-----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, HCGSjOC0cVnfOqo9yKc0bxaeqGvYhA3/I5rTDRh3WTCXqCFNMPZdRNo4DlrKqiB/ QMg+GS/k8nbevz3sC8ZQRg== 0000931763-99-003251.txt : 19991117 0000931763-99-003251.hdr.sgml : 19991117 ACCESSION NUMBER: 0000931763-99-003251 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 99755825 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 FORM 10-Q ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended September 30, 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 Incorporation or Organization) (I.R.S. Employer Identification No.) AmSouth--Sonat Tower 1900 Fifth Avenue North Birmingham, Alabama 35203 (Address of principal executive offices) (Zip Code)
(205) 320-7151 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of November 10, 1999, AmSouth Bancorporation had 391,088,837 shares of common stock outstanding. ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- AMSOUTH BANCORPORATION FORM 10-Q INDEX
Page ---- Part I.Financial Information Item 1.a Historical Financial Statements (Unaudited)................. 3 Consolidated Statement of Condition--September 30, 1999, December 31, 1998, and September 30, 1998............................. 3 Consolidated Statement of Earnings--Nine months ended September 30, 1999 and 1998............................................ 4 Consolidated Statement of Shareholders' Equity--Nine months ended September 30, 1999........................................... 5 Consolidated Statement of Cash Flows--Nine months ended September 30, 1999 and 1998 ........................................... 6 Notes to Consolidated Financial Statements........................ 7 Independent Accountants' Review Report............................ 10 Item 1.b Supplemental Combined Financial Information (Unaudited).... 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 14 Part II. Other Information Item 1. Legal Proceedings............................................ 26 Item 4. Submission of Matters to a Vote of Security Holders.......... 26 Item 5. Other Information............................................ 26 Item 6. Exhibits and Reports on Form 8-K............................. 27 Signatures................................................................ 28 Exhibit Index............................................................. 29
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.a Historical Financial Statements (Unaudited) AMSOUTH BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CONDITION (Unaudited)
September 30 December 31 September 30 1999 1998 1998 ------------ ----------- ------------ (In thousands) ASSETS Cash and due from banks................. $ 584,176 $ 619,599 $ 532,758 Federal funds sold and securities purchased under agreements to resell... 22,625 5,609 500 Trading securities...................... 8,783 4,144 2,689 Available-for-sale securities........... 3,581,168 3,029,372 3,281,129 Held-to-maturity securities (market value of $2,126,990, $2,162,102 and $2,328,440, respectively).............. 2,170,022 2,147,044 2,297,091 Mortgage loans held for sale............ 41,050 148,461 81,483 Other interest-earning assets........... 7,392 29,276 21,988 Loans................................... 13,851,474 12,977,467 12,622,913 Less: Allowance for loan losses......... 177,556 176,075 175,046 Unearned income......................... 143,858 107,604 95,745 ----------- ----------- ----------- Net loans............................ 13,530,060 12,693,788 12,352,122 Premises and equipment, net............. 331,645 336,772 324,903 Customers' acceptance liability......... 1,552 3,947 1,047 Accrued interest receivable and other assets................................. 999,322 883,667 797,633 ----------- ----------- ----------- $21,277,795 $19,901,679 $19,693,343 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits and interest-bearing liabilities: Deposits: Noninterest-bearing demand............ $ 2,191,574 $ 2,215,887 $ 2,040,880 Interest-bearing demand............... 4,546,668 4,559,470 4,185,796 Savings............................... 884,315 980,829 990,272 Time.................................. 4,332,450 4,553,666 4,700,940 Certificates of deposit of $100,000 or more.............................. 992,283 973,952 1,099,279 ----------- ----------- ----------- Total deposits....................... 12,947,290 13,283,804 13,017,167 Federal funds purchased and securities sold under agreements to repurchase... 1,855,606 1,482,100 1,283,025 Other borrowed funds................... 404,577 88,873 312,156 Long-term Federal Home Loan Bank advances.............................. 3,450,082 2,500,117 2,515,118 Other long-term debt................... 788,805 739,642 739,803 ----------- ----------- ----------- Total deposits and interest-bearing liabilities......................... 