussion of off-balance-sheet derivatives. Table 12 summarizes the activity, by notional amount, of off-balance sheet financial instruments utilized in the asset and liability management process at AmSouth for the years 2000, 1999 and 1998. Table 13 summarizes the expected maturities on all of AmSouth's off-balance sheet positions at December 31, 2000, and interest rates exchanged on swaps. Both the timing of the maturities and the variable interest payments and receipts vary as certain interest rates change. The maturities and interest rates exchanged are calculated assuming that interest rates remain unchanged from average December 2000 rates. The information presented could change as future interest rates increase or decrease. Liquidity AmSouth's goal in liquidity management is to satisfy the cash flow requirements of depositors and borrowers while 52 CREDIT RATINGS Table 14
- -------------------------------------------------------------------------------- Standard & Moody's Poor's Fitch - -------------------------------------------------------------------------------- 6.875% Subordinated Notes Due 2003 A3 BBB+ BBB+ 7.75% Subordinated Notes Due 2004 A3 BBB+ BBB+ 6.625% Subordinated Notes Due 2005 A3 BBB+ BBB+ 6.125% Subordinated Notes Due 2009 A3 BBB+ BBB+ 6.45% Subordinated Notes Due 2018 A2* A-* - 6.75% Subordinated Debentures Due 2025 A3 BBB+ BBB+ 7.25% Senior Notes Due 2006 A2 A- A- Commercial paper P-1 A-2 F1 Certificates of deposit A1* A* A Short-term counterparty P-1 A-1* F1 Long-term counterparty A1* A* A Financial Strength Rating B* - B/C* - --------------------------------------------------------------------------------
*AmSouth Bank Table reflects ratings as of January 31, 2001 at the same time meeting the cash flow needs of the Company. This is accomplished through the active management of both the asset and liability sides of the balance sheet. The liquidity position of AmSouth is monitored on a daily basis by AmSouth's Treasury Division. In addition, the Asset/Liability Committee, which consists of members of AmSouth's senior management team, reviews liquidity on a regular basis and approves any changes in strategy that are necessary as a result of balance sheet or anticipated cash flow changes. Management also compares on a monthly basis the Company's liquidity position to established corporate liquidity guidelines. At December 31, 2000, AmSouth was within all of its established guidelines. The primary sources of liquidity on the asset side of the balance sheet are maturities and cash flows from both loans and investments as well as the ability to securitize or sell certain loans and investments. Liquidity on the liability side is generated primarily through growth in core deposits and the ability to obtain economical wholesale funding in national and regional markets through a variety of sources. AmSouth's most commonly used sources of wholesale funding are (1) federal funds (i.e., the excess reserves of other financial institutions); (2) repurchase agreements, whereby U.S. government and government agency securities are pledged as collateral for short-term borrowings; and (3) pledges of acceptable assets as collateral for public deposits and certain tax collection monies. In addition to these sources, AmSouth can access other wholesale funding sources such as Eurodollar deposits and certificates of deposit. AmSouth Bank also has the ability to borrow from the FHLB. FHLB advances are competitively priced and are a reliable source of funds. Also, AmSouth Bank maintains a short and medium-term note issuance program with a borrowing capacity of $3.0 billion. There was $450.0 million outstanding under the issuance program at December 31, 2000. Maintaining adequate credit ratings on debt issues is critical to liquidity because it affects the ability of AmSouth to attract funds from various sources on a cost competitive basis. Table 14 summarizes AmSouth's current credit ratings. Credit Risk Management Process and Loan Quality. The loan portfolio at AmSouth holds the highest degree of risk for the Company. AmSouth manages and controls risk in the loan portfolio through adherence to consistent standards established by senior management, combined with commitment to producing quality assets, developing profitable relationships and meeting strategic growth targets. AmSouth has written credit policies which establish underwriting standards, place limits on exposure and set other limits or standards as deemed necessary and prudent. Also included in the policy, primarily determined by the amount and type of loan, are various approval levels, ranging from the branch or department level to those which are more centralized. 53 AmSouth maintains a diversified portfolio intended to spread its risk and reduce its exposure to economic downturns, which may occur in different segments of the economy or in particular industries. Industry and loan type diversification is reviewed quarterly. Commercial real estate loans are categorized by the type of collateral. Owner-occupied properties include mortgages where the borrower is a primary tenant, such as factory or warehouse loans. Nonowner-occupied lending represents those loans where the primary method of repayment is anticipated to come from the rental income and generally has inherently more risk than owner-occupied lending. Each commercial loan recorded at AmSouth is assigned a risk rating on a 13-point numerical scale by the loan officer using established credit policy guidelines. Consumer loan portfolios are assigned risk ratings based on a nine-point scale and are based on the type of loan and its performance. All risk ratings are subject to review by an independent Credit Review Department. In addition, regular reports are made to senior management and the Board of Directors regarding the credit quality of the loan portfolio as well as trends in the portfolio. The Credit Administration function includes designated credit officers, some of whom are industry specialists and all of whom are organizationally independent of the production areas. They oversee the loan approval process, ensure adherence to credit policies and monitor efforts to reduce nonperforming and classified assets. Additionally, a centralized special assets function handles the resolution and disposition of certain problem loans. Risk in the consumer loan portfolio is further managed through utilization of computerized credit scoring, in-depth analysis of portfolio components and specific account selection, management and collection techniques. In addition, the consumer collection function is centralized and automated to ensure timely collection of accounts and consistent management of risk associated with delinquent accounts. Finally, AmSouth's Credit Review Department performs ongoing independent reviews of the risk management process, adequacy of loan documentation and the risk ratings or specific loan loss reserves for outstanding loans. Furthermore, this department is independent of the lending function. The results of its examinations are reported to the Audit and Community Responsibility Committee of the Board of Directors. Nonperforming Assets. Management closely monitors loans and other assets that are classified as nonperforming assets. Nonperforming assets include nonaccrual loans, restructured loans, foreclosed properties, and repossessions. Loans are generally placed on nonaccrual if full collection of principal and interest becomes unlikely (even if all payments are current) or if the loan is delinquent in principal or interest payments for 90 days or more, unless the loan is well-secured and in the process of collection. The Special Assets Department manages collection of commercial nonperforming loans and business banking loans greater than $250,000 while the Consumer Collections Department manages the consumer nonperforming loan portfolio. The Business Banking Collections Department manages collections of business banking loans under $250,000. NONPERFORMING ASSETS TABLE 15
- --------------------------------------------------------------------------------------------------------------------------- December 31 (Dollars in thousands) 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------------------- Nonaccrual loans $179,659 $141,134 $113,985 $109,488 $112,509 Restructured loans -0- -0- -0- -0- 694 ------------------------------------------------------------------------ Nonperforming loans 179,659 141,134 113,985 109,488 113,203 ------------------------------------------------------------------------ Foreclosed properties 12,360 17,767 17,322 19,143 26,844 Repossessions 4,259 2,644 828 632 1,822 ------------------------------------------------------------------------ Total nonperforming assets* $196,278 $161,545 $132,135 $129,263 $141,869 ======================================================================== Nonperforming assets* to loans net of unearned income, foreclosed properties and repossessions 0.80% 0.61% 0.54% 0.53% 0.61% ======================================================================== Accruing loans 90 days past due $ 85,410 $ 61,050 $ 62,528 $ 66,792 $ 58,943 ==========================================================================================================================
*Exclusive of accruing loans 90 days past due 54 Nonperforming assets, excluding accruing loans 90 days past due, increased $34.7 million, to $196.3 million, during 2000. The graph entitled Asset Quality Trends and Table 15 provide trend information and detailed components of nonperforming assets for each of the last five years. ASSET QUALITY TRENDS [GRAPH]
NONPERFORMING NONPERFORMING ASSETS/LOANS ASSETS 96 0.61% $142 97 0.53% $129 98 0.54% $132 99 0.61% $162 00 0.80% $196
The increase in nonperforming assets in 2000 compared to 1999 was primarily the result of a higher level of nonperforming loans in the commercial and industrial loan portfolio. The increase was the result of deterioration in syndicated loans-loans to large corporate borrowers that are shared among several banks. Deterioration among syndicated loans at the time was addressed, in part, through the financial restructuring. Additionally, the majority of consumer nonaccrual loans are secured by residential real estate. Table 16 presents nonperforming loans and net charge-offs and each as a percentage of average net loans by category for December 31, 2000 and 1999. NONPERFORMING LOANS AND NET CHARGE-OFFS (RECOVERIES) TABLE 16
- --------------------------------------------------------------------------------------------------------------------- Nonperforming Loans* - --------------------------------------------------------------------------------------------------------------------- % of % of December 31, Average December 31, Average 2000 Loans** per 1999 Loans** per (Dollars in thousands) Category Category - --------------------------------------------------------------------------------------------------------------------- Commercial: Commercial and industrial $108,730 1.40% $ 39,474 0.49% Commercial loans secured by real estate 18,989 1.03 35,554 1.73 -------------------------------------------------------------------- Total commercial 127,719 1.33 75,028 0.74 -------------------------------------------------------------------- Commercial real estate mortgages 24,259 0.98 15,530 0.76 Real estate construction 4,537 0.20 13,356 0.60 -------------------------------------------------------------------- Total commercial real estate 28,796 0.61 28,886 0.68 -------------------------------------------------------------------- Consumer: Residential first mortgages 12,494 0.80 22,343 1.02 Other residential mortgages 10,126 0.23 13,308 0.39 Dealer indirect 1 0.00 562 0.02 Revolving credit 0 0.00 164 0.03 Other consumer 523 0.04 843 0.06 -------------------------------------------------------------------- Total consumer 23,144 0.20 37,220 0.33 -------------------------------------------------------------------- $179,659 0.69% $141,134 0.55% =====================================================================================================================
* Exclusive of accruing loans 90 days past due ** Net of unearned income
- --------------------------------------------------------------------------------------------------------------------- Net Charge-offs/(Recoveries) - --------------------------------------------------------------------------------------------------------------------- % of % of December 31, Average December 31, Average 2000 Loans** per 1999 Loans** per (Dollars in thousands) Category Category - --------------------------------------------------------------------------------------------------------------------- Commercial: Commercial and industrial $ 33,581 0.43% $ 32,219 0.40% Commercial loans secured by real estate 11,226 0.61 2,174 0.11 -------------------------------------------------------------------- Total commercial 44,807 0.46 34,393 0.34 -------------------------------------------------------------------- Commercial real estate mortgages (210) (0.01) 2,066 0.10 Real estate construction 663 0.03 1,140 0.05 -------------------------------------------------------------------- Total commercial real estate 453 0.01 3,206 0.08 -------------------------------------------------------------------- Consumer: Residential first mortgages 987 0.06 3,841 0.17 Other residential mortgages 8,841 0.20 4,632 0.14 Dealer indirect 42,518 1.13 29,331 0.82 Revolving credit 15,900 3.35 15,953 3.30 Other consumer 10,845 0.83 11,550 0.79 -------------------------------------------------------------------- Total consumer 79,091 0.69 65,307 0.59 -------------------------------------------------------------------- $124,351 0.48% $102,906 0.40% =====================================================================================================================
** Net of unearned income 55 ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES TABLE 17
- ------------------------------------------------------------------------------------------------------------------------------- December 31, 2000 December 31, 1999 December 31, 1998 - ------------------------------------------------------------------------------------------------------------------------------- Percentage of Percentage of Percentage of Loans in Each Loans in Each Loans in Each Allowance Category to Allowance Category to Allowance Category to (Dollars in thousands) Allocation Total Loans Allocation Total Loans Allocation Total Loans - ------------------------------------------------------------------------------------------------------------------------------- Commercial: Commercial and industrial $144,828 29.7% $110,059 30.3% $109,988 32.5% Commercial secured by real estate 23,018 7.2 24,924 7.8 21,062 7.5 -------------------------------------------------------------------------------------- Total commercial 167,846 36.9 134,983 38.1 131,050 40.0 -------------------------------------------------------------------------------------- Commercial real estate: Commercial real estate mortgages 31,238 9.5 29,999 8.7 23,136 9.1 Real estate construction 36,760 10.2 42,067 9.2 25,606 7.3 -------------------------------------------------------------------------------------- Total commercial real estate 67,998 19.7 72,066 17.9 48,742 16.4 -------------------------------------------------------------------------------------- Consumer: Residential first mortgages 2,445 5.5 3,010 6.5 7,179 9.4 Other residential mortgages 14,843 18.9 11,113 14.7 5,311 13.7 Dealer indirect 32,291 12.1 44,916 15.8 29,912 11.9 Revolving credit 24,885 2.1 18,879 1.9 23,482 2.0 Other consumer 12,761 4.8 15,344 5.1 21,868 6.6 -------------------------------------------------------------------------------------- Total consumer 87,225 43.4 93,262 44.0 87,752 43.6 -------------------------------------------------------------------------------------- Unallocated 57,365 - 54,368 - 102,521 - -------------------------------------------------------------------------------------- $380,434 100.0% $354,679 100.0% $370,065 100.0% =============================================================================================================================== - ---------------------------------------------------------------------------------------------------- December 31, 1997 December 31, 1996 - ---------------------------------------------------------------------------------------------------- Percentage of Percentage of Loans in Each Loans in Each Allowance Category to Allowance Category to (Dollars in thousands) Allocation Total Loans Allocation Total Loans - ---------------------------------------------------------------------------------------------------- Commercial: Commercial and industrial $ 83,192 31.4% $ 78,846 30.3% Commercial secured by real estate 26,706 10.2 28,908 10.4 ----------------------------------------------------------- Total commercial 109,898 41.6 107,754 40.7 ----------------------------------------------------------- Commercial real estate: Commercial real estate mortgages 15,791 6.0 17,635 5.8 Real estate construction 19,754 5.4 16,694 4.7 ----------------------------------------------------------- Total commercial real estate 35,545 11.4 34,329 10.5 ----------------------------------------------------------- Consumer: Residential first mortgages 13,641 14.3 14,323 16.2 Other residential mortgages 8,364 13.8 7,934 13.5 Dealer indirect 24,249 7.7 22,865 7.9 Revolving credit 43,843 2.8 53,917 3.0 Other consumer 25,790 8.4 26,526 8.2 ----------------------------------------------------------- Total consumer 115,887 47.0 125,565 48.8 ----------------------------------------------------------- Unallocated 104,721 - 102,629 - ----------------------------------------------------------- $366,051 100.0% $370,277 100.0% ====================================================================================================
Allowances for Loan Losses. AmSouth maintains an allowance for loan losses which it believes is adequate to absorb losses inherent in the loan portfolio. A formal review is prepared quarterly to assess the risk in the portfolio and to determine the adequacy of the allowance for loan losses. Elements of the review include analysis of historical performance, the level of nonperforming and adversely rated loans, specific analysis of certain problem loans, loan activity since the previous quarter, reports prepared by the Credit Review Department, consideration of current economic conditions, and other pertinent information. 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 approved by senior management and subsequently reviewed by the Audit and Community Responsibility Committee of the Board of Directors. For purposes of the quarterly review, the consumer portfolios are treated as homogenous pools. Specific consumer pools include: direct, bankcard, other revolving, indirect, residential first mortgages, and home equity lending. In accordance with regulatory guidelines, the allowance for loan losses is allocated to the consumer pools based on historical net charge-off rates adjusted for any current changes in these trends. The commercial, commercial real estate and business banking portfolios are evaluated separately. Within this group, every nonperforming loan in excess of $500,000 is reviewed by AmSouth's Special Assets Department for a specific allocation. For all other loans in the commercial portfolio, the allowance is allocated based on a combination of historical loss rates, adjusted for those elements discussed in the preceding paragraph, and regulatory guidelines. In determining the level of allowance, AmSouth carefully reviews total credit relationship exposures. In determining the appropriate level for the allowance, management ensures that the overall allowance appropriately reflects a margin for the imprecision inherent in most estimates of expected credit losses. To reflect model and estimation risk associated with the formula and specific allowance method used 56 for the allocated portion, the unallocated amount is adjusted to reflect management's evaluation of various conditions, the effect of which is not directly measured in the determination of the allocated allowance. The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with specific problem credits or portfolio segments. The conditions evaluated in connection with the unallocated allowance include the following, which existed at the balance sheet date: credit quality trends, including trends in nonperforming loans expected to result from existing conditions; general economic and business conditions; loan levels and concentrations; the seasoning of the portfolio; specific industry conditions within portfolio segments; recent loss experience within particular segments of the portfolio; and bank regulatory results. The chief credit officer reviews these conditions quarterly with executive management. To the extent that any of these conditions is evidenced by a specifically identifiable problem credit or portfolio segment, as of the evaluation date, management's estimate of the effect of such condition may be reflected as a specific allowance, applicable to such credit or portfolio segment. Where any of these conditions is not evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, management's evaluation of the probable loss related to such condition is reflected in the unallocated allowance. At December 31, 2000, the allowance for loan losses was $380.4 million versus $354.7 million at year-end 1999. Beyond the impact of net charge-offs and the provision for loan losses, the allowance in 2000 was reduced by $5.5 million as a result of selling $750 million of indirect automobile loans to third-party conduits during the second quarter of 2000. The $5.5 million represented allowance allocated to these loans at the time of their sale. In addition, the allowance was reduced by $7.5 million specifically allocated to approximately $1.0 billion of indirect automobile loans securitized during 2000. AmSouth also reduced its allowance for loan losses in conjunction with the sale of approximately $134 million of certain classified, syndicated loans. AmSouth reduced its loan loss allowance to reflect the $61.6 million of allowance specifically allocated to the syndicated loans sold. Included as a reduction to the allowance in Table 18 was the reclassification of a portion of the allowance directly related to off-balance sheet commitments. AmSouth included, in Table 18, the amount reclassified for all years shown. The amount reclassified to other liabilities represented off-balance sheet commitments for which AmSouth specifically calculated a reserve level and for which it could separate the credit risk from that of any related loans on AmSouth's balance sheet. The level of allowance for these off-balance sheet commitments is calculated using a rate which correlates to credit risks associated with similar types of funded loans. The overall level of allowance at December 31, 2000, versus December 31, 1999, increased primarily as a result of deterioration of credit quality within AmSouth's syndicated commercial loan portfolio. This deterioration was primarily the result of higher interest rates and a weaker economy. The allowance allocated to commercial and industrial loans increased by 31.6 percent in 2000. This increase reflected a higher level of impaired and classified loans within the commercial loan area. The decreases in the allocation of the allowance associated with commercial loans secured by real estate and construction loans reflected lower nonperforming loans in these categories at December 31, 2000, versus 1999. Alternatively, the increase in the allocation of the allowance for commercial real estate mortgages reflected an increase in nonperforming loans in this category. On the consumer side of the portfolio, the decrease in the allowance allocated to residential mortgages, the dealer indirect portfolio and other consumer loans was the direct result of a decrease in the amount of such loans outstanding at year-end 2000 versus 1999. Loan growth was the reason for the increase in the allowance allocated to other residential mortgages. The increase in the allowance allocated to the revolving credit portfolio reflected an increase in charge-offs experienced in this category which resulted in a higher loss factor being applied to this portfolio. The 5.5 percent increase in the unallocated allowance primarily reflected the generally weaker economic conditions at December 31, 2000. At December 31, 2000, the allowance for loan losses to net loans was 1.55 percent while coverage of nonperforming loans was 211.8 percent. This compares with an allowance for loan losses to net loans at the end of 1999 of 1.35 percent and to nonperforming loans for the same period of 1999 of 251.3 percent. Line of Business Results AmSouth segregates financial information used to assess its performance and allocate resources based on three reportable segments. The three reportable segments include Consumer Banking, Commercial Banking and Wealth Management. The financial performance for each segment is determined based on the 57
