-----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, HOGBlT+A64qb6s5p3P4ilPgzZcGqyHelaBfY3vMWdqa3pGutU4pXMnmspblgTQ86 GOIdjClsm4Czn/pQ+AWAzw== 0000931763-99-001677.txt : 19990518 0000931763-99-001677.hdr.sgml : 19990518 ACCESSION NUMBER: 0000931763-99-001677 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 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: SEC FILE NUMBER: 001-07476 FILM NUMBER: 99624788 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 NAMSOUTH 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 FIRST QUARTER 1999 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 March 31, 1999 Commission file number 1-7476 AmSouth Bancorporation (Exact Name of registrant as specified in its charter)
Delaware 63-0591257 (State or other jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) AmSouth--Sonat Tower 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 April 30, 1999, AmSouth Bancorporation had 117,502,222 shares of common stock outstanding on a pre-split basis, 176,253,333 on a post-split basis. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- AMSOUTH BANCORPORATION FORM 10-Q INDEX
Page ---- Part I. Financial Information Item 1. Financial Statements (Unaudited) Consolidated Statement of Condition--March 31, 1999, December 31, 1998, and March 31, 1998 ............................................ 3 Consolidated Statement of Earnings--Three months ended March 31, 1999 and 1998............................................................. 4 Consolidated Statement of Shareholders' Equity--Three months ended March 31, 1999....................................................... 5 Consolidated Statement of Cash Flows--Three months ended March 31, 1999 and 1998........................................................ 6 Notes to Consolidated Financial Statements............................ 7 Independent Accountants' Review Report................................ 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................. 11 Part II. Other Information Item 1. Legal Proceedings............................................... 22 Item 6. Exhibits and Reports on Form 8-K................................ 22 Signatures................................................................ 23 Exhibit Index............................................................. 24
Forward-Looking Information. This Quarterly Report on Form 10-Q contains certain forward-looking statements with respect to the adequacy of the allowance for loan losses, the effect of legal proceedings on AmSouth's financial condition and results of operations, the Year 2000 issue, and with respect to certain other issues. These forward-looking statements involve certain risks, uncertainties, estimates, and assumptions by management. Various factors could cause actual results to differ materially from those contemplated by such forward-looking statements. With respect to the adequacy of the allowance for loan losses, these factors include the rate of growth in the economy, especially in the Southeast, the relative strength and weakness in the consumer and commercial credit sectors of the economy and in the real estate markets, the performance of the stock and bond markets, and the potential effects of the Year 2000 issue. With regard to the effect of legal proceedings, various uncertainties are discussed in "Part II, Item 1. Legal Proceedings." Moreover, the outcome of litigation is inherently uncertain and depends on judicial interpretations of law and the findings of judges and juries. The information regarding Year 2000 compliance is based on management's current assessment. However, this is an ongoing process involving continual evaluation and unanticipated problems could develop that could cause compliance to be more difficult or costly than currently anticipated. 2 PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) AMSOUTH BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CONDITION (Unaudited)
March 31 December 31 March 31 1999 1998 1998 ----------- ----------- ----------- (In thousands) ASSETS Cash and due from banks.................... $ 573,898 $ 619,599 $ 604,244 Federal funds sold and securities purchased under agreements to resell................ 8,250 5,609 825 Trading securities......................... 7,310 4,144 1,194 Available-for-sale securities.............. 3,086,960 3,029,372 3,049,531 Held-to-maturity securities (market value of $2,033,070, $2,162,102 and $2,493,889, respectively)............................. 2,025,004 2,147,044 2,480,571 Mortgage loans held for sale............... 89,424 148,461 110,460 Other interest-earning assets.............. 24,834 29,276 -0- Loans...................................... 13,313,336 12,977,467 12,308,247 Less: Allowance for loan losses............ 176,595 176,075 179,347 Unearned income.......................... 119,614 107,604 101,305 ----------- ----------- ----------- Net loans............................... 13,017,127 12,693,788 12,027,595 Premises and equipment, net................ 334,134 336,772 312,766 Customers' acceptance liability............ 10,088 3,947 4,262 Accrued interest receivable and other assets.................................... 906,742 883,667 798,613 ----------- ----------- ----------- $20,083,771 $19,901,679 $19,390,061 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits and interest-bearing liabilities: Deposits: Noninterest-bearing demand............... $ 2,159,278 $ 2,215,887 $ 2,139,111 Interest-bearing demand.................. 4,483,140 4,559,470 3,937,019 Savings.................................. 968,578 980,829 1,042,521 Time..................................... 4,396,250 4,553,666 4,847,027 Certificates of deposit of $100,000 or more.................................... 937,738 973,952 1,024,050 ----------- ----------- ----------- Total deposits.......................... 12,944,984 13,283,804 12,989,728 Federal funds purchased and securities sold under agreements to repurchase...... 1,617,530 1,482,100 1,309,036 Other borrowed funds...................... 176,182 88,873 469,883 Long-term Federal Home Loan Bank advances................................. 2,625,084 2,500,117 2,137,293 Other long-term debt...................... 888,916 739,642 740,170 ----------- ----------- ----------- Total deposits and interest-bearing liabilities............................ 18,252,696 18,094,536 17,646,110 Acceptances outstanding.................... 10,088 3,947 4,262 Accrued expenses and other liabilities..... 392,759 375,567 313,259 ----------- ----------- ----------- Total liabilities....................... 18,655,543 18,474,050 17,963,631 ----------- ----------- ----------- 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--350,000,000 shares; Issued-- 202,422,963, 202,425,450 and 202,494,192 shares, respectively.................... 202,423 202,425 202,494 Capital surplus........................... 454,744 448,620 448,885 Retained earnings......................... 1,171,260 1,133,046 1,018,738 Cost of common stock in treasury-- 25,891,161, 25,048,731 and 20,819,202 shares, respectively..................... (393,887) (367,286) (257,128) Deferred compensation on restricted stock.................................... (12,971) (8,272) (10,141) Accumulated other comprehensive income.... 6,659 19,096 23,582 ----------- ----------- ----------- Total shareholders' equity.............. 1,428,228 1,427,629 1,426,430 ----------- ----------- ----------- $20,083,771 $19,901,679 $19,390,061 =========== =========== ===========
See notes to consolidated financial statements. 3 AMSOUTH BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS (Unaudited)
Three Months Ended March 31 ----------------- 1999 1998 -------- -------- (In thousands except per share data) INTEREST INCOME Loans....................................................... $270,785 $264,733 Available-for-sale securities............................... 49,016 48,447 Held-to-maturity securities................................. 33,540 41,051 Trading securities.......................................... 47 17 Mortgage loans held for sale................................ 1,236 1,067 Federal funds sold and securities purchased under agreements to resell................................................... 73 167 Other interest-earning assets............................... 398 -0- -------- -------- Total interest income...................................... 355,095 355,482 -------- -------- INTEREST EXPENSE Interest-bearing demand deposits............................ 33,380 33,635 Savings deposits ........................................... 4,866 7,417 Time deposits............................................... 60,128 68,453 Certificates of deposit of $100,000 or more................. 12,203 13,592 Federal funds purchased and securities sold under agreements to repurchase .............................................. 16,850 17,596 Other borrowed funds........................................ 1,601 8,397 Long-term Federal Home Loan Bank advances................... 32,367 24,038 Other long-term debt........................................ 12,588 10,687 -------- -------- Total interest expense .................................... 173,983 183,815 -------- -------- NET INTEREST INCOME 181,112 171,667 Provision for loan losses................................... 9,500 14,400 -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES......... 171,612 157,267 -------- -------- NONINTEREST REVENUES Service charges on deposit accounts......................... 26,751 26,059 Trust income................................................ 17,155 16,979 Consumer investment services income......................... 9,645 7,231 Mortgage income............................................. 6,796 3,938 Portfolio income............................................ 4,465 2,296 Bank owned life insurance policies.......................... 4,484 4,036 Other noninterest revenues.................................. 19,765 15,266 -------- -------- Total noninterest revenues................................. 89,061 75,805 -------- -------- NONINTEREST EXPENSES Salaries and employee benefits.............................. 78,584 67,717 Net occupancy expense....................................... 14,413 13,875 Equipment expense........................................... 15,468 15,190 Marketing expense........................................... 5,361 5,008 Postage and office supplies................................. 6,329 5,459 Communications expense...................................... 5,851 5,675 Amortization expense........................................ 4,172 4,526 Other noninterest expenses.................................. 21,803 19,464 -------- -------- Total noninterest expenses................................. 151,981 136,914 -------- -------- INCOME BEFORE INCOME TAXES.................................. 108,692 96,158 Income taxes................................................ 38,361 34,135 -------- -------- NET INCOME................................................. $ 70,331 $ 62,023 ======== ======== Average common shares outstanding........................... 176,028 181,464 Earnings per common share................................... $ 0.40 $ 0.34 Diluted average common shares outstanding................... 178,844 183,297 Diluted earnings per common share........................... $ 0.39 $ 0.34
See notes to consolidated financial statements. 4 AMSOUTH BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited)