19,446,360 18,094,536 17,867,269 Acceptances outstanding................. 1,552 3,947 1,047 Accrued expenses and other liabilities.. 357,425 375,567 387,070 ----------- ----------- ----------- Total liabilities.................... 19,805,337 18,474,050 18,255,386 ----------- ----------- ----------- Shareholders' equity: Preferred stock--no par value: Authorized--2,000,000 shares; Issued and outstanding--none................ -0- -0- -0- Common stock--par value $1 a share: Authorized--750,000,000 shares; Issued--202,413,293, 202,425,450 and 202,635,075 shares, respectively..... 202,413 202,425 202,635 Capital surplus........................ 455,817 448,620 448,424 Retained earnings...................... 1,257,862 1,133,046 1,096,249 Cost of common stock in treasury-- 25,854,655, 25,048,731 and 23,774,241 shares, respectively.................. (392,744) (367,286) (333,797) Deferred compensation on restricted stock................................. (10,607) (8,272) (9,054) Accumulated other comprehensive (loss) income................................ (40,283) 19,096 33,500 ----------- ----------- ----------- Total shareholders' equity........... 1,472,458 1,427,629 1,437,957 ----------- ----------- ----------- $21,277,795 $19,901,679 $19,693,343 =========== =========== ===========
See notes to consolidated financial statements. 3 AMSOUTH BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS (Unaudited)
Nine Months Three Months Ended September 30 Ended September 30 --------------------- ------------------- 1999 1998 1999 1998 ---------- ---------- --------- --------- (In thousands except per share data) INTEREST INCOME Loans............................... $ 837,013 $ 810,060 $286,216 $275,383 Available-for-sale securities....... 161,683 160,265 59,751 56,958 Held-to-maturity securities......... 102,548 121,763 36,100 39,058 Trading securities.................. 120 85 35 37 Mortgage loans held for sale........ 3,559 3,435 1,063 932 Federal funds sold and securities purchased under agreements to re- sell............................... 406 690 125 286 Other interest-earning assets....... 706 336 169 215 ---------- ---------- --------- --------- Total interest income.............. 1,106,035 1,096,634 383,459 372,869 ---------- ---------- --------- --------- INTEREST EXPENSE Interest-bearing demand deposits.... 102,597 106,562 35,389 37,924 Savings deposits.................... 13,871 22,288 4,337 7,343 Time deposits....................... 178,661 204,286 59,055 67,869 Certificates of deposit of $100,000 or more............................ 36,162 44,263 12,140 15,969 Federal funds purchased and securi- ties sold under agreements to re- purchase........................... 58,869 54,128 21,849 20,048 Other borrowed funds................ 7,171 23,468 3,127 5,109 Long-term Federal Home Loan Bank ad- vances............................. 106,179 85,842 40,032 32,450 Other long-term debt................ 36,710 35,994 11,790 12,643 ---------- ---------- --------- --------- Total interest expense............. 540,220 576,831 187,719 199,355 ---------- ---------- --------- --------- NET INTEREST INCOME 565,815 519,803 195,740 173,514 Provision for loan losses........... 29,400 45,834 12,400 8,000 ---------- ---------- --------- --------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 536,415 473,969 183,340 165,514 ---------- ---------- --------- --------- NONINTEREST REVENUES Service charges on deposit ac- counts............................. 79,595 78,236 26,782 26,289 Trust income........................ 51,688 50,846 17,184 15,714 Consumer investment services in- come............................... 33,349 23,148 11,452 7,862 Mortgage income..................... 18,096 12,809 5,400 4,219 Portfolio income.................... 11,162 6,923 3,401 3,092 Bank owned life insurance policies (BOLI)............................. 14,567 13,874 5,236 3,952 Net gain on sale of businesses...... 0 27,974 0 0 Other noninterest revenues.......... 57,717 47,564 19,525 16,069 ---------- ---------- --------- --------- Total noninterest revenues......... 266,174 261,374 88,980 77,197 ---------- ---------- --------- --------- NONINTEREST EXPENSES Salaries and employee benefits...... 237,891 215,441 79,502 70,810 Net occupancy expense............... 43,696 42,524 14,929 14,438 Equipment expense................... 48,327 46,958 16,530 14,892 Marketing expense................... 15,997 15,306 5,233 5,270 Postage and office supplies......... 18,213 18,017 5,968 6,056 Communications expense.............. 16,946 17,250 5,219 5,771 Amortization expense................ 12,555 12,888 4,190 4,166 Other noninterest expenses.......... 