-----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, Bz3R2xa1MHRO063Q7e//MWGoZpIH2G2yRsLCW0VK7fNOFNSqyaSmV63fMPY0AQ1f zVjGi24Lh93dNvQm6B/A/w== 0000931763-01-501472.txt : 20010815 0000931763-01-501472.hdr.sgml : 20010815 ACCESSION NUMBER: 0000931763-01-501472 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMSOUTH BANCORPORATION CENTRAL INDEX KEY: 0000003133 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 630591257 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07476 FILM NUMBER: 1711231 BUSINESS ADDRESS: STREET 1: 1900 FIFTH AVENUE NORTH STREET 2: AMSOUTH SONAT TOWER CITY: BIRMINGHAM STATE: AL ZIP: 35203 BUSINESS PHONE: 2053207151 MAIL ADDRESS: STREET 1: 1900 FIFTH AVENUE STREET 2: AMSOUTH SONAT TOWER CITY: BRIMINGHAM STATE: AL ZIP: 35203 FORMER COMPANY: FORMER CONFORMED NAME: ALABAMA BANCORPORATION DATE OF NAME CHANGE: 19810527 FORMER COMPANY: FORMER CONFORMED NAME: FIRST BIRMINGHAM CORP DATE OF NAME CHANGE: 19741107 10-Q 1 d10q.txt FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended June 30, 2001 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 Identification No.) Incorporation or Organization) AmSouth--Sonat Tower 35203 1900 Fifth Avenue North (Zip Code) Birmingham, Alabama (Address of principal executive offices) (205) 320-7151 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] As of July 31, 2001, AmSouth Bancorporation had 368,294,308 shares of common stock outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AMSOUTH BANCORPORATION FORM 10-Q INDEX
Page ---- Part I. Financial Information Item 1. Financial Statements (Unaudited) Consolidated Statement of Condition--June 30, 2001, December 31, 2000, and June 30, 2000............................. 3 Consolidated Statement of Earnings--Three months and six months ended June 30, 2001 and 2000.......................... 4 Consolidated Statement of Shareholders' Equity--Six months ended June 30, 2001.............................................. 5 Consolidated Statement of Cash Flows--Six months ended June 30, 2001 and 2000........................................... 6 Notes to Consolidated Financial Statements........................ 7 Independent Accountants' Review Report............................ 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 14 Item 3. Quantitative and Qualitative Disclosures About Market Rate Risk......................................................... 26 Part II. Other Information Item 1. Legal Proceedings............................................. 26 Item 4. Submission of Matters to a Vote of Security Holders........... 26 Item 6. Exhibits and Reports on Form 8-K.............................. 27 Signatures................................................................ 28 Exhibit Index............................................................. 29
Forward-Looking Statements. Statements made in this report that 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. Factors that could cause future results to vary from current management expectations include, but are not limited to: 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 this report. AmSouth 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. 2 PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) AMSOUTH BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CONDITION (Unaudited)
June 30 December 31 June 30 2001 2000 2000 ----------- ----------- ----------- (In thousands) ASSETS Cash and due from banks................. $ 1,115,681 $ 1,276,431 $ 1,529,787 Federal funds sold and securities purchased under agreements to resell... 1,015,400 2,155,665 87,351 Trading securities...................... 13,538 11,942 34,090 Available-for-sale securities........... 4,503,894 1,908,917 5,935,980 Held-to-maturity securities (market value of $4,582,237, $6,729,880 and $6,726,831, respectively).............. 4,508,527 6,650,439 6,932,616 Loans held for sale..................... 231,343 92,811 144,462 Loans................................... 25,202,042 25,088,186 25,938,197 Less: Allowance for loan losses......... 380,663 380,434 346,030 Unearned income................... 461,618 471,751 348,787 ----------- ----------- ----------- Net loans.......................... 24,359,761 24,236,001 25,243,380 Other interest-earning assets........... 54,422 61,060 36,329 Premises and equipment, net............. 644,890 634,201 635,877 Customers' acceptance liability......... 3,083 1,418 3,474 Accrued interest receivable and other assets................................. 1,996,684 1,907,093 2,012,720 ----------- ----------- ----------- $38,447,223 $38,935,978 $42,596,066 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits and interest-bearing liabilities: Deposits: Noninterest-bearing demand........... $ 4,738,023 $ 4,934,466 $ 4,988,178 Interest-bearing demand.............. 9,819,838 9,579,868 9,600,304 Savings.............................. 1,212,610 1,212,652 1,384,274 Time................................. 7,675,598 7,841,567 7,655,930 Foreign time......................... 252,860 503,414 1,441,561 Certificates of deposit of $100,000 or more............................. 2,285,972 2,551,337 2,828,671 ----------- ----------- ----------- Total deposits..................... 25,984,901 26,623,304 27,898,918 Federal funds purchased and securities sold under agreements to repurchase... 2,131,079 2,320,264 3,685,232 Other borrowed funds................... 147,809 536,848 1,605,411 Long-term Federal Home Loan Bank advances.............................. 5,177,955 4,898,308 4,905,659 Other long-term debt................... 992,053 985,097 980,808 ----------- ----------- ----------- Total deposits and interest-bearing liabilities....................... 34,433,797 35,363,821 39,076,028 Acceptances outstanding................. 3,083 1,418 3,474 Accrued expenses and other liabilities.. 1,102,892 757,332 695,613 ----------- ----------- ----------- Total liabilities.................. 35,539,772 36,122,571 39,775,115 ----------- ----------- ----------- Shareholders' equity: Preferred stock--no par value: Authorized--2,000,000 shares; Issued and outstanding--none............... -0- -0- -0- Common stock--par value $1 a share: Authorized--750,000,000 shares; Issued--416,939,073, 416,941,331 and 416,948,890 shares, respectively.... 416,939 416,941 416,949 Capital surplus........................ 691,798 691,677 690,953 Retained earnings...................... 2,563,007 2,466,048 2,542,327 Cost of common stock in treasury-- 48,095,098, 43,134,387 and 38,092,716 shares, respectively.................. (738,183) (651,328) (571,624) Deferred compensation on restricted stock................................. (18,134) (2,381) (4,369) Accumulated other comprehensive loss... (7,976) (107,550) (253,285) ----------- ----------- ----------- Total shareholders' equity......... 2,907,451 2,813,407 2,820,951 ----------- ----------- ----------- $38,447,223 $38,935,978 $42,596,066 =========== =========== ===========
See notes to consolidated financial statements. 3 AMSOUTH BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS (Unaudited)
Six Months Three Months Ended June 30 Ended June 30 --------------------- ----------------- 2001 2000 2001 2000 ---------- ---------- -------- -------- (In thousands except per share data) INTEREST INCOME Loans................................. $1,027,944 $1,129,647 $502,490 $567,340 Available-for-sale securities......... 155,905 200,053 83,483 99,438 Held-to-maturity securities........... 147,723 229,498 72,897 114,443 Trading securities.................... 136 1,489 128 746 Loans held for sale................... 9,502 4,284 7,539 1,680 Federal funds sold and securities purchased under agreements to resell............................... 35,272 1,834 10,827 917 Other interest-earning assets......... 1,916 854 1,217 397 ---------- ---------- -------- -------- Total interest income.............. 1,378,398 1,567,659 678,581 784,961 ---------- ---------- -------- -------- INTEREST EXPENSE Interest-bearing demand deposits...... 155,668 151,603 72,061 79,878 Savings deposits...................... 9,550 26,155 4,641 9,566 Time deposits......................... 227,124 206,928 110,539 105,684 Foreign time deposits................. 6,231 39,098 2,434 21,341 Certificates of deposit of $100,000 or more................................. 72,549 79,004 34,082 40,744 Federal funds purchased and securities sold under agreements to repurchase.. 48,985 102,486 21,368 51,032 Other borrowed funds.................. 6,726 59,684 2,218 33,073 Long-term Federal Home Loan Bank advances............................. 148,050 148,052 73,695 74,096 Other long-term debt.................. 30,298 33,440 14,169 16,911 ---------- ---------- -------- -------- Total interest expense............. 705,181 846,450 335,207 432,325 ---------- ---------- -------- -------- NET INTEREST INCOME................... 673,217 721,209 343,374 352,636 Provision for loan losses............. 84,300 48,200 46,100 22,800 ---------- ---------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES...................... 588,917 673,009 297,274 329,836 ---------- ---------- -------- -------- NONINTEREST REVENUES Service charges on deposit accounts... 126,440 113,686 66,569 56,833 Trust income.......................... 57,088 56,552 28,209 29,067 Consumer investment services income... 46,103 121,591 22,431 56,964 Bank owned life insurance policies.... 27,434 24,429 13,353 12,211 Interchange income.................... 27,081 24,947 14,035 12,932 Mortgage income....................... 11,466 21,622 6,567 11,555 Portfolio income...................... 6,295 8,075 3,352 3,946 Gains on sales of businesses.......... -0- 538 -0- 538 Other noninterest revenues............ 68,041 68,022 33,131 35,379 ---------- ---------- -------- -------- Total noninterest revenues......... 369,948 439,462 187,647 219,425 ---------- ---------- -------- -------- NONINTEREST EXPENSES Salaries and employee benefits........ 289,776 295,551 148,044 144,968 Equipment expense..................... 60,509 63,309 30,213 31,129 Net occupancy expense................. 55,680 58,048 27,867 28,099 Postage and office supplies........... 24,199 25,705 11,290 13,394 Communications expense................ 21,171 20,027 10,893 10,467 Amortization of intangibles........... 17,062 19,546 8,545 9,589 Marketing expense..................... 17,083 20,978 8,576 8,985 Subscribers' commissions.............. -0- 57,879 -0- 27,285 Merger-related costs.................. -0- 110,178 -0- 88,224 Other noninterest expenses............ 94,602 94,310 46,587 48,034 ---------- ---------- -------- -------- Total noninterest expenses......... 580,082 765,531 292,015 410,174 ---------- ---------- -------- -------- INCOME BEFORE INCOME TAXES............ 378,783 346,940 192,906 139,087 Income taxes.......................... 119,051 108,106 59,385 39,190 ---------- ---------- -------- -------- NET INCOME......................... $ 259,732 $ 238,834 $133,521 $ 99,897 ========== ========== ======== ======== Average common shares outstanding..... 370,457 389,138 368,688 386,682 Earnings per common share............. $ 0.70 $ 0.61 $ 0.36 $ 0.26 Diluted average common shares outstanding.......................... 373,695 392,035 372,464 389,571 Diluted earnings per common share..... $ 0.70 $ 0.61 $ 0.36 $ 0.26