ALLOWANCE FOR LOAN LOSSES Table 18 - ----------------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 2000 1999 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- Balance at January 1 $ 354,679 $ 370,065 $ 366,051 $ 370,277 $ 375,457 Loans charged off: Commercial and industrial (40,290) (43,213) (35,420) (25,768) (19,355) Commercial loans secured by real estate (14,617) (2,539) (1,865) (3,859) (1,361) ----------------------------------------------------------------------------------- Total commercial (54,907) (45,752) (37,285) (29,627) (20,716) Commercial real estate mortgages (312) (2,627) (4,911) (2,788) (4,088) Commercial real estate construction (1,031) (1,907) (995) (698) (257) ----------------------------------------------------------------------------------- Total commercial real estate (1,343) (4,534) (5,906) (3,486) (4,345) Residential first mortgages (1,114) (4,346) (3,877) (4,033) (5,068) Other residential mortgages (10,524) (5,137) (2,906) (2,784) (1,100) Dealer indirect (71,659) (48,504) (27,219) (28,817) (32,010) Revolving credit (19,650) (19,715) (31,038) (43,951) (36,835) Other consumer (19,191) (20,299) (26,007) (37,679) (31,553) ----------------------------------------------------------------------------------- Total charge-offs (178,388) (148,287) (134,238) (150,377) (131,627) ----------------------------------------------------------------------------------- Recoveries of loans previously charged off: Commercial and industrial 6,709 10,994 11,748 10,697 17,577 Commercial loans secured by real estate 3,391 365 554 2,320 785 ----------------------------------------------------------------------------------- Total commercial 10,100 11,359 12,302 13,017 18,362 Commercial real estate mortgages 522 561 4,950 1,526 4,831 Commercial real estate construction 368 767 280 3,328 881 ----------------------------------------------------------------------------------- Total commercial real estate 890 1,328 5,230 4,854 5,712 Residential first mortgages 127 505 1,094 1,269 1,181 Other residential mortgages 1,683 505 279 560 542 Dealer indirect 29,141 19,173 15,246 16,340 12,955 Revolving credit 3,750 3,762 5,845 5,724 3,427 Other consumer 8,346 8,749 10,590 13,905 8,472 ----------------------------------------------------------------------------------- Total recoveries 54,037 45,381 50,586 55,669 50,651 ----------------------------------------------------------------------------------- Net charge-offs (124,351) (102,906) (83,652) (94,708) (80,976) ----------------------------------------------------------------------------------- Addition to allowance charged to expense 227,600 165,626 99,067 83,508 71,608 Allowance sold (74,591) (2,000) (14,900) (252) -0- Allowance transferred to other liabilities (2,903) (5,106) (2,665) (1,026) -0- Allowance acquired in bank purchase/Other -0- (71,000) 6,164 8,252 4,188 ----------------------------------------------------------------------------------- Balance at December 31 $ 380,434 $ 354,679 $ 370,065 $ 366,051 $ 370,277 =================================================================================== Loans net of unearned income, outstanding at end of period $24,616,435 $26,266,759 $24,445,296 $24,415,004 $23,124,651 Average loans net of unearned income, outstanding for the period $25,879,910 $25,471,295 $24,027,839 $23,753,817 $22,318,990 Ratios: Allowance at end of period to loans net of unearned income 1.55% 1.35% 1.51% 1.50% 1.60% Allowance at end of period to average loans net of unearned income 1.47 1.39 1.54 1.54 1.66 Allowance at end of period to nonperforming loans* 211.75 251.31 324.66 334.33 327.09 Allowance at end of period to nonperforming assets* 193.82 219.55 280.07 283.18 261.00 Net charge-offs to average loans net of unearned income 0.48 0.40 0.35 0.40 0.36 Net charge-offs to allowance at end of period 32.69 29.01 22.60 25.87 21.87 Recoveries to prior year charge-offs 36.44 33.81 33.64 42.29 64.21 - -----------------------------------------------------------------------------------------------------------------------------------
* Exclusive of accruing loans 90 days past due 58 Company's management accounting process, which assigns balance sheet and income statement items to each segment based on managerial responsibility. Segments are also defined by customer base and product type. Performance of the operating segments reflects the management process and structure of AmSouth and is not necessarily comparable with similar information for any other financial institution. Selected financial information and a description of the methodologies used to measure the financial performance of the business segments are presented in Note 22 to the Consolidated Financial Statements. Consumer Banking delivers a full range of financial services to individuals and small businesses through the retail branch and ATM networks, the Internet and the business banking group. Services include loan and deposit products designed to meet the personal finance needs of consumers and the financial needs of small business owners. In 2000, the Consumer Banking segment produced net income totaling $303.6 million compared to $284.3 million in 1999. The increase over 1999 was primarily the result of lower NIE and steady production in consumer loan categories such as home equity and dealer indirect. Commercial Banking provides corporate lending, leasing, international services, capital markets, and corporate cash management services to large and middle-market corporate customers. In 2000, the Commercial Banking group contributed $196.3 million of net income versus $200.8 million in 1999. The lower level of income in 2000 was primarily the result of higher credit costs and a reduction in yields on loans in 2000 compared to 1999. Wealth Management provides fiduciary, retirement, and investment management services for both institutional and individual clients. Producing primarily fee-based income, this area includes Trust, Private Banking, Consumer Investments, and the AmSouth Mutual Funds. Wealth Management contributed net income of $39.0 million in 2000 compared to $35.1 million in 1999. This increase was primarily the result of higher noninterest revenues in 2000 compared to 1999. Treasury and Other represents balance sheet management activities, corporate overhead, unallocated revenues such as BOLI, and other nonrecurring gains, losses or special charges including merger-related charges and costs associated with the third-quarter comprehensive financial restructuring. Due to its sale in 2000, IFC's results for each year are also included in Treasury and Other. Treasury and Other does not represent a banking line of business, but encompasses all other activities supporting the business segments. Forward-Looking Statements Statements made in this document which are not purely historical are forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995), including any statements regarding descriptions of management's plans, objectives or goals for future operations, products or services, and forecasts of its revenues, earnings or other measures of performance. Forward-looking statements are based on current management expectations and, by their nature, are subject to risks and uncertainties. A number of factors -- many of which are beyond the Company's control -- could cause actual conditions, events or results to differ significantly from those described in the forward-looking statements. Some of the factors which could cause results to differ materially from management's current expectations have been specified in the foregoing discussion and analysis. In general these factors include: 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. Forward-looking statements in this report speak only as of the date of the report. The Company does not undertake a duty to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made. 59 Management's Statement on Responsibility for Financial Reporting The management of AmSouth is responsible for the content and integrity of the financial statements and all other financial information included in this annual report. Management believes that the financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis to reflect, in all material respects, the substance of events and transactions that should be included, and that the other financial information in the annual report is consistent with those financial statements. The financial statements necessarily include amounts that are based on management's best estimates and judgements. Management maintains and depends upon AmSouth's accounting systems and related systems of internal controls. The internal control systems are designed to ensure that transactions are properly authorized and recorded in the corporation's financial records and to safeguard the corporation's assets from material loss or misuse. The corporation maintains an internal audit staff which monitors compliance with the corporation's systems of internal controls and reports to management and to the Audit and Community Responsibility Committee of the Board of Directors. The Audit and Community Responsibility Committee of the Board of Directors, composed solely of outside directors, has responsibility for recommending to the Board of Directors the appointment of the independent auditors for AmSouth. The Committee meets periodically with the internal auditors and the independent auditors to review the scope and findings of their respective audits. The internal auditors, independent auditors and management each have full and free access to meet privately as well as together with the Committee to discuss internal controls, accounting, auditing, or other financial reporting matters. The consolidated financial statements of AmSouth have been audited by Ernst & Young LLP, independent auditors, who were engaged to express an opinion as to the fairness of presentation of such financial statements. /s/ C. Dowd Ritter /s/ Sloan D. Gibson C. Dowd Ritter Sloan D. Gibson Chairman, President and Vice Chairman and Chief Executive Officer Chief Financial Officer 60 Report of Ernst & Young LLP, Independent Auditors Board of Directors AmSouth Bancorporation We have audited the accompanying consolidated statements of condition of AmSouth Bancorporation and subsidiaries (AmSouth) as of December 31, 2000 and 1999, and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements give retroactive effect to the merger of AmSouth and First American Corporation and subsidiaries (First American) on October 1, 1999, which has been accounted for using the pooling of interests method as described in Note 2 to the Consolidated Financial Statements. We did not audit the 1998 consolidated financial statements of First American, which statements reflect net interest income constituting 52% of the related AmSouth consolidated total. Those First American statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to data included for First American, is based solely on the report of other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and, for 1998, the report of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of AmSouth Bancorporation and subsidiaries at December 31, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/ Ernest & Young LLP Birmingham, Alabama January 31, 2001 61 AmSouth Bancorporation and Subsidiaries CONSOLIDATED STATEMENT OF CONDITION
- ----------------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) DECEMBER 31 - ----------------------------------------------------------------------------------------------------------------------------------- 2000 1999 -------------- ------------ ASSETS Cash and due from banks........................................................................ $ 1,278,691 $ 1,563,335 Time deposits in other banks................................................................... -0- 2,474 -------------- ------------ Total cash and cash equivalents.............................................................. 1,278,691 1,565,809 Federal funds sold and securities purchased under agreements to resell......................... 2,155,665 132,683 Trading securities............................................................................. 11,942 51,972 Available-for-sale securities.................................................................. 1,908,917 5,964,703 Held-to-maturity securities (market value of $6,729,880 and $6,849,344, respectively).......... 6,650,439 7,050,562 Loans held for sale............................................................................ 92,811 172,941 Loans.......................................................................................... 25,088,186 26,551,602 Less: Allowance for loan losses................................................................ 380,434 354,679 Unearned income.......................................................................... 471,751 284,843 -------------- ------------ Net loans................................................................................ 24,236,001 25,912,080 Other interest-earning assets.................................................................. 58,800 17,864 Premises and equipment, net.................................................................... 634,201 678,442 Customers' acceptance liability................................................................ 1,418 8,617 Accrued interest receivable and other assets................................................... 1,907,093 1,859,678 -------------- ------------ $ 38,935,978 $ 43,415,351 ============== ============ LIABILITIES AND SHAREHOLDERS' EQUITY Deposits and interest-bearing liabilities: Deposits: Noninterest-bearing demand............................................................... $ 4,934,466 $ 4,739,077 Interest-bearing demand.................................................................. 9,579,868 9,227,907 Savings.................................................................................. 1,212,652 2,349,793 Time..................................................................................... 7,841,567 7,545,164 Foreign time............................................................................. 503,414 1,293,552 Certificates of deposit of $100,000 or more.............................................. 2,551,337 2,756,950 -------------- ------------ Total deposits........................................................................ 26,623,304 27,912,443 Federal funds purchased and securities sold under agreements to repurchase................... 2,320,264 4,095,747 Other borrowed funds......................................................................... 536,848 2,135,720 Long-term Federal Home Loan Bank advances.................................................... 4,898,308 4,612,686 Other long-term debt......................................................................... 985,097 990,800 -------------- ------------ Total deposits and interest-bearing liabilities....................................... 35,363,821 39,747,396 Acceptances outstanding........................................................................ 1,418 8,617 Accrued expenses and other liabilities......................................................... 757,332 700,133 -------------- ------------ Total liabilities..................................................................... 36,122,571 40,456,146 -------------- ------------ Shareholders' equity: Preferred stock-no par value: Authorized-2,000,000 shares; Issued and outstanding-none................................. -0- -0- Common stock-par value $1 a share: Authorized-750,000,000 shares Issued-416,941,331 and 416,948,890 shares, respectively.................................. 416,941 416,949 Capital surplus.............................................................................. 691,677 690,820 Retained earnings............................................................................ 2,466,048 2,482,477 Cost of common stock in treasury-43,134,387 and 25,574,778 shares, respectively.............. (651,328) (376,354) Deferred compensation on restricted stock.................................................... (2,381) (5,838) Accumulated other comprehensive loss......................................................... (107,550) (248,849) -------------- ------------ Total shareholders' equity............................................................ 2,813,407 2,959,205 -------------- ------------ $ 38,935,978 $ 43,415,351 ============== ============
See Notes to Consolidated Financial Statements. 62 AmSouth Bancorporation and Subsidiaries CONSOLIDATED STATEMENT OF EARNINGS
- ---------------------------------------------------------------------------------------------------------------------------------- (In thousands except per share data) YEARS ENDED DECEMBER 31 - ----------------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 ---------- ----------------------- INTEREST INCOME Loans............................................................................. $2,237,548 $2,128,145 $2,080,065 Available-for-sale securities..................................................... 329,766 467,499 496,872 Held-to-maturity securities....................................................... 453,987 314,868 235,481 Trading securities................................................................ 2,122 4,051 4,178 Loans held for sale............................................................... 12,582 10,148 16,457 Federal funds sold and securities purchased under agreements to resell............ 27,455 5,694 7,650 Other interest-earning assets..................................................... 6,966 2,343 1,204 ---------- ----------------------- Total interest income.......................................................... 3,070,426 2,932,748 2,841,907 ---------- ----------------------- INTEREST EXPENSE Interest-bearing demand deposits.................................................. 327,664 266,155 302,208 Savings deposits.................................................................. 37,030 53,933 51,354 Time deposits..................................................................... 445,713 402,576 475,426 Foreign time deposits............................................................. 64,540 34,262 10,048 Certificates of deposit of $100,000 or more....................................... 166,224 146,422 131,231 Federal funds purchased and securities sold under agreements to repurchase........ 188,410 187,946 168,435 Other borrowed funds.............................................................. 96,808 47,894 43,287 Long-term Federal Home Loan Bank advances......................................... 296,158 222,036 153,122 Other long-term debt.............................................................. 68,776 63,580 62,512 ---------- ----------------------- Total interest expense......................................................... 1,691,323 1,424,804 1,397,623 ---------- ----------------------- NET INTEREST INCOME 1,379,103 1,507,944 1,444,284 Provision for loan losses......................................................... 227,600 165,626 99,067 ---------- ----------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,151,503 1,342,318 1,345,217 ---------- ----------------------- NONINTEREST REVENUES Service charges on deposit accounts............................................... 229,383 233,045 234,849 Consumer investment services income............................................... 199,270 213,292 183,831 Trust income...................................................................... 114,353 109,223 109,453 Other noninterest revenues........................................................ 126,488 292,000 271,721 ---------- ----------------------- Total noninterest revenues..................................................... 669,494 847,560 799,854 ---------- ----------------------- NONINTEREST EXPENSES Salaries and employee benefits.................................................... 583,794 612,687 596,050 Equipment expense................................................................. 121,798 135,590 123,480 Net occupancy expense............................................................. 114,783 111,432 106,497 Subscribers' commissions.......................................................... 82,618 99,588 89,918 Merger-related costs.............................................................. 110,178 301,415 121,725 Other noninterest expenses........................................................ 353,264 387,795 368,602 ---------- ----------------------- Total noninterest expenses..................................................... 1,366,435 1,648,507 1,406,272 ---------- ----------------------- INCOME BEFORE INCOME TAXES 454,562 541,371 738,799 Income taxes...................................................................... 125,435 200,903 264,725 ---------- ----------------------- NET INCOME $ 329,127 $ 340,468 $ 474,074 ========== ======================= Average common shares outstanding................................................. 382,031 391,136 389,595 Earnings per common share......................................................... $ 0.86 $ 0.87 $ 1.22 Diluted average common shares outstanding......................................... 384,677 396,515 396,491 Diluted earnings per common share................................................. $ 0.86 $ 0.86 $ 1.20