Accumulated Other Common Capital Retained Treasury Deferred Comprehensive Stock Surplus Earnings Stock Compensation Income Total -------- -------- ---------- --------- ------------ ------------- ---------- (In thousands) BALANCE AT JANUARY 1, 1999................... $134,950 $516,095 $1,133,046 $(367,286) $ (8,272) $ 19,096 $1,427,629 Adjustment for the effect of 3-for-2 common stock split..... 67,475 (67,475) -0- -0- -0- -0- -0- -------- -------- ---------- --------- -------- -------- ---------- BALANCE AT JANUARY 1, 1999, RESTATED......... 202,425 448,620 1,133,046 (367,286) (8,272) 19,096 1,427,629 Comprehensive income: Net income............. -0- -0- 70,331 -0- -0- -0- 70,331 Other comprehensive income, net of tax: Unrealized losses on available-for-sale securities, net of reclassification adjustment........... -0- -0- -0- -0- -0- (12,437) (12,437) ---------- Comprehensive income.... 57,894 Cash dividends declared ($0.17 per common share)*................ -0- -0- (29,496) -0- -0- -0- (29,496) Common stock transactions: Purchase of common stock................. -0- -0- -0- (41,247) -0- -0- (41,247) Benefit stock plans.... (2) 6,012 (2,621) 13,312 (4,699) -0- 12,002 Dividend reinvestment plan.................. -0- 112 -0- 1,334 -0- -0- 1,446 -------- -------- ---------- --------- -------- -------- ---------- BALANCE AT MARCH 31, 1999................... $202,423 $454,744 $1,171,260 $(393,887) $(12,971) $ 6,659 $1,428,228 ======== ======== ========== ========= ======== ======== ========== Disclosure of reclassification amount: Unrealized holding losses on available- for-sale securities arising during the period................. $(10,054) Less: Reclassification adjustment for gains realized in net income................. 2,383 -------- Net unrealized losses on available-for-sale securities, net of tax.................... $(12,437) ========
- -------- *Restated for three-for-two common stock split in May 1999 See notes to consolidated financial statements. 5 AMSOUTH BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Three Months Ended March 31 -------------------- 1999 1998 --------- --------- (In thousands) OPERATING ACTIVITIES Net income.............................................. $ 70,331 $ 62,023 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses.............................. 9,500 14,400 Depreciation and amortization of premises and equipment............................................. 11,133 9,216 Amortization of premiums and discounts on held-to- maturity securities and available-for-sale securities............................................ 646 (1,060) Net decrease (increase) in mortgage loans held for sale.................................................. 59,037 (29,640) Net (increase) decrease in trading securities.......... (3,166) 212 Net gains on sales of available-for-sale securities.... (3,803) (1,743) Net decrease (increase) in accrued interest receivable and other assets...................................... 36,948 (102,356) Net (decrease) increase in accrued expenses and other liabilities........................................... (12,755) 56,248 Provision for deferred income taxes.................... 13,910 8,000 Amortization of intangible assets...................... 4,088 4,129 Other operating activities, net........................ (369) 2,505 --------- --------- Net cash provided by operating activities............. 185,500 21,934 --------- --------- INVESTING ACTIVITIES Proceeds from maturities and prepayments of available- for-sale securities.................................... 293,618 128,661 Proceeds from sales of available-for-sale securities.... 178,901 167,955 Purchases of available-for-sale securities.............. (555,732) (792,994) Proceeds from maturities, prepayments and calls of held- to-maturity securities................................. 262,269 182,127 Purchases of held-to-maturity securities................ (162,942) (389,979) Net (increase) decrease in federal funds sold and securities purchased under agreements to resell........ (2,641) 18,175 Net decrease in other interest-earning assets........... 4,442 -0- Net increase in loans................................... (334,248) (9,988) Net purchases of premises and equipment................. (8,495) (7,782) --------- --------- Net cash used by investing activities................. (324,828) (703,825) --------- --------- FINANCING ACTIVITIES Net (decrease) increase in demand deposits and savings accounts............................................... (145,190) 67,220 Net decrease in time deposits........................... (193,589) (22,622) Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase......... 135,430 (126,889) Net increase (decrease) in other borrowed funds......... 87,309 (516,035) Issuance of long-term Federal Home Loan Bank advances and other long-term debt............................... 299,231 1,295,120 Payments for maturing long-term debt.................... (24,937) (50,842) Cash dividends paid..................................... (29,496) (24,021) Cash payment for special rights and warrants on common stock.................................................. -0- (355) Proceeds from benefit and dividend reinvestment plans... 6,116 6,595 Purchase of common stock................................ (41,247) (536) --------- --------- Net cash provided by financing activities............. 93,627 627,635 --------- --------- Decrease in cash and cash equivalents................... (45,701) (54,256) Cash and cash equivalents at beginning of period........ 619,599 658,500 --------- --------- Cash and cash equivalents at end of period.............. $ 573,898 $ 604,244 ========= =========
See notes to consolidated financial statements. 6 AMSOUTH BANCORPORATION AND SUBSIDIARIES Notes To Consolidated Financial Statements (Unaudited) Three Months Ended March 31, 1999 and 1998 General--The consolidated financial statements conform to generally accepted accounting principles and to general industry practices. The accompanying interim financial statements are unaudited; however, in the opinion of management, all adjustments necessary for the fair presentation of the consolidated financial statements have been included. All such adjustments are of a normal recurring nature. Certain amounts in the prior year's financial statements have been reclassified to conform with the 1999 presentation. These reclassifications had no effect on net income. All common share data presented in the consolidated financial statements reflect a three-for-two stock split which will be completed on May 24, 1999. The notes included herein should be read in conjunction with the notes to consolidated financial statements included in AmSouth Bancorporation's (AmSouth) 1998 annual report on Form 10-K. On January 1, 1999, AmSouth adopted Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1) as issued by the American Institute of Certified Public Accountants (AICPA). SOP 98-1 identifies the characteristics of internal use computer software and provides guidance on accounting for its costs. The provisions of this SOP are to be applied to costs incurred for all projects, including those in progress, upon initial application. The application of SOP 98-1 did not have a material effect on AmSouth's financial condition or results of operations. On January 1, 1999, AmSouth also adopted Statement of Position 98-5, "Reporting the Costs of Start-Up Activities" (SOP 98-5) as issued by the AICPA. SOP 98-5 applies to all nongovernmental entities and requires that costs of start-up activities and organization costs be expensed as incurred. The adoption of SOP 98-5 did not have a material effect on AmSouth's financial condition or results of operations. In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and for Hedging Activities," (Statement 133), was issued by the Financial Accounting Standards Board. Statement 133 provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. It requires all derivatives to be recorded on the balance sheet at fair value and establishes unique accounting treatment for the following three different types of hedges: hedges of changes in the fair value of assets, liabilities or firm commitments, referred to as fair value hedges; hedges of the variable cash flows of forecasted transactions, referred to as cash flow hedges; and hedges of foreign currency exposures of net investments in foreign operations. The accounting for each of the three types of hedges results in recognizing offsetting changes in value or cash flows of both the hedge and the hedged item in earnings in the same period. Changes in the fair value of derivatives that do not meet the criteria of one of these three types of hedges are included in earnings in the period of change. Statement 133 is effective for fiscal years beginning after June 15, 1999. The impact of adopting Statement 133 on AmSouth's financial condition or results of operations has not been determined at this time. Cash Flows--For the three months ended March 31, 1999 and 1998, AmSouth paid interest of $175,037,000 and $168,736,000, respectively. AmSouth paid income taxes of $1,015,000 for the three months ended March 31, 1999, and received a refund of income taxes of $6,303,000 for the three months ended March 31,1998. Noncash transfers from loans to foreclosed properties for the three months ended March 31, 1999 and 1998 were $3,350,000 and $2,504,000, respectively, and noncash transfers from foreclosed properties to loans were $124,000 and $241,000, respectively. For the three months ended March 31, 1999, noncash transfers from loans to available-for-sale securities and to other assets of approximately $2,862,000 and $104,000, respectively, were made in connection with the participation of mortgages to third-party conduits. For the three months ended March 31, 1998, a noncash transfer from loans to available-for- sale securities of approximately $22,481,000 was made in connection with mortgage loan securitizations. 7 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 March 31 ----------------- 1999 1998 -------- -------- (In thousands except per share data) Earnings per common share computation: Numerator: Net income................................................. $ 70,331 $ 62,023 Denominator: Average common shares outstanding.......................... 176,028 181,464 Earnings per common share.................................... $ .40 $ .34 Diluted earnings per common share computation: Numerator: Net income................................................. $ 70,331 $ 62,023 Denominator: Average common shares outstanding.......................... 176,028 181,464 Dilutive shares contingently issuable...................... 2,816 1,833 -------- -------- Average diluted common shares outstanding................. 178,844 183,297 Diluted earnings per common share............................ $ .39 $ .34
Shareholders' Equity--On March 20, 1997, AmSouth's Board of Directors approved the repurchase by AmSouth of up to 13,500,000 shares of its common stock for the purpose of funding employee benefit and dividend reinvestment plans and for general corporate purposes. AmSouth purchased 5,859,000 shares at a cost of $110,267,000 during 1997, 5,297,000 shares at a cost of $136,514,000 during 1998 and 1,352,000 shares at a cost of $41,247,000 during the first three months of 1999 under this authorization. The authorization for the remaining 992,000 shares expired in March 1999. On April 15, 1999, AmSouth's shareholders approved an increase in the common stock authorized to be issued by AmSouth to 350,000,000 shares. This new authorized amount has been reflected in AmSouth's Consolidated Statement of Condition as of March 31, 1999. On April 15, 1999, a three-for-two common stock split in the form of a 50 percent common stock dividend was announced. The stock dividend will be paid May 24 to shareholders of record as of April 30. On April 15, 1999, AmSouth's Board of Directors approved the repurchase of approximately 13,100,000 shares of the Company's outstanding common stock for the purpose of funding employee benefit and dividend reinvestment plans and for general corporate purposes. 8 Business Segment Information--AmSouth has three reportable segments: Consumer Banking, Commercial Banking, and Capital 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 BOLI income and corporate expenses such as corporate overhead and goodwill amortization. All revenues and expenses related to the bond administration and stock transfer businesses, sold in 1998, are included in Treasury and Other for 1998. The following is a summary of the segment performance for the first quarter of 1999 and 1998:
Consumer Commercial Capital Treasury Banking Banking Management & Other Total -------- ---------- ---------- -------- -------- (In thousands) 1999 Net interest income from external customers......... $ 59,859 $ 93,754 $ (258) $ 27,757 $181,112 Internal funding............ 59,310 (37,566) 578 (22,322) -0- -------- -------- ------- -------- -------- Net interest income......... 119,169 56,188 320 5,435 181,112 Noninterest revenues........ 39,455 12,277 26,804 10,525 89,061 -------- -------- ------- -------- -------- Total revenues.............. 158,624 68,465 27,124 15,960 270,173 Provision for loan losses... 8,795 184 -0- 521 9,500 Noninterest expenses........ 88,511 25,555 18,489 19,426 151,981 -------- -------- ------- -------- -------- Income before income taxes.. 61,318 42,726 8,635 (3,987) 108,692 Income taxes................ 23,074 16,057 3,237 (4,007) 38,361 -------- -------- ------- -------- -------- Segment net income.......... $ 38,244 $ 26,669 $ 5,398 $ 20 $ 70,331 ======== ======== ======= ======== ======== 1998 Net interest income from external customers......... $ 50,023 $ 94,525 $ (967) $ 28,086 $171,667 Internal funding............ 57,252 (43,035) 1,595 (15,812) -0- -------- -------- ------- -------- -------- Net interest income......... 107,275 51,490 628 12,274 171,667 Noninterest revenues........ 36,140 8,305 22,976 8,384 75,805 -------- -------- ------- -------- -------- Total revenues.............. 143,415 59,795 23,604 20,658 247,472 Provision for loan losses... 12,937 1,312 -0- 151 14,400 Noninterest expenses........ 80,376 23,617 15,689 17,232 136,914 -------- -------- ------- -------- -------- Income before income taxes.. 50,102 34,866 7,915 3,275 96,158 Income taxes................ 18,816 13,095 3,087 (863) 34,135 -------- -------- ------- -------- -------- Segment net income.......... $ 31,286 $ 21,771 $ 4,828 $ 4,138 $ 62,023 ======== ======== ======= ======== ========
9 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 March 31, 1999 and 1998, and the related consolidated statements of earnings and cash flows for the three-month periods ended March 31, 1999 and 1998, and the consolidated statement of shareholders' equity for the three-month period ended March 31, 1999. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with the standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated statement of condition of AmSouth Bancorporation and subsidiaries as of December 31, 1998, 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 29, 1999, except for Note 22 as to which the date is March 1, 1999, 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, 1998 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 May 10, 1999 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations AmSouth reported net income of $70.3 million for the three months ended March 31, 1999, a 13.4% increase over net income of $62.0 million for the same period of 1998. Diluted earnings per common share, restated for the three-for- two stock split payable May 24, 1999, was $0.39 for the first quarter of 1999, a 14.7% increase over 1998's $0.34. AmSouth's return on average assets (ROA) was 1.44% for the quarter just ended versus 1.33% one year ago. Return on average equity (ROE) was 20.06%, up from 17.97% in the first quarter of 1998. Total assets were $20.1 billion at quarter end, compared to 1998's quarter- end assets of $19.4 billion. The increase was primarily the result of continued loan growth over the past year. Loans net of unearned income at March 31, 1999, increased $1.0 billion from March 31, 1998, to $13.2 billion. On a managed basis, which includes commercial and residential loans participated to third-party conduits, loans increased $2.8 billion to $15.4 billion at quarter end. The increases in the managed loan portfolio occurred primarily in commercial and industrial, commercial real estate, home equity, and indirect lending. On the funding side of the balance sheet, total deposits at March 31, 1999, remained relatively unchanged from March 31, 1998, with decreases in time deposits and certificates of deposit greater than $100,000 offsetting a 9.5% increase in lower cost deposits. AmSouth continued to increase its use of Federal Home Loan Bank (FHLB) advances as a funding source. FHLB advances increased to $2.6 billion at March 31, 1999, a 22.8% increase over 1998 first- quarter end. AmSouth also issued $175 million of 6.125% Subordinated Notes due 2009 during the first quarter of 1999. Net Interest Income Net interest income on a fully taxable equivalent basis for the three months ended March 31, 1999, was $182.5 million, a 5.3% increase over the same period of 1998. The increase can be attributed to lower funding costs and a shift in the mix of AmSouth's earning assets from investment securities to higher yielding loans. This resulted in a widening of the net interest margin to 4.08% from 4.04% in the first quarter of 1998. Lower borrowing and deposit rates across all categories of deposits contributed to the lower funding costs. The improvement was further enhanced by a shift in the deposit mix from higher cost consumer CDs to noninterest-bearing demand and lower cost interest checking and money market deposit accounts. 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. The Company accomplishes this process through the development and implementation of lending, funding and pricing strategies designed to maximize net interest income performance under varying interest rate environments and in compliance with 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 net interest income (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 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 strategies, among other factors. Based on the results of the simulation model as of March 31, 1999, AmSouth would expect decreases in NII of approximately $700,000 and $400,000 if interest rates gradually increase or decrease, respectively, from 11 current rates by 100 basis points over a 12-month period. This level of interest rate risk is well within the Company's policy guidelines. Based on March 31, 1998, simulation model results, AmSouth would have expected an increase of $1.4 million and a decrease of $4.3 million if interest rates had gradually increased or decreased from the rates in effect at the time by 100 basis points over a 12-month period. AmSouth, from time to time, utilizes various off-balance sheet instruments such as interest rate swaps, caps and floors to assist in managing interest rate risk. During 1999, AmSouth entered into additional interest rate swaps in the notional amount of $375.0 million. There have been no maturities or terminations of interest rate swaps in 1999. Interest rate swaps in the notional amount of $285.0 million were called during the first three months of 1999. At March 31, 1999, AmSouth had interest rate swaps, all of which receive fixed rates, totaling a notional amount of $969.0 million. The swaps added in 1999 as hedges were designated to certain deposits and indebtedness of AmSouth Bank. At March 31, 1999, AmSouth also held other off-balance sheet instruments to provide customers and AmSouth a means of managing the risks of changing interest and foreign exchange rates. These other off-balance sheet instruments were immaterial. Credit Quality AmSouth maintains an allowance for loan losses which management believes is adequate to absorb losses inherent in the loan portfolio. A formal review is prepared quarterly to assess the risk in the portfolio and to determine the adequacy of the allowance for loan losses. The review includes analyses of historical performance, the level of nonperforming and adversely rated loans, specific analyses of certain problem loans, loan activity since the previous quarter, reports prepared by the Credit Review Department, consideration of current economic conditions, and other pertinent information. The level of allowance to net loans outstanding will vary depending on the overall results of this quarterly review. The review is presented to and subsequently approved by senior management and reviewed by the Audit and Community Responsibility Committee of the Board of Directors. Table 5 presents a five-quarter analysis of the allowance for loan losses. At March 31, 1999, the allowance for loan losses was $176.6 million, or 1.34% of loans net of unearned income, compared to $179.3 million, or 1.47%, for the prior year. The coverage ratio of the allowance for loan losses to nonperforming loans increased from 202.06% at March 31, 1998, to 265.24% at March 31, 1999. Over the same period, the level of nonperforming loans decreased $22.2 million. Net charge-offs for the quarter ended March 31, 1999, were $9.0 million, a decrease of $5.3 million or 37.0% from $14.3 million a year earlier. Annualized net charge-offs to average loans net of unearned income were .28% for the three months ended March 31, 1999, compared to .47% for the same period of the prior year. The decrease in net charge-offs occurred primarily in AmSouth's revolving credit portfolio, which decreased $5.3 million in the quarter versus the first quarter of 1998. The decline in revolving credit net charge-offs reflects the sale of approximately $170.0 million of under- performing credit card loans in the second quarter of 1998. In addition, net charge-offs for the direct consumer-lending portfolio in the first quarter of 1999 when compared to the first quarter of 1998 decreased $956.0 thousand. This decrease was offset by a $1.1 million increase in net charge-offs in AmSouth's indirect lending portfolio. Annualized net charge-offs for the consumer loan portfolio fell to .53% of average consumer loans for the three months ended March 31, 1999, compared to .88% for the prior year. Net charge- offs of impaired loans for the three months ended March 31, 1999, totaled $1.1 million compared to $1.5 million for the same period in 1998. The provision for loan losses for the three months ended March 31, 1999, was $9.5 million compared to $14.4 million for the year-earlier period. The 1999 provision reflects loan loss exposure related to the overall growth in the loan portfolio and the change in the mix of the loan portfolio. Table 6 presents a five-quarter comparison of the components of nonperforming assets. At March 31, 1999, nonperforming assets as a percentage of loans net of unearned income, foreclosed properties and repossessions, decreased 23 basis points to .59% compared to March 31, 1998. The level of nonperforming assets decreased $22.3 million during the same period. 12 Included in nonperforming assets at March 31, 1999 and 1998, was $39.0 million and $57.2 million, respectively, in loans that were considered to be impaired, substantially all of which were on a nonaccrual basis. Collateral- dependent loans, which were measured at the fair value of the collateral, constituted approximately all of these impaired loans. At March 31, 1999 and 1998, there was $8.2 million and $9.7 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 March 31, 1999 and 1998, was $37.9 million and $49.1 million, respectively. AmSouth recorded no material interest income on its impaired loans in the first quarter of 1999 and 1998. Noninterest Revenues and Noninterest Expenses Year-to-date noninterest revenues totaled $89.1 million at March 31, 1999, compared to $75.8 million for the prior-year period. Growth occurred in most major categories, including consumer investment services income, mortgage income and income from bank owned life insurance. Consumer investment services income increased $2.4 million primarily as a result of a higher sales volume of annuity products. Mortgage income increased $2.9 million primarily as a result of gains on the sale of residential mortgage loans to third-party conduits partially offset by a decrease in gains on sale of servicing. Other noninterest revenues increased $4.5 million primarily due to an increase in income from commercial loan conduit activity. Year-to-date noninterest expenses increased 11.0% to $152.0 million at March 31, 1999, compared to $136.9 million for the prior year. Salaries and employee benefits increased $10.9 million when compared to the same period a year ago. The increase is primarily due to an increased number of employees associated with new revenue initiatives, annual merit increases and incentives associated with AmSouth's stronger financial performance. Costs associated with new revenue initiatives were the primary reason for the $2.3 million increase in other noninterest expenses. Capital Adequacy At March 