66,164 66,060 21,475 17,913 ---------- ---------- --------- --------- Total noninterest expenses......... 459,789 434,444 153,046 139,316 ---------- ---------- --------- --------- INCOME BEFORE INCOME TAXES 342,800 300,899 119,274 103,395 Income taxes........................ 120,796 106,562 41,849 36,551 ---------- ---------- --------- --------- NET INCOME......................... $ 222,004 $ 194,337 $ 77,425 $ 66,844 ========== ========== ========= ========= Average common shares outstanding... 175,544 179,731 175,411 178,704 Earnings per common share........... $ 1.26 $ 1.08 $ 0.44 $ 0.37 Diluted average common shares out- standing........................... 178,158 182,647 177,758 181,432 Diluted earnings per common share... $ 1.25 $ 1.06 $ 0.44 $ 0.37 Cash dividends declared............. $ 0.51 $ 0.40 $ 0.17 $ 0.13
See notes to consolidated financial statements. 4 AMSOUTH BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited)
Deferred Compensation Accumulated on Other Common Capital Retained Treasury Restricted Comprehensive Stock Surplus Earnings Stock Stock Income (Loss) 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- 222,004 -0- -0- -0- 222,004 Other comprehensive income, net of tax: Unrealized losses on available-for-sale securities, net of reclassification adjustment............ -0- -0- -0- -0- -0- (59,379) (59,379) ---------- Comprehensive income.... 162,625 Cash dividends declared ($0.51 per common share*)................ -0- -0- (89,266) -0- -0- -0- (89,266) Common stock transactions: Purchase of common stock................. -0- -0- -0- (62,008) -0- -0- (62,008) Benefit stock plans.... (12) 7,090 (7,348) 31,616 (2,335) -0- 29,011 Dividend reinvestment plan.................. -0- 107 (574) 4,934 -0- -0- 4,467 -------- -------- ---------- --------- -------- -------- ---------- BALANCE AT SEPTEMBER 30, 1999................... $202,413 $455,817 $1,257,862 $(392,744) $(10,607) $(40,283) $1,472,458 ======== ======== ========== ========= ======== ======== ========== Disclosure of reclassification amount: Unrealized holding losses on available- for-sale securities arising during the period................. $(53,688) Less: Reclassification adjustment for gains realized in net income................. 5,691 -------- Net unrealized losses on available-for-sale securities, net of tax.................... $(59,379) ========
- -------- * 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)
Nine Months Ended September 30 ---------------------- 1999 1998 ---------- ---------- (In thousands) OPERATING ACTIVITIES Net income............................................ $ 222,004 $ 194,337 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses........................... 29,400 45,834 Depreciation and amortization of premises and equipment.......................................... 34,368 28,639 Amortization of premiums and discounts on held-to- maturity securities and available-for-sale securities......................................... 3,189 (2,113) Net decrease (increase) in mortgage loans held for sale............................................... 107,411 (663) Net increase in trading securities.................. (4,639) (1,283) Net gains on sales of available-for-sale securities......................................... (8,860) (5,218) Net increase in accrued interest receivable and other assets....................................... (108,636) (106,172) Net increase in accrued expenses and other liabilities........................................ 13,301 69,600 Provision for deferred income taxes................. 41,298 27,683 Amortization of intangible assets................... 12,265 12,342 Other operating activities, net..................... 9,843 6,780 ---------- ---------- Net cash provided by operating activities......... 350,944 269,766 ---------- ---------- INVESTING ACTIVITIES Proceeds from maturities and prepayments of available- for-sale securities.................................. 643,825 535,321 Proceeds from sales of available-for-sale securities.. 460,836 630,135 Purchases of available-for-sale securities............ (1,783,789) (1,838,659) Proceeds from maturities, prepayments and calls of held-to-maturity securities.......................... 584,619 885,245 Purchases of held-to-maturity securities.............. (632,422) (880,140) Net (increase) decrease in federal funds sold and securities purchased under agreements to resell...... (17,016) 18,500 Net decrease (increase) in other interest-earning assets............................................... 