See Notes to Consolidated Financial Statements. 63 AmSouth Bancorporation and Subsidiaries CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------- DEFERRED ACCUMULATED COMPENSATION OTHER COMMON CAPITAL RETAINED TREASURY ON RESTRICTED COMPREHENSIVE (In thousands) STOCK SURPLUS EARNINGS STOCK STOCK INCOME (LOSS) TOTAL - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE AT JANUARY 1, 1998 $412,450 $732,662 $2,145,248 $(268,019) $(22,537) $ 29,334 $3,029,138 Comprehensive income: Net income....................................... -0- -0- 474,074 -0- -0- -0- 474,074 Other comprehensive income, net of tax: Changes in unrealized gains and losses on securities, net of reclassification adjustment (net $18,086 tax benefit)................... -0- -0- -0- -0- -0- (17,322) (17,322) ---------- Comprehensive income................................ 456,752 Cash dividends declared............................. -0- -0- (101,563) -0- -0- -0- (101,563) Cash dividends declared by pooled companies......... -0- -0- (93,997) -0- -0- -0- (93,997) Common stock transactions: Special rights and warrants...................... -0- (355) -0- -0- -0- -0- (355) Employee stock plans............................. 2,598 44,915 (11,409) 32,603 (17,516) -0- 51,191 Dividend reinvestment plan....................... -0- 631 (66) 4,644 -0- -0- 5,209 Purchase of common stock......................... (2,266) (63,109) (9) (136,514) -0- -0- (201,898) Acquisitions..................................... 7,276 48,373 7,280 -0- -0- 18 62,947 ----------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1998 420,058 763,117 2,419,558 (367,286) (40,053) 12,030 3,207,424 Comprehensive income: Net income....................................... -0- -0- 340,468 -0- -0- -0- 340,468 Other comprehensive income, net of tax: Changes in unrealized gains and losses on securities, net of reclassification adjustment (net $74,014 tax benefit)................... -0- -0- -0- -0- -0- (260,879) (260,879) ---------- Comprehensive income................................ 79,589 Cash dividends declared............................. -0- -0- (163,395) -0- -0- -0- (163,395) Cash dividends declared by pooled companies......... -0- -0- (94,305) -0- -0- -0- (94,305) Common stock transactions: Employee stock plans............................. 808 10,998 (18,647) 63,081 34,215 -0- 90,455 Dividend reinvestment............................ -0- 107 (1,202) 7,007 -0- -0- 5,912 Purchase of common stock......................... (3,917) (83,402) -0- (79,156) -0- -0- (166,475) ----------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1999 416,949 690,820 2,482,477 (376,354) (5,838) (248,849) 2,959,205 Comprehensive income: Net income....................................... -0- -0- 329,127 -0- -0- -0- 329,127 Other comprehensive income, net of tax: Changes in unrealized gains and losses on securities, net of reclassification adjustment (net $45,012 tax expense)................... -0- -0- -0- -0- -0- 141,299 141,299 ---------- Comprehensive income................................ 470,426 Cash dividends declared............................. -0- -0- (307,221) -0- -0- -0- (307,221) Common stock transactions: Employee stock plans............................. (8) 857 (29,526) 83,603 3,457 -0- 58,383 Dividend reinvestment............................ -0- -0- (8,809) 17,245 -0- -0- 8,436 Purchase of common stock......................... -0- -0- -0- (375,822) -0- -0- (375,822) ----------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 2000 $416,941 $691,677 $2,466,048 $(651,328) $ (2,381) $(107,550) $2,813,407 ============================================================================= Disclosure of 2000 reclassification amount: Unrealized holding gains on securities arising during the period............. $ 59,974 Less: Reclassification adjustment for losses realized in net income........................... (81,325) --------- Net unrealized gains on securities, net of tax....................................... $ 141,299 =========
See Notes to Consolidated Financial Statements. 64 AmSouth Bancorporation and Subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------------------------------- (In thousands) YEARS ENDED DECEMBER 31 - ----------------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 ------ ------------------------- OPERATING ACTIVITIES Net income......................................................................... $ 329,127 $ 340,468 $ 474,074 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses....................................................... 227,600 165,626 99,067 Depreciation and amortization of premises and equipment......................... 84,292 97,731 82,622 Amortization of premiums and discounts on held-to-maturity securities and available-for-sale securities............................................. 8,213 (3,004) (9,445) Noncash portion of merger-related costs......................................... 43,389 98,595 5,900 Net decrease (increase) in loans held for sale.................................. 29,907 106,372 (162,028) Net decrease (increase) in trading securities................................... 16,200 (4,154) 7,781 Net losses (gains) on sales of available-for-sale securities.................... 95,301 (11,392) (16,099) Net gains on sales of loans to dealer conduits.................................. (9,323) -0- -0- Net gains on sales of loans to mortgage conduits................................ (16,881) (19,928) -0- Net loss on dealer securitization............................................... 18,531 -0- -0- Net loss on loans held for accelerated disposition.............................. 23,414 -0- -0- Writedown of mortgage conduit assets............................................ 24,751 -0- -0- Net gains on sales of businesses................................................ (19,959) -0- -0- Net increase in accrued interest receivable and other assets.................... (58,989) (531,927) (211,009) Net (decrease) increase in accrued expenses and other liabilities............... (176,666) (32,371) 11,275 Provision for deferred income taxes............................................. 138,154 56,834 65,807 Amortization of intangible assets............................................... 37,589 40,306 40,211 Other operating activities, net................................................. 60,890 42,054 28,924 ------------ ------------ ----------- Net cash provided by operating activities..................................... 855,540 345,210 417,080 ------------ ------------ ----------- INVESTING ACTIVITIES Proceeds from maturities and prepayments of available-for-sale securities.......... 535,098 1,904,594 2,771,295 Proceeds from sales of available-for-sale securities............................... 4,523,131 2,292,108 2,837,590 Purchases of available-for-sale securities......................................... (878,539) (5,319,935) (6,764,648) Proceeds from maturities, prepayments and calls of held-to-maturity securities..... 979,239 1,430,693 1,808,077 Purchases of held-to-maturity securities........................................... (559,395) (2,275,882) (1,451,233) Net (increase) decrease in federal funds sold and securities purchased under agreements to resell............................................................ (2,023,473) 225,227 (93,256) Net (increase) decrease in other interest-earning assets........................... (40,936) 11,412 (29,276) Net increase in loans, excluding dealer securitization and mortgage and dealer conduits sales.............................................. (3,125,344) (3,382,611) (1,101,824) Proceeds from sales of loans to dealer conduits.................................... 1,001,106 -0- -0- Proceeds from sales of loans to mortgage conduits.................................. 1,301,968 1,434,347 -0- Proceeds from securitization of dealer loans....................................... 917,080 -0- -0- Net purchases of premises and equipment............................................ (51,300) (2,415) (133,432) Net cash provided by acquisitions.................................................. -0- -0- 63,855 Net cash from sales of branches, business operations, subsidiaries and other assets................................................... 796,860 98,102 8,204 ------------ ------------ ----------- Net cash provided (used) by investing activities.............................. 3,375,495 (3,584,360) (2,084,648) ------------ ------------ ----------- FINANCING ACTIVITIES Net (decrease) increase in deposits................................................ (806,172) (615,042) 961,708 Net (decrease) increase in federal funds purchased and securities sold under agreements to repurchase........................................................ (1,775,483) 625,485 488,967 Net (decrease) increase in other borrowed funds.................................... (1,598,872) 1,787,483 (1,177,511) Issuance of long-term Federal Home Loan Bank advances and other long-term debt............................................................ 5,379,388 2,735,384 2,528,473 Payments for maturing long-term debt............................................... (5,097,875) (1,527,169) (391,487) Cash dividends paid................................................................ (305,383) (183,848) (195,560) Proceeds from employee stock plans and dividend reinvestment plan.................. 62,066 53,564 45,943 Purchases of common stock.......................................................... (375,822) (166,475) (201,898) ------------ ------------ ----------- Net cash (used) provided by financing activities.............................. (4,518,153) 2,709,382 2,058,635 ------------ ------------ ----------- (Decrease) increase in cash and cash equivalents................................... (287,118) (529,768) 391,067 Cash and cash equivalents at beginning of period................................... 1,565,809 2,095,577 1,704,510 ------------ ------------ ----------- Cash and cash equivalents at end of period......................................... $ 1,278,691 $ 1,565,809 $ 2,095,577 ============ ============ ===========
See Notes to Consolidated Financial Statements. 65 AmSouth Bancorporation and Subsidiaries Notes to Consolidated Financial Statements NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - -------------------------------------------------------------------------------- AmSouth Bancorporation (AmSouth), through its banking subsidiary, provides a broad array of financial products and services through banking offices located in six Southeastern states with leading market positions in Tennessee, Florida, Alabama, and Mississippi. In addition, AmSouth provides select financial services outside of its banking markets through its other subsidiaries. AmSouth's principal activities include consumer and commercial banking and wealth management. The accounting policies of AmSouth and the methods of applying those policies that materially affect the accompanying financial statements are presented below. Basis of Presentation The consolidated financial statements include the accounts of AmSouth and its subsidiaries. All significant intercompany balances and transactions have been eliminated. Certain amounts in the prior years' financial statements have been reclassified to conform to the 2000 presentation. These reclassifications are immaterial and had no effect on net income. Use of Estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash Flows Cash and due from banks and time deposits in other banks are considered cash and cash equivalents. For the years ended December 31, 2000, 1999 and 1998, AmSouth paid interest of $1,685,198,000, $1,420,238,000 and $1,383,089,000, respectively. For the years ended December 31, 2000, 1999 and 1998, noncash transfers from loans to foreclosed properties were $26,001,000, $25,467,000 and $20,692,000, respectively. Noncash transfers from foreclosed properties to loans for the years ended December 31, 2000, 1999 and 1998 were $1,388,000, $711,000 and $496,000, respectively. For the year ended December 31, 1998, noncash transfers from loans to available-for-sale securities of approximately $99,107,000 were made in connection with mortgage loan securitizations. For the year ended December 31, 1998, noncash transfers from loans to held-to-maturity securities of approximately $1,176,394,000 were made in connection with mortgage loan securitizations. In addition, for the year ended December 31, 1998, $719,000 of noncash transfers were made from loans to other assets in connection with mortgage loan securitizations. For the years ended December 31, 2000, 1999 and 1998, noncash transfers from loans to available-for-sale securities of approximately $31,472,000, $9,838,000 and $4,038,000, respectively, were made in connection with the participation of loans to third-party conduits and the securitization and sale of automobile loans. For the years ended December 31, 2000, 1999 and 1998, noncash transfers from loans to other assets of approximately $23,965,000, $16,225,000 and $3,567,000, respectively, were made in connection with the participation of loans to third-party conduits. During 2000, noncash transfers of approximately $11,413,000 were made from loans to other liabilities in connection with the participation of loans to third-party conduits. During 1999, AmSouth had noncash transfers from available-for-sale securities to held-to-maturity securities in the amount of $3,010,249,000. Also during 1999, AmSouth had noncash transfers from held-to-maturity securities to available-for-sale securities in the amount of $516,759,000. The transfers between categories of securities were the result of portfolio restructurings in connection with the acquisition of First American Corporation (First American). During 1999, AmSouth also had noncash transfers from loans and the allowance for loan losses to loans held for sale of $149,253,000 and $71,000,000, respectively, associated with a decision to exit a portion of its healthcare loan business. Securities Securities are classified as either held-to-maturity, available-for-sale or trading. AmSouth defines held-to-maturity securities as debt securities which management has the positive intent and ability to hold to maturity. Held-to- maturity securities are stated at cost, adjusted for amortization of premiums and accretion of discounts on the constant effective yield method. Trading securities 66 are carried at market. Market adjustments and realized gains or losses on the sale of trading securities are reported as other noninterest revenues. Available-for-sale securities are defined as equity securities and debt securities not classified as trading securities or held-to-maturity securities. Available-for-sale securities are carried at fair value. Unrealized holding gains or losses, net of deferred taxes, on available-for-sale securities are excluded from earnings and reported in accumulated other comprehensive income (loss) within shareholders' equity. AmSouth determines the appropriate classification of debt securities at the time of purchase. Gains and losses from sales of available-for-sale securities are computed using the specific identification method. Loans Held for Sale At December 31, 2000, loans held for sale represented residential mortgage loans held for sale. At December 31, 1999, loans held for sale included residential mortgage loans held for sale and $78,253,000 of healthcare-related loans held for accelerated disposition (AHAD). Loans held for sale are carried at the lower of aggregate cost or market value. Market adjustments and realized gains and losses are classified as other noninterest revenues. Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase Securities purchased under agreements to resell and securities sold under agreements to repurchase are generally treated as collateralized financing transactions and are recorded at the amount at which the securities were acquired or sold plus accrued interest. It is AmSouth's policy to take possession of securities purchased under resale agreements. The market value of the collateral is monitored and additional collateral obtained when deemed appropriate. Securities sold under repurchase agreements are delivered to either broker-dealers or to custodian accounts or are held in segregated accounts. Interest Rate Contracts and Other Off-Balance Sheet Financial Instruments AmSouth has from time to time utilized various off-balance sheet instruments such as interest rate swaps, forward interest rate swaps, interest rate caps, floors and futures contracts that are designated to hedge imbalances in sensitivity to fluctuating interest rates for designated assets and liabilities. Interest rate impacts of derivative instruments are correlated with interest rate movements of underlying assets or liabilities. The earnings impact of a derivative is accrued over the life of the agreement based on expected settlement payments and is recorded as an adjustment to interest income or expense in the period in which it accrues and in the category appropriate to the related assets or liabilities. The related amount receivable from or payable to the derivative counterparty is included in other assets or liabilities in the consolidated statement of condition. Realized and unrealized gains and losses on futures contracts which are designated as hedges of interest rate exposure arising out of nontrading assets and liabilities are deferred and recognized as interest income or interest expense, in the category appropriate to the related assets or liabilities, over the covered periods or lives of the hedged assets or liabilities. Gains or losses on early terminations of derivative financial instruments that relate to specific assets or liabilities are deferred and amortized as an adjustment to the yield or rate of the related assets or liabilities over the remaining covered period. At such time that there is no longer correlation of interest rate movements between the derivative instrument and the underlying assets or liabilities, or if the underlying assets or liabilities specifically related to a derivative instrument mature, are sold or terminated, then the related derivative instrument would be closed out or marked to market as an element of noninterest income on an ongoing basis. Interest rate derivatives used in connection with the securities available-for-sale portfolio are carried at fair value with gains and losses, net of applicable deferred income taxes, reported in shareholders' equity in other comprehensive income (loss), consistent with the reporting of unrealized gains and losses on such securities. Premiums paid for interest rate floors qualifying for hedge accounting are deferred and classified with the assets and liabilities hedged and are amortized into interest income or expense over the life of the instrument. On a limited basis, AmSouth also enters into interest rate swap agreements, as well as interest rate cap and floor agreements, with customers desiring protection from possible adverse future fluctuations in interest rates. As an intermediary, AmSouth generally maintains a portfolio of matched offsetting interest rate contract agreements. At the inception of such agreements, the 67 portion of the compensation related to credit risk and ongoing servicing, if any, is deferred and taken into income over the term of the agreements. See discussion of recent accounting pronouncements within Note 1 for a discussion of new accounting standards related to derivative instruments and implemented by AmSouth on January 1, 2001. Loans Interest income on commercial and real estate loans is accrued daily based upon the outstanding principal amounts except for those classified as nonaccrual loans. Interest income on certain consumer loans is accrued monthly based upon the outstanding principal amounts except for those classified as nonaccrual loans. Interest accrual is discontinued when it appears that future collection of principal or interest according to the contractual terms may be doubtful. Interest collections on nonaccrual loans for which the ultimate collectibility of principal is uncertain are applied as principal reductions. Otherwise, such collections are credited to income when received. Loan and lease origination and commitment fees and certain direct loan origination costs are deferred and amortized over the estimated life of the related loans or commitments as a yield adjustment. Impaired loans are specifically reviewed loans for which it is probable that the creditor will be unable to collect all amounts due according to the terms of the loan agreement. Impairment of a loan is measured by comparing the recorded investment in the loan with the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price, or the fair value of the collateral if the loan is collateral dependent. A valuation allowance is provided to the extent that the measure of the impaired loans is less than the recorded investment. A loan is not considered impaired during a period of delay in payment if the ultimate collectibility of all amounts due is expected. Larger groups of homogeneous loans such as consumer installment, bankcard and residential real estate mortgage loans are collectively evaluated for impairment. Impaired loans are, therefore, primarily commercial and commercial real estate loans. Payments received on