31, 1999, shareholders' equity totaled $1.4 billion or 7.11% of total assets. Since December 31, 1998, shareholders' equity increased $599 thousand as dividends of $29.5 million and the purchase of 1,352,000 shares of AmSouth common stock for $41.2 million offset the increase from net income of $70.3 million. Table 9 presents the capital amounts and risk-adjusted capital ratios for AmSouth and AmSouth Bank at March 31, 1999 and 1998. At March 31, 1999, 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 March 31, 1999. Year 2000 Project The following information that appears in this section constitutes Year 2000 Readiness Disclosure, pursuant to the Year 2000 Information and Readiness Disclosure Act. The Year 2000 issue is the result of computer systems using a two-digit format, as opposed to four digits, to indicate the year. Any of AmSouth's computer programs or hardware that have date-sensitive software or embedded chips may not appropriately interpret dates beyond the year 1999. This could result in a system failure, miscalculation or other computer errors causing disruptions of operations. AmSouth believes that it has an effective program in place to resolve the Year 2000 issue in a timely manner and that it is unlikely that the Year 2000 issue will cause any significant problems with customer service or otherwise have a material adverse impact on AmSouth's operations or financial performance. A Year 2000 project team, consisting of professionals from all areas of AmSouth, was created in 1997 to plan and oversee AmSouth's Year 2000 efforts. A plan was developed which involves the following five phases: awareness, assessment, remediation, testing, and implementation. The plan also included communicating with 13 external service providers to ensure that they are taking appropriate action to remedy any Year 2000 issues. To date, AmSouth has fully completed its assessment phase of all systems that could be affected by the Year 2000. As part of the assessment phase, systems that have the greatest impact on the operations of AmSouth were designated as mission critical systems. The remediation and testing phases for all internal mission critical systems are 100% complete, and implementation is nearing completion. AmSouth has implemented 97 percent of its remediated mission critical systems, well ahead of the June 30, 1999, regulatory deadline. Even after testing and implementation, AmSouth will continue testing throughout 1999 to reaffirm the Year 2000 compliance of mission critical systems. A small number of mission critical systems are provided by third parties on a service bureau basis, such as credit card processing and services supporting securities brokerage businesses. All such third-party providers of mission critical services have certified their Year 2000 readiness and all completed their testing by March 31, 1999, as required by federal banking regulations. AmSouth expects the Year 2000 compliant versions of all third-party mission critical systems to be fully implemented by June 30, 1999. While AmSouth's greatest focus and efforts to date have been on preparing mission critical systems for the Year 2000, 93 percent of noncritical systems have been remediated, tested and implemented as of April 30, 1999. All noncritical systems are expected to be Year 2000 compliant and in operation during 1999. In addition, AmSouth is in the process of assessing the Year 2000 readiness of its significant customers, suppliers and counterparties. In the fourth quarter of 1997, AmSouth began researching the issue of Year 2000 and the possible impact of Year 2000 on its loan customers' liquidity and their ability to repay their loans. Early last year, AmSouth established an education and assessment program for all of its commercial loan customers with credit exposure of $100,000 or more. Meetings were held with these customers to assess their risk of Year 2000 problems as well as their understanding and progress toward preparing their systems to operate in the Year 2000. AmSouth plans to continue to assess and evaluate the impact of Year 2000 in its credit analysis of current and future loan customers throughout 1999 and 2000. AmSouth has also used a survey process to review its exposure with respect to counterparties to various transactions. In domestic securities transactions, AmSouth only enters into transactions with recognized dealers that are monitored by U.S. regulators. AmSouth plans to suspend trading with any domestic dealers who cannot demonstrate their Year 2000 compliance by the fourth quarter of 1999. Annual lines with international securities dealers were reviewed before the end of 1998, all with satisfactory results. AmSouth has contacted all of its essential suppliers regarding their Year 2000 compliance and has completed an analysis of the possible impact of noncompliance on their ability to fulfill their commitments to AmSouth. To date, AmSouth is not aware of any external supplier with a Year 2000 issue that would materially impact AmSouth's results of operations, liquidity, or capital resources. The potential impact of the Year 2000 issue on AmSouth's responsibilities when it acts in a fiduciary capacity is also being considered. Assets will be reviewed with the degree of emphasis varying based on the risk profile of the asset. This will be combined with a review of accounts above a predetermined dollar amount. Consideration of Year 2000 issues will be a part of ongoing activities, including investment selection and acceptance of new accounts. In recent years, AmSouth has invested heavily in new technology to improve service and competitiveness. In addition, AmSouth utilizes common operating systems company-wide. As a result, AmSouth estimates that the total incremental cost of Year 2000 compliance, which excludes the cost to upgrade and replace systems in the ordinary course of business, will not exceed $10.0 million, the majority of which has already been expensed, and will not be material to AmSouth's financial performance. This cost estimate does not include salaries and employee benefits of AmSouth employees working on the Year 2000 project, as these costs are not separately tracked. 14 As noted above, AmSouth believes that it has an effective program in place to resolve the Year 2000 issue. However, if appropriate modifications and conversions are not completed in a timely manner for some unexpected reason, the Year 2000 issue could impact AmSouth's operations. In addition, disruptions in the economy generally resulting from Year 2000 issues could also materially impact AmSouth. There can also be no guarantee that the systems of other companies on which AmSouth's systems rely will be converted in a timely manner and not have any adverse impact on AmSouth's systems. While AmSouth has no reason to conclude that a failure will occur, the most likely worst-case Year 2000 scenarios entail those items over which AmSouth has no control, including (1) unpredictable actions resulting from irrational public demand even if the Year 2000 computer issue presents no problems, and (2) a scenario where a disruption or failure of AmSouth's power suppliers or voice and data transmission suppliers impacts AmSouth, its customers, vendors, and the public infrastructure. If such public reaction or a failure were to occur, AmSouth would implement a contingency plan. While it is impossible to quantify the impact of such scenarios, the most reasonably likely worst-case scenario would entail liquidity issues related to increased customer withdrawals or the diminishment of service levels, resulting in customer inconvenience, and additional costs associated with the implementation of contingency plans. AmSouth has comprehensive contingency plans in place to address these scenarios and other possible system and service failures that could occur outside of AmSouth's control in an effort to minimize the impact on AmSouth of other organizations' failures to properly remediate their systems. These plans include having back-up power and telecommunication sources, and sufficient resources to deal with possible increased liquidity demands. Additionally, AmSouth is finalizing its event plans and outlining responsibilities for the days immediately preceding and including the date change. 15 Table 1--Financial Summary
March 31 ----------------------- % 1999 1998 Change ----------- ----------- ------ (In thousands) Balance sheet summary End-of-period balances: Loans net of unearned income.................... $13,193,722 $12,206,942 8.1% Total assets.................................... 20,083,771 19,390,061 3.6 Total deposits.................................. 12,944,984 12,989,728 (0.3) Shareholders' equity............................ 1,428,228 1,426,430 0.1 Year-to-date average balances: Loans net of unearned income.................... $13,064,656 $12,197,427 7.1% Total assets.................................... 19,804,867 18,882,051 4.9 Total deposits.................................. 13,011,734 12,791,102 1.7 Shareholders' equity............................ 1,421,681 1,400,141 1.5
Three Months Ended March 31 -------------------------------- % 1999 1998 Change --------------- --------------- ------- (In thousands except per share data) Earnings summary Net income......................... $ 70,331 $ 62,023 13.4% Per common share*.................. 0.40 0.34 17.6 Per common share--diluted*......... 0.39 0.34 14.7 Selected ratios Return on average assets (annualized)...................... 1.44% 1.33% Return on average equity (annualized)...................... 20.06 17.97 Average equity to assets........... 7.18 7.42 End of period equity to assets..... 7.11 7.36 End of period tangible equity to assets............................ 6.03 6.16 Allowance for loan losses to loans net of unearned income............ 1.34 1.47 Efficiency ratio................... 55.97 54.97 Common stock data* Cash dividends declared............ $ 0.17 $ 0.13 Book value at end of period........ 8.09 7.85 Market value at end of period...... 30.33 26.25 Average common shares outstanding.. 176,028 181,464 Average common shares outstanding-- diluted........................... 178,844 183,297
- -------- * Restated for three-for-two common stock split in May 1999. 16 Table 2--Quarterly Yields Earned on Average Interest-Earning Assets and Rates Paid on Average Interest-Bearing Liabilities
1999 1998 ---------------------------- ------------------------------------------------------------------------------- First Quarter Fourth Quarter Third Quarter Second 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.. $13,064,656 $271,204 8.42% $12,787,915 $276,196 8.57% $12,605,379 $275,905 8.68% $12,303,518 $270,372 Available-for- sale securities.. 2,864,766 49,016 6.94 3,044,713 52,318 6.82 3,271,460 56,958 6.91 3,101,694 54,860 Held-to-maturity securities: Taxable.......... 1,913,794 31,644 6.71 2,079,172 34,403 6.56 2,217,506 37,154 6.65 2,391,211 39,829 Tax-free......... 127,462 2,857 9.09 114,211 2,672 9.28 113,616 2,834 9.90 102,976 2,712 ----------- -------- ----------- -------- ----------- -------- ----------- -------- Total held-to- maturity securities....... 2,041,256 34,501 6.85 2,193,383 37,075 6.71 2,331,122 39,988 6.81 2,494,187 42,541 ----------- -------- ----------- -------- ----------- -------- ----------- -------- Total investment securities...... 4,906,022 83,517 6.90 5,238,096 89,393 6.77 5,602,582 96,946 6.87 5,595,881 97,401 Other interest- earning assets... 150,425 1,754 4.73 138,838 1,615 4.61 122,408 1,470 4.76 126,453 1,825 ----------- -------- ----------- -------- ----------- -------- ----------- -------- Total interest- earning assets... 18,121,103 356,475 7.98 18,164,849 367,204 8.02 18,330,369 374,321 8.10 18,025,852 369,598 Cash and other assets............ 1,835,590 1,768,281 1,653,319 1,665,235 Allowance for loan losses............ (176,554) (176,519) (175,160) (172,135) Market valuation on available-for- sale securities... 24,728 39,685 40,383 37,000 ----------- ----------- ----------- ----------- $19,804,867 $19,796,296 $19,848,911 $19,555,952 =========== =========== =========== =========== Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand deposits.. $ 4,445,859 33,380 3.04 $ 4,340,072 36,582 3.34 $ 4,132,755 37,924 3.64 $ 3,955,644 35,003 Savings deposits......... 