See notes to consolidated financial statements. 4 AMSOUTH BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited)
Deferred Compensation Accumulated on Other Common Capital Retained Treasury Restricted Comprehensive Stock Surplus Earnings Stock Stock Loss Total -------- -------- ---------- --------- ------------ ------------- ---------- (In thousands) BALANCE AT JANUARY 1, 2001............ $416,941 $691,677 $2,466,048 $(651,328) $ (2,381) $(107,550) $2,813,407 Comprehensive income: Net income........................... -0- -0- 259,732 -0- -0- -0- 259,732 Other comprehensive income, net of tax: Cumulative effect of accounting change (net of $6,324 tax expense)............................ -0- -0- -0- -0- -0- 32,262 32,262 Change in unrealized gains on derivative instruments (net of $3,840 tax expense)................. -0- -0- -0- -0- -0- 7,131 7,131 Changes in unrealized gains and losses on available-for-sale securities, net of reclassification adjustment (net of $32,299 tax expense)............................ -0- -0- -0- -0- -0- 60,181 60,181 ---------- Comprehensive income 359,306 Cash dividends declared............... -0- -0- (159,173) -0- -0- -0- (159,173) Common stock transactions: Purchase of common stock............. -0- -0- -0- (129,406) -0- -0- (129,406) Employee stock plans................. (2) 46 (3,256) 36,789 (15,753) -0- 17,824 Dividend reinvestment plan........... -0- 75 (344) 5,762 -0- -0- 5,493 -------- -------- ---------- --------- -------- --------- ---------- BALANCE AT JUNE 30, 2001.............. $416,939 $691,798 $2,563,007 $(738,183) $(18,134) $ (7,976) $2,907,451 ======== ======== ========== ========= ======== ========= ========== Disclosure of reclassification amount: Unrealized holding gains on available- for-sale securities arising during the period........................... $ 63,428 Less: Reclassification adjustment for gains realized in net income......... 3,247 --------- Net unrealized gains on available-for- sale securities, net of tax.......... $ 60,181 ========= Unrealized holding gains on derivatives arising during the period............................... $ 10,155 Less: Reclassification adjustment for gains realized in net income......... 3,024 --------- Net unrealized gains on derivatives, net of tax........................... $ 7,131 =========
See notes to consolidated financial statements. 5 AMSOUTH BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Six Months Ended June 30 ------------------------ 2001 2000 ----------- ----------- (In thousands) OPERATING ACTIVITIES Net income.......................................... $ 259,732 $ 238,834 Adjustments to reconcile net income to net cash provided by operating activities:.................. Provision for loan losses......................... 84,300 48,200 Depreciation and amortization of premises and equipment........................................ 43,699 43,377 Amortization of premiums and discounts on held-to- maturity securities and available-for-sale securities....................................... (9,011) 1,785 Noncash portion of merger-related costs........... -0- 67,052 Net gain on branch sale........................... -0- (7,668) Net (increase) decrease in loans held for sale.... (138,532) 26,720 Net decrease in trading securities................ 7,766 17,387 Net gains on sales of available-for-sale securities....................................... (5,203) (6,469) Gains on sales of loans to dealer conduits........ -0- (9,323) Gains on sales of loans to mortgage conduits...... -0- (15,307) Net loss on loans held for accelerated disposition...................................... -0- 1,759 Net increase in accrued interest receivable and other assets..................................... (48,927) (173,728) Net increase (decrease) in accrued expenses and other liabilities................................ 57,806 (79,348) Provision for deferred income taxes............... 100,765 105,600 Amortization of intangible assets................. 17,039 19,480 Other operating activities, net................... 20,650 13,676 ----------- ----------- Net cash provided by operating activities........ 390,084 292,027 ----------- ----------- INVESTING ACTIVITIES Proceeds from maturities and prepayments of available-for-sale securities...................... 607,453 281,358 Proceeds from sales of available-for-sale securities......................................... 218,807 384,701 Purchases of available-for-sale securities.......... (1,176,736) (644,889) Proceeds from maturities, prepayments and calls of held-to-maturity securities........................ 656,032 487,467 Purchases of held-to-maturity securities............ (502,515) (338,491) Net decrease in federal funds sold and securities purchased under agreements to resell............... 1,140,265 45,332 Net decrease (increase) in other interest-earning assets............................................. 6,638 (15,141) Net increase in loans, excluding dealer securitization and mortgage and dealer conduits sales.............................................. (244,161) (1,542,295) Proceeds from sales of loans to dealer conduits..... -0- 1,001,106 Proceeds from sales of loans to mortgage conduits... -0- 999,288 Net purchases of premises and equipment............. (54,388) (14,791) Net cash from sales of branches, business operations, subsidiaries and other assets.......... -0- (77,053) ----------- ----------- Net cash provided by investing activities........ 651,395 566,592 ----------- ----------- FINANCING ACTIVITIES Net (decrease) increase in deposits................. (638,403) 213,837 Net decrease in federal funds purchased and securities sold under agreements to repurchase..... (189,185) (410,515) Net decrease in other borrowed funds................ (389,039) (530,309) Issuance of long-term Federal Home Loan Bank advances and other long-term debt.................. 600,013 4,175,000 Payments for maturing long-term debt................ (320,366) (3,890,417) Cash dividends paid................................. (157,269) (225,336) Proceeds from employee stock plans and dividend reinvestment plan.................................. 21,426 27,515 Purchase of common stock............................ (129,406) (251,092) ----------- ----------- Net cash used for financing activities........... (1,202,229) (891,317) ----------- ----------- Decrease in cash and cash equivalents............... (160,750) (32,698) Cash and cash equivalents at beginning of period.... 1,276,431 1,562,485 ----------- ----------- Cash and cash equivalents at end of period.......... $ 1,115,681 $ 1,529,787 =========== ===========
See notes to consolidated financial statements. 6 AMSOUTH BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Six Months Ended June 30, 2001 and 2000 General--The consolidated financial statements conform to accounting principles generally accepted in the United States. The accompanying interim financial statements are unaudited; however, in the opinion of management, all adjustments necessary for the fair presentation of the consolidated financial statements have been included. All such adjustments are of a normal recurring nature. Certain amounts in the prior year's financial statements have been reclassified to conform with the 2001 presentation. These reclassifications had no effect on net income. The notes included herein should be read in conjunction with the notes to consolidated financial statements included in AmSouth Bancorporation's (AmSouth) 2000 annual report on Form 10-K. Accounting Changes--Effective January 1, 2001, AmSouth adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and for Hedging Activities," (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, of which $2,031,000 is expected to be reclassified into earnings during 2001 due to the receipt of variable interest on its hedged variable rate loans. The impact to net income of adopting Statement 133 was immaterial. AmSouth also recorded an 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 133. The transition amounts were determined based on the interpretive guidance issued by the Financial Accounting Standards Board (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, except for certain paragraphs related to the isolation standards for financial institutions subject to receivership by the FDIC or other affected entities. For these entities, Statement 140's isolation standards will be effective for transfers of financial assets occurring after December 31, 2001. Therefore, affected institutions will have until December 31, 2001, to modify documents establishing securitization structures to comply with the new isolation standards. AmSouth is reviewing its conduit and securitization structures under this new guidance and plans to make any necessary revisions in the structure of these transactions to ensure these sales comply with the new guidance. The expanded disclosures about securitizations and collateral are effective for fiscal years ending after December 15, 2000. AmSouth has adopted the disclosure requirements and does not expect the remaining provisions of Statement 140 to have a material impact on its financial condition or results of operations. In July 2001, the FASB issued Statement No. 141 (Statement 141), "Business Combinations", and Statement No. 142 (Statement 142), "Goodwill and Other Intangible Assets". Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Statement 141 also specifies the criteria for intangible assets acquired in a purchase method business combination to be recognized and reported apart from goodwill. Statement 142 will require goodwill and intangible assets with indefinite useful lives to no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 will also require intangible assets with definite 7 useful lives to be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with the FASB's Statement No. 121 (Statement 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". AmSouth is required to adopt the provisions of Statement 141 immediately and Statement 142 effective January 1, 2002. Furthermore, any goodwill and any intangible assets determined to have an indefinite useful life that are acquired in a purchase business combination completed after June 30, 2001 will not be amortized, but will continue to be evaluated for impairment in accordance with the appropriate pre-Statement 142 accounting literature. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 will continue to be amortized prior to the adoption of Statement 142. Statement 141 will require upon adoption of Statement 142, that AmSouth evaluate its existing intangible assets and goodwill that were acquired in prior purchase business combinations, and make any necessary reclassifications in order to conform with the new criteria in Statement 141 for recognition apart from goodwill. Upon adoption of Statement 142, AmSouth will be required to reassess the useful lives and residual values of all intangible assets acquired in purchase business combinations, and make any necessary amortization period adjustments by the end of the first interim period after adoption. In addition, to the extent an intangible asset is identified as having an indefinite useful life, AmSouth will be required to test the intangible asset for impairment in accordance with the provisions of Statement 142 within the first interim period. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period. As of the date of adoption, AmSouth expects to have unamortized goodwill in the amount of $290.6 million, and unamortized identifiable intangible assets in the amount of $16.4 million, all of which will be subject to the transition provisions of Statements 141 and 142. Amortization expense related to goodwill was $32.5 million and $14.7 million for the year ended December 31, 2000 and the six months ended June 30, 2001, respectively. Cash Flows--For the six months ended June 30, 2001 and 2000, AmSouth paid interest of $702,737,000 and $834,980,000, respectively. During the six months ended June 30, 2001, AmSouth received income tax refunds of $12,601,000 and during the six months ended June 30, 2000, AmSouth paid income taxes of $31,068,000. Noncash transfers from loans to foreclosed properties for the six months ended June 30, 2001 and 2000, were $17,629,000 and $16,100,000, respectively, and noncash transfers from foreclosed properties to loans were $380,000 and $199,000, respectively. For the six months ended June 30, 2000, noncash transfers from loans to available-for-sale securities and to other assets of approximately $31,277,000 and $20,495,000, respectively, were made in connection with the participation of loans to third-party conduits. Derivatives--In accordance with Statement 133, AmSouth recognizes all of its derivative instruments as either assets or liabilities in the statement of financial condition at fair value. For those derivative instruments that are designated and qualify as hedging instruments, AmSouth designates the hedging instrument, based upon the exposure being hedged, as either a fair value hedge or a cash flow hedge. For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in other noninterest revenue during the period of the change in fair values. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is recognized in other noninterest revenue during the period of change. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of change. 8 Fair Value Hedging Strategy--AmSouth has entered into interest rate swap agreements for interest rate risk exposure management purposes. The interest rate swap agreements utilized by AmSouth effectively modify AmSouth's exposure to interest rate risk by converting a portion of AmSouth's fixed-rate certificates of deposit to floating rate. AmSouth also has interest rate swap agreements which effectively convert portions of its fixed-rate long-term debt to floating rate. During the six-month period ended June 30, 2001, AmSouth recognized a net gain of $832,000 related to the ineffective portion of its hedging instruments. Cash Flow Hedging Strategy--AmSouth has entered into interest rate swap agreements that effectively convert a portion of its floating-rate loans to a fixed-rate basis, thus reducing the impact of interest-rate changes on future interest income. Approximately $725,000,000 of AmSouth's loans were designated as the hedged items to the interest rate swap agreements at June 30, 2001. During the six-month period ended June 30, 2001, AmSouth recognized a net gain of $219,000 related to the ineffective portion of its hedging instruments. Comprehensive Income--Total comprehensive income was $144.9 million and $359.3 million for the three and six months ended June 30, 2001 and $118.3 million and $234.4 million for the three and six months ended June 30, 2000. Total comprehensive income consists of net income, the change in the unrealized gains or losses on AmSouth's available-for-sale securities portfolio arising during the period and the effective portion of cash flow hedges marked to market. Earnings Per Common Share--The following table sets forth the computation of earnings per common share and diluted earnings per common share:
Three Months Ended Six Months Ended June 30 June 30 ------------------- ----------------- 2001 2000 2001 2000 --------- --------- -------- -------- (In thousands except per share data) Earnings per common share computation: Numerator: Net income............................ $ 133,521 $ 99,897 $259,732 $238,834 Denominator: Average common shares outstanding..... 368,688 386,682 370,457 389,138 Earnings per common share............... $ .36 $ .26 $ .70 $ .61 Diluted earnings per common share computation: Numerator: Net income............................ $ 133,521 $ 99,897 $259,732 $238,834 Denominator: Average common shares outstanding..... 368,688 386,682 370,457 389,138 Dilutive shares contingently issuable............................. 3,776 2,889 3,238 2,897 --------- --------- -------- -------- Average diluted common shares outstanding......................... 372,464 389,571 373,695 392,035 Diluted earnings per common share....... $ .36 $ .26 $ .70 $ .61
Shareholders' Equity--On April 20, 2000, AmSouth's Board of Directors approved the repurchase by AmSouth of up to 35.0 million shares of its outstanding common stock over a two year period for the purpose of funding employee benefit and dividend reinvestment plans and for general corporate purposes. Through June 30, 2001, 29.9 million shares have been purchased under this authorization at a cost of $499.1 million. Cash dividends of $0.21 per common share were declared in the second quarter of 2001. This represents a five percent increase over the dividend paid during the second quarter of 2000. 9 Business Segment Information--AmSouth has three reportable segments: Consumer Banking, Commercial Banking, and Wealth Management. Treasury & Other is comprised of balance sheet management activities that include the investment portfolio, nondeposit funding and off-balance sheet financial instruments. Treasury & Other also includes income from bank owned life insurance policies, net gains on sales of fixed assets, taxable-equivalent adjustments associated with lease restructuring transactions, merger-related costs, and corporate expenses such as corporate overhead and goodwill amortization. As a result of the sale of IFC Holdings, Inc. (IFC) at the end of the third quarter of 2000, all revenues and expenses of IFC for 2000 have been reclassified into Treasury & Other from Wealth Management. The following is a summary of the segment performance for the three months and six months ended June 30, 2001 and 2000:
Consumer Commercial Wealth Treasury Banking Banking Management & Other Total -------- ---------- ---------- --------- ---------- (In thousands) Three Months Ended June 30, 2001 Net interest income from external customers..... $119,972 $ 169,852 $ (338) $ 53,888 $ 343,374 Internal funding........ 129,977 (71,354) 1,545 (60,168) -0- -------- --------- -------- --------- ---------- Net interest income..... 249,949 98,498 1,207 (6,280) 343,374 Noninterest revenues.... 87,910 25,771 50,691 23,275 187,647 -------- --------- -------- --------- ---------- Total revenues.......... 337,859 124,269 51,898 16,995 531,021 Provision for loan losses................. 26,710 19,373 -0- 17 46,100 Noninterest expenses.... 173,576 44,644 40,190 33,605 292,015 -------- --------- -------- --------- ---------- Income/(loss) before income taxes........... 137,573 60,252 11,708 (16,627) 192,906 Income taxes/(benefits)....... 51,786 22,625 4,395 (19,421) 59,385 -------- --------- -------- --------- ---------- Segment net income...... $ 85,787 $ 37,627 $ 7,313 $ 2,794 $ 133,521 ======== ========= ======== ========= ========== Three Months Ended June 30, 2000 Net interest income from external customers..... $128,841 $ 207,487 $ (148) $ 16,456 $ 352,636 Internal funding........ 112,074 (102,400) 917 (10,591) -0- -------- --------- -------- --------- ---------- Net interest income..... 240,915 105,087 769 5,865 352,636 Noninterest revenues.... 92,141 21,636 50,618 55,030 219,425 -------- --------- -------- --------- ---------- Total revenues.......... 333,056 126,723 51,387 60,895 572,061 Provision for loan losses................. 18,991 3,737 -0- 72 22,800 Noninterest expenses.... 178,094 36,165 35,039 160,876 410,174 -------- --------- -------- --------- ---------- Income before income taxes.................. 135,971 86,821 16,348 (100,053) 139,087 Income taxes/(benefits)....... 51,125 32,645 6,147 (50,727) 39,190 -------- --------- -------- --------- ---------- Segment net income/(loss).......... $ 84,846 $ 54,176 $ 10,201 $ (49,326) $ 99,897 ======== ========= ======== ========= ========== Six Months Ended June 30, 2001 Net interest income from external customers..... $216,577 $ 346,686 $ (726) $ 110,680 $ 673,217 Internal funding........ 265,491 (152,470) 2,743 (115,764) -0- -------- --------- -------- --------- ---------- Net interest income..... 482,068 194,216 2,017 (5,084) 673,217 Noninterest revenues.... 169,192 51,234 103,414 46,108 369,948 -------- --------- -------- --------- ---------- Total revenues.......... 651,260 245,450 105,431 41,024 1,043,165 Provision for loan losses................. 55,362 28,709 -0- 229 84,300 Noninterest expenses.... 344,218 91,167 79,417 65,280 580,082 -------- --------- -------- --------- ---------- Income before income taxes.................. 251,680 125,574 26,014 (24,485) 378,783 Income taxes/(benefits)....... 94,736 47,144 9,755 (32,584) 119,051 -------- --------- -------- --------- ---------- Segment net income...... $156,944 $ 78,430 $ 16,259 $ 8,099 $ 259,732 ======== ========= ======== ========= ========== Six Months Ended June 30, 2000 Net interest income from external customers..... $241,530 $ 417,478 $ (310) $ 62,511 $ 721,209 Internal funding........ 227,786 (206,257) 1,519 (23,048) -0- -------- --------- -------- --------- ---------- Net interest income..... 469,316 211,221 1,209 39,463 721,209 Noninterest revenues.... 174,261 42,628 97,577 124,996 439,462 -------- --------- -------- --------- ---------- Total revenues.......... 643,577 253,849 98,786 164,459 1,160,671 Provision for loan losses................. 40,261 7,851 -0- 88 48,200 Noninterest expenses.... 357,759 75,677 74,957 257,138 765,531 -------- --------- -------- --------- ---------- Income before income taxes.................. 245,557 170,321 23,829 (92,767) 346,940 Income taxes/(benefits)....... 92,329 64,041 8,960 (57,224) 108,106 -------- --------- -------- --------- ---------- Segment net income/(loss).......... $153,228 $ 106,280 $ 14,869 $ (35,543) $ 238,834 ======== ========= ======== ========= ==========