impaired loans for which the ultimate collectibility of principal is uncertain are generally applied first as principal reductions. Allowance for Loan Losses The allowance for loan losses is maintained at a level which is considered to be adequate to reflect estimated credit losses for specifically identified loans, as well as estimated probable credit losses inherent in the remainder of the loan portfolio at the balance sheet date. A formal review of the allowance for loan losses is prepared quarterly to assess the risk in the portfolio and to determine the adequacy of the allowance for loan losses. For purposes of the quarterly review, the consumer loan portfolios are separated by loan type, and each loan type is treated as a homogeneous pool. In accordance with the Interagency Policy Statement on the Allowance for Loan and Lease Losses, issued by the Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, Federal Reserve Board, and Office of Thrift Supervision, the allowance allocated to each of these pools is based upon trends in quarterly annualized charge-off rates for each pool, adjusted for changes in these pools which includes current information on the payment performance of each pool of loans. Every commercial and commercial real estate loan is assigned a risk rating on a thirteen point numerical scale by loan officers using established credit policy guidelines. These risk ratings are periodically reviewed, and all risk ratings are subject to review by an independent Credit Review Department. Each risk rating is assigned an allocation percentage which, when multiplied times the dollar value of loans in that risk category, results in the amount of the allowance for loan losses allocated to these loans. The allocation of allowance for loans with grades of pass and criticized is based upon historical loss rates adjusted for current conditions that include current economic developments. The allocation for loans with a classified grade is based upon regulatory guidance. Every nonperforming loan in excess of $500,000, however, is reviewed quarterly by AmSouth's Special Assets Department to determine the level of loan losses required to be specifically allocated to these impaired loans. Management reviews its allocation of the allowance for loan losses versus actual performance of each of its portfolios and adjusts allocation rates to reflect the recent performance of the portfolio as well as current underwriting standards and other factors which might impact the estimated losses in the portfolio. In determining the appropriate level for the allowance, management ensures that the overall allowance appropriately 68 reflects the current macroeconomic conditions, industry exposure and a margin for the imprecision inherent in most estimates of expected credit losses. This additional allowance is reflected in the unallocated portion of the allowance. Based on management's periodic evaluation of the allowance for loan losses, a provision for loan losses is charged to operations if additions to the allowance are required. Premises and Equipment Premises and equipment are stated at cost, less accumulated depreciation and amortization. The provisions for depreciation and amortization are computed generally by the straight-line method over the estimated useful lives of the assets or terms of the leases, as applicable. The annual provisions for depreciation and amortization have been computed principally using estimated lives of five to forty years for premises and three to twelve years for furniture and equipment. Intangible Assets Intangible assets, primarily goodwill, are included in other assets. Goodwill is amortized on a straight-line basis primarily over ten to twenty-five years. Other identified intangibles, primarily core deposit rights, are amortized over a period no greater than fifteen years. As events or changes in circumstances warrant, AmSouth reviews the carrying value of goodwill and other identified intangibles to determine if any impairment has occurred or if the period of recoverability has changed. If this review indicates that goodwill or deposit intangibles will not be recoverable, as determined based on the undiscounted cash flows of the entity acquired over the remaining amortization period, their carrying value will be reduced by the estimated shortfall of such cash flows. At December 31, 2000, 1999 and 1998, goodwill, net of amortization, totaled $320,010,000, $391,221,000 and $426,225,000, respectively, and deposit and other intangibles equaled $21,090,000, $32,252,000 and $38,808,000, respectively. Income Taxes The consolidated financial statements have been prepared on the accrual basis. When income and expenses are recognized in different periods for financial reporting purposes and for purposes of computing income taxes currently payable, deferred taxes are provided on such temporary differences. Deferred tax assets and liabilities are recorded for the expected future tax consequences of events that have been recognized in the financial statements or tax returns. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled. Stock-Based Compensation AmSouth adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (Statement 123) which allows an entity to continue to measure compensation cost for those plans using the intrinsic value-based method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees" (Opinion 25). AmSouth has elected to follow Opinion 25 and related interpretations in accounting for its employee stock options. Compensation cost for fixed and variable stock-based awards is measured by the excess, if any, of the fair market price of the underlying stock over the amount the individual is required to pay. Compensation cost for fixed awards is measured at the grant date, while compensation cost for variable awards is estimated until both the number of shares an individual is entitled to receive and the exercise or purchase price are known (measurement date). See Note 17 for a further description of the assumptions used for preparing the pro forma disclosures as prescribed by Statement 123. Earnings Per Common Share Earnings per common share is obtained by dividing net income available to common stockholders by the weighted average outstanding shares of common stock. The diluted calculation of earnings per common share is obtained by dividing net income by the weighted average outstanding shares of common stock adjusted for effects of stock options and restricted stock outstanding. See Note 16 for the reconciliation of the numerators and denominators of the basic and diluted earnings per share computations. All common stock and per common share data included in the consolidated financial statements and in the Notes to Consolidated Financial Statements have been retroactively adjusted to reflect common stock splits. 69 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities AmSouth sells receivables, such as commercial loans, residential mortgage loans and dealer loans, in securitizations and to third-party conduits. When AmSouth sells these receivables, it retains interest-only strips, one or more subordinated tranches, servicing rights, and in some cases a cash reserve account. Gain or loss on sale of the receivables depends in part on the previous carrying amount of the financial assets involved in the transfer, allocated between the assets sold and the retained interests based on their relative fair value at the date of transfer. To obtain fair values, quoted market prices are used if available. However, quotes are generally not available for retained interests, so AmSouth generally estimates fair value based on the present value of expected future cash flows estimated using management's best estimates of the key assumptions--expected credit losses, prepayment speeds, weighted average life, and discount rates commensurate with the risks involved. In calculating prepayment rates, AmSouth utilizes a variety of prepayment models depending on the loan type and specific transaction requirements. The models used by AmSouth include the constant prepayment rate model (CPR), the absolute prepayment speed model (ABS) and the Bond Market Trade Association's Mortgaged Asset-Backed Securities Division's prepayment model (PSA). See Note 23 for the assumptions used by AmSouth in 2000. See additional discussion of recent accounting pronouncements below. Recent Accounting Pronouncements 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, the FASB issued Statement of Financial Accounting Standards 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 Standards 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. As discussed in Note 13, AmSouth uses derivative instruments to protect against the risk of adverse interest rate movements on the value of certain assets and liabilities or on future cash flows. The fair value of these derivatives is not currently on the balance sheet. On January 1, 2001, AmSouth adopted Statement 133, as amended, and at that time, designated anew the derivative instruments used for risk management into hedging relationships in accordance with the requirements of the new standard. Derivative instruments used to hedge changes in the fair value of assets and liabilities due to changes in interest rates were designated as fair value hedges. Derivative instruments used to hedge the variability of forecasted cash flows attributable to interest rate risk were designated as cash flow hedges. The impact of adopting Statement 133 on AmSouth's financial condition was a net-of-tax increase to other comprehensive income of approximately $5,650,000. The impact to net income of adopting Statement 133 was immaterial. AmSouth also recorded an after-tax increase to other comprehensive income of $26,612,000 as a result of transferring $2,107,919,000 of securities from held-to-maturity to available-for-sale in conjunction with the adoption of Statement No. 133. The transition amounts were determined based on the interpre- 70 tive guidance issued by the FASB to date. The FASB continues to issue interpretive guidance which could require changes to AmSouth's application of Statement 133 and adjustments to the transition amounts. 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. See Note 23 for the disclosure required by Statement 140. NOTE 2-MERGERS AND ACQUISITIONS - -------------------------------------------------------------------------------- On October 1, 1999, AmSouth issued 214.5 million common shares to acquire 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 service 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. In addition, during 1998 and prior to its merger with AmSouth, the former First American completed acquisitions, all of which were accounted for as poolings-of-interests. The information related to these mergers is presented in the following table (in millions):
- ------------------------------------------------------------------------------------------------- Common Shares Acquiree Location Date Assets Issued - ------------------------------------------------------------------------------------------------- Victory Bancshares, Inc. TN Mar. 1998 $ 131 1.6 Deposit Guaranty Corporation MS May 1998 7,151 91.2 Peoples Bank (Peoples) TN Oct. 1998 142 1.7 The Middle Tennessee Bank (MTB) TN Oct. 1998 225 2.2 CSB Financial Corporation (CSB) TN Oct. 1998 148 1.7 Pioneer Bancshares, Inc. (Pioneer) TN Nov. 1998 990 11.5 - -------------------------------------------------------------------------------------------------
For the acquisitions of Deposit Guaranty Corporation (Deposit Guaranty) and Pioneer, accounted for as poolings-of-interests, the consolidated financial statements were restated to include the results of both companies for all periods presented. For all other acquisitions accounted for as poolings-of-interests in the above table, the results of operations have been included in the consolidated financial statements from the date of the acquisition as preacquisition amounts were not material. Accordingly, prior period financial statements were not restated since the changes to prior periods were immaterial. On December 16, 1998, AmSouth through its subsidiary IFC Holdings, Inc. (IFC), purchased the assets of the Specialized Investment Division of Financial Service Corporation, a subsidiary of Sun America, Inc., which provided investment products to customers of community banks and credit unions that did not have their own broker/dealer capabilities. The $9 million purchase price was primarily for goodwill and other intangible assets. On September 29, 2000, AmSouth sold IFC. 71 NOTE 3-MERGER-RELATED COSTS - -------------------------------------------------------------------------------- AmSouth recorded merger and integration charges of $77.4 million, $268.8 million and $103.4 million in 2000, 1999 and 1998, respectively. In addition, AmSouth recorded other merger-related charges of $32.8 million, $32.6 million and $18.3 million in 2000, 1999 and 1998, respectively. Merger-related charges in 2000 were associated with the acquisition of First American. Merger-related charges of $301.4 million recorded in 1999 were associated with the acquisition of First American as well as conversion costs related to the acquisitions of Deposit Guaranty, Pioneer, MTB, CSB and Peoples. The components of the charges are shown below:
- --------------------------------------------------------------------------------------------------------------------------------- Years Ended December 31 (In millions) 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- Merger and integration costs: Severance and personnel-related costs $ 15.9 $130.1 $ 25.8 Investment banking and other transaction costs 0.9 53.8 29.1 Occupancy and equipment charges 40.8 59.2 2.7 Systems and operations conversions 19.8 25.7 45.8 -------------------------------------------------------------------------- Total merger and integration costs 77.4 268.8 103.4 Other merger-related charges 32.8 32.6 18.3 -------------------------------------------------------------------------- Total merger-related charges $110.2 $301.4 $121.7 =================================================================================================================================
Severance and personnel-related costs included the cost of severance, retention, change-in-control, outplacement, and other benefits associated with the termination of employees primarily in corporate support and data processing functions. For the First American merger, approximately 2,200 positions were eliminated in 1999 and 2000 of which approximately 1,700 were through merger-related workforce reduction and 500 were through merger-related divestitures. Occupancy and equipment charges represented lease termination costs and impairment of assets for redundant office space, equipment and branches vacated and disposed of as part of the integration plan. Systems and operations conversion costs resulted from the conversions and integration of the acquired branches and operations and included incremental costs such as special contract labor and incentives, consulting fees and mailing and preparation costs for customer communications for the conversion of customer accounts. Other merger-related costs included printing and distribution of conversion related instructional materials and manuals and relocation expenses and, in 1999, a provision for losses resulting from systems conversions and process integration related to prior First American mergers. The 1999 loss provision covers dishonored return items, unidentified customer debits, unmatched or unlocated items, and other similar losses. Also included in other merger-related costs in 1998 was charitable foundation costs related to the funding of a charitable foundation for the Deposit Guaranty market. The following table presents a 72 summary of activity with respect to the merger and integration accrual:
- ----------------------------------------------------------------------------------------------------------------------------------- (In millions) 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------------- Balance at the beginning of the year $ 70.7 $ 18.8 $ -0- Provision charged to operating expense 44.8 301.4 121.7 Cash outlays (75.0) (150.9) (97.0) Noncash writedowns and charges (0.9) (98.6) (5.9) -------------------------------------------------------------------------------------- Balance at the end of the year $ 39.6 $ 70.7 $ 18.8 ===================================================================================================================================
The components of the merger and integration accrual at December 31 were as follows:
- ---------------------------------------------------------------------------------------------------------------------------------- (In millions) 2000 1999 - ---------------------------------------------------------------------------------------------------------------------------------- Severance and personnel-related costs $24.8 $68.2 Occupancy and equipment charges 14.8 0.9 Systems and operations conversions -0- 0.1 Other merger and integration costs -0- 1.5 ------------------------------------------------------------------------------------ Total $39.6 $70.7 =================================================================================================================================
At December 31, 2000, the liability for severance and personnel-related costs was primarily accrued for retirement and severance liabilities that will be paid out over an extended period of time based on the retirement and life expectancy of the beneficiaries. The remaining occupancy and equipment accrual is primarily related to long-term lease agreements on redundant branch and office space vacated as part of the merger restructuring. This liability will be paid down over the lives of the various leases. In addition to the merger-related costs, AmSouth also recorded, during 1999, the following charges related to the First American acquisition: an $8.0 million impairment charge on a portfolio investment and $7.6 million of charges related to conforming accounting adjustments. The impairment charge and $0.8 million of the conforming accounting adjustments were recorded as reductions to other noninterest revenues. $3.0 million of the conforming accounting charges were recorded in the provision for loan losses. The remaining $3.8 million of conforming accounting adjustments were recorded in various categories of noninterest expense. NOTE 4-CASH AND DUE FROM BANKS - -------------------------------------------------------------------------------- AmSouth's banking subsidiaries are required to maintain reserve balances with the Federal Reserve Bank based on a percentage of deposits reduced by their cash on hand. The average amount of those reserves was approximately $13,150,000 and $45,200,000 for the years ended December 31, 2000 and 1999, respectively. 73 NOTE 5-AVAILABLE-FOR-SALE SECURITIES - -------------------------------------------------------------------------------- The following is a summary of available-for-sale securities at December 31:
- ----------------------------------------------------------------------------------------------------------------------------------- 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------------- Gross Gross Gross Gross Amortized Unrealized Unrealized Carrying Amortized Unrealized Unrealized Carrying (In thousands) Cost Gains Losses Amount Cost Gains Losses Amount - ----------------------------------------------------------------------------------------------------------------------------------- U.S. Treasury and federal agency securities $ 124,470 $ 4,336 $ 497 $ 128,309 $ 328,318 $ 456 $ 11,703 $ 317,071 Mortgage-backed securities 1,242,565 17,719 2,048 1,258,236 5,239,298 4,926 140,668 5,103,556 State, county and municipal securities 65,842 1,426 399 66,869 74,219 702 1,206 73,715 Other debt securities 125,082 -0- 160 124,922 106,994 -0- 5,378 101,616 Equity securities 339,360 22 8,801 330,581 397,541 58 28,854 368,745 ----------------------------------------------------------------------------------------------------------- $1,897,319 $23,503 $11,905 $1,908,917 $6,146,370 $6,142 $187,809 $5,964,703 ===================================================================================================================================
The carrying amount and amortized cost of available-for-sale securities by maturity at December 31, 2000, are as follows:
- ---------------------------------------------------------------------------------------------------------------------------------- Amortized Carrying (In thousands) Cost Amount - ---------------------------------------------------------------------------------------------------------------------------------- Due within 1 year $ 112,250 $ 113,111 Due after 1 year through 5 years 97,048 96,777 Due after 5 years through 10 years 71,464 74,209 Due after 10 years 34,632 36,003 Mortgage-backed securities 1,242,565 1,258,236 Equity securities 339,360 330,581 ------------------------------------------------------------------------------------------- $1,897,319 $1,908,917 ==================================================================================================================================
In 2000, 1999 and 1998, AmSouth realized gross gains of $10,784,000, $32,672,000 and $20,529,000, respectively, and gross losses of $106,085,000, $21,280,000 and $4,430,000, respectively, on sales of available-for-sale securities. Equity securities included $327.9 million and $265.8 million in amortized cost related to Federal Reserve Bank stock and Federal Home Loan Bank stock as of December 31, 2000 and 1999, respectively. 74 NOTE 6-HELD-TO-MATURITY SECURITIES - -------------------------------------------------------------------------------- The amounts at which held-to-maturity securities are carried and their approximate fair market values at December 31 are summarized as follows:
- --------------------------------------------------------------------------------------------------------------------------------- 2000 1999 - --------------------------------------------------------------------------------------------------------------------------------- Gross Gross Gross Gross Carrying Unrealized Unrealized Market Carrying Unrealized Unrealized Market (In thousands) Amount Gains Losses Value Amount Gains Losses Value - --------------------------------------------------------------------------------------------------------------------------------- U.S. Treasury and federal agency securities $ 551,894 $ 10,675 $ 8,071 $ 554,498 $ 562,696 $ -0- $ 18,432 $ 544,264 State, county and municipal securities 386,832 19,682 4,229 402,285 376,891 621 13,443 364,069 Mortgage-backed securities 5,574,040 119,947 60,415 5,633,572 5,992,397 3,777 172,857 5,823,317 Other securities 137,673 2,068 216 139,525 118,578 183 1,067 117,694 -------------------------------------------------------------------------------------------------------- $6,650,439 $152,372 $72,931 $6,729,880 $7,050,562 $4,581 $205,799 $6,849,344 =================================================================================================================================