973,896 4,866 2.03 981,293 6,107 2.47 1,002,891 7,343 2.90 1,034,423 7,528 Time deposits.... 4,521,253 60,128 5.39 4,641,398 64,825 5.54 4,787,203 67,869 5.62 4,848,525 67,964 Certificates of deposit of $100,000 or more............. 938,864 12,203 5.27 1,021,557 14,126 5.49 1,111,031 15,969 5.70 1,037,385 14,702 Federal funds purchased and securities sold under agreements to repurchase.... 1,535,469 16,850 4.45 1,478,217 17,693 4.75 1,520,284 20,048 5.23 1,261,245 16,484 Other interest- bearing liabilities...... 3,493,989 46,556 5.40 3,436,194 47,407 5.47 3,577,479 50,202 5.57 3,702,694 51,980 ----------- -------- ----------- -------- ----------- -------- ----------- -------- Total interest- bearing liabilities...... 15,909,330 173,983 4.44 15,898,731 186,740 4.66 16,131,643 199,355 4.90 15,839,916 193,661 -------- ----- -------- ---- -------- ---- -------- Net interest spread............ 3.54% 3.36% 3.20% ===== ==== ==== Noninterest- bearing demand deposits.......... 2,131,862 2,143,062 1,969,029 2,000,507 Other liabilities....... 341,994 335,663 326,336 294,212 Shareholders' equity............ 1,421,681 1,418,840 1,421,903 1,421,317 ----------- ----------- ----------- ----------- $19,804,867 $19,796,296 $19,848,911 $19,555,952 =========== =========== =========== =========== Net interest income/margin on a taxable equivalent basis............. 182,492 4.08% 180,464 3.94% 174,966 3.79% 175,937 ===== ==== ==== Taxable equivalent adjustment: Loans............ 419 410 522 428 Securities....... 961 887 930 887 -------- -------- -------- -------- Total taxable equivalent adjustment....... 1,380 1,297 1,452 1,315 -------- -------- -------- -------- Net interest income.......... $181,112 $179,167 $173,514 $174,622 ======== ======== ======== ======== First Quarter ----------------------------- Yield/ Average Revenue/ Yield/ Rate Balance Expense Rate ------- ------------ -------- ------- Assets Interest-earning assets: Loans net of unearned income.. 8.81% $12,197,427 $265,129 8.82% Available-for- sale securities.. 7.09 2,694,502 48,447 7.29 Held-to-maturity securities: Taxable.......... 6.68 2,286,392 38,659 6.86 Tax-free......... 10.56 114,216 3,572 12.68 ------------ -------- Total held-to- maturity securities....... 6.84 2,400,608 42,231 7.13 ------------ -------- Total investment securities...... 6.98 5,095,110 90,678 7.22 Other interest- earning assets... 5.79 89,915 1,251 5.64 ------------ -------- Total interest- earning assets... 8.22 17,382,452 357,058 8.33 Cash and other assets............ 1,634,825 Allowance for loan losses............ (180,050) Market valuation on available-for- sale securities... 44,824 ------------ $18,882,051 ============ Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand deposits.. 3.55 $ 3,905,855 33,635 3.49 Savings deposits......... 2.92 1,034,900 7,417 2.91 Time deposits.... 5.62 4,946,323 68,453 5.61 Certificates of deposit of $100,000 or more............. 5.68 968,818 13,592 5.69 Federal funds purchased and securities sold under agreements to repurchase.... 5.24 1,351,583 17,596 5.28 Other interest- bearing liabilities...... 5.63 3,059,910 43,122 5.72 ------------ -------- Total interest- bearing liabilities...... 4.90 15,267,389 183,815 4.88 ------- -------- ------- Net interest spread............ 3.32% 3.45% ======= ======= Noninterest- bearing demand deposits.......... 1,935,206 Other liabilities....... 279,315 Shareholders' equity............ 1,400,141 ------------ $18,882,051 ============ Net interest income/margin on a taxable equivalent basis............. 3.91% 173,243 4.04% ======= ======= Taxable equivalent adjustment: Loans............ 396 Securities....... 1,180 -------- Total taxable equivalent adjustment....... 1,576 -------- Net interest income.......... $171,667 ========
- ---- NOTE: The taxable equivalent adjustment has been computed based on a 35% federal income tax rate and has given effect to the disallowance of interest expense, for federal income tax purposes, related to certain tax-free assets. Loans net of unearned income includes nonaccrual loans for all periods presented. Available-for-sale securities excludes certain noninterest-earning, marketable equity securities. 17 Table 3--Maturities and Interest Rates Exchanged on Swaps
Mature During -------------------------- 1999 2000 2008 2009 Total ----- ----- ----- ----- ----- (Dollars in millions) Receive fixed swaps: Notional amount............................ $ 340 $ 329 $ 200 $ 100 $ 969 Receive rate............................... 6.68% 6.12% 6.05% 6.10% 6.30% Pay rate................................... 4.89% 4.94% 5.25% 4.97% 4.99%
- -------- NOTE: The interest rates exchanged are calculated assuming that interest rates remain unchanged from March 31, 1999 rates and using call dates of swaps where applicable. The information presented could change as future interest rates increase or decrease. Table 4--Loans and Credit Quality
Net Charge- offs Three Loans* Nonperforming Loans** Months Ended March 31 March 31 March 31 ----------------------- --------------------- --------------- 1999 1998 1999 1998 1999 1998 ----------- ----------- ---------- ---------- ------ ------- (In thousands) Commercial: Commercial & industrial........... $ 3,622,151 $ 3,595,908 $ 17,906 $ 39,099 $1,122 $ 1,597 Commercial loans-- secured by real estate............... 613,835 643,506 6,252 8,397 74 44 ----------- ----------- ---------- ---------- ------ ------- Total commercial.... 4,235,986 4,239,414 24,158 47,496 1,196 1,641 ----------- ----------- ---------- ---------- ------ ------- Commercial real estate: Commercial real estate mortgages............ 1,566,989 1,024,014 11,093 7,151 10 (48) Real estate construction......... 1,406,319 1,064,062 2,811 1,680 (61) (117) ----------- ----------- ---------- ---------- ------ ------- Total commercial real estate........ 2,973,308 2,088,076 13,904 8,831 (51) (165) ----------- ----------- ---------- ---------- ------ ------- Consumer: Residential first mortgages............ 1,418,577 2,140,862 19,801 24,715 369 301 Other residential mortgages............ 1,850,336 1,561,292 8,395 5,366 656 486 Dealer indirect....... 2,017,416 1,272,241 168 1,332 3,490 2,357 Revolving credit...... 254,821 426,075 -0- -0- 2,288 7,593 Other consumer........ 443,278 478,982 154 1,020 1,032 2,037 ----------- ----------- ---------- ---------- ------ ------- Total consumer...... 5,984,428 5,879,452 28,518 32,433 7,835 12,774 ----------- ----------- ---------- ---------- ------ ------- $13,193,722 $12,206,942 $ 66,580 $ 88,760 $8,980 $14,250 =========== =========== ========== ========== ====== =======
- -------- * Net of unearned income. ** Exclusive of accruing loans 90 days past due. 18 Table 5--Allowance for Loan Losses
1999 1998 ----------- ----------------------------------------------- 1st Quarter 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter ----------- ----------- ----------- ----------- ----------- (Dollars in thousands) Balance at beginning of period................. $176,075 $175,046 $174,079 $179,347 $179,197 Loans charged off....... (13,939) (16,553) (12,584) (19,248) (20,880) Recoveries of loans previously charged off.................... 4,959 5,282 5,551 5,446 6,630 -------- -------- -------- -------- -------- Net charge-offs......... (8,980) (11,271) (7,033) (13,802) (14,250) Addition to allowance charged to expense..... 9,500 12,300 8,000 23,434 14,400 Allowance sold.......... -0- -0- -0- (14,900) -0- -------- -------- -------- -------- -------- Balance at end of period................. $176,595 $176,075 $175,046 $174,079 $179,347 ======== ======== ======== ======== ======== Allowance for loan losses to loans net of unearned income........ 1.34% 1.37% 1.40% 1.40% 1.47% Allowance for loan losses to nonperforming loans.................. 265.24% 266.49% 236.10% 230.57% 202.06% Allowance for loan losses to nonperforming assets................. 227.85% 228.26% 207.57% 206.51% 179.68% Net charge-offs to average loans net of unearned income (annualized)........... 0.28% 0.35% 0.22% 0.45% 0.47%
19 Table 6--Nonperforming Assets
1999 1998 -------- ----------------------------------------- March March 31 December 31 September 30 June 30 31 -------- ----------- ------------ ------- ------- (Dollars in thousands) Nonaccrual loans.......... $66,580 $66,072 $74,141 $75,501 $88,760 Foreclosed properties..... 10,020 10,237 9,225 8,035 9,902 Repossessions............. 904 828 967 761 1,154 ------- ------- ------- ------- ------- Total nonperforming assets*.................. $77,504 $77,137 $84,333 $84,297 $99,816 ======= ======= ======= ======= ======= Nonperforming assets* to loans net of unearned income, foreclosed properties and repossessions............ 0.59% 0.60% 0.67% 0.68% 0.82% Accruing loans 90 days past due................. $26,077 $23,832 $29,586 $25,701 $32,363
- -------- *Exclusive of accruing loans 90 days past due. Table 7--Investment Securities
March 31, 1999 March 31, 1998 --------------------- --------------------- Carrying Market Carrying Market Amount Value Amount Value ---------- ---------- ---------- ---------- (In thousands) Held-to-maturity: U.S. Treasury and federal agency securities....................... $1,657,829 $1,664,875 $2,145,884 $2,156,232 State, county and municipal securities....................... 151,914 153,294 108,117 111,508 Other securities.................. 215,261 214,901 226,570 226,149 ---------- ---------- ---------- ---------- $2,025,004 $2,033,070 $2,480,571 $2,493,889 ========== ========== ========== ========== Available-for-sale: U.S. Treasury and federal agency securities....................... $2,739,586 $2,843,550 Other securities.................. 347,374 205,981 ---------- ---------- $3,086,960 $3,049,531 ========== ==========
- -------- 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 March 31, 1999, were approximately 5.2 years and 6.79%, respectively. Included in the combined portfolios was $4.4 billion of mortgage-backed securities, $447 million of which were variable rate. The weighted-average remaining life and the weighted-average yield of mortgage- backed securities at March 31, 1999, were approximately 4.9 years and 6.75% respectively. The duration of the combined portfolios, which considers the repricing frequency of variable rate securities, is approximately 2.8 years. 2. The available-for-sale portfolio included net unrealized gains of $10.7 million and $38.0 million at March 31, 1999 and 1998, respectively. 20 Table 8--Other Interest-Bearing Liabilities
March 31 ----------------- 1999 1998 -------- -------- (In thousands) Other borrowed funds: Treasury, tax and loan notes................................ $105,254 $175,879 Short-term bank notes....................................... 50,000 275,000 Other short-term debt....................................... 20,928 19,004 -------- -------- Total other borrowed funds................................. $176,182 $469,883 ======== ======== Other long-term debt: 6.75% Subordinated Debentures Due 2025...................... $149,884 $149,867 6.45% Subordinated Notes Due 2018........................... 304,393 305,032 6.125% Subordinated Notes Due 2009.......................... 174,243 -0- 7.75% Subordinated Notes Due 2004........................... 149,527 149,435 Subordinated Capital Notes Due 1999......................... 99,989 99,860 Long-term notes payable..................................... 10,880 35,976 -------- -------- Total other long-term debt................................. $888,916 $740,170 ======== ========
Table 9--Capital Amounts and Ratios
March 31 ------------------------------------ 1999 1998 ---------------- ------------------ Amount Ratio Amount Ratio ---------- ----- ----------- ----- (Dollars in thousands) Tier 1 capital: AmSouth................................. $1,188,505 6.53% $1,155,302 7.22% AmSouth Bank............................ 1,495,878 8.25 1,467,730 9.18 Total capital: AmSouth................................. $1,960,199 10.78% $1,953,923 12.21% AmSouth Bank............................ 1,972,473 10.88 1,947,077 12.18 Leverage: AmSouth................................. $1,188,505 6.07% $1,155,302 6.20% AmSouth Bank............................ 1,495,878 7.66 1,467,730 7.87