10 Securitizations--During the six-month period ended June 30, 2001, there were no securitizations or transfers to the dealer conduits or residential mortgage conduits. Therefore, no gains or losses on transfers were recognized during the period ended June 30, 2001. 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 provides the assumptions used in the subsequent valuation of retained interests at June 30, 2001, 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 a hypothetical immediate 10 and 20 percent adverse change in the current assumptions:
Residential Dealer Mortgage Conduit Dealer Conduit Securitization ---------------- -------------- -------------- (Dollars in millions) Cash flow information: ---------------------- Servicing fees and retained interests $21.3 $11.7 $16.3 Valuation assumptions at June 30, 2001: ------------------------ Discount rate 15-20% 15% 15% Prepayment rate 15-30% CPR* 1 1/2% ABS** 1 1/2% ABS** Weighted average life (years) 3.15 1.25 1.34 Expected credit losses .12% 1.32% 1.31% Residual cash flow sensitivity: ------------------ Fair value of servicing and retained interests at June 30, 2001 $57.9 $23.7 $25.0 Prepayment speed: ----------------- 10% change (2.9) (1.8) (0.1) 20% change (5.6) (3.7) (0.2) Credit losses: -------------- 10% change (0.2) (0.6) (0.8) 20% change (0.4) (1.2) (1.7)
- -------- * CPR--Constant prepayment rate model ** ABS--Absolute prepayment speed model 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. 11 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 financial condition as of June 30, 2001, along with quantitative information about delinquencies and net credit losses (in millions). The following table includes commercial loans sold to third-party conduits, residential mortgages and dealer loans sold to third-party conduits during prior years, dealer loans securitized in 2000, and mortgage loans which were securitized through REMICS in 1998:
Residential Dealer Equity Loans Commercial Mortgages Loans and Lines Loans ----------- ------ ------------ ---------- (Dollars in millions) Outstanding as of 6/30/01: Loans held in portfolio......... $1,529 $3,169 $4,868 $ 8,763 Loans securitized/sold.......... 2,361 1,291 -0- 1,541 REMIC (bond portfolio).......... 124 -0- 224 -0- ------ ------ ------ ------- Total managed loans........... $4,014 $4,460 $5,092 $10,304 ------ ------ ------ ------- Total delinquencies at 6/30/01.... $ 112 $ 111 $ 129 $ 215 Delinquencies as a percent of ending managed loans............. 2.79% 2.49% 2.53% 2.09% Net credit losses during 2001..... $ 0.6 $ 24.4 $ 6.7 $ 40.4 Net credit losses as a percent of ending managed loans............. 0.03% 1.08% 0.26% 0.79% ------ ------ ------ -------
12 INDEPENDENT ACCOUNTANTS' REVIEW REPORT The Board of Directors AmSouth Bancorporation We have reviewed the accompanying consolidated statement of condition of AmSouth Bancorporation and subsidiaries as of June 30, 2001 and 2000, and the related consolidated statement of earnings for the three-month and six-month periods ended June 30, 2001 and 2000, the consolidated statement of cash flows for the six-month periods ended June 30, 2001 and 2000, and the consolidated statement of shareholders' equity for the six-month period ended June 30, 2001. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with the standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States. We have previously audited, in accordance with auditing standards generally accepted in the United States, the consolidated statement of condition of AmSouth Bancorporation and subsidiaries as of December 31, 2000, and the related consolidated statements of earnings, shareholders' equity, and cash flows for the year then ended (not presented herein) and in our report dated January 31, 2001, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated statement of condition as of December 31, 2000 is fairly stated, in all material respects, in relation to the consolidated statement of condition from which it has been derived. /s/ ERNST & YOUNG LLP August 8, 2001 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview AmSouth Bancorporation (AmSouth) reported net income for the quarter ended June 30, 2001 of $133.5 million, or $.36 per share and $259.7 million, or $.70 per share for the first six months of 2001. In the same periods last year, net income totaled $99.9 million, or $.26 per share, and $238.8 million, or $.61 per share, respectively. For the three months and six months ended June 30, 2001, AmSouth's return on average assets was 1.40 percent and 1.36 percent, respectively, compared to .93 percent and 1.10 percent, respectively, for the same periods in 2000. Return on equity increased to 18.72 percent and 18.40 percent for the second quarter and first half of 2001 from 13.84 percent and 16.42 percent for the second quarter and first six months of 2000. Total assets at June 30, 2001 were $38.4 billion, down from $38.9 billion at year-end reflecting a decrease in Federal funds sold and securities purchased under agreements to repurchase, offset by increases in loans and loans held for sale and the investment portfolio. Loans net of unearned income at June 30, 2001 remained relatively stable with balances increasing $124 million over year-end. Managed loans, which include loans contained in third-party conduits and loans securitized, decreased by $801 million at June 30, 2001 from year-end levels. This decrease was attributable to lower levels of residential first mortgages and indirect auto loans. In addition, the decrease in managed loans reflected a decrease in commercial loans primarily as a result of management's decision, beginning in 2000, to reduce AmSouth's exposure to syndicated loans. The decrease in these loan categories was offset by a $212 million increase in home equity loans compared to December 31, 2000 levels. The investment portfolio, which consists of available-for-sale (AFS) and held-to-maturity (HTM) securities, increased to $9.0 billion at June 30, 2001, compared to $8.6 billion at December 31, 2000. On January 1, 2001, AmSouth transferred approximately $2.1 billion of securities from HTM to AFS in conjunction with AmSouth's adoption of Statement 133. Federal funds sold and securities purchased under agreements to resell decreased to $1.0 billion at June 30, 2001 from $2.2 billion at December 31, 2000. The decrease reflected management's decision to sell off lower yielding Federal funds to help fund consumer loan growth and offset planned decreases in higher cost time deposits. On the funding side of the balance sheet, total deposits at June 30, 2001 decreased by $638 million compared to December 31, 2000. Excluding the $251 million decrease in foreign time deposits (Eurodollar deposits), domestic deposits declined by $388 million. Decreases in domestic deposits occurred primarily in higher-cost time deposits while noninterest-bearing demand deposits also declined from year-end balances. These decreases were partially offset by increases in interest checking and money market accounts. Federal funds purchased and securities sold under agreements to repurchase and other borrowed funds decreased by $189 million and $389 million, respectively, compared to December 31, 2000. The decrease in short-term borrowings including foreign time deposits reflected the use of proceeds from the third quarter balance sheet restructuring transactions. Net Interest Income Net interest income (NII) on a fully taxable equivalent basis for the three and six months ended June 30, 2001 was $359.0 and $699.3 million, respectively, down $16.1 million, or 4.3 percent compared to the same quarter last year and 6.8 percent on a year-to-date basis. The decrease in net interest income was primarily due to a decrease in average interest-earning assets, resulting from the third quarter 2000 balance sheet restructuring. This restructuring also contributed to a 33 basis point increase in the net interest margin for the second quarter of 2001 versus the same quarter in 2000 and a 24 basis point increase in the net interest margin for the first half of 2001 compared to the same period in 2000 as the balance sheet restructuring removed lower yielding assets from the balance sheet and freed up funds to pay down higher cost borrowings. Compared with the immediately preceding quarter, second quarter 2001 NII increased $18.8 million or 22 percent annualized primarily as a result of a 19 basis point increase in the margin. The increase in the margin reflected the on-going shift of assets from Federal funds sold to consumer loans and higher yielding investments, growth in low-cost deposits, and favorable repricing of both deposits and purchased funds. AmSouth expects its margin to 14 remain fairly stable through the third quarter of 2001 with one of the key drivers being the redeployment of Federal funds sold into higher yielding assets. AmSouth expects improvement in the margin during the fourth quarter due to the fact that approximately $2.2 billion of higher cost time deposits will mature at that time. Asset/Liability Management AmSouth maintains a formal asset and liability management process to quantify, monitor and control interest rate risk and to assist management in maintaining stability in the net interest margin under varying interest rate environments. AmSouth accomplishes this process through the development and implementation of lending, funding, pricing and hedging strategies designed to maximize NII performance under varying interest rate environments subject to specific liquidity and interest rate risk guidelines. An earnings simulation model is the primary tool used to assess the direction and magnitude of changes in NII resulting from changes in interest rates. Key assumptions in the model include prepayment speeds on mortgage- related assets; cash flows and maturities of derivatives and other financial instruments held for purposes other than trading; changes in market conditions, loan volumes and pricing; deposit volume, mix and rate sensitivity; customer preferences; and management's financial and capital plans. These assumptions are inherently uncertain, and, as a result, the model cannot precisely estimate NII or precisely predict the impact of higher or lower interest rates on NII. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes and changes in market conditions and management's strategies, among other factors. Based on the results of the simulation model as of June 30, 2001, AmSouth would expect NII to increase $3 million or approximately 0.2 percent and decrease $5 million or approximately 0.3 percent if interest rates gradually increase or decrease, respectively, from current rates by 100 basis points over a 12-month period. This level of interest rate risk is within AmSouth's policy guidelines. As of June 30, 2000, the simulation model indicated that NII would decrease $35 million or approximately 2.5 percent and increase $21 million or approximately 1.4 percent if interest rates gradually increased or decreased, respectively, from their then-current rates by 100 basis points over a 12-month period. The reduction in AmSouth's interest sensitivity compared to the second quarter of 2000 was 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 reduced the impact of interest rate fluctuations on NII. In comparison to December 31, 2000 results, the simulation model at June 30, 2001 showed a slight increase in AmSouth's interest rate sensitivity. The change in the results of the simulation model reflected an extension of the maturities of commercial paper used by off-balance sheet conduits to fund loans previously purchased from AmSouth. The extension of the commercial paper maturities, which occurred during the first half of 2001, reduced the impact of interest rate changes, over a 12-month period, on the interest spread received by AmSouth on these loans. In addition, changes in the market dynamics as a result of Federal Reserve rate cuts during the first half of the year, changes in the forecasted mix of earning assets and changes in AmSouth's deposit pricing strategy also impacted the change in the interest sensitivity results from year-end results. As part of its activities to manage interest rate risk, AmSouth, from time to time, utilizes various derivative instruments such as interest rate swaps, caps and floors. There were maturities, calls and closeouts of interest rate swaps totaling $446 million during the first six months of 2001. At June 30, 2001, AmSouth had interest rate swaps, all of which receive fixed rates, totaling a notional amount of $2.2 billion. At June 30, 2001, AmSouth also held other derivative instruments to provide customers and AmSouth a means of managing the risks of changing interest and foreign exchange rates. The amounts of these other derivative instruments were immaterial. 15 Credit Quality AmSouth maintains an allowance for loan losses which management believes is adequate to absorb losses inherent in the loan portfolio. A formal review is prepared quarterly to assess the risk in the portfolio and to determine the adequacy of the allowance for loan losses. The review includes analyses of historical performance, the level of nonperforming and adversely rated loans, specific analyses of certain problem loans, loan activity since the previous quarter, reports prepared by the Credit Review Department, consideration of current economic conditions, and other pertinent information. The level of allowance to net loans outstanding will vary depending on the overall results of this quarterly review. The review is presented to and subsequently approved by senior management and reviewed by the Audit and Community Responsibility Committee of the Board of Directors. Table 6 presents a five-quarter analysis of the allowance for loan losses. At June 30, 2001, the allowance for loan losses was $380.7 million, or 1.54 percent of loans net of unearned income, compared to $346.0 million, or 1.35 percent, at June 30, 2000. This increase primarily reflected a deterioration of credit quality in AmSouth's syndicated commercial loan portfolio primarily due to a weakening economy. The coverage ratio of the allowance for loan losses to nonperforming loans was 193.11 percent at June 30, 2001, a decrease from the June 30, 2000 ratio of 290.58 percent. Net charge-offs for the quarter ended June 30, 2001, were $46.1 million, an increase of $23.4 million from the $22.7 million reported a year earlier. For the six months ended June 30, 2001, net charge-offs were $84.1 million compared to $48.1 million for the same period of 2000. Annualized net charge-offs to average loans net of unearned income were .75 percent and .69 percent, respectively, for the three and six months ended June 30, 2001, compared to .34 percent and .36 percent for the same periods of the prior year. The increase in net charge-offs occurred primarily in the commercial loan, consumer revolving credit and equity lending portfolio and reflected the impact of a slowing economy. Commercial loan net charge-offs increased $26.0 million for the six months versus the same period of 2000. Net charge-offs in the consumer portfolio increased $9.5 million, reflecting higher charge-offs across all consumer loan categories led by the revolving credit and equity lending portfolios. Net charge-offs for the revolving credit portfolio and equity lending portfolio increased $3.5 million and $2.7 million, respectively, for the six months ended June 30, 2001 versus the same period of the prior year. Annualized net charge-offs for the commercial, commercial real estate and consumer loan portfolios were .92, .03 and .79 percent, respectively, for the six months ended June 30, 2001, compared to .29, .01 and .56 percent, respectively, for the same period of 2000. Consistent with the increased charge-offs, the provision for loan losses for the second quarter and the first half of 2001 was $46.1 million and $84.3 million, respectively, compared to $22.8 million and $48.2 million for the corresponding year-earlier periods. AmSouth currently anticipates an increase in net charge-offs during the second half of 2001. Table 7 presents a five-quarter comparison of the components of nonperforming assets. At June 30, 2001, nonperforming assets as a percentage of loans net of unearned income, foreclosed properties and repossessions increased 37 basis points to 0.90 percent compared to 0.53 percent at June 30, 2000 reflecting an $89 million increase in nonperforming assets. This increase was primarily associated with an increase in the level of nonperforming syndicated commercial loans at June 30, 2001 compared to June 30, 2000. Included in nonperforming assets at June 30, 2001 and 2000, was $138.0 million and $61.0 million, respectively, in loans that were considered to be impaired, substantially all of which were on a nonaccrual basis. At June 30, 2001 and 2000, there was $43.7 million and $20.6 million, respectively, in the allowance for loan losses specifically allocated to these impaired loans. The average balance of impaired loans for the three months ended June 30, 2001 and 2000, was $136.9 million and $56.3 million, respectively, and $132.7 million and $60.0 million, respectively, for the six months ended June 30, 2001 and 2000. AmSouth recorded no material interest income on its impaired loans during the three and six months ended June 30, 2001. Noninterest Revenues and Noninterest Expenses Noninterest revenue (NIR) was $187.6 million during the second quarter of 2001 and $369.9 million for the first six months of 2001. The quarterly and the six month totals represent a 14.5 percent and 15.8 percent 16 decline from the corresponding periods in 2000. This decrease was primarily due to the loss of revenues from the sale of IFC Holdings Inc. (IFC) in the third quarter of 2000. Excluding the revenues from IFC in 2000, NIR increased by 2.9 percent in the second quarter of 2001 and 3.8 percent on a year-to-date basis from adjusted NIR of $182.8 million and $356.7 million for the quarter and six months ended June 30, 2000, respectively. The increase in NIR versus the IFC adjusted prior year numbers was primarily due to higher revenues generated from service charges on deposits, consumer investment services income, interchange income, and bank owned life insurance income (BOLI). These increases were offset by decreases in mortgage and portfolio income and, on a quarterly comparison, trust income. The increase in service charge income was primarily the result of higher treasury management fees as a result of higher sales to corporate customers. The increase in service charge income also reflected higher revenue from overdraft and NSF fees. Excluding IFC generated revenue, consumer investment services income increased $840 thousand or approximately 3.9 percent versus the second quarter of 2000 and $4.3 million or 10.3 percent versus the first six months of 2000. The increase in consumer investment services income reflected higher annuity income from AmSouth's platform annuity sales program. Interchange income for the three months and six months ended June 30, 2001 was $1.1 million and $2.1 million higher, respectively, than the corresponding periods last year due to higher levels of checkcard usage. BOLI grew due to increases in cash surrender values and, on a year-to-date basis, the receipt of a benefit payment in the first quarter of 2001. Partially offsetting these increases was a decrease in mortgage income, which declined by approximately $5.0 million and $10.2 million for the quarter and six months ended June 30, 2001 compared to the same prior year periods. This decline reflected an $8.0 million quarterly and $15.3 million year-to-date decrease in gains from the sale of mortgage loans to third-party conduits, partially offset by higher secondary marketing gains on the bulk sale of mortgage loans and servicing. Portfolio income, adjusted for the impact of the IFC sale, decreased by $600 thousand and $1.2 million for the quarter and six months ended June 30, 2001 compared to the same periods of 2000. This decrease was the result of fewer sales of AFS securities in 2001. While higher on a year-to-date basis, trust income was lower in the second quarter of 2001 compared to the prior year period, reflecting a drop in net assets under management, primarily as a result of declining market values. Management anticipates that sustainable NIR growth in a range of five to eight percent may be achievable over the next twelve months. Noninterest expenses (NIE) decreased from the prior year by 28.8 percent and 24.2 percent for the three months and six months ended June 30, 2001. Excluding the impact of merger-related charges and expenses related to IFC, NIE increased 2.0 percent or $5.7 million for the quarter compared to $286.3 million in NIE for the same period of 2000. The increase primarily reflected higher salaries and employee benefits and communication expenses partially offset by decreases in equipment expense, postage and supplies costs and marketing expenses. On a year-to-date basis, NIE remained flat compared to the adjusted NIE amount of $579.9 million for the first six months of 2000 with increases in salaries and employee benefits and communication expense partially offset by decreases in marketing, net occupancy and equipment expense. Salaries and employee benefits increased $7.7 million and $3.5 million for the quarter and year-to-date periods, respectively, compared to the same periods a year ago, adjusted for the IFC sale. This increase reflected higher incentive accruals related to improved performance. Communications expense, primarily driven by computer line and wide-area network expense, increased $671 thousand on a quarterly basis and $1.6 million year-to-date compared to corresponding periods in 2000, excluding IFC. Partially offsetting these increases, marketing expense, excluding the impact of IFC, decreased $462 thousand or 5.1 percent and $3.9 million or 18.6 percent for the second quarter and first six months of 2001. The decrease was primarily due to cost control initiatives implemented in 2000. Equipment expense, excluding IFC, decreased for the quarter by 2.7 percent to $30.2 million and 4.2 percent on a year-to-date basis, primarily due to synergies achieved as a result of the merger with First American. Postage and supplies, excluding IFC, decreased $1.6 million for the three month period ended June 30, 2001, primarily due to charges taken in the second quarter of 2000 related to the stocking of forms at former First American branches. Net occupancy expense, while increasing slightly in the second quarter, was lower by $1.1 million year-to-date, adjusting for 2000 expenses related to IFC. As a result of the sale of IFC, no expenses for subscriber commissions were incurred in 2001, compared to $27.3 million and $57.9 million in the second quarter and first six months of last year. NIE growth is estimated to be in the range of three to five percent over the next twelve months excluding the impact of the amortization of goodwill. 