The carrying amount and approximate market value of held-to-maturity securities by maturity at December 31, 2000, are as follows:
- -------------------------------------------------------------------------------------------------------------------------------- Carrying Market (In thousands) Amount Value - -------------------------------------------------------------------------------------------------------------------------------- Due within 1 year $ 42,028 $ 38,505 Due after 1 year through 5 years 91,048 90,644 Due after 5 years through 10 years 470,533 479,531 Due after 10 years 472,790 487,628 Mortgage-backed securities 5,574,040 5,633,572 ------------------------------------------------------------------------------------------- $6,650,439 $6,729,880 ================================================================================================================================
During 1999, certain held-to-maturity securities with a total amortized cost of $516,759,000 were transferred to available-for-sale. The unrealized loss at the date of transfer was $7,018,000. The transfer resulted from portfolio restructurings in connection with the acquisition of First American. There were no sales of held-to-maturity securities during 2000, 1999 or 1998. Held-to-maturity and available-for-sale securities with a carrying amount of $7,805,807,000 and $11,406,179,000 at December 31, 2000 and 1999, respectively, were pledged to secure short-term and long-term borrowings, public deposits, trust funds and for other purposes as required or permitted by law. 75 NOTE 7-LOANS - -------------------------------------------------------------------------------- The major categories of loans net of unearned income at December 31 are summarized as follows:
- --------------------------------------------------------------------------------------------------------------------------------- 2000 1999 - --------------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) Amount Percent Amount Percent - --------------------------------------------------------------------------------------------------------------------------------- Commercial: Commercial and industrial $ 7,312,845 29.7% $ 7,967,190 30.3% Commercial loans secured by real estate 1,765,092 7.2 2,036,120 7.8 ------------------------------------------------------------------------------------- Total commercial 9,077,937 36.9 10,003,310 38.1 Commercial real estate: Commercial real estate mortgages 2,322,952 9.5 2,295,157 8.7 Real estate construction 2,517,172 10.2 2,416,849 9.2 ------------------------------------------------------------------------------------- Total commercial real estate 4,840,124 19.7 4,712,006 17.9 Consumer: Residential first mortgages 1,358,060 5.5 1,701,435 6.5 Other residential mortgages 4,655,895 18.9 3,873,599 14.7 Dealer indirect 2,989,910 12.1 4,148,747 15.8 Revolving credit 505,234 2.1 489,238 1.9 Other consumer 1,189,275 4.8 1,338,424 5.1 ------------------------------------------------------------------------------------- Total consumer 10,698,374 43.4 11,551,443 44.0 ------------------------------------------------------------------------------------- $24,616,435 100.0% $26,266,759 100.0% =================================================================================================================================
Included in commercial and industrial loans was $1,085,689,000 and $710,898,000 of rentals receivable on leveraged leases, $367,715,000 and $271,719,000 of estimated residuals on leveraged leases, net of $452,110,000 and $260,593,000 of unearned income on leveraged leases at December 31, 2000 and 1999, respectively. Pretax income from leveraged leases for the years ending December 31, 2000, 1999 and 1998 was $40,373,000, $54,616,000 and $14,287,000, respectively. The tax effect of pretax income was a benefit of $21,131,000, an expense of $20,758,000, and an expense of $5,538,000 for the years ending December 31, 2000, 1999 and 1998, respectively. During 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 Statement of Financial Accounting Standards (SFAS) No. 13, "Accounting for Leases", the net income from the leases was recalculated from their inception based on the new effective tax rate increasing net income for the year by $7.0 million. This adjustment included a deferral of previously recognized pretax leveraged lease earnings to later periods, which reduced current pretax net interest income by $24.5 million. Total pretax income over the terms of the leveraged leases will be unaffected by the change in the effective tax rate. The reduction in net interest income was more than offset by a $31.5 million reduction in deferred income taxes. AmSouth intends to permanently reinvest earnings of this foreign subsidiary and, therefore, in accordance with SFAS 109, "Accounting for Income Taxes", 76 deferred taxes of $31.5 million have not been provided as of December 31, 2000. At December 31, 2000 and 1999, nonaccrual loans totaled $179,659,000 and $141,134,000, respectively. The amount of interest income actually recognized on these loans during 2000 and 1999 was approximately $5,159,000 and $4,350,000, respectively. The additional amount of interest income that would have been recorded during 2000 and 1999 if these loans had been current in accordance with their original terms was approximately $12,687,000 and $11,386,000, respectively. At December 31, 2000 and 1999, the recorded investment in loans that were considered to be impaired was $110,968,000 and $56,923,000, respectively (primarily all of which were on a nonaccrual basis). Collateral dependent loans, which were measured at the fair value of the collateral, constituted approximately all of impaired loans at December 31, 2000 and 1999. There was approximately $43,849,000 and $18,419,000 at December 31, 2000 and 1999, respectively, in the allowance for loan losses specifically allocated to $106,625,000 and $49,860,000 of impaired loans. No specific reserve was required for $4,343,000 and $7,063,000 of impaired loans at December 31, 2000 and 1999, respectively. The average recorded investment in impaired loans for the years ended December 31, 2000, 1999 and 1998 was approximately $70,471,000, $61,880,000 and $87,305,000, respectively. No material amount of interest income was recognized on impaired loans for the years ended December 31, 2000, 1999 and 1998. Certain executive officers and directors of AmSouth and their associates were loan customers of AmSouth during 2000 and 1999. Such loans are made in the ordinary course of business at normal credit terms, including interest rates and collateral, and do not represent more than a normal risk of collection. Total loans to these persons at December 31, 2000 and 1999, amounted to approximately $70,987,000 and $156,487,000, respectively. Activity during 2000 in loans to related parties included loans of approximately $964,286,000 and payments of approximately $1,017,816,000. Reductions of $31,885,000 were made for directors that are no longer related, and net reductions of $85,000 were made representing other changes. NOTE 8-ALLOWANCE FOR LOAN LOSSES - -------------------------------------------------------------------------------- A summary of changes in the allowance for loan losses is shown below:
- ---------------------------------------------------------------------------------------------------------- (In thousands) 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------- Balance at January 1 $ 354,679 $ 370,065 $ 366,051 Loans charged off (178,388) (148,287) (134,238) Recoveries of loans previously charged off 54,037 45,381 50,586 ---------------------------------------------- Net charge offs (124,351) (102,906) (83,652) Addition to allowance charged to expense 227,600 165,626 99,067 Additions due to business combinations -0- -0- 6,164 Allowance sold/transferred to loans held for sale, net (74,591) (73,000) (14,900) Allowance transferred to other liabilities (2,903) (5,106) (2,665) ---------------------------------------------- Balance at December 31 $ 380,434 $ 354,679 $ 370,065 ==========================================================================================================
77 NOTE 9-PREMISES AND EQUIPMENT - -------------------------------------------------------------------------------- Premises and equipment at December 31 are summarized as follows:
- ------------------------------------------------------------------------------------ (In thousands) 2000 1999 - ------------------------------------------------------------------------------------ Land $ 108,020 $ 112,265 Buildings 407,077 407,576 Furniture and fixtures 611,368 661,107 Leasehold improvements 120,140 136,069 ------------------------ 1,246,605 1,317,017 Less: Allowances for depreciation and amortization 612,404 638,575 ------------------------ $ 634,201 $ 678,442 ====================================================================================
NOTE 10-DEPOSITS - -------------------------------------------------------------------------------- The aggregate amount of time deposits of $100,000 or more, excluding certificates of deposit of $100,000 or more, in domestic bank offices was $198,639,000 and $203,185,000 at December 31, 2000 and 1999, respectively. In addition, a majority of foreign time deposits were in amounts in excess of $100,000. At December 31, 2000, the aggregate maturities, in thousands, of time deposits are summarized as follows: - ------------------------------------------------------------------------------------ 2001 $ 7,947,551 2002 1,909,567 2003 406,227 2004 87,004 2005 and thereafter 545,969 ------------------------ $10,896,318 ====================================================================================
NOTE 11-OTHER BORROWED FUNDS - -------------------------------------------------------------------------------- Other borrowed funds at December 31 are summarized as follows:
- ------------------------------------------------------------------------------------ (In thousands) 2000 1999 - ------------------------------------------------------------------------------------ Treasury, tax and loan notes $ 24,785 $1,109,951 Short-term Federal Home Loan Bank advances -0- 150,000 Term federal funds purchased -0- 515,000 Short-term bank notes 450,000 300,000 Commercial paper 12,494 8,749 Other short-term debt 49,569 52,020 ------------------------ $536,848 $2,135,720 ====================================================================================
78 At December 31, 2000, AmSouth had a line of credit arrangement for short-term debt enabling it to borrow up to $25,000,000 subject to such terms as AmSouth and the lender may mutually agree. The arrangement is reviewed annually for renewal of the credit line. The line is available solely to support commercial paper borrowings and was not in use at December 31, 2000. The interest rate on the treasury, tax and loan notes was 6.50% and 5.00% at December 31, 2000 and 1999, respectively. All other borrowed funds had interest rates ranging from 3.50% to 6.72% at December 31, 2000, and from 3.15% to 6.51% at December 31, 1999. NOTE 12-LONG-TERM DEBT - -------------------------------------------------------------------------------- Long-term debt at December 31 is summarized as follows:
- ------------------------------------------------------------------------------------------------------ (In thousands) 2000 1999 - ------------------------------------------------------------------------------------------------------ Long-term Federal Home Loan Bank advances $4,898,308 $4,612,686 - ------------------------------------------------------------------------------------------------------ Other long-term debt: 6.45% Subordinated Notes Due 2018 303,523 304,020 6.125% Subordinated Notes Due 2009 174,495 174,351 6.75% Subordinated Debentures Due 2025 149,915 149,898 7.75% Subordinated Notes Due 2004 149,687 149,595 7.25% Senior Notes Due 2006 99,620 101,028 6.875% Subordinated Notes Due 2003 49,926 49,895 6.625% Subordinated Notes Due 2005 49,736 49,709 Long-term notes payable 7,215 11,170 Capitalized lease obligations 980 1,134 ----------------------------------------------- Total other long-term debt 985,097 990,800 ----------------------------------------------- $5,883,405 $5,603,486 ======================================================================================================
Advances from the Federal Home Loan Bank (FHLB) had maturities ranging from 2001 to 2020 and interest rates ranging from 0.50% to 8.10%. Of the balances outstanding at December 31, 2000, $4,365,000,000 is callable by the FHLB during the first quarter of 2001. Under the Blanket Agreement for Advances and Security Agreement with the FHLB, residential mortgage loans, mortgage-backed securities and home equity lines and loans are pledged as collateral for the FHLB advances outstanding. The 6.45% Subordinated Notes Due 2018 were issued February 1, 1998, by AmSouth's bank subsidiary (AmSouth Bank) at a price of 101.702%. The net proceeds to AmSouth Bank after commissions totaled $303,156,000. The notes will mature February 1, 2018, and were issued with embedded put and call options that could require AmSouth Bank to repurchase the notes at face value on February 1, 2008. If the bank does not repurchase the debt, the interest rate on the notes will be reset on February 1, 2008, based on a set formula. AmSouth Bank purchased interest rate swaps in the notional amount of $300,000,000 to hedge the fair value of these notes. These swaps require AmSouth Bank to pay variable rates based on the 30-day and 90-day London Interbank Offered Rate (LIBOR) on notional amounts of $200,000,000 and $100,000,000, respectively. The 6.125% Subordinated Notes Due 2009 were issued March 1, 1999, at a discounted price of 99.175%. The net proceeds to AmSouth after commissions totaled $172,419,000. The notes will mature March 1, 2009, and AmSouth may redeem some, or all, of the notes prior to March 1, 2009, at the greater of 79 100 percent of the principal amount, or an amount based on a preset formula. AmSouth purchased interest rate swaps in the notional amount of $175,000,000 to hedge the fair value of these notes. These swaps require AmSouth to pay variable interest rates based on the 30-day LIBOR on notional amounts of $175,000,000. The 6.75% Subordinated Debentures Due November 1, 2025, were issued November 6, 1995, at a discounted price of 99.883 percent. The net proceeds to AmSouth after commissions totaled $148,900,000. The debentures will mature on November 1, 2025, and may be redeemed on November 1, 2005, at the option of the registered holders thereof. AmSouth purchased interest rate swaps in the notional amount of $150,000,000 to hedge the fair value of these debentures. These swaps require AmSouth to pay a variable rate based on the 30-day LIBOR while receiving a fixed rate. The 7.75% Subordinated Notes Due 2004 were issued May 19, 1994, at a discounted price of 99.389 percent. The net proceeds to AmSouth after commissions totaled $148,100,000. The notes will mature on May 15, 2004, and are not redeemable prior to maturity. The 7.25% Senior Notes Due 2006, were issued April 26, 1996, at a discounted price of 99.381 percent. The net proceeds to AmSouth after commissions totaled $98,731,000. The notes will mature May 1, 2006, and are not redeemable prior to maturity. The 6.875% Subordinated Notes Due 2003 were issued April 22, 1993, at a discounted price of 99.36 percent. The net proceeds to AmSouth after commissions totaled $49,355,000. The notes will mature April 15, 2003, and are not redeemable prior to maturity. The 6.625% Subordinated Notes Due 2005 were issued December 18, 1995, at a discounted price of 99.675 percent. The net proceeds to AmSouth after commissions totaled $49,512,500. The notes will mature December 18, 2005, and are not redeemable prior to maturity. Long-term notes payable at December 31, 2000, included notes maturing from 2004 to 2012 with interest rates ranging from 5.05 percent to 8.00 percent. The aggregate stated maturities, in thousands, of long-term debt outstanding at December 31, 2000, are summarized as follows: - -------------------------------------------------------------------------------- 2001 $ 70,124 2002 6,141 2003 881,778 2004 152,959 2005 1,255,104 Thereafter 3,517,299 -------------------- $5,883,405 ================================================================================ NOTE 13-OFF-BALANCE SHEET FINANCIAL AGREEMENTS - -------------------------------------------------------------------------------- AmSouth uses a variety of off-balance sheet financial instruments to enable it to manage its exposure to changes in interest rates. AmSouth also enters into similar instruments to help customers manage their exposure to interest rate and foreign currency fluctuations and to finance international activities. Forward contracts provide AmSouth and its customers a means of managing the risks of changing interest and foreign exchange rates. These contracts represent commitments either to purchase or sell securities, loans, other money market instruments or foreign currency at a future date and at a specified price. AmSouth is subject to the market risk associated with changes in the value of the underlying financial instrument as well as the credit risk that another party will fail to perform. The gross contract amount of forward contracts represents the extent of AmSouth's involvement. However, those amounts significantly exceed the future cash requirements as AmSouth intends to close out open trading positions prior to settlement and thus is subject only to the change in value of the instruments. The gross amount of contracts represents AmSouth's maximum exposure to credit risk. 80 Interest rate swaps are agreements to exchange interest payments computed on notional amounts. Swaps subject AmSouth to market risk associated with changes in interest rates, as well as the credit risk that another party will fail to perform. Interest rate caps and floors are contracts in which a counterparty pays or receives a cash payment from another counterparty if a floating rate index rises above or falls below a predetermined level. The present value of purchased caps and floors in a gain position represents the potential credit risk to AmSouth. Market risk resulting from a position in a particular off-balance sheet financial instrument may be offset by other on or off-balance sheet transactions. AmSouth monitors overall sensitivity to interest rate changes by analyzing the net effect of potential changes in interest rates on the market value of both on and off-balance sheet financial instruments and the related future cash flow streams. AmSouth manages the credit risk of counterparty defaults in these transactions by limiting the total amount of arrangements outstanding, both by individual counterparty and in the aggregate, and by monitoring the size and maturity structure of the off-balance sheet portfolio. AmSouth requires collateralization by a counterparty on credit exposure above a specified credit limit. Trading and dealer activities in the aggregate are not material to AmSouth and are not separately disclosed. Note 1 includes a summary of how derivative instruments used for interest rate risk management are accounted for in the financial statements. In 2001, the accounting for these instruments will change to comply with the requirements of Statement 133, which was adopted by AmSouth on January 1, 2001. The new accounting requirements are discussed in Note 1 as well. Interest Rate Risk Management: As part of managing interest rate risk, AmSouth uses a variety of derivative instruments to protect against the risk of interest rate movements on the value of certain assets and liabilities or on future cash flows. The nature and volume of derivative instruments used by AmSouth to manage interest rate risk related to loans, deposits and long-term debt depend on the level and type of these on-balance sheet items and AmSouth's risk management strategies given the current and anticipated interest rate environment. The fair value of fixed-rate deposit and long-term debt were hedged against changes in interest rates primarily through the use of receive-fixed interest rate swaps. Cash flow variability stemming from adjustable-rate loans was hedged primarily through the use of receive-fixed interest rate swaps. The following table identifies the gross contract or notional amounts of off-balance sheet financial instruments at December 31:
- -------------------------------------------------------------------------------------------- (In millions) 2000 1999 - -------------------------------------------------------------------------------------------- Forward contracts-commitments to sell $ 86.0 $ 84.2 Forward contracts-commitments to purchase -0- 17.1 Notional amount of interest rate swaps: Receive fixed rate 2,959.7 3,503.8 Receive variable rate 292.7 185.8 Notional amount of interest rate caps and floors 80.2 89.4 Forward foreign exchange contracts: Commitments to purchase 44.7 54.7 Commitments to sell 44.8 54.6 Written options sold -0- 100.0 Written options purchased 1.0 2.0 - --------------------------------------------------------------------------------------------
81 The notional amounts of interest rate contracts used by AmSouth to hedge statement of condition items at December 31 are shown below:
- --------------------------------------------------------------------------------- (In millions) 2000 1999 - ---------------------------------------------------------------------------------- Loans $ 925 $1,515 Securities 25 110 Deposits 1,092 918 Long-term debt 625 775 ----------------------------------- $2,667 $3,318 ==================================================================================
The table below presents the deferred gains and losses related to terminated interest rate swaps at December 31, 2000 and 1999. These deferred gains and losses are recognized as basis adjustments to existing assets and liabilities.