21 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 in the State of Alabama. The actions are similar to others that have been brought in recent years in Alabama against financial institutions in that they seek punitive damage awards in transactions involving relatively small amounts of actual damages. In recent years, juries in Alabama State courts have made large punitive damage awards in such cases. Legislation that would limit these lawsuits has been proposed from time to time in the Alabama legislature but has not been enacted into law. AmSouth cannot predict whether any such legislation will be enacted. It may take a number of years to finally resolve some of these legal proceedings pending against AmSouth subsidiaries, due to their complexity and for other reasons. It is not possible to determine with any certainty at this time the corporation's potential exposure from the proceedings. At times, class actions are settled by defendants without admission or even an actual finding of wrongdoing but with payment of some compensation to purported class members and large attorney's fees to plaintiff class counsel. Nonetheless, based upon the advice of legal counsel, AmSouth's management is of the opinion that the ultimate resolution of these legal proceedings will not have a material adverse effect on AmSouth's financial condition or results of operations. Item 6. Exhibits and Reports on Form 8-K Item 6(a)--Exhibits The exhibits listed in the Exhibit Index at page 24 of this Form 10-Q are filed herewith or are incorporated by reference herein. Item 6(b)--Reports on Form 8-K Three reports on Form 8-K were filed by AmSouth during the period January 1, 1999 to March 31, 1999. (a) A report was filed on February 23, 1999, to report AmSouth's preliminary results of operations for the fourth quarter of 1998 and for the fiscal year ended December 31, 1998. (b) A report was filed on March 1, 1999, with respect to certain documents related to the issuance and sale of AmSouth's 6.125% Subordinated Notes due 2009. (c) A report was filed on April 23, 1999, to report that AmSouth's Board of Directors had approved (i) a three-for-two stock split with respect to the Company's common stock with a record date of April 30, 1999, and a payable date of May 24, 1999, and (ii) the repurchase of up to approximately 8.7 million shares of outstanding AmSouth common stock (approximately 13.1 million shares on a post-split basis) over a two-year period. 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, AmSouth has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. /s/ C. Dowd Ritter May 12, 1999 By: _________________________________ C. Dowd Ritter Chairman of the Board, President and Chief Executive Officer May 12, 1999 /s/ Robert R. Windelspecht By: _________________________________ Robert R. Windelspecht Executive Vice President and Controller 23 EXHIBIT INDEX The following is a list of exhibits including items incorporated by reference. 3-a Restated Certificate of Incorporation of AmSouth Bancorporation 3-b By-Laws of AmSouth Bancorporation (1) 15 Letter Re: Unaudited Interim Financial Information 27 Financial Data Schedule NOTES TO EXHIBITS (1) Filed as Exhibit 3-b to AmSouth's Form 10-Q Quarterly Report for the quarter ended June 30, 1997, incorporated herein by reference. 24 EX-3.(A) 2 RESTATED CERTIFICATE OF INCORPORATION Exhibit 3-a AmSouth Bancorporation Restated Certificate of Incorporation Section I: Name The name of the corporation is AmSouth Bancorporation. Section II: Registered Office and Agent The address of its registered office in the State of Delaware is 100 West 10th Street, in the City of Wilmington, County of Newcastle. The name of its registered agent at such address is The Corporation Trust Company. Section III: Purposes The purposes of the corporation are to engage in any lawful acts or activities for which corporations may be organized under the general corporation law of Delaware. Section IV: Capital Stock (a) The total number of shares of all classes of capital stock which the corporation shall have authority to issue is three hundred and fifty-two million (352,000,000), of which three hundred and fifty million (350,000,000) shares of the par value of $1.00 per share are to be of a class designated "Common Stock," and two million (2,000,000) shares without par value are to be of a class designated "Preferred Stock." The Preferred Stock may be issued from time to time as a class without series, or if so determined by the Board of Directors, either in whole or in part in one (1) or more series. There is hereby expressly granted to and vested in the Board of Directors authority to fix and determine by resolution the voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights, if any, and the qualifications, limitations or restrictions thereof, if any, including specifically, but not limited to, the dividend rights, conversion rights, redemption rights, and liquidation preferences, if any, of any wholly unissued series of Preferred Stock (or of the entire class of Preferred Stock if none of such shares have been issued), the number of shares constituting any such series and the terms and conditions of the issue thereof. A certificate setting forth a copy of each such resolution or resolutions and the number of shares of stock of each such class or series may be executed, acknowledged, filed, and recorded in accordance with Delaware General Corporation Law. Unless otherwise provided in any such resolution or resolutions, the number of shares of stock of any such class or series so set forth in such resolution or resolutions may thereafter be increased or decreased (but not below the number of shares thereof then outstanding), by a certificate likewise executed, acknowledged, filed, and recorded setting forth a statement that a specified increase or decrease therein had been authorized and directed by a resolution or resolutions likewise adopted by the Board of Directors. In case the number of such shares shall be decreased, the number of shares so specified in the certificate shall resume the status which they had prior to the adoption of the first resolution or resolutions. (b) The number of authorized shares of any class, including Preferred Stock, may be increased or decreased by the affirmative vote of the holders of a majority of the outstanding shares of the corporation entitled to vote without the separate vote of holders of Preferred Stock voting as a class. Section V: By-Laws The By-Laws may be made, altered, amended or repealed by the Board of Directors. The books of the corporation (subject to the provisions of the laws of the State of Delaware) may be kept outside of the State of Delaware at such places as from time to time may be designated by the Board of Directors. Section VI: Indemnification of Directors, Officers, Employees and Agents (1) The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed claim, action, suit or proceeding, whether civil, criminal, administrative or investigative, including appeals (other than an action by or in the right of the corporation), by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, partner, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. (2) The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, partner, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. (3) To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in paragraphs (1) and (2) of this Section VI, or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection therewith, not- withstanding that he or she has not been successful on any other claim, issue or matter in any such action, suit or proceeding. (4) Any indemnification under paragraphs (1), (2), and (3) of this Section VI (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he or she has met the applicable standard of conduct set forth in those paragraphs. Such determination shall be made (a) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (b) if such a quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (c) by the stockholders. (5) Expenses (including attorneys' fees) incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the corporation as authorized in this Section VI. (6) The indemnification and advancement of expenses provided by, or granted pursuant to, other paragraphs of this Section VI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. (7) For purposes of this Section VI, references to the "corporation" include all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation so that any person who is or was a director, officer, employee or agent of such a constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, partner, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Section VI with respect to the resulting or surviving corporation as he or she would if he or she had served the resulting or surviving corporation in the same capacity. (8) By action of its Board of Directors, notwithstanding any interest of the Directors in the action, the corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, partner, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of this Section VI or of the General Corporation Law of the State of Delaware. (9) For purposes of this Section VI, references to the "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Section VI. (10) The indemnification and advancements of expense provided by, or granted pursuant to, this Section VI shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. Section VII: Stockholders Meetings (a) No action required to be taken or which may be taken at any annual or special meeting of stockholders of the corporation may be taken without such a meeting, and the power of the stockholders to consent in writing, without such a meeting, to the taking of any action is specifically denied; provided, however, that nothing contained in this Certificate of Incorporation shall be deemed to restrict the power of the Board of Directors or of any of its committees to take any action required or permitted to be taken by them without a meeting, in accordance with applicable provisions of law. (b) Meetings of stockholders may be held within or without the State of Delaware, as the by-laws may provide, but special meetings of the stockholders for any purpose or purposes may be called, upon not less than 10 days' advance written notice, by resolution of the Board of Directors or by the chief executive officer of the corporation or, upon not less than 60 days' advance written notice, by holders of Common Stock entitled to be voted for directors in an amount not less than a majority of the number of shares of Common Stock of the corporation issued, outstanding and entitled to vote. (c) Elections of directors need not be by written ballot unless the by-laws so provide. (d) Notwithstanding any provision of the Certificate of Incorporation or the by-laws of the corporation (and notwithstanding the fact that a lesser percentage may be specified by law, this certificate of incorporation or the by- laws of the corporation), the affirmative vote of the holders of 67 percent of the outstanding shares of capital stock of the corporation entitled to vote for the election of directors shall be required to amend or repeal any provision of this Section VII or to adopt any provision inconsistent with this Section VII. Section VIII: Certain Business Combinations (1) Any other provision of this certificate of incorporation to the contrary notwithstanding, the affirmative vote of the holders of not less than 80 percent of the outstanding shares of capital stock of the corporation entitled to vote generally (the "voting stock") and the affirmative vote of the holders of not less than 67 percent of the voting stock held by stockholders other than the Interested Stockholder (as hereinafter defined) involved in the Business Combination (as hereinafter defined) shall be required for the approval or authorization of any Business Combination, or of any series of related transactions which, if taken together, would constitute a Business Combination, with any Interested Stockholder. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. In addition, in any Business Combination of a Subsidiary (as hereinafter defined) with an Interested Stockholder the voting provisions contained hereinabove shall apply in order for the corporation to cause the Subsidiary to approve or authorize such Business Combination. (2) The provisions of paragraph (1) of this Section VIII shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by law and any other provision of this certificate of incorporation, if all of the conditions specified in either of the following subparagraphs (a) or (b) are met: (a) A Majority of the Continuing Directors (as hereinafter defined) of the corporation (i) has expressly approved in advance the acquisition of voting stock of the corporation that caused the Interested Stockholder involved in the Business Combination to become an Interested Stockholder, or (ii) has approved the Business Combination; or (b) All of the following conditions shall have been met: (i) The aggregate amount of (I) cash and (II) the Fair Market Value (as hereinafter defined), as of the date of the consummation of the Business Combination, of consideration other than cash to be received per share by holders of Common Stock of the corporation in such Business Combination shall be at least equal to the highest amount determined under the following subclauses (A) through (G), inclusive (taking into account all recapitalizations, stock dividends, stock splits, and like distributions): (A) The highest per share price (including any brokerage commissions, transfer taxes, and soliciting dealers' fees) ("Purchase Price") paid by the Interested Stockholder for any share of Common Stock acquired by it (whether or not an Interested Stockholder at the time of acquisition) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the "Announcement Date"); (B) The highest Purchase Price paid by the Interested Stockholder in the transaction or transactions by which it became an Interested Stockholder; (C) The highest Purchase Price paid by the Interested Stockholder on the Announcement Date; (D) The highest Purchase Price paid by the Interested Stockholder during the period from the Announcement Date through the date of consummation of the Business Combination; (E) The highest Fair Market Value per share of the Common Stock of the corporation on the Announcement Date; (F) The highest Fair Market Value per share of the Common Stock of the corporation on the date on which the Interested Stockholder first became an Interested Stockholder; or (G) The book value per share of the Common Stock of the corporation on the last day of the month coinciding with or immediately prior to the Announcement Date. As used above in this paragraph (2)(b)(i), the term "consideration other than cash to be received" shall include, without limitation, in the event of a Business Combination in which the corporation is the surviving corporation, Common Stock or other voting stock of the corporation retained by its stockholders of record immediately prior to the consummation of the Business Combination who are not the Interested Stockholder involved in the Business Combination. In addition, assignments or transfers of Common Stock of the corporation between Associates or Affiliates (as those terms are hereinafter defined) prior to a Business Combination involving one of them as an Interested Stockholder shall not be construed to reduce the highest Purchase Price paid by the Interested Stockholder involved in the Business Combination in acquiring any holdings of the corporation's Common Stock. (ii) The consideration to be received by holders of outstanding Common Stock of the corporation shall be in cash or in the same form as the Interested Stockholder has previously paid for shares of such Common Stock. If the Interested Stockholder has paid for shares of Common Stock with varying forms of consideration, the form of consideration for such Common Stock shall be either cash or the form used to acquire the largest number of shares of Common Stock previously acquired by it. (iii) After such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination, except as approved by a Majority of the Continuing Directors, there shall have been (A) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), and (B) an increase in such annual rate of dividends as necessary to reflect any reclassification, reorganization, or any similar transaction which has the effect of reducing the number of outstanding shares of the Common Stock. (iv) After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the corporation or any of its Subsidiaries, whether in anticipation of or in connection with such Business Combination or otherwise. (v) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to holders of the Common Stock of the corporation at least 30 days prior to the meeting at which the Business Combination will be voted upon (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). The proxy or information statement shall contain on the cover page thereof a statement as to how members of the Board of Directors of the corporation voted on the proposal in question and any recommendation as to the advisability or inadvisability of the Business Combination that any director wishes to make, and shall also contain the opinion of a reputable national investment banking firm as to the fairness of the terms of the Business Combination, from the point of view of the holders of Common Stock other than the Interested Stockholder (such investment banking firm to be engaged solely on behalf of the said holders, to be paid a reasonable fee for its services by the corporation upon receipt of such opinion and to be an investment banking firm which has not previously been associated with the Interested Stockholder). (3) For purposes of this Section VIII: (a) "Affiliate", used to indicate a relationship with any person, means a person that directly, or through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified. The term shall be construed in accordance with Rule 12b-2 under the Securities Exchange Act of 1934 and interpretations thereof as of February 16, 1984 ("Rule 12b-2"). (b) "Associate", used to indicate a relationship with any person, means (1) any firm, corporation or other entity (other than the corporation or any Subsidiary) of which such person is an officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities, (2) any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity, and (3) any relative or spouse of such person, or any relative of such spouse, who has the same home as such person. The term shall be construed in accordance with Rule 12b-2. (c) "Beneficial Owner" means, as applied to Common Stock of the corporation, that the person is deemed to "beneficially own", as defined on February 16, 1984, in Rule 13d-3 under the Securities Exchange Act of 1934, all shares: (i) which such person or any of his, her, or its Affiliates or Associates beneficially owns, directly or indirectly; or (ii) which such person or any of his, her, or its Affiliates or Associates has, directly or indirectly, (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement, or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (B) the right to vote pursuant to any agreement, arrangement or understanding; or (iii) which are beneficially owned, directly or indirectly, by any other person with which such person or any of his, her or its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing or any shares of Common Stock. (d) "Business Combination" means (i) any Reorganization (as hereinafter defined) of the corporation or a Subsidiary with or into an Interested Stockholder, or any other person (whether or not itself an Interested Stockholder) which is, or after such Reorganization would be, an Affiliate of an Interested Stockholder, (ii) any sale, lease, exchange, transfer or other disposition, including without limitation a pledge, mortgage or any other security device, (in one transaction or a series of transactions) of all or any Substantial Part (as hereinafter defined) of the assets either of the corporation or of a Subsidiary, or both, to an Interested Stockholder or any Affiliate of any Interested Stockholder, (iii) any Reorganization of an Interested Stockholder or any other person (whether or not itself an Interested Stockholder) which is, or after such Reorganization would be, an Affiliate of an Interested Stockholder, with or into the corporation or a Subsidiary, (iv) any sale, lease, exchange, transfer, or other disposition of all or any Substantial Part of the assets of an Interested Stockholder or any Affiliate of any Interested Stockholder to the corporation or a Subsidiary, (v) the issuance of any securities of the corporation or a Subsidiary to an Interested Stockholder or any Affiliate of any Interested Stockholder except if such issuance were a stock split, stock dividend or other distribution pro rata to all holders of the same class of voting stock, (vi) any reclassification of securities (including a reverse stock split) or any other recaptialization that would have the effect of increasing the voting power of an Interested Stockholder or any Affiliate of any Interested Stockholder, (vii) the adoption of any plan or proposal for the liquidation or dissolution of the corporation or any Subsidiary proposed by or on behalf of an Interested Stockholder and (viii) any agreement, contract, plan or other arrangement providing for any of the transactions described in this definition of Business Combination. (e) "Continuing Director" means a director of the corporation at the time of the vote or determination provided for in paragraphs (2)(a), (3)(f) or (3)(1), who was a member of the Board of Directors of the corporation immediately prior to the earliest time that (i) any Interested Stockholder involved in a Business Combination or (ii) any Interested Stockholder who is (A) a Predecessor (as hereinafter defined) to such Interested Stockholder or (B) an assignor of beneficial ownership in the corporation to such an Interested Stockholder or to its Predecessor or Predecessors, became an Interested Stockholder. (f) "Fair Market Value" means (i) in the case of stock, the closing sales price of a share of such stock on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape on the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or if such stock is not listed on any such exchange, the closing sales price or the average of the bid and asked prices reported with respect to a share of such stock on the National Association of Securities Dealers, Inc. Automatic Quotation System or any system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by a Majority (as hereinafter defined) of the Continuing Directors; and (ii) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by a Majority of the Continuing Directors. (g) "Interested Stockholder" means any person other than (i) the corporation, (ii) any Subsidiary (unless the stock thereof not owned by the corporation is owned by an Interested Stockholder), (iii) any employee benefit plan of the corporation or of any Subsidiary or the trustees or fiduciaries of such a plan acting in that capacity, or (iv) either the corporation or any Subsidiary acting as trustee or in a similar fiduciary capacity who or which: (i) is the Beneficial Owner, directly or indirectly, of more than 10% of the then outstanding Common Stock; or (ii) is an Affiliate of the corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 10% or more of the then outstanding Common Stock; or (iii) is an assignee of or has otherwise succeeded to any shares of Common Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. For the purposes of determining whether a person is an Interested Stockholder, the number of shares of Common Stock deemed to be outstanding shall include shares deemed owned through application of paragraph (3)(c)(ii)(A) but shall not include any other shares of Common Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. (h) "Majority", as applied to Continuing Directors, means that number which constitutes a majority of the members of the Board of Directors of the corporation immediately prior to the earliest time that (i) any Interested Stockholder involved in the Business Combination or (ii) any Interested Stockholder who is (A) a Predecessor