17 Capital Adequacy At June 30, 2001, shareholders' equity totaled $2.9 billion or 7.6 percent of total assets. Since December 31, 2000, shareholders' equity increased $94.0 million primarily as a result of net income for the six months of $259.7 million. In addition, shareholders' equity increased $86.8 million as a result of higher valuation of the AFS portfolio, of which $26.6 million was a result of transferring approximately $2.1 billion of securities from held-to-maturity to available-for-sale in conjunction with AmSouth's adoption of Statement 133. The increase in shareholders' equity also reflected $12.8 million of other comprehensive income associated with cash flow hedges, of which $5.7 million was related to the initial adoption of Statement 133. These increases in shareholders' equity were offset by the declaration of dividends of $159.2 million and the purchase of 7.5 million shares of AmSouth common stock for $129.4 million during the first six months of 2001. Table 10 presents the capital amounts and risk-adjusted capital ratios for AmSouth and AmSouth Bank at June 30, 2001 and 2000. At June 30, 2001, AmSouth exceeded the regulatory minimum required risk-adjusted Tier 1 Capital Ratio of 4.00% and risk-adjusted Total Capital Ratio of 8.00%. In addition, the risk- adjusted capital ratios for AmSouth Bank were above the regulatory minimums, and the Bank was well capitalized at June 30, 2001. 18 Table 1--Financial Summary
June 30 ----------------------- % 2001 2000 Change ----------- ----------- ------ (In thousands) Balance sheet summary End-of-period balances: Loans net of unearned income................. $24,740,424 $25,589,410 (3.3)% Total assets................................. 38,447,223 42,596,066 (9.7) Total deposits............................... 25,984,901 27,898,918 (6.9) Shareholders' equity......................... 2,907,451 2,820,951 3.1 Year-to-date average balances: Loans net of unearned income................. $24,671,034 $26,661,764 (7.5)% Total assets................................. 38,438,335 43,492,251 (11.6) Total deposits............................... 26,042,410 27,835,856 (6.4) Shareholders' equity......................... 2,845,837 2,925,475 (2.7)
Six Months Ended Three Months Ended June 30 June 30 ------------------ % -------------------- % 2001 2000 Change 2001 2000 Change -------- -------- ------ --------- --------- ------ (In thousands except per share data) Earnings summary Net income............ $259,732 $238,834 8.8% $ 133,521 $ 99,897 33.7% Earnings per common share................ 0.70 0.61 14.8 0.36 0.26 38.5 Diluted earnings per common share......... 0.70 0.61 14.8 0.36 0.26 38.5 Return on average assets (annualized).. 1.36% 1.10% 1.40% 0.93% Return on average equity (annualized).. 18.40 16.42 18.72 13.84 Operating efficiency.. 54.25 64.35 53.42 68.99 Selected ratios Average equity to assets............... 7.40% 6.73% 7.45% 6.69% End-of-period equity to assets............ 7.56 6.62 7.56 6.62 End-of-period tangible equity to assets..... 6.78 5.77 6.78 5.77 Allowance for loan losses to loans net of unearned income... 1.54 1.35 1.54 1.35 Common stock data Cash dividends declared............. $ 0.42 $ 0.40 $ 0.21 $ 0.20 Book value at end of period............... 7.88 7.45 7.88 7.45 Market value at end of period............... 18.49 15.75 18.49 15.75 Average common shares outstanding.......... 370,457 389,138 368,688 386,682 Average common shares outstanding-diluted.. 373,695 392,035 372,464 389,571
19 Table 2--Year-to-Date Yields Earned on Average Interest-Earning Assets and Rates Paid on Average Interest-Bearing Liabilities
2001 2000 ------------------------------- ------------------------------ Six Months Ended June 30 Six Months Ended June 30 ------------------------------- ------------------------------ Average Revenue/ Yield/ Average Revenue/ Yield/ Balance Expense Rate Balance Expense Rate ------------------------ ------ ----------- ---------- ------ (Taxable equivalent basis-dollars in thousands) Assets Interest-earning assets: Loans net of unearned income................. $ 24,671,034 $1,043,467 8.53% $26,661,764 $1,147,316 8.65% Available-for-sale securities: Taxable............... 4,033,123 154,831 7.74 6,001,819 199,476 6.68 Tax-free.............. 92,369 3,555 7.76 66,194 2,283 6.94 ------------ ---------- ----------- ---------- Total available-for- sale securities...... 4,125,492 158,386 7.74 6,068,013 201,759 6.69 ------------ ---------- ----------- ---------- Held-to-maturity securities: Taxable............... 4,220,706 143,165 6.84 6,567,783 224,955 6.89 Tax-free.............. 344,767 12,656 7.40 389,352 14,109 7.29 ------------ ---------- ----------- ---------- Total held-to-maturity securities........... 4,565,473 155,821 6.88 6,957,135 239,064 6.91 ------------ ---------- ----------- ---------- Total investment securities......... 8,690,965 314,207 7.29 13,025,148 440,823 6.81 Other interest-earning assets................. 1,678,056 46,826 5.63 254,437 8,461 6.69 ------------ ---------- ----------- ---------- Total interest-earning assets............... 35,040,055 1,404,500 8.08 39,941,349 1,596,600 8.04 Cash and other assets.... 3,716,218 4,141,671 Allowance for loan loss- es...................... (381,103) (353,910) Market valuation on available-for-sale securities.............. 63,165 (236,859) ------------ ----------- $ 38,438,335 $43,492,251 ============ =========== Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand deposits............... $ 9,805,681 155,668 3.20 $ 9,300,418 151,603 3.28 Savings deposits........ 1,215,385 9,550 1.58 2,037,632 26,155 2.58 Time deposits........... 7,770,415 227,124 5.89 7,606,411 206,928 5.47 Foreign time deposits... 305,794 6,231 4.11 1,361,780 39,098 5.77 Certificates of deposit of $100,000 or more.... 2,420,238 72,549 6.04 2,795,775 79,004 5.68 Federal funds purchased and securities sold under agreements to repurchase............. 2,291,976 48,985 4.31 3,882,036 102,486 5.31 Other interest-bearing liabilities............ 6,360,111 185,074 5.87 8,216,681 241,176 5.90 ------------ ---------- ----------- ---------- Total interest-bearing liabilities.......... 30,169,600 705,181 4.71 35,200,733 846,450 4.84 ---------- ---- ---------- ---- Net interest spread...... 3.37% 3.20% ==== ==== Noninterest-bearing de- mand deposits........... 4,524,897 4,733,840 Other liabilities........ 898,001 632,203 Shareholders' equity..... 2,845,837 2,925,475 ------------ ----------- $ 38,438,335 $43,492,251 ============ =========== Net interest income/margin on a taxable equivalent basis................... 699,319 4.02% 750,150 3.78% ==== ==== Taxable equivalent ad- justment: Loans................... 15,523 17,669 Available-for-sale securities............. 2,481 1,706 Held-to-maturity securities............. 8,098 9,566 ---------- ---------- Total taxable equivalent adjustment........... 26,102 28,941 ---------- ---------- Net interest income............. $ 673,217 $ 721,209 ========== ==========
- -------- 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 periods presented. Available-for-sale securities excludes certain noninterest-earning, marketable equity securities. Statement 133 valuation adjustments related to time deposits, certificates of deposit of $100,000 or more and other interest-bearing liabilities are included in other liabilities. 20 Table 3--Quarterly Yields Earned on Average Interest-Earning Assets and Rates Paid on Average Interest-Bearing Liabilities
2001 2000 --------------------------------------------------------- -------------------------------------------------- Second Quarter First Quarter Fourth Quarter Third Quarter ---------------------------- ---------------------------- ---------------------------- --------------------- Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/ Balance Expense Rate Balance Expense Rate Balance Expense Rate Balance Expense ----------- -------- ------ ----------- -------- ------ ----------- -------- ------ ----------- -------- (Taxable equivalent basis-dollars in thousands) Assets Interest-earning assets: Loans net of unearned income... $24,695,993 $512,895 8.33% $24,645,798 $530,572 8.73% $24,599,887 $556,775 9.00% $25,613,223 $573,685 Available-for-sale securities:....... Taxable.......... 4,163,800 82,981 7.99 3,900,993 71,850 7.47 1,869,932 34,361 7.31 5,678,994 94,775 Tax-free......... 89,578 1,725 7.72 95,192 1,830 7.80 62,293 1,136 7.25 64,747 1,145 ----------- -------- ----------- -------- ----------- -------- ----------- -------- Total available- for-sale securities....... 4,253,378 84,706 7.99 3,996,185 73,680 7.48 1,932,225 35,497 7.31 5,743,741 95,920 ----------- -------- ----------- -------- ----------- -------- ----------- -------- Held-to-maturity securities: Taxable.......... 4,185,593 70,594 6.76 4,256,209 72,571 6.91 6,298,607 108,737 6.87 6,445,507 110,990 Tax-free......... 341,906 6,340 7.44 347,660 6,316 7.37 395,589 7,078 7.12 397,506 7,170 ----------- -------- ----------- -------- ----------- -------- ----------- -------- Total held-to- maturity securities....... 4,527,499 76,934 6.82 4,603,869 78,887 6.95 6,694,196 115,815 6.88 6,843,013 118,160 ----------- -------- ----------- -------- ----------- -------- ----------- -------- Total investment securities...... 8,780,877 161,640 7.38 8,600,054 152,567 7.19 8,626,421 151,312 6.98 12,586,754 214,080 Other interest- earning assets.... 