- ---------------------------------------------------------------------------------- (In thousands) 2000 1999 - ---------------------------------------------------------------------------------- Deferred gains $11,850 $21,263 Deferred losses (402) (4,365) ----------------------------------- Total net deferred gains $11,448 (1) $16,898 (2) ==================================================================================
(1) $6.3 million of net deferred gains to be recognized during 2001 and $5.1 million to be recognized during 2002 through 2007. (2) $5.5 million of net deferred gains recognized during 2000 and $11.4 million to be recognized during 2001 through 2007. NOTE 14-COMMITMENTS AND CONTINGENCIES - -------------------------------------------------------------------------------- AmSouth and its subsidiaries lease land, premises and equipment under cancelable and noncancelable leases, some of which contain renewal options under various terms. The leased properties are used primarily for banking purposes. The total rental expense on operating leases for the years ended December 31, 2000, 1999 and 1998 was $68,574,000, $72,984,000 and $73,493,000, respectively. Rental income on bank premises for 2000, 1999 and 1998 was $7,089,000, $14,102,000 and $14,424,000, respectively. There were no material contingent rental expenses for 2000, 1999 or 1998. Future minimum payments, in thousands, by year and in the aggregate, for noncancelable operating leases with initial or remaining terms of one year or more consisted of the following at December 31, 2000: - ----------------------------------------------------------------------------- 2001 $ 46,524 2002 39,974 2003 35,813 2004 29,539 2005 20,743 Thereafter 132,320 -------- $304,913 ================================================================================ 82 AmSouth and its subsidiaries are contingently liable with respect to various loan commitments and other contingent liabilities in the normal course of business. AmSouth's maximum exposure to credit risk for loan commitments (unfunded loans and unused lines of credit) and standby letters of credit at December 31, 2000, was as follows (in millions): - -------------------------------------------------------------------------------- Commitments to extend credit $18,150.8 Standby letters of credit 2,090.0 - -------------------------------------------------------------------------------- The credit risk associated with loan commitments and standby letters of credit is essentially the same as that involved in extending loans to customers and is subject to AmSouth's credit policies. Collateral is obtained based on management's assessment of the customer. Various legal proceedings are pending against AmSouth and its subsidiaries. Some of these proceedings seek relief or allege damages that are substantial. The actions arise in the ordinary course of AmSouth's business and include actions relating to its imposition of certain fees, lending, collections, loan servicing, deposit taking, investment, trust, and other activities. Because some of these actions are complex and for other reasons, it may take a number of years to finally resolve them. Although it is not possible to determine with certainty AmSouth's potential exposure from these proceedings, based upon legal counsel's opinion, management considers that any liability resulting from the proceedings would not have a material impact on the financial condition or results of operations of AmSouth. NOTE 15-SHAREHOLDERS' EQUITY - -------------------------------------------------------------------------------- AmSouth offers a Dividend Reinvestment and Common Stock Purchase Plan, whereby shareholders can reinvest dividends to acquire shares of common stock. Shareholders may also invest additional cash up to $5,000 per quarter with no brokerage commissions or fees charged. On March 20, 1997, AmSouth's Board approved the repurchase by AmSouth of up to 13,500,000 shares of its common stock. During 1997, 1998 and 1999, AmSouth purchased 5,859,000, 5,297,000 and 1,352,000 shares, respectively, at a cost of $110,267,000, $136,514,000 and $41,247,000, respectively, under this plan. The authorization expired in March 1999. On April 15, 1999, AmSouth's Board approved the repurchase by AmSouth of approximately 13,100,000 shares of its common stock. From April 15, 1999, to May 30, 1999, AmSouth purchased 655,000 shares at a cost of $20,398,000 under this plan. The authorization was rescinded by the Board on May 31, 1999. On April 15, 1999, AmSouth's Board also approved a three-for-two common stock split in the form of a 50 percent stock dividend. The stock dividend was paid May 24, 1999, to shareholders of record as of April 30, 1999. On April 15, 1999, AmSouth's shareholders approved an increase in the common stock authorized to be issued by AmSouth to 350,000,000 shares. On September 16, 1999, in an action related to its merger with First American, AmSouth's shareholders approved an increase in the common stock authorized to be issued by AmSouth from 350,000,000 to 750,000,000 shares. On April 20, 2000, AmSouth's Board approved the repurchase by AmSouth of approximately 35,000,000 shares of its common stock over a two-year period. From April 20, 2000, to December 31, 2000, AmSouth purchased 22,322,000 shares at a cost of $369,696,000 under this plan. At December 31, 2000, there were 4,365,500 shares reserved for issuance under the Dividend Reinvestment and Common Stock Purchase Plan, 29,910,900 shares reserved for issuance under stock compensation plans (16,644,800 shares represent stock options outstanding) and 811,900 shares reserved for issuance under the employee stock purchase plan for a total of 35,088,300 shares. In 2000, AmSouth again increased its dividend per share to $0.81 per common share, compared to $0.71 in 1999 and $0.57 in 1998. Included in other comprehensive income within shareholders' equity at December 31, 2000 and 1999, was $114,606,000 and $136,463,000, respectively, of unrealized securities losses associated with the transfer of available-for-sale securities to held-to-maturity at the time of AmSouth's merger with First American. This amount is being amortized over the estimated lives of the transferred securities. 83 NOTE 16-EARNINGS PER COMMON SHARE - -------------------------------------------------------------------------------- The following table sets forth the computation of earnings per common share and diluted earnings per common share:
- --------------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- Earnings per common share computation: Numerator: Net income $329,127 $340,468 $474,074 Denominator: Average common shares outstanding 382,031 391,136 389,595 Earnings per common share $ .86 $ .87 $ 1.22 Diluted earnings per common share computation: Numerator: Net income $329,127 $340,468 $474,074 Denominator: Average common shares outstanding 382,031 391,136 389,595 Dilutive shares contingently issuable 2,646 5,379 6,896 --------------------------------------------------------------------------- Average diluted common shares outstanding 384,677 396,515 396,491 Diluted earnings per common share $ .86 $ .86 $ 1.20 - ----------------------------------------------------------------------------------------------------------------------------------
The effect from assumed exercise of 13.0 million, 6.1 million and 0.9 million of stock options was not included in the computation of diluted earnings per common share for 2000, 1999 and 1998, respectively, because such shares would have had an antidilutive effect on earnings per share. NOTE 17-LONG-TERM INCENTIVE COMPENSATION PLANS - -------------------------------------------------------------------------------- AmSouth has long-term incentive compensation plans which permit the granting of incentive awards in the form of stock options, restricted stock awards and stock appreciation rights. Generally, the terms of these plans stipulate that the exercise price of options may not be less than the fair market value of AmSouth's common stock at the date the options are granted. Options granted generally vest between one and three years from the date of the grant. The majority of the options granted during 2000 expire between three and ten years depending on certain performance criteria. All other options granted generally expire not later than ten years from the date of the grant. Statement 123 requires pro forma information regarding net income and earnings per share. This pro forma information has been determined as if AmSouth had accounted for its employee stock options under the fair value method of that statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 2000, 1999 and 1998, respectively: a risk-free interest rate of 6.83%, 5.29% and 5.62%, a dividend yield of 5.04%, 2.61% and 2.36%, a volatility factor of 23.83%, 19.24% and 18.04%, and a weighted-average expected life of the options of 7.0, 6.4 and 6.4 years. The weighted-average fair value of options granted during 2000, 1999 and 1998 was $3.21, $8.82 and $5.47, respectively. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' 84 vesting period. AmSouth's pro forma information follows (in thousands except for earnings per share information):
- ------------------------------------------------------------------------------------------------------------------------------------ 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Net income: As reported $329,127 $340,468 $474,074 Pro forma 319,120 315,232 465,272 Earnings per common share: As reported $ .86 $ .87 $ 1.22 Pro forma .84 .81 1.19 Diluted earnings per common share: As reported $ .86 $ .86 $ 1.20 Pro forma .83 .80 1.17 - ------------------------------------------------------------------------------------------------------------------------------------
The following table summarizes AmSouth's stock option activity and related information during 1998, 1999 and 2000:
- ------------------------------------------------------------------------------------------------------------------------------------ Number Option Price Weighted-Average of Shares per Share Exercise Price - ------------------------------------------------------------------------------------------------------------------------------------ Balance at January 1, 1998 11,825,697 $ 2.47 - $25.52 $10.13 Options exercised (2,227,431) 4.67 - 27.43 18.89 Options forfeited (407,883) 4.67 - 27.49 16.85 Options granted 2,062,817 19.07 - 27.49 24.97 ------------------------------------------------------------------------------- Balance at December 31, 1998 11,253,200 2.47 - 27.49 12.83 Options exercised (1,964,123) 2.47 - 24.52 20.88 Options forfeited (866,531) 3.69 - 27.49 17.18 Options granted 5,576,049 22.08 - 32.92 23.31 ------------------------------------------------------------------------------- Balance at December 31, 1999 13,998,595 2.91 - 32.92 16.94 Options exercised (2,319,473) 2.91 - 17.84 9.31 Options forfeited (2,855,369) 6.11 - 27.49 20.12 Options granted 7,821,044 12.00 - 19.19 16.08 ------------------------------------------------------------------------------- Balance at December 31, 2000 16,644,797 $ 3.17 - $32.92 $17.01 ====================================================================================================================================
Of the options outstanding at December 31, 2000, those options granted since October 1, 1999, have vesting periods between one and three years from the date of grant. All other options outstanding were exercisable. At December 31, 2000 and 1999, options exercisable totaled 8,668,858 and 12,677,731, respectively, and had a weighted-average option price per share of $17.07 and $16.18, respectively. 85 The following table presents the weighted-average remaining life as of December 31, 2000, for options outstanding within the stated exercise price ranges.
- ------------------------------------------------------------------------------------------------------------------------------------ Outstanding Exercisable - ------------------------------------------------------------------------------------------------------------------------------------ Exercise Price Number of Weighted-Average Weighted-Average Number of Weighted-Average Range Per Share Options Exercise Price Remaining Life Options Exercise Price - ------------------------------------------------------------------------------------------------------------------------------------ $ 3.17 - $ 4.31 277,059 $ 3.94 0.93 years 277,059 $ 3.94 4.94 - 6.82 345,678 5.99 2.42 years 345,678 5.99 7.42 - 10.85 1,725,470 8.91 3.63 years 1,725,470 8.91 11.48 - 17.10 9,274,532 15.48 8.32 years 2,255,426 13.76 17.19 - 25.63 3,936,478 22.86 8.22 years 2,979,645 22.58 26.32 - 32.92 1,085,580 28.69 7.95 years 1,085,580 28.69 - ------------------------------------------------------------------------------------------------------------------------------------
AmSouth also has issued common stock as restricted stock awards to key officers with the restriction that they remain employed with AmSouth for periods of three years or longer. The following table summarizes AmSouth's restricted stock grants and the weighted average fair values at grant date:
- ------------------------------------------------------------------------------------------------------------------------------------ 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Shares granted 75,412 797,012 1,312,636 Weighted-average fair value of restricted stock granted during the year $ 15.50 $ 24.97 $ 24.33 - -----------------------------------------------------------------------------------------------------------------------------------
At December 31, 2000, there were no stock appreciation rights outstanding. In addition, effective January 1, 1997, AmSouth adopted the 1997 Performance Incentive Plan (PI Plan). The PI Plan permits the granting of cash-based, long-term incentive opportunities. The amounts that may be earned depend on the extent to which predetermined performance goals are achieved. To date, there have been two sets of grants under the plan, both of which have been paid. Currently, there are no grants outstanding under this plan. NOTE 18-REGULATORY CAPITAL REQUIREMENTS AND RESTRICTIONS - -------------------------------------------------------------------------------- Capital is the primary tool used by regulators to monitor the financial health of insured banks and savings institutions. The Federal Reserve Board and the Federal Deposit Insurance Corporation have historically had similar capital adequacy guidelines involving minimum leverage capital and risk-based capital requirements. Under the capital adequacy guidelines and the regulatory framework for prompt corrective action, AmSouth and its banking subsidiary must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Based on the risk-based capital rules and definitions prescribed by the banking regulators, should an institution's capital ratios decline below predetermined levels, it would become subject to a series of increasingly restrictive regulatory actions. AmSouth and its subsidiary bank are required to have core capital (Tier 1) of at least 86 4 percent of risk-weighted assets, total capital of 8 percent of risk-weighted assets and a leverage ratio of 3 percent of adjusted quarterly average assets. Tier 1 capital consists principally of shareholders' equity, excluding unrealized gains and losses on securities available-for-sale, less goodwill and certain other intangibles. Total capital consists of Tier 1 capital plus certain debt instruments and the reserve for credit losses, subject to limitation. The regulations also define well capitalized levels of Tier 1 capital, total capital and leverage as ratios of 6 percent, 10 percent and 5 percent, respectively, for banking entities. AmSouth's banking subsidiary had Tier 1 capital, total capital and leverage ratios above the well-capitalized levels at December 31, 2000 and 1999. Management believes that no changes in conditions or events have occurred since December 31, 2000, which would result in changes that would cause AmSouth Bank to fall below the well-capitalized level. The actual capital ratios and amounts for AmSouth and AmSouth Bank are as follows:
- ------------------------------------------------------------------------------------------------------------------------------------ 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------------ (Dollars in thousands) Amount Ratio Amount Ratio - ------------------------------------------------------------------------------------------------------------------------------------ Tier 1 capital: AmSouth $2,576,671 7.66% $2,769,657 7.46% AmSouth Bank 3,232,835 9.64 3,312,497 8.98 ------------------------------------------------------------------------------------ Total capital: AmSouth $3,731,086 11.09% $3,947,906 10.64% AmSouth Bank 3,913,269 11.67 3,964,899 10.75 ------------------------------------------------------------------------------------ Leverage: AmSouth $2,576,671 6.72% $2,769,657 6.21% AmSouth Bank 3,232,835 8.44 3,312,497 7.46 - ------------------------------------------------------------------------------------------------------------------------------------
Certain restrictions exist regarding the ability of banking subsidiaries to transfer funds to the parent company as loans, advances or dividends. The subsidiary bank can initiate dividend payments in 2001, without prior regulatory approval, of an amount equal to its net profits for 2001, as defined by statute. Substantially all of the parent company's retained earnings at December 31, 2000 and 1999, represented undistributed earnings of its banking subsidiary. NOTE 19-PENSION AND OTHER EMPLOYEE BENEFIT PLANS - -------------------------------------------------------------------------------- AmSouth sponsors noncontributory defined benefit pension plans, covering substantially all regular full-time employees. Benefits are generally based on years of service and the employee's compensation during the last 120 months of employment or average monthly earnings of the participant for the 60 consecutive months that produce the highest average earnings. Actuarially determined pension costs are charged to current operations using the projected unit credit method. AmSouth's funding policy is to contribute an amount that meets the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974, plus such additional amounts as the corporation determines to be appropriate. In addition to pension benefits, AmSouth provides postretirement medical plans to all current employees and provides certain retired and grandfathered retired participants with postretirement healthcare benefits. Postretirement life insurance 87 is also provided to a grandfathered group of employees and retirees. Costs associated with these postretirement benefit plans are charged to operations based on actuarial calculations. The following table summarizes the change in benefit obligation and plan assets and the funded status of the pension and other postretirement plans at December 31, 2000 and 1999:
- ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plans Other Postretirement Benefits - ------------------------------------------------------------------------------------------------------------------------------------ (Dollars in thousands) 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------------ Change in benefit obligation: Benefit obligation at January 1 $477,880 $ 488,284 $ 30,989 $ 23,993 Service cost 13,731 15,688 1,174 1,176 Interest cost 34,210 34,560 3,196 2,283 Acquisitions -0- -0- -0- 3,206 Curtailments (4,764) (842) -0- -0- Special termination benefits -0- 5,461 -0- -0- Amendments (16,968) 3,943 -0- -0- Actuarial loss/(gain) 3,943 (42,087) 11,837 2,621 Benefits and expenses paid (34,694) (27,127) (3,190) (2,290) ----------------------------------------------------------------------------------- Benefit obligation at December 31 473,338 477,880 44,006 30,989 ----------------------------------------------------------------------------------- Change in plan assets: Fair value of plan assets at January 1 652,204 616,432 3,509 3,577 Actual return on plan assets 19,391 51,623 578 109 Company contribution 7,178 11,276 -0- -0- Benefits and expenses paid (34,694) (27,127) (249) (177) ----------------------------------------------------------------------------------- Fair value of plan assets at December 31 644,079 652,204 3,838 3,509 ----------------------------------------------------------------------------------- Funded status of the plan 170,741 174,324 (40,168) (27,480) Unrecognized actuarial (gain) / loss (75,329) (124,696) 15,849 5,087 Unamortized prior service (credit)/cost (9,199) 7,077 (49) (1,140) Unrecognized net transition obligation 2,065 1,357 2,709 2,988 ----------------------------------------------------------------------------------- Prepaid/(accrued) benefit cost $ 88,278 $ 58,062 $(21,659) $(20,545) =================================================================================== Amounts recognized in the statement of condition: Prepaid benefit cost $102,172 $ 75,748 $ 795 $ 698 Accrued benefit liability (17,145) (20,557) (22,454) (21,243) Intangible assets 3,251 2,871 -0- -0- ----------------------------------------------------------------------------------- Net amount recognized $ 88,278 $ 58,062 $(21,659) $(20,545) =================================================================================== Assumptions: Discount rate 7.75% 7.75% 7.75% 7.75% Expected return on plan assets 9.50 9.50 6.50 6.50 Rate of compensation increase 5.50 5.50 N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------
88 Net periodic benefit cost/(credit) includes the following components for the years ended December 31:
- ----------------------------------------------------------------------------------------------------------------------------------- Retirement Plans Other Postretirement Benefits - ----------------------------------------------------------------------------------------------------------------------------------- (In thousands) 2000 1999 1998 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------------- Service cost $ 13,731 $ 15,688 $ 16,342 $ 1,174 $ 1,176 $ 780 Interest cost 34,210 34,560 31,266 3,196 2,283 2,124 Expected return on plan assets (59,600) (56,283) (47,054) (222) (227) (218) Amortization of prior service (credit)/cost (1,007) 1,569 1,115 (1,091) (1,091) (1,327) Amortization of transitional (asset)/obligation (709) (700) (700) 278 278 278 Recognized actuarial (gain)/loss (5,213) (2,982) (2,501) 969 262 77 -------------------------------------------------------------------------------- Net periodic benefit cost/(credit) $(18,588) $ (8,148) $ (1,532) $ 4,304 $ 2,681 $ 1,714 ================================================================================ Additional (gain)/loss recognized due to: Curtailment $ (4,450) $ 1,738 $ (7,402) $ -0- $ -0- $(1,237) Settlement -0- 1,165 -0- -0- -0- -0- Special termination benefits -0- 5,461 -0- -0- -0- -0- ===================================================================================================================================
During 2000, AmSouth experienced a net curtailment gain of $4.5 million. The gain was primarily the result of employee terminations associated with the First American merger. This gain was recorded as a reduction to merger and integration costs. During 1999, AmSouth experienced a net curtailment loss of $1.7 million, a net settlement loss of $1.2 million and costs of special termination benefits of $5.5 million in its retirement plans. These losses were primarily the net result of employee terminations and change of control provisions associated with the First American merger. These losses were recorded as merger and integration costs. During 1998, AmSouth experienced a $7.4 million curtailment gain in its retirement plans due to the estimated effect of significant employee terminations associated with the Deposit Guaranty merger. The curtailment gain was recorded as a reduction of merger and integration costs. Also, during 1998, AmSouth terminated and settled its postretirement death benefits plan, resulting in a curtailment gain of $1.2 million. For measurement purposes, the increase in the per capita cost of covered healthcare benefits varies by medical benefit and date of retirement. For retirements after December 31, 1992, AmSouth's subsidies for all medical benefits will be capped at a level dollar amount in approximately five years. For retirements before January 1, 1993, the rates are graded, starting at 7.8 percent in 2000 and dropping to an ultimate rate of 5.0 percent in six years. Assumed healthcare cost trend rates have an insignificant effect on the costs and the liabilities reported for the healthcare plan. A one-percentage point change in assumed healthcare cost trend rates would have the following effects:
- --------------------------------------------------------------------------------------- 1-Percentage 1-Percentage (In thousands) Point Increase Point Decrease - --------------------------------------------------------------------------------------- Effect on total of service cost and interest cost components $ 39 $ (66) Effect on postretirement benefit obligation 546 (867) - ---------------------------------------------------------------------------------------
89 The Qualified Retirement Plans have a portion of their investments in AmSouth common stock. The number of shares and the market value of the common stock were 1,080,307 and $16,474,682, respectively, as of December 31, 2000. Dividends paid on the AmSouth common stock totaled $871,000 during 2000. AmSouth also maintains a thrift plan and an employee stock purchase plan that cover substantially all regular full-time employees. AmSouth matches pretax contributions dollar for dollar on the first 6 percent of base pay that each employee contributes to the thrift plan. After-tax contributions to the thrift plan are matched at 50 cents for every dollar contributed by an employee through the first 6 percent of base pay. Employees may make both pretax and after-tax contributions, but no matching contributions are made on any employee contributions above 6 percent, with pretax contributions being matched first. All company-matching contributions are allocated to the AmSouth common stock investment option. First American had a combination savings, thrift and profit-sharing plan (FIRST Plan) available to all employees (except the employees of IFC and hourly paid and special exempt-salaried employees). The FIRST Plan has been terminated and the employees are participating in AmSouth's thrift plan. The cost of the thrift plans for the years ended December 31, 2000, 1999 and 1998 was $16.6 million, $10.2 million and $15.3 million, respectively. Under the employee stock purchase plan, an employee may invest up to $2,000 each calendar year in purchases of AmSouth common stock, and AmSouth will contribute a matching 25 percent toward the purchase. Additional purchases of up to $8,000 may be made on an unmatched basis with no administrative or brokerage fees charged. Under the employee stock purchase plan, 313,332 and 113,885 shares of AmSouth common stock were purchased during 2000 and 1999, respectively, with weighted-average fair values of $15.07 and $27.37, respectively. NOTE 20-INCOME TAXES - -------------------------------------------------------------------------------- The provisions for income taxes charged to earnings are summarized as follows:
- ------------------------------------------------------------------------------------------------------------------------------------ Years Ended December 31 (In thousands) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Current tax (benefit) expense: Federal $(13,370) $140,910 $187,641 State 651 3,159 11,277 ----------------------------------------------------------------------------------- (12,719) 144,069 198,918 ----------------------------------------------------------------------------------- Deferred tax expense: Federal 130,833 50,421 58,975 State 7,321 6,413 6,832 ----------------------------------------------------------------------------------- 138,154 56,834 65,807 ----------------------------------------------------------------------------------- $125,435 $200,903 $264,725 ====================================================================================================================================
90 The differences between the actual income tax expense and the amount computed by applying the statutory federal income tax rate to income before income taxes are as follows:
- ------------------------------------------------------------------------------------------------------------------------------------ Years Ended December 31 (In thousands) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Tax at federal income tax rate $ 159,097 $189,480 $258,580 State and local income taxes, net of federal benefits 5,182 6,222 11,772 Acquisition cost 1,290 19,505 6,301 Goodwill amortization 17,341 11,426 11,428 Tax exempt interest (9,584) (10,289) (10,932) Bank-owned life insurance (19,889) (13,166) (8,306) Restructuring of leveraged lease portfolio (22,853) -0- -0- Other (5,149) (2,275) (4,118) - ------------------------------------------------------------------------------------------------------------------------------------ $125,435 $200,903 $264,725 ====================================================================================================================================
The significant temporary differences that created deferred tax assets and liabilities at December 31 are as follows:
- ------------------------------------------------------------------------------------------------------------------------------------ Years Ended December 31 (In thousands) 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------------ Deferred tax assets: Loan loss reserves $ 148,754 $ 162,175 Employee benefits 7,598 13,933 Acquisition cost -0- 41,879 Accrued expenses 8,307 8,274 Mortgage servicing rights 8,208 1,700 Statement 115 equity adjustment (1,817) 50,789 Federal tax credit carryforwards 25,184 -0- State net operating loss carryforwards 20,095 -0- Other 23,604 10,160 --------------------------------------------------------------------- 239,933 288,910 --------------------------------------------------------------------- Deferred tax liabilities: Leasing activities (548,007) (370,237) Depreciation (12,720) (23,000) Purchase accounting (7,365) (17,680) Deferred loan fees 650 (9,281) Other (16,881) (14,243) --------------------------------------------------------------------- (584,323) (434,441) --------------------------------------------------------------------- Net deferred tax liability $(344,390) $(145,531) ====================================================================================================================================
91 At December 31, 2000, for income tax purposes, AmSouth had federal tax credit carryforwards of $25.2 million, of which $21.0 million are AMT tax credit carryforwards. The AMT tax credit carryforwards have no expiration date. The other federal tax credit carryforwards expire in 2010. AmSouth also had a deferred state tax asset of $20.1 million resulting from net operating loss carryforwards. These carryforwards begin expiring in 2005, with the last one expiring in 2020. There was no valuation allowance recorded in 2000 because it is more likely than not that all deferred tax assets will be realized. Income taxes (refunded)/paid were $(5,927,000), $187,887,000 and $135,324,000 for the years ended December 31, 2000, 1999 and 1998, respectively. Applicable income tax (benefit)/expense of $(35,833,000), $4,283,000 and $6,053,000 on securities gains and losses for the years ended December 31, 2000, 1999 and 1998, respectively, is included in the provision for income taxes. NOTE 21-OTHER NONINTEREST REVENUES AND OTHER NONINTEREST EXPENSES - ------------------------------------------------------------------------------ The components of other noninterest revenues and other noninterest expenses are as follows:
- ----------------------------------------------------------------------------------------------------------------------------- Years Ended December 31 (In thousands) 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------- Other noninterest revenues: Interchange income $ 50,154 $ 46,526 $ 36,411 Bank-owned life insurance policies 48,794 31,161 17,385 Gains on sales of businesses 19,959 8,624 32,687 (Loss)/gains on sales of available-for-sale securities (95,301) 11,392 16,099 Other portfolio (loss)/income (9,966) 9,956 10,217 Mortgage income 18,019 45,027 39,667 Other 94,829 139,314 119,255 ---------------------------------------------------------------- $ 126,488 $ 292,000 $ 271,721 ================================================================ Other noninterest expenses: Postage and office supplies $ 49,721 $ 47,960 $ 48,299 Communications 41,246 36,691 37,720 Amortization of intangibles 37,589 40,305 40,211 Marketing 37,408 42,420 39,905 Other 187,300 220,419 202,467 ---------------------------------------------------------------- $ 353,264 $ 387,795 $ 368,602 =============================================================================================================================
92 NOTE 22-BUSINESS SEGMENT INFORMATION - -------------------------------------------------------------------------------- AmSouth has three reportable segments: Consumer Banking, Commercial Banking, and Wealth Management. Each of these units provides unique products and services to a variety of customer groups and has its own management team. Consumer Banking delivers a full range of financial services to individuals and small businesses. Services include loan products such as residential mortgages, equity lending, credit cards, and loans for automobile and other personal financing needs, and various products designed to meet the credit needs of small businesses. In addition, Consumer Banking offers various deposit products that meet customers' savings and transaction needs. Commercial Banking meets corporate and middle market customers' needs with a comprehensive array of credit, treasury management, international, and capital markets services. Included among these are several specialty services such as real estate finance, asset based lending, commercial leasing, and healthcare banking. Wealth Management is comprised of client fiduciary services and broker/ dealer services, and provides primarily fee-based income. This area includes not only traditional trust services, but also a substantial selection of investment management services including AmSouth's proprietary mutual fund family. Treasury & Other is comprised of balance sheet management activities that include the investment portfolio, nondeposit funding, and off-balance sheet financial instruments. Treasury & Other also includes corporate expenses such as corporate overhead and goodwill amortization. Bank-owned life insurance income is included in Treasury & Other for 2000, 1999 and 1998. As a result of the sale of IFC at the end of the third quarter in 2000, all revenue and expenses of IFC have been reclassified into Treasury & Other from Wealth Management for all periods shown. In addition, Treasury & Other includes the net gains on sale of businesses in 2000, 1999 and 1998 and includes the loss on the dealer securitization, losses on the sales of AHAD loans and the net gains on sales of fixed and other assets for the year 2000. Merger-related costs are included in Treasury & Other for all years shown. Measurement of Segment Profit or Loss and Segment Assets The bank evaluates performance and allocates resources based on profit or loss from operations. The accounting policies of the reportable segments are the same as those described in Note 1 except that AmSouth uses matched maturity transfer pricing to fairly and consistently assign funds costs to assets and earnings credits to liabilities with a corresponding offset in Treasury & Other. AmSouth allocates noninterest expenses based on various activity statistics. AmSouth is disclosing net interest income in lieu of interest income. Performance is assessed primarily on net interest income by the chief operating decision makers. Excluding the internal funding, AmSouth does not have intracompany revenues or expenses. Noninterest expenses are allocated to match revenues. The provision for loan losses for each segment reflects the net charge-offs in each segment. The difference between net charge-offs and the provision is included in Treasury & Other. Additionally, segment income tax expense is calculated using the marginal tax rate. The difference between the marginal and effective tax rate is included in Treasury & Other. Management reviews average assets by segment. Prior years' amounts were restated between segments to consistently reflect the current segment responsibility for certain deposit and funding products associated with the former First American entity. AmSouth operates primarily in the United States; accordingly, geographic distribution of revenue and long-lived assets in other countries is not significant. Revenues from no individual customer exceeded 10 percent of consolidated total revenues. AmSouth's segments are not necessarily comparable with similar information for any other financial institution. 93
- -------------------------------------------------------------------------------------------------------------------------------- Consumer Commercial Wealth Treasury & (In thousands) Banking Banking Management Other Total - -------------------------------------------------------------------------------------------------------------------------------- 2000 Net interest income from external customers $ 435,909 $ 799,757 $ (1,059) $ 144,496 $ 1,379,103 Internal funding 516,064 (387,066) 3,874 (132,872) -0- ------------------------------------------------------------------------------- Net interest income 951,973 412,691 2,815 11,624 1,379,103 Noninterest revenues 322,261 89,249 204,712 53,272 669,494 ------------------------------------------------------------------------------- Total revenues 1,274,234 501,940 207,527 64,896 2,048,597 Provision for loan losses 96,454 27,896 -0- 103,250 227,600 Noninterest expenses 691,058 159,559 145,098 370,720 1,366,435 ------------------------------------------------------------------------------- Income/(loss) before income taxes 486,722 314,485 62,429 (409,074) 454,562 Income taxes 183,088 118,185 23,465 (199,303) 125,435 ------------------------------------------------------------------------------- Segment net income/(loss) $ 303,634 $ 196,300 $ 38,964 $ (209,771) $ 329,127 =============================================================================== Average assets $ 15,516,752 $12,407,911 $ 42,106 $ 13,893,402 $ 41,860,171 ------------------------------------------------------------------------------- 1999 Net interest income from external customer $ 357,541 $ 857,754 $ (807) $ 293,456 $ 1,507,944 Internal funding 605,462 (416,003) 1,407 (190,866) -0- ------------------------------------------------------------------------------- Net interest income 963,003 441,751 600 102,590 1,507,944 Noninterest revenues 334,055 90,481 183,012 240,012 847,560 ------------------------------------------------------------------------------- Total revenues 1,297,058 532,232 183,612 342,602 2,355,504 Provision for loan losses 81,524 21,382 -0- 62,720 165,626 Noninterest expenses 759,736 189,484 127,462 571,825 1,648,507 ------------------------------------------------------------------------------- Income/(loss) before income taxes 455,798 321,366 56,150 (291,943) 541,371 Income taxes 171,495 120,606 21,063 (112,261) 200,903 ------------------------------------------------------------------------------- Segment net income/(loss) $ 284,303 $ 200,760 $ 35,087 $ (179,682) $ 340,468 =============================================================================== Average assets $ 15,011,516 $12,614,240 $ 49,512 $ 14,141,972 $ 41,817,240 ------------------------------------------------------------------------------- 1998 Net interest income from external customers $ 236,757 $ 874,813 $ (2,498) $ 335,212 $ 1,444,284 Internal funding 666,019 (434,328) 4,619 (236,310) -0- ------------------------------------------------------------------------------- Net interest income 902,776 440,485 2,121 98,902 1,444,284 Noninterest revenues 321,544 81,392 164,697 232,221 799,854 ------------------------------------------------------------------------------- Total revenues 1,224,320 521,877 166,818 331,123 2,244,138 Provision for loan losses 59,240 24,399 -0- 15,428 99,067 Noninterest expenses 735,661 184,728 114,536 371,347 1,406,272 ------------------------------------------------------------------------------- Income/(loss) before income taxes 429,419 312,750 52,282 (55,652) 738,799 Income taxes 161,462 117,594 19,658 (33,989) 264,725 ------------------------------------------------------------------------------- Segment net income/(loss) $ 267,957 $ 195,156 $ 32,624 $ (21,663) $ 474,074 =============================================================================== Average assets $ 14,062,287 $11,978,548 $ 40,366 $ 12,759,034 $ 38,840,235 -------------------------------------------------------------------------------------------------------------------------------
94 NOTE 23-SECURITIZATIONS - -------------------------------------------------------------------------------- During 2000, AmSouth sold commercial, residential mortgage and dealer loans to third-party conduits. AmSouth also sold dealer loans and residential mortgage loans in securitization transactions. AmSouth retained servicing responsibilities in all of these sales and securitization transactions. In addition, AmSouth also retained interest in excess interest spreads and in some cases, subordinated interests. In addition to these transactions, AmSouth also engaged in an ongoing program of selling residential mortgage loans to third parties in which no servicing or other interest was retained. During 2000, AmSouth recognized $16,881,000 in gains on sales of residential mortgage loans to conduits, $9,323,000 in gains on sales of dealer loans to conduits, a loss of $18,531,000 on the securitization of dealer loans, and a gain of $131,000 on the securitization of mortgage loans to the FHLMC. For the year 2000, $464,000,000 in residential mortgage loans were sold as part of AmSouth's ongoing mortgage loan sales program and resulted in a net gain of $3,784,000. No gains or losses were recognized on commercial loans sold to third-party conduits nor was any retained interest recorded due to the relatively short life of the commercial loans sold into the conduits (average life of 30 days). The following table summarizes the key assumptions used in the calculation of retained interests and the gain or loss on the sales and securitization transactions during 2000. It also provides the assumptions used in the subsequent valuation of retained interests at year-end, the cash flows received from and paid to third-party conduits and securitization trusts during the year and the sensitivity of the current fair value of residual cash flows to the immediate 10 and 20 percent change in the current assumptions:
- ------------------------------------------------------------------------------------------------------------------------------------ Residential Residential Dealer Mortgage (Dollars in millions) Mortgage Conduit Dealer Conduit Securitization Securitization - ------------------------------------------------------------------------------------------------------------------------------------ VALUATION ASSUMPTIONS AT THE TIME OF THE TRANSACTIONS: Discount rate 15-20% 15% 15% 10% Prepayment rate 9-24% CPR 1 1/2% ABS 1 1/2% ABS 133-300 PSA Weighted average life (years) 4.46 1.70 1.55 4.61 Expected credit losses .22% 1.33% 1.32% N/A CASH FLOW INFORMATION: Proceeds from sales $1,302.0 $1,001.1 $ 917.1 $ 131.6 Servicing fees and retained interests 13.5 11.8 1.6 1.7 VALUATION ASSUMPTIONS AT DECEMBER 31, 2000: Discount rate 15-20% 15% 15% 10% Prepayment rate 9-24% CPR 1 1/2% ABS 1 1/2% ABS 150-600 PSA Weighted average life (years) 4.14 1.41 1.48 4.28 Expected credit losses .18% 1.35% 1.33% N/A RESIDUAL CASH FLOW SENSITIVITY: Fair value of servicing and retained interests at December 31, 2000 $ 27.3 $ 16.0 $ 35.9 $ 1.5 PREPAYMENT SPEED: 10% change (1.1) (0.9) (0.3) (0.07) 20% change (3.0) (1.7) (0.5) (0.13) CREDIT LOSSES: 10% change (0.3) (0.8) (0.9) N/A 20% change (0.5) (1.5) (1.8) N/A - ------------------------------------------------------------------------------------------------------------------------------------
95 This sensitivity test is hypothetical and isolates the potential impact of changes in a single assumption on total fair value. These and other assumptions used in the calculation of fair values may in fact exhibit some correlation (which would potentially magnify the impact of a scenario) or may exhibit some negative correlation (which would potentially have some partial offsetting benefit). Also, changes in assumptions do not provide linear results. Thus, it is not possible to extrapolate the impact of other scenarios from these projections. The following table presents managed loan information on loans which have been securitized or sold to conduits. This information includes the total principal amount outstanding, the portion that has been derecognized and the portion that continues to be recognized in the statement of condition as of December 31, 2000, along with quantitative information about delinquencies and net credit losses (in millions). In addition to the sales of loans discussed above, the following table also includes mortgage loans which were securitized through REMICS in 1998:
- -------------------------------------------------------------------------------------------------------------------------- Residential Other Residential (Dollars in millions) Mortgages Dealer Loans Mortgages Commercial Loans - -------------------------------------------------------------------------------------------------------------------------- Outstanding as of 12/31/00: Loans held in portfolio $1,358 $2,990 $4,656 $ 9,078 Loans securitized/sold 2,651 1,655 -0- 1,812 REMIC (bond portfolio) 151 -0- 267 -0- ------------------------------------------------------------------------------- Total managed loans $4,160 $4,641 $4,923 $10,890 ------------------------------------------------------------------------------- Total delinquencies at 12/31/00 $ 166 $ 148 $ 131 $ 188 Delinquencies as a percent of ending managed loans 3.99% 3.19% 2.65% 1.73% Net credit losses during 2000 $ 1 $ 47 $ 9 $ 45 Net credit losses as a percent of ending managed loans 0.02% 1.04% 0.19% 0.41% - --------------------------------------------------------------------------------------------------------------------------
96 NOTE 24-CONDENSED PARENT COMPANY INFORMATION - --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------- Statement of Condition December 31 (In thousands) 2000 1999 - ----------------------------------------------------------------------------------------------------------- ASSETS Investment in subsidiaries $3,470,807 $3,553,778 Investment in Eurodollars 119,199 159,664 Available-for-sale securities 10,522 58,824 Other assets 13,183 27,418 ------------------------------------------------- $3,613,711 $3,799,684 ================================================= LIABILITIES AND SHAREHOLDERS' EQUITY Commercial paper $ 12,494 $ 8,749 Subordinated debt 573,759 573,448 Other borrowed funds 129,659 129,611 Accrued interest payable and other liabilities 84,392 128,671 ------------------------------------------------- Total liabilities 800,304 840,479 Shareholders' equity 2,813,407 2,959,205 ------------------------------------------------- $3,613,711 $3,799,684 ===========================================================================================================
- ----------------------------------------------------------------------------------------------------------- Statement of Earnings Years Ended December 31 (In thousands) 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------- INCOME Dividends from subsidiaries $ 586,000 $ 308,691 $ 421,856 Interest and other 4,813 18,893 18,004 ---------------------------------------------------- 590,813 327,584 439,860 ---------------------------------------------------- EXPENSES Interest 51,521 46,548 45,066 Other 5,020 66,947 62,004 ---------------------------------------------------- 56,541 113,495 107,070 ---------------------------------------------------- Income before income taxes and equity in undistributed earnings of subsidiaries 534,272 214,089 332,790 Income tax credit 18,805 17,669 29,534 ---------------------------------------------------- Income before equity in earnings of subsidiaries 553,077 231,758 362,324 Equity in undistributed/(dividends in excess of) subsidiaries' annual earnings (223,950) 108,710 111,750 ---------------------------------------------------- NET INCOME $ 329,127 $ 340,468 $ 474,074 ===========================================================================================================