to such Interested Stockholder or (B) an assignor of beneficial ownership in the corporation to such an Interested Stockholder or to its Predecessor or Predecessors, became an Interested Stockholder. (i) the term "person" means any individual, corporation, partnership, association, trust or other entity. (j) "Predecessor" means each person or other entity (i) to which the subject Interested Stockholder is a successor by merger, consolidation, sale and purchase of substantially all of the assets thereof, or other reorganization or (ii) which assigned or transferred beneficial ownership of voting stock of the corporation to the subject Interested Stockholder, directly or indirectly, whether through successive transactions or otherwise. (k) "Reorganization" means a merger, consolidation, plan of exchange, sale of all or substantially all of the assets or other form of corporate reorganization pursuant to which shares of voting stock, or other securities of the subject corporation, are to be converted or exchanged into cash or other property, securities or other consideration. (l) "Substantial Part" means more than 20 percent of the fair market value of the total assets of the corporation or person in question, as determined in good faith by a Majority of the Continuing Directors, as of the end of its most recent fiscal year ending prior to the time the determination is being made. (m) "Subsidiary" means any corporation, national banking association or other entity of which a majority of any class of equity security is owned, directly or indirectly, by the corporation unless owned solely as trustee or in some other similar fiduciary capacity. (4) Nothing contained in this Section VIII shall be construed to relieve any Interested Stockholder from any fiduciary obligation or duty of fairness imposed by law or to adversely affect the rights of stockholders who are not Interested Stockholders under applicable principles of law and equity, including without limitation, those rights under the laws of the states of domicile of such stockholders, federal securities or other applicable laws, or the laws and regulations applicable to any banking subsidiaries of the corporation. (5) Notwithstanding any provisions of this certificate of incorporation of the by-laws of the corporation (and notwithstanding the fact that a lesser percentage may be specified by law, this certificate of incorporation or the by- laws of the corporation), the affirmative vote of the holders of not less than 80 percent of the outstanding shares of the voting stock and the affirmative vote of the holders of not less than 67 percent of the voting stock held by stockholders other than an Interested Stockholder shall be required to amend or repeal any provision of this Section VIII or to adopt any provision inconsistent with this Section VIII. Section IX: Reservation of Right to Amend Except as may be otherwise provided in Sections VII, VIII or XI hereof, the corporation reserves the right to amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation in the manner now or hereinafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. Section X: Limitation of Director Liability No director of the corporation shall be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. Section XI: Board of Directors (1) Commencing with the election of directors at the annual meeting of shareholders in 1988, the Directors shall be divided, with respect to the terms for which they severally hold office, into three classes (I, II and III) and, as determined by the Board of Directors, each such class, as nearly as possible, shall have the same number of directors. At the annual meeting of shareholders in 1988, Directors of Class I shall be elected to hold officer for a term expiring at the 1989 annual meeting of shareholders; Directors of Class II shall be elected to hold office for a term expiring at the 1990 annual meeting of shareholders; and Directors of Class III shall be elected to hold office for a term expiring at the 1991 annual meeting of shareholders. At each annual meeting of the shareholders held after 1988, the directors elected to succeed those whose terms have expired at such annual meeting, other than those directors elected under specified circumstances by a separate class vote of the holders of any class or series of Preferred Stock as defined in Section IV of the Restated Certificate of Incorporation, shall then be identified as being of the same class as the directors they succeed and shall be elected by the shareholders for a term expiring at the third succeeding annual meeting after such election. In all cases, directors shall hold office until their respective successors are elected and qualified. No decrease in the number of directors shall shorten the term of any incumbent Director. (2) Subject to the provisions of paragraph (5) of this Section XI relating to the rights of the holders of any class or series of Preferred Stock, as defined in Section IV of the Restated Certificate of Incorporation, to elect additional directors under specified circumstances by a separate class vote, the number of directors of the corporation shall be fixed from time to time by or pursuant to the by-laws of the corporation. (3) Subject to the provisions of paragraph (5) of this Section XI: (a) newly created directorships resulting from an increase in the number of directors shall be filled by the affirmative vote of the majority of the directors then in office who have been elected by the holders of the capital stock of the corporation entitled to vote generally for the election of directors, although less than a quorum or, in the event that there is only one such director, by such sole remaining director. The Board shall specify the class for which a director elected to fill a newly created directorship shall serve, and a director so elected shall hold office for the full term of the class of directors in which the new directorship was created and until his successor shall be elected and qualified; (b) vacancies resulting from resignation, retirement, disqualification, removal from office or other cause may be filled by the affirmative vote of a majority of the directors then remaining in office who have been elected by the holders of the capital stock of the corporation entitled to vote generally for the election of directors, although less than a quorum or, in the event that there is only one such director, by such sole remaining director. A director elected to fill such a vacancy shall hold office for the full term of the class in which the vacancy occurred and until his successor shall be elected and qualified. (4) Notwithstanding any other provisions of this Restated Certificate of Incorporation or the by-laws of the corporation (and notwithstanding the fact that some lesser percentage may be specified by law), any director or the entire Board of Directors of the corporation may be removed at any time, but only for cause and only by the affirmative vote of the holders of 80% of the combined voting power of the then outstanding shares of capital stock of the corporation entitled to vote generally for the election of directors, voting together as a single class; provided, however, that this paragraph shall not apply to directors elected under specified circumstances by a separate class vote of the holders of any class or series of Preferred Stock as defined in Section IV of the Restated Certificate of Incorporation. (5) In the event that the holders of any class or series of Preferred Stock, as defined in Section IV of the Restated Certificate of Incorporation, are entitled, under specified circumstances by a separate class vote, to elect directors pursuant to the terms of such class or series, then the provisions of such class or series of Preferred Stock with respect to such rights of election shall apply to the election of such directors. The number of directors that may be elected by the holders of any class or series of such Preferred Stock shall be in addition to the number fixed by or pursuant to Paragraph (2) of this Section XI. Except as otherwise expressly provided in the terms of such class or series of such Preferred Stock, the number of directors that may be so elected by the holders of any such class or series of such Preferred Stock shall be elected for terms expiring at the next annual meeting of shareholders and without regard to the classification of the remaining members of the Board of Directors, and vacancies among directors so elected under specified circumstances by a separate class vote of any such class or series of such Preferred Stock shall be filled by the affirmative vote of a majority of the remaining directors elected by such class or series, or, in the event that there is only one such director, by such sole remaining director, or, if there are no such remaining directors, by the holders of such class or series in the same manner in which such class or series initially elected directors. If at any meeting for the election of directors, more than one class of stock, voting separately as classes, shall be entitled to elect one or more directors and there shall be a quorum of only one such class of stock, that class of stock shall be entitled to elect its quota of directors notwithstanding the absence of a quorum of the other class or classes of stock. (6) Notwithstanding any other provisions of this Restated Certificate of Incorporation or the by-laws of the corporation (and notwithstanding the fact that some lesser percentage may be specified by law), the affirmative vote of the holders of 80% of the combined voting power of the then outstanding shares of capital stock of the corporation entitled to vote generally for the election of directors, voting together as a single class, shall be required to alter, amend or repeal any provisions within this Section or adopt any provisions in this Restated Certificate of Incorporation inconsistent with this Section. EX-15 3 LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION EXHIBIT 15 Exhibit 15--Letter Re: Unaudited Interim Financial Information Board of Directors AmSouth Bancorporation We are aware of the incorporation by reference in the following Registration Statements and in their related Prospectuses, of our report dated May 10, 1999 relating to the unaudited consolidated financial statements of AmSouth Bancorporation and subsidiaries which are included in its Form 10-Q for the quarter ended March 31, 1999: Form S-3 No. 33-55683 pertaining to the Dividend Reinvestment and Common Stock Purchase Plan; Form S-8 No. 33-52243 pertaining to the assumption by AmSouth Bancorporation of FloridaBank Stock Option Plan and FloridaBank Stock Option Plan-1993; Form S-8 No. 33-52113 pertaining to the 1989 Long Term Incentive Compensation Plan; Form S-8 No. 33-35218 pertaining to the 1989 Long Term Incentive Compensation Plan; Form S-8 No. 33-37905 pertaining to the AmSouth Bancorporation Thrift Plan; Form S-8 No. 33-2927 (as amended) pertaining to the Employee Stock Purchase Plan; Form S-3 No. 33-35280 pertaining to the Dividend Reinvestment and Common Stock Purchase Plan; Form S-8 No. 33-58777 pertaining to the Director Restricted Stock Plan; Form S-8 No. 333-02099 pertaining to the AmSouth Bancorporation Thrift Plan; Form S-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; and Form S-8 No. 333-76283 pertaining to the Stock Option Plan for Outside Directors. 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 May 5, 1999 EX-27 4 FINANCIAL DATA SCHEDULE
9 The consolidated statement of condition, the consolidated statement of earnings, the consolidated statement of cash flows of Item 1 of Part I and tables 2, 5 and 6 of Item 2 of Part I of the AmSouth Bancorporation Form 10-Q for the quarterly period ended March 31, 1999. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 573,898 0 8,250 7,310 3,086,960 2,025,004 2,033,070 13,193,722 176,595 20,083,771 12,944,984 1,793,712 402,847 3,514,000 0 0 202,423 1,225,805 20,083,771 270,785 82,556 1,754 355,095 110,577 173,983 181,112 9,500 3,803 151,981 108,692 108,692 0 0 70,331 .40 .39 4.08 66,580 26,077 0 0 176,075 13,939 4,959 176,595 0 0 0
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