1,470,097 19,711 5.38 1,888,326 27,115 5.82 2,123,852 36,453 6.83 262,352 4,211 ----------- -------- ----------- -------- ----------- -------- ----------- -------- Total interest- earning assets... 34,946,967 694,246 7.97 35,134,178 710,254 8.20 35,350,160 744,540 8.38 38,462,329 791,976 Cash and other assets............. 3,726,748 3,705,571 3,657,475 3,925,391 Allowance for loan losses............. (380,983) (381,223) (367,361) (348,796) Market valuation on available-for-sale securities......... 86,153 39,921 (8,998) (178,535) ----------- ----------- ----------- ----------- $38,378,885 $38,498,447 $38,631,276 $41,860,389 =========== =========== =========== =========== Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand deposits... $ 9,902,714 72,061 2.92 $ 9,707,570 83,607 3.49 $ 9,401,061 88,712 3.75 $ 9,502,341 87,349 Savings deposits.. 1,219,045 4,641 1.53 1,211,685 4,909 1.64 1,244,649 5,224 1.67 1,333,857 5,651 Time deposits..... 7,716,673 110,539 5.75 7,824,754 116,585 6.04 8,010,342 122,922 6.10 7,816,704 115,863 Foreign time deposits.......... 279,454 2,434 3.49 332,426 3,797 4.63 397,954 5,622 5.62 1,234,991 19,820 Certificates of deposit of $100,000 or more.. 2,323,449 34,082 5.88 2,518,103 38,467 6.20 2,659,888 42,201 6.31 2,861,681 45,019 Federal funds purchased and securities sold under agreements to repurchase..... 2,243,192 21,368 3.82 2,341,302 27,617 4.78 2,388,137 32,909 5.48 3,540,942 53,015 Other interest- bearing liabilities....... 6,336,607 90,082 5.70 6,383,876 94,992 6.03 6,485,954 102,391 6.28 7,411,097 118,175 ----------- -------- ----------- -------- ----------- -------- ----------- -------- Total interest- bearing liabilities...... 30,021,134 335,207 4.48 30,319,716 369,974 4.95 30,587,985 399,981 5.20 33,701,613 444,892 -------- ---- -------- ---- -------- ---- -------- Net interest spread............ 3.49% 3.25% 3.18% ==== ==== ==== Noninterest- bearing demand deposits.......... 4,566,584 4,482,747 4,527,554 4,640,946 Other liabilities....... 930,883 864,755 758,421 744,397 Shareholders' equity............ 2,860,284 2,831,229 2,757,316 2,773,433 ----------- ----------- ----------- ----------- $38,378,885 $38,498,447 $38,631,276 $41,860,389 =========== =========== =========== =========== Net interest income/margin on a taxable equivalent basis.............. 359,039 4.12% 340,280 3.93% 344,559 3.88% 347,084 ==== ==== ==== Taxable equivalent adjustment: Loans............. 10,405 5,118 18,786 3,773 Available-for-sale securities........ 1,224 1,257 882 822 Held-to-maturity securities........ 4,036 4,062 4,775 4,711 -------- -------- -------- -------- Total taxable equivalent adjustment....... 15,665 10,437 24,443 9,306 -------- -------- -------- -------- Net interest income.......... $343,374 $329,843 $320,116 $337,778 ======== ======== ======== ======== Second Quarter ---------------------------- Yield/ Average Revenue/ Yield/ Rate Balance Expense Rate ------ ------------ -------- ------ Assets Interest-earning assets: Loans net of unearned income... 8.91% $26,642,183 $584,125 8.82% Available-for-sale securities:....... Taxable.......... 6.64 5,989,040 99,186 6.66 Tax-free......... 7.04 66,625 1,100 6.64 ------------ -------- Total available- for-sale securities....... 6.64 6,055,665 100,286 6.66 ------------ -------- Held-to-maturity securities: Taxable.......... 6.85 6,522,650 112,119 6.91 Tax-free......... 7.18 391,612 7,147 7.34 ------------ -------- Total held-to- maturity securities....... 6.87 6,914,262 119,266 6.94 ------------ -------- Total investment securities...... 6.77 12,969,927 219,552 6.81 Other interest- earning assets.... 6.39 234,593 3,740 6.41 ------------ -------- Total interest- earning assets... 8.19 39,846,703 807,417 8.15 Cash and other assets............. 4,148,144 Allowance for loan losses............. (352,305) Market valuation on available-for-sale securities......... (252,612) ------------ $43,389,930 ============ Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand deposits... 3.66 $ 9,514,403 79,878 3.38 Savings deposits.. 1.69 1,722,267 9,566 2.23 Time deposits..... 5.90 7,593,438 105,684 5.60 Foreign time deposits.......... 6.38 1,427,241 21,341 6.01 Certificates of deposit of $100,000 or more.. 6.26 2,813,227 40,744 5.83 Federal funds purchased and securities sold under agreements to repurchase..... 5.96 3,720,045 51,032 5.52 Other interest- bearing liabilities....... 6.34 8,266,919 124,080 6.04 ------------ -------- Total interest- bearing liabilities...... 5.25 35,057,540 432,325 4.96 ------ -------- ------ Net interest spread............ 2.94% 3.19% ====== ====== Noninterest- bearing demand deposits.......... 4,770,285 Other liabilities....... 658,389 Shareholders' equity............ 2,903,716 ------------ $43,389,930 ============ Net interest income/margin on a taxable equivalent basis.............. 3.59% 375,092 3.79% ====== ====== Taxable equivalent adjustment: Loans............. 16,785 Available-for-sale securities........ 848 Held-to-maturity securities........ 4,823 -------- Total taxable equivalent adjustment....... 22,456 -------- Net interest income.......... $352,636 ========
- ---- 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 periods presented. Available- for-sale securities excludes certain noninterest-earning, marketable equity securities. Statement 133 valuation adjustments related to time deposits, certificates of deposit of $100,000 or more and other interest-bearing liabilities are included in other liabilities. 21 Table 4--Maturities and Interest Rates Exchanged on Swaps
Mature During ------------------------------------------------------- 2001 2002 2003 2004 2005 2008 2009 Total ----- ----- ----- ----- ----- ----- ----- ------ (Dollars in millions) Receive fixed swaps: Notional amount..... $ 160 $ 971 $ 290 $ 300 $ 150 $ 175 $ 175 $2,221 Receive rate........ 6.31% 6.62% 6.34% 6.23% 6.25% 6.13% 6.22% 6.42% Pay rate............ 3.97% 3.98% 3.96% 3.95% 4.06% 4.21% 4.06% 4.00%
- -------- NOTE: The interest rates exchanged are calculated assuming that interest rates remain unchanged from June 30, 2001. Call option expiration date is used as maturity date until the option expires. The information presented could change as LIBOR rates change and call options are exercised or expire. Table 5--Loans and Credit Quality
Net Charge-offs Loans* Nonperforming Loans** Six Months Ended June 30 June 30 June 30 ----------------------- --------------------- ----------------- 2001 2000 2001 2000 2001 2000 ----------- ----------- ---------- ---------- -------- -------- (In thousands) Commercial: Commercial and industrial........... $ 7,075,237 $ 7,790,674 $ 124,574 $ 34,454 $ 38,517 $ 12,084 Commercial loans-- secured by real estate............... 1,687,629 1,769,436 20,780 34,374 1,906 2,293 ----------- ----------- ---------- ---------- -------- -------- Total commercial.... 8,762,866 9,560,110 145,354 68,828 40,423 14,377 ----------- ----------- ---------- ---------- -------- -------- Commercial real estate: Commercial real estate mortgages............ 2,263,335 2,377,687 20,206 23,777 402 (179) Real estate construction......... 2,498,698 2,329,024 12,846 5,666 329 458 ----------- ----------- ---------- ---------- -------- -------- Total commercial real estate........ 4,762,033 4,706,711 33,052 29,443 731 279 ----------- ----------- ---------- ---------- -------- -------- Consumer: Residential first mortgages............ 1,528,525 1,410,327 12,514 10,960 612 497 Equity loans and lines................ 4,867,885 4,511,889 5,183 7,491 6,698 3,949 Dealer indirect....... 3,169,281 3,651,564 1 314 18,647 17,452 Revolving credit...... 497,933 467,648 -0- -0- 10,429 6,916 Other consumer........ 1,151,901 1,281,161 1,016 2,046 6,531 4,642 ----------- ----------- ---------- ---------- -------- -------- Total consumer...... 11,215,525 11,322,589 18,714 20,811 42,917 33,456 ----------- ----------- ---------- ---------- -------- -------- $24,740,424 $25,589,410 $ 197,120 $ 119,082 $ 84,071 $ 48,112 =========== =========== ========== ========== ======== ========
- -------- * Net of unearned income. ** Exclusive of accruing loans 90 days past due and $35.6 million of nonperforming assets classified as held for accelerated disposition at June 30, 2000. 22 Table 6--Allowance for Loan Losses
2001 2000 ----------------------- ----------------------------------- 2nd Quarter 1st Quarter 4th Quarter 3rd Quarter 2nd Quarter ----------- ----------- ----------- ----------- ----------- (Dollars in thousands) Balance at beginning of period................. $380,646 $380,434 $365,164 $346,030 $353,784 Loans charged off....... (57,478) (50,506) (55,221) (48,319) (34,471) Recoveries of loans previously charged off.................... 11,395 12,518 14,411 12,890 11,743 -------- -------- -------- -------- -------- Net charge-offs......... (46,083) (37,988) (40,810) (35,429) (22,728) Addition to allowance charged to expense 46,100 38,200 55,600 123,800 22,800 Allowance sold/transferred, net.. -0- -0- -0- (69,091) (5,500) Allowance transferred to other liabilities...... -0- -0- 480 (146) (2,326) -------- -------- -------- -------- -------- Balance at end of period................. $380,663 $380,646 $380,434 $365,164 $346,030 ======== ======== ======== ======== ======== Allowance for loan losses to loans net of unearned income........ 1.54% 1.55% 1.55% 1.49% 1.35% Allowance for loan losses to nonperforming loans*................. 193.11% 181.84% 211.75% 249.99% 290.58% Allowance for loan losses to nonperforming assets*................ 170.18% 167.02% 193.82% 224.46% 256.94% Net charge-offs to average loans net of unearned income (annualized)........... 0.75% 0.63% 0.66% 0.55% 0.34%
- -------- * Exclusive of accruing loans 90 days past due and $35.6 million of nonperforming assets classified as held for accelerated disposition at June 30, 2000. Table 7--Nonperforming Assets
2001 2000 ------------------ --------------------------------- June 30 March 31 December 31 September 30 June 30 -------- -------- ----------- ------------ -------- (Dollars in thousands) Nonaccrual loans........ $197,120 $209,333 $179,659 $146,069 $119,082 Foreclosed properties... 20,380 13,688 12,360 12,714 13,780 Repossessions........... 6,177 4,888 4,259 3,906 1,810 -------- -------- -------- -------- -------- Total nonperforming assets*.............. $223,677 $227,909 $196,278 $162,689 $134,672 ======== ======== ======== ======== ======== Nonperforming assets* to loans net of unearned income, foreclosed properties and repossessions.......... 0.90% 0.93% 0.80% 0.66% 0.53% Accruing loans 90 days past due............... $ 88,747 $ 89,237 $ 85,410 $ 78,314 $ 70,800
- -------- * Exclusive of accruing loans 90 days past due and $35.6 million of nonperforming assets classified as held for accelerated disposition at June 30, 2000. 23 Table 8--Investment Securities