97
- ------------------------------------------------------------------------------------------------------------------------------- Statement of Cash Flows Years Ended December 31 (In thousands) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 329,127 $ 340,468 $ 474,074 Adjustments to reconcile net income to net cash provided by operating activities: Net losses (gains) on sales of available-for-sale securities 4,110 (6,303) (4) Amortization of goodwill 2,385 2,406 2,386 Other amortization and depreciation 732 953 9,002 Net decrease (increase) in accrued interest receivable and other assets 12,875 80,259 (26,563) Net decrease (increase) in accrued expenses and other liabilities (47,655) 52,205 (17,170) Dividends in excess of (equity in undistributed) subsidiaries' annual earnings 223,950 (108,710) (111,750) Provision for deferred income taxes -0- 707 2,277 Other operating activities, net -0- (294) (355) ---------------------------------------------------------------- Net cash provided by operating activities 525,524 361,691 331,897 ---------------------------------------------------------------- INVESTING ACTIVITIES Net decrease (increase) in available-for-sale securities 49,241 (34,230) (38,342) Net decrease (increase) in other interest-earning assets 40,465 (159,664) -0- Net sales of premises and equipment -0- -0- 5,751 Net decrease (increase) in loans -0- 390 (227) Net decrease in securities purchased under agreements to resell -0- 61,315 30,359 Net cash provided by acquisitions, liquidations and funding of subsidiaries -0- -0- 8,268 ---------------------------------------------------------------- Net cash provided (used) by investing activities 89,706 (132,189) 5,809 ---------------------------------------------------------------- FINANCING ACTIVITIES Net increase (decrease) in commercial paper 3,745 (1,290) 1,653 Net decrease in other borrowed funds -0- (6,389) (230) Issuance of long-term debt -0- 174,539 -0- Payments for maturing long-term debt -0- (100,000) -0- Cash dividends paid (305,383) (183,848) (195,560) Proceeds from employee stock plans and dividend reinvestment plan 62,066 53,564 45,943 Purchases of common stock (375,822) (166,475) (201,898) ---------------------------------------------------------------- Net cash used by financing activities (615,394) (229,899) (350,092) ---------------------------------------------------------------- Decrease in cash (164) (397) (12,386) Cash at beginning of year 622 1,019 13,405 ================================================================ Cash at end of year $ 458 $ 622 $ 1,019 ================================================================
98 NOTE 25-QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) - ------------------------------------------------------------------------------ Selected quarterly results of operations for the four quarters ended December 31 are as follows:
- ----------------------------------------------------------------------------------------------------------------------------------- 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------------- (In thousands except Fourth Third Second First Fourth Third Second First per share data) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter - ----------------------------------------------------------------------------------------------------------------------------------- Interest income $720,097 $782,670 $784,961 $782,698 $775,339 $749,009 $714,438 $693,962 Interest expense 399,981 444,892 432,325 414,125 394,079 368,662 336,889 325,173 Net interest income 320,116 337,778 352,636 368,573 381,260 380,347 377,549 368,789 Provision for loan losses 55,600 123,800 22,800 25,400 97,700 30,604 18,589 18,734 Net gains/(losses) on sales of available-for- sale securities 2,979 (104,749) 3,203 3,266 5,964 (5,605) 4,893 6,140 Income/(loss) before income taxes 179,738 (72,116) 139,087 207,853 (81,043) 205,768 204,570 212,076 Net income/(loss) 126,559 (36,266) 99,897 138,937 (62,554) 134,645 131,581 136,796 Earnings/(loss) per common share .34 (.10) .26 .35 (.16) .35 .34 .35 Diluted earnings/(loss) per common share .34 (.10) .26 .35 (.16) .34 .33 .34 Cash dividends declared per common share .21 .20 .20 .20 .20 .17 .17 .17 Market price range: High 15.81 19.00 19.88 18.75 25.81 23.88 32.33 33.92 Low 11.88 12.06 14.31 12.75 18.94 21.31 21.88 27.92 - -----------------------------------------------------------------------------------------------------------------------------------
Note: Quarterly amounts may not add to year-to-date amounts due to rounding. NOTE 26-FAIR VALUE OF FINANCIAL INSTRUMENTS - -------------------------------------------------------------------------------- For purposes of this disclosure, the estimated fair value of financial instruments with immediate and shorter-term maturities (generally 90 days or less) is assumed to be the same as the recorded book value. These instruments include the consolidated statement of condition lines captioned cash and due from banks, time deposits in other banks, federal funds sold and securities purchased under agreements to resell, other interest-earning assets, customers' acceptance liability, federal funds purchased and securities sold under agreements to repurchase, other borrowed funds, and acceptances outstanding. 99 The carrying amount and estimated fair value of other financial instruments at December 31 are summarized as follows:
- ------------------------------------------------------------------------------------------------------------------------------- 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------- Carrying Estimated Carrying Estimated (In thousands) Amount Fair Value Amount Fair Value - ------------------------------------------------------------------------------------------------------------------------------- Financial assets: Net loans $24,236,001 $24,959,625 $25,912,080 $25,919,592 Loans held for sale 92,811 92,811 172,941 172,941 ----------------------------------------------------------------------------- Financial liabilities: Deposits 26,623,304 26,660,502 27,912,443 27,955,939 Long-term FHLB advances 4,898,308 5,092,114 4,612,686 4,593,037 Other long-term debt 985,097 948,221 990,800 933,339 ----------------------------------------------------------------------------- Off-balance sheet: Off-balance sheet financial instruments (net receivable position) -- 24,941 -- (36,407) Commitments to extend credit and standby letters of credit -- (8,879) -- (6,153) - -------------------------------------------------------------------------------------------------------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments" (Statement 107), requires the disclosure of estimated fair values for all financial instruments, both assets and liabilities on and off-balance sheet, for which it is practicable to estimate their value along with pertinent information on those financial instruments for which such values are not available. Fair value estimates are made at a specific point in time and are based on relevant market information which is continuously changing. Because no quoted market prices exist for a significant portion of AmSouth's financial instruments, fair values for such instruments are based on management's assumptions with respect to future economic conditions, estimated discount rates, estimates of the amount and timing of future cash flows, expected loss experience, and other factors. These estimates are subjective in nature involving uncertainties and matters of significant judgment; therefore, they cannot be determined with precision. Changes in the assumptions could significantly affect the estimates. Statement 107 fair value estimates include certain on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, AmSouth has a substantial trust department that contributes net fee income annually. The trust department is not considered a financial instrument, and its value has not been incorporated into the fair value estimates. Other significant assets and liabilities that are not considered financial assets or liabilities include the mortgage banking operation, brokerage network, premises and equipment, core deposit 100 intangibles, and goodwill. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates. As a result, the Statement 107 fair value disclosures should not be considered an indication of the fair value of the company taken as a whole. The following methods and assumptions were used by AmSouth in estimating its fair value disclosures for financial instruments: Loans The fair values of variable rate loans that reprice frequently and have no significant change in credit risk are assumed to approximate carrying amounts. For credit card loans and equity lines of credit, the carrying value reduced by an estimate of credit losses inherent in the portfolio is a reasonable estimate of fair value. The fair values for other loans (e.g., commercial and industrial, commercial real estate, certain mortgage loans, and consumer loans) are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality and estimates of maturity based on AmSouth's historical experience. The carrying amount of accrued interest receivable approximates its fair value. Securities and Loans Held for Sale Fair values for securities and loans held for sale are based on quoted market prices, where available. Where quoted market prices are not available, fair values are based on quoted market prices of similar instruments, adjusted for any significant differences between the quoted instruments and the instruments being valued. Commitments to Extend Credit and Standby Letters of Credit The fair value of commitments to extend credit is estimated based on the amount of unamortized deferred loan commitment fees. The fair value of letters of credit is based on the amount of unearned fees plus the estimated cost to terminate the letters of credit. Off-balance Sheet Instruments The fair value of interest rate swaps, financial futures and interest rate caps and floors are obtained from AmSouth's in-house pricing system and compared to dealer quotes for reasonableness. These values represent the estimated amount the company would receive or pay to terminate the contracts or agreements, taking into account current interest rates and, when appropriate, the current creditworthiness of the counterparties. Deposit Liabilities The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, savings accounts, and money market and interest-bearing checking accounts is, by definition, equal to the amount payable on demand (carrying amount). The fair values for variable rate fixed- term money market accounts and certificates of deposit approximate their carrying amounts. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates of deposit to a schedule of aggregated expected monthly maturities on time deposits. Long-term Borrowings The fair values of long-term borrowings (other than deposits) are estimated using discounted cash flow analyses, based on AmSouth's current incremental borrowing rates for similar types of borrowing arrangements. 101 EX-21 4 0004.txt LIST OF SUBSIDIARIES EXHIBIT 21 AMSOUTH BANCORPORATION LIST OF SUBSIDIARIES AT DECEMBER 31, 2000 The following is a list of all subsidiaries of AmSouth Bancorporation and the jurisdiction in which they were organized. Each subsidiary does business under its own name. Name Jurisdiction Where Organized FIRST AMERICAN BUSINESS CAPITAL, INC. Tennessee FIRST AMERICAN ENTERPRISES, INC. Tennessee AMSOUTH BANK Alabama AmSouth Auto Receivables LLC Delaware AmSouth Capital Corporation Delaware AmSouth Finance Corporation Alabama AmSouth Leasing Corporation Alabama A-F Leasing, Ltd. Alabama AmSouth Leasing, Ltd. Alabama A-F Leasing, LLC Alabama AmSouth Insurance Agency, Inc. Florida AmSouth Investment Services, Inc. Alabama AmSouth Investment Services, Inc. of Mississippi Mississippi AmSouth Investment Services, Inc. of Virginia Virginia AmSouth Riverchase, Inc. Alabama Cahaba Holdings, Inc. Delaware Cahaba Corporation Delaware Cahaba International, Inc. Delaware Cahaba International, Ltd. Bermuda Commercial National Investment Services, Inc. Louisiana Fifth Avenue Realty Company (unincorporated joint venture) First American Network, Inc. Tennessee First AmTenn Life Insurance Company Mississippi FirstGulf Insurance Agency, Inc. Alabama Five Points Capital Advisors, Inc. Alabama FMLS, Inc. Tennessee Fortune Mortgage Corporation Florida GTC Title, Inc. Alabama MCC Holdings, Inc. Alabama Meriwether Capital Corporation Virginia Highland Rim Title Company Tennessee IFC Insurance Agency, Inc. Tennessee National Properties and Mining Company, Inc. Delaware OakBrook Investments, LLC Delaware Rockhaven Asset Management, LLC Delaware Sawgrass Asset Management, LLC Delaware Service Mortgage and Insurance Agency, Inc. Florida The SSI Group, Inc. Florida EX-23.A 5 0005.txt CONSENT OF ERNST & YOUNG LLP Exhibit 23-a - Consent of Independent Auditors We consent to the incorporation by reference of our report dated January 31, 2001, with respect to the consolidated financial statements of AmSouth Bancorporation and subsidiaries incorporated by reference in this Annual Report (Form 10-K) for the year ended December 31, 2000 in the following Registration Statements and in the related prospectuses: 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. /s/ ERNST & YOUNG LLP Birmingham, Alabama March 26, 2001 EX-23.B 6 0006.txt CONSENT OF KPMG, LLP Exhibit 23-b - Consent of Independent Auditors The Board of Directors AmSouth Bancorporation: We consent to incorporation by reference in the following registration statements of AmSouth Bancorporation of our report dated January 21, 1999, relating to the consolidated income statement, changes in shareholders' equity, and cash flows of First American Corporation and subsidiaries for the year ended December 31, 1998, which report appears in the December 31, 2000, annual report on Form 10-K of AmSouth Bancorporation. 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 Bankshares, 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. /s/ KPMG LLP Nashville, Tennessee March 26, 2001 EX-24 7 0007.txt POWERS OF ATTORNEY Exhibit 24 DIRECTOR'S POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of AmSouth Bancorporation, a Delaware corporation ("Company"), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint Stephen A. Yoder, T. Kurt Miller or Carl L. Gorday and any of them, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2000 to be filed by the Company with the Securities and Exchange Commission, and, further, to execute and sign any and all amendments to such Form 10-K and any and all other documents in connection therewith, and to cause any and all such documents to be filed with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorney-in- fact and agent which he may lawfully do in the premises or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 1st day of March, 2001. /s/ J. Harold Chandler ---------------------- J. HAROLD CHANDLER DIRECTOR'S POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of AmSouth Bancorporation, a Delaware corporation ("Company"), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint Stephen A. Yoder, T. Kurt Miller or Carl L. Gorday and any of them, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2000 to be filed by the Company with the Securities and Exchange Commission, and, further, to execute and sign any and all amendments to such Form 10-K and any and all other documents in connection therewith, and to cause any and all such documents to be filed with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorney-in- fact and agent which he may lawfully do in the premises or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 1st day of March, 2001. /s/ James E. Dalton ------------------- JAMES E. DALTON, JR. DIRECTOR'S POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of AmSouth Bancorporation, a Delaware corporation ("Company"), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint Stephen A. Yoder, T. Kurt Miller or Carl L. Gorday and any of them, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2000 to be filed by the Company with the Securities and Exchange Commission, and, further, to execute and sign any and all amendments to such Form 10-K and any and all other documents in connection therewith, and to cause any and all such documents to be filed with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorney-in- fact and agent which he may lawfully do in the premises or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 27th day of March, 2001. /s/ Earnest W. Deavenport, Jr. ------------------------------ EARNEST W. DEAVENPORT, JR. DIRECTOR'S POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of AmSouth Bancorporation, a Delaware corporation ("Company"), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint Stephen A. Yoder, T. Kurt Miller or Carl L. Gorday and any of them, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2000 to be filed by the Company with the Securities and Exchange Commission, and, further, to execute and sign any and all amendments to such Form 10-K and any and all other documents in connection therewith, and to cause any and all such documents to be filed with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorney-in- fact and agent which he may lawfully do in the premises or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 1st day of March, 2001. /s/ Rodney C. Gilbert --------------------- RODNEY C. GILBERT DIRECTOR'S POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of AmSouth Bancorporation, a Delaware corporation ("Company"), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint Stephen A. Yoder, T. Kurt Miller or Carl L. Gorday and any of them, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2000 to be filed by the Company with the Securities and Exchange Commission, and, further, to execute and sign any and all amendments to such Form 10-K and any and all other documents in connection therewith, and to cause any and all such documents to be filed with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorney-in- fact and agent which he may lawfully do in the premises or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 1st day of March, 2001. /s/ Elmer B. Harris ------------------- ELMER B. HARRIS DIRECTOR'S POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of AmSouth Bancorporation, a Delaware corporation ("Company"), by her execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint Stephen A. Yoder, T. Kurt Miller or Carl L. Gorday and any of them, her true and lawful attorney-in-fact and agent, for her and in her name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2000 to be filed by the Company with the Securities and Exchange Commission, and, further, to execute and sign any and all amendments to such Form 10-K and any and all other documents in connection therewith, and to cause any and all such documents to be filed with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorney-in- fact and agent which she may lawfully do in the premises or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set her hand this 1st day of March, 2001. /s/ Martha R. Ingram -------------------- MARTHA R. INGRAM DIRECTOR'S POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of AmSouth Bancorporation, a Delaware corporation ("Company"), by her execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint Stephen A. Yoder, T. Kurt Miller or Carl L. Gorday and any of them, her true and lawful attorney-in-fact and agent, for her and in her name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2000 to be filed by the Company with the Securities and Exchange Commission, and, further, to execute and sign any and all amendments to such Form 10-K and any and all other documents in connection therewith, and to cause any and all such documents to be filed with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorney-in- fact and agent which she may lawfully do in the premises or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set her hand this 1st day of March, 2001. /s/ Victoria B. Jackson ----------------------- VICTORIA B. JACKSON DIRECTOR'S POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of AmSouth Bancorporation, a Delaware corporation ("Company"), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint Stephen A. Yoder, T. Kurt Miller or Carl L. Gorday and any of them, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2000 to be filed by the Company with the Securities and Exchange Commission, and, further, to execute and sign any and all amendments to such Form 10-K and any and all other documents in connection therewith, and to cause any and all such documents to be filed with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorney-in- fact and agent which he may lawfully do in the premises or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 1st day of March, 2001. /s/ Ronald L. Kuehn, Jr. ------------------------ RONALD L. KUEHN, Jr. DIRECTOR'S POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of AmSouth Bancorporation, a Delaware corporation ("Company"), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint Stephen A. Yoder, T. Kurt Miller or Carl L. Gorday and any of them, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2000 to be filed by the Company with the Securities and Exchange Commission, and, further, to execute and sign any and all amendments to such Form 10-K and any and all other documents in connection therewith, and to cause any and all such documents to be filed with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorney-in- fact and agent which he may lawfully do in the premises or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 1st day of March, 2001. /s/ James R. Malone ------------------- JAMES R. MALONE DIRECTOR'S POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of AmSouth Bancorporation, a Delaware corporation ("Company"), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint Stephen A. Yoder, T. Kurt Miller or Carl L. Gorday and any of them, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2000 to be filed by the Company with the Securities and Exchange Commission, and, further, to execute and sign any and all amendments to such Form 10-K and any and all other documents in connection therewith, and to cause any and all such documents to be filed with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorney-in- fact and agent which he may lawfully do in the premises or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 1st day of March, 2001. /s/ Claude B. Nielsen --------------------- CLAUDE B. NIELSEN DIRECTOR'S POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of AmSouth Bancorporation, a Delaware corporation ("Company"), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint Stephen A. Yoder, T. Kurt Miller or Carl L. Gorday and any of them, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2000 to be filed by the Company with the Securities and Exchange Commission, and, further, to execute and sign any and all amendments to such Form 10-K and any and all other documents in connection therewith, and to cause any and all such documents to be filed with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorney-in- fact and agent which he may lawfully do in the premises or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 1st day of March, 2001. /s/ John N. Palmer ------------------ JOHN N. PALMER DIRECTOR'S POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of AmSouth Bancorporation, a Delaware corporation ("Company"), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint Stephen A. Yoder, T. Kurt Miller or Carl L. Gorday and any of them, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2000 to be filed by the Company with the Securities and Exchange Commission, and, further, to execute and sign any and all amendments to such Form 10-K and any and all other documents in connection therewith, and to cause any and all such documents to be filed with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorney-in- fact and agent which he may lawfully do in the premises or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 1st day of March, 2001. /s/ Benjamin F. Payton ---------------------- BENJAMIN F. PAYTON -----END PRIVACY-ENHANCED MESSAGE-----