June 30, 2001 June 30, 2000 --------------------- --------------------- Carrying Market Carrying Market Amount Value Amount Value ---------- ---------- ---------- ---------- (In thousands) Held-to-maturity: U.S. Treasury and federal agency securities...................... $2,868,385 $2,909,346 $5,077,783 $4,941,889 Other securities................. 1,297,765 1,316,900 1,453,111 1,404,206 State, county and municipal secu- rities.......................... 342,377 355,991 401,722 380,736 ---------- ---------- ---------- ---------- $4,508,527 $4,582,237 $6,932,616 $6,726,831 ========== ========== ========== ========== Available-for-sale: U.S. Treasury and federal agency securities...................... $3,534,854 $5,089,222 Other securities................. 872,491 775,358 State, county and municipal secu- rities.......................... 96,549 71,400 ---------- ---------- $4,503,894 $5,935,980 ========== ==========
- -------- NOTES: 1. The weighted average remaining life, which reflects the amortization on mortgage related and other asset-backed securities, and the weighted average yield on the combined held-to-maturity and available-for-sale portfolios at June 30, 2001, were approximately 4.7 years and 6.66%, respectively. Included in the combined portfolios was $7.5 billion of mortgage-backed securities. The weighted-average remaining life and the weighted-average yield of mortgage-backed securities at June 30, 2001, were approximately 4.3 years and 6.63%, respectively. The duration of the combined portfolios, which considers the repricing frequency of variable rate securities, is approximately 3.1 years. 2. The available-for-sale portfolio included net unrealized gains of $98.1 million and unrealized losses of $206.3 million at June 30, 2001 and 2000, respectively. 24 Table 9--Other Interest-Bearing Liabilities
June 30 ------------------- 2001 2000 -------- ---------- (In thousands) Other borrowed funds: Short-term bank notes...................................... $ 50,000 $ 650,000 Treasury, tax and loan notes............................... 25,000 537,735 Commercial paper........................................... 13,210 14,826 Short-term Federal Home Loan Bank advances................. -0- 350,000 Other short-term debt...................................... 59,599 52,850 -------- ---------- Total other borrowed funds............................... $147,809 $1,605,411 ======== ========== Other long-term debt: 6.45% Subordinated Notes Due 2018.......................... $303,274 $ 303,771 6.125% Subordinated Notes Due 2009......................... 174,568 174,423 6.75% Subordinated Debentures Due 2025..................... 149,924 149,906 7.75% Subordinated Notes Due 2004.......................... 149,733 149,641 7.25% Senior Notes Due 2006................................ 99,655 99,548 6.875% Subordinated Notes Due 2003......................... 49,942 49,895 6.625% Subordinated Notes Due 2005......................... 49,762 49,709 Other long-term debt....................................... 8,195 3,915 Statement 133 valuation adjustment......................... 7,000 -0- -------- ---------- Total other long-term debt............................... $992,053 $ 980,808 ======== ==========
Table 10--Capital Amounts and Ratios
June 30 ---------------------------------- 2001 2000 ---------------- ---------------- Amount Ratio Amount Ratio ---------- ----- ---------- ----- (Dollars in thousands) Tier 1 capital: AmSouth................................... $2,590,226 7.70% $2,668,147 7.37% AmSouth Bank.............................. 3,278,150 9.77 3,283,431 9.03 Total capital: AmSouth................................... $3,716,964 11.04% $3,809,992 10.53% AmSouth Bank.............................. 3,970,705 11.83 3,941,495 10.84 Leverage: AmSouth................................... $2,590,226 6.80% $2,668,147 6.20% AmSouth Bank.............................. 3,278,150 8.62 3,283,431 7.65
25 Item 3. Quantitative and Qualitative Disclosures About Market Risk The information required by this item is included on page 15 of Part 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. PART II OTHER INFORMATION Item 1. Legal Proceedings Several of AmSouth's subsidiaries are defendants in legal proceedings arising in the ordinary course of business. Some of these proceedings seek relief or damages that are substantial. The actions relate to AmSouth's lending, collections, loan servicing, deposit taking, investment, trust, and other activities. Among the actions which are pending against AmSouth subsidiaries are actions filed as class actions. The actions are similar to others that have been brought in recent years against financial institutions in that they seek punitive damage awards in transactions involving relatively small amounts of actual damages. A disproportionately higher number of the lawsuits against AmSouth have been filed in 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 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 The regular Annual Meeting of Shareholders of AmSouth was held on April 19, 2001, at which meeting the shareholders (i) elected four nominees as directors, and (ii) approved an amendment to AmSouth's 1996 Long Term Incentive Compensation Plan to increase the number of shares of common stock reserved under the plan. The following is a tabulation of the voting on these matters. ELECTION OF DIRECTORS
Votes Broker Names Votes For Withheld Abstentions Nonvotes ----- ----------- ---------- ----------- -------- Rodney C. Gilbert................ 295,150,636 11,241,368 N/A -0- Victoria B. Jackson.............. 293,101,829 13,290,175 N/A -0- Claude B. Nielsen................ 295,195,700 11,196,304 N/A -0- Benjamin F. Payton............... 295,144,505 11,247,499 N/A -0-
AMENDMENT OF 1996 LONG TERM INCENTIVE COMPENSATION PLAN
Votes Broker Votes For Against Abstentions Nonvotes --------- ------- ----------- -------- 194,116,047 46,353,294 6,987,670 58,934,993
26 Item 6. Exhibits and Reports on Form 8-K Item 6(a) -- Exhibits The exhibits listed in the Exhibit Index at page 29 of this Form 10-Q are filed herewith or are incorporated by reference herein. Item 6(b) -- Reports on Form 8-K No reports on Form 8-K were filed by AmSouth during the period April 1, 2001 to June 30, 2001. 27 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, AmSouth has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. August 13, 2001 /s/ C. Dowd Ritter By: _________________________________ C. Dowd Ritter Chairman, President and Chief Executive Officer August 13, 2001 /s/ Donald R. Kimble By: _________________________________ Donald R. Kimble Executive Vice President, Chief Accounting Officer and Controller 28 EXHIBIT INDEX The following is a list of exhibits including items incorporated by reference. 3-a Restated Certificate of Incorporation of AmSouth Bancorporation (1) 3-b By-Laws of AmSouth Bancorporation (2) 10-a 1996 Long Term Incentive Compensation Plan, as amended (3) 15 Letter Re: Unaudited Interim Financial Information NOTES TO EXHIBITS (1) Filed as Exhibit 3.1 to AmSouth's Report on Form 8-K filed October 15, 1999, incorporated herein by reference. (2) Filed as Exhibit 3-b to AmSouth's Form 10-Q Quarterly Report for the quarter ended March 31, 2001, incorporated herein by reference. (3) Filed as Appendix B to AmSouth's Proxy Statement, dated March 12, 2001, for the Annual Meeting of Shareholders on April 19, 2001, incorporated herein by reference. 29 EX-15 3 dex15.txt LETTER RE: UNAUDITED INTERIM FINANCIAL INFO EXHIBIT 15 Exhibit 15 -- Letter Re: Unaudited Interim Financial Information Board of Directors AmSouth Bancorporation We are aware of the incorporation by reference in the following Registration Statements and in their related Prospectuses, of our report dated August 8, 2001, relating to the unaudited consolidated financial statements of AmSouth Bancorporation and subsidiaries which are included in its Form 10-Q for the quarter ended June 30, 2001: Form S-3 No. 33-55683 pertaining to the AmSouth Bancorporation Dividend Reinvestment and Common Stock Purchase Plan; Form S-8 No. 33-52243 pertaining to the assumption by AmSouth Bancorporation of FloridaBank Stock Option Plan and FloridaBank Stock Option Plan-1993; Form S-8 No. 33-52113 pertaining to the AmSouth Bancorporation 1989 Long Term Incentive Compensation Plan; Form S-8 No. 33-35218 pertaining to the AmSouth Bancorporation 1989 Long Term Incentive Compensation Plan; Form S-8 No. 33-37905 pertaining to the AmSouth Bancorporation Thrift Plan; Form S-8 No. 33-2927 (as amended) pertaining to the AmSouth Bancorporation Employee Stock Purchase Plan; Form S-3 No. 33-35280 pertaining to the AmSouth Bancorporation Dividend Reinvestment and Common Stock Purchase Plan; Form S-8 No. 333-02099 pertaining to the AmSouth Bancorporation Thrift Plan; Form S-8 No. 333-05631 pertaining to the AmSouth Bancorporation 1996 Long Term Incentive Compensation Plan; Form S-8 No. 333-27107 pertaining to the AmSouth Bancorporation Employee Stock Purchase Plan; Form S-8 No. 333-41599 pertaining to the AmSouth Bancorporation Deferred Compensation Plan and the Amended and Restated Deferred Compensation Plan for Directors of AmSouth Bancorporation; Form S-3 No. 333-44263 pertaining to the AmSouth Bancorporation Shelf Registration Statement; Form S-8 No. 333-76283 pertaining to the AmSouth Bancorporation Stock Option Plan for Outside Directors; Form S-8 No. 333-89451 pertaining to the First American Corporation 1993 Non-Employee Director Stock Option Plan; Form S-8 No. 333-89455 pertaining to the First American Corporation 1999 Broad-Based Employee Stock Option Plan; Form S-8 No. 333-89457 pertaining to the First American Corporation Star Award Plan; Form S-8 No. 333-89459 pertaining to the Deposit Guaranty Corporation Long Term Incentive Plans; Form S-8 No. 333-89461 pertaining to the First American Corporation 1991 Employee Stock Incentive Plan; Form S-8 No. 333-89463 pertaining to the Heritage Federal Bancshares, Inc. 1994 Stock Option Plan for Non-Employee Directors and 1992 Stock Option Plan and Incentive Compensation Plan for Non-Employee Directors; Form S-8 No. 333-89633 pertaining to the First American Corporation First Incentives Reward Savings Thrift Plan; Form S-3 No. 333-42542 pertaining to the AmSouth Bancorporation Dividend Reinvestment and Common Stock Purchase Plan; Form S-8 No. 333-42554 pertaining to the AmSouth Bancorporation Thrift Plan; Form S-8 No. 333-42556 pertaining to the AmSouth Bancorporation Employee Stock Purchase Plan; Form S-8 No. 333-42558 pertaining to the AmSouth Bancorporation Amended and Restated 1991 Employee Stock Incentive Plan; and Form S-8 No. 333-42560 pertaining to the Pioneer Bancshares, Inc. Long-Term Incentive Plan. Pursuant to Rule 436(c) of the Securities Act of 1933 our reports are not a part of the registration statements prepared or certified by accountants within the meaning of Sections 7 or 11 of the Securities Act of 1933. /s/ ERNST & YOUNG LLP Birmingham, Alabama August 8, 2001 -----END PRIVACY-ENHANCED MESSAGE-----