21,884 (21,988) Net increase in loans................................. (888,012) (401,353) Net purchases of premises and equipment............... (29,241) (39,342) ---------- ---------- Net cash used by investing activities............. (1,639,316) (1,112,281) ---------- ---------- FINANCING ACTIVITIES Net (decrease) increase in demand deposits and savings accounts............................................. (133,629) 165,517 Net decrease in time deposits......................... (202,761) (93,346) Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase....... 373,506 (152,900) Net increase (decrease) in other borrowed funds....... 315,704 (673,762) Issuance of long-term Federal Home Loan Bank advances and other long-term debt............................. 1,399,231 1,878,973 Payments for maturing long-term debt.................. (399,938) (256,942) Cash dividends paid................................... (59,527) (72,061) Cash payment for special rights and warrants on common stock................................................ -0- (355) Proceeds from benefit and dividend reinvestment plans................................................ 22,371 19,788 Purchase of common stock.............................. (62,008) (98,139) ---------- ---------- Net cash provided by financing activities......... 1,252,949 716,773 ---------- ---------- Decrease in cash and cash equivalents................. (35,423) (125,742) Cash and cash equivalents at beginning of period...... 619,599 658,500 ---------- ---------- Cash and cash equivalents at end of period............ $ 584,176 $ 532,758 ========== ==========
See notes to consolidated financial statements. 6 AMSOUTH BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Nine Months Ended September 30, 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 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. In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and for Hedging Activities" (Statement 133), was issued by the Financial Accounting Standards Board (FASB). Statement 133 provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. It requires all derivatives to be recorded on the balance sheet at fair value and establishes unique accounting treatment for the following three different types of hedges: hedges of changes in the fair value of assets, liabilities or firm commitments, referred to as fair value hedges; hedges of the variable cash flows of forecasted transactions, referred to as cash flow hedges; and hedges of foreign currency exposures of net investments in foreign operations. The accounting for each of the three types of hedges results in recognizing offsetting changes in value or cash flows of both the hedge and the hedged item in earnings in the same period. Changes in the fair value of derivatives that do not meet the criteria of one of these three types of hedges are included in earnings in the period of change. Statement 133 was originally effective for fiscal years beginning after June 15, 1999. In June 1999, FASB issued Statement of Financial Accounting Standard No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133" (Statement 137), which defers the effective date of Statement 133 to fiscal years beginning after June 15, 2000. 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 nine months ended September 30, 1999 and 1998, AmSouth paid interest of $534,641,000 and $557,583,000, respectively, and income taxes of $78,806,000 and $58,408,000, respectively. Noncash transfers from loans to foreclosed properties for the nine months ended September 30, 1999 and 1998, were $16,796,000 and $8,523,000, respectively, and noncash transfers from foreclosed properties to loans were $413,000 and $364,000, respectively. For the nine months ended September 30, 1999, noncash transfers from loans to available-for-sale securities and to other assets of approximately $6,860,000 and $10,425,000, respectively, were made in connection with the participation of mortgages to third-party conduits. For the nine months ended September 30, 1998, noncash transfers from loans to available-for-sale securities of approximately $49,183,000 were made in connection with mortgage loan securitizations. Comprehensive Income--Total comprehensive income was $67,976,000 and $162,625,000 for the three and nine months ended September 30, 1999 and $74,811,000 and $201,244,000 for the three and nine months ended September 30, 1998. Total comprehensive income consists of net income and the change in the unrealized gain or loss on the Corporation's available-for-sale security portfolio arising during the period. 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 Nine Months Ended September 30 September 30 ------------------- ------------------- 1999 1998 1999 1998 --------- --------- --------- --------- (In thousands except per share data) Earnings per common share computation: Numerator: Net income.......................... $ 77,425 $ 66,844 $ 222,004 $ 194,337 Denominator: Average common shares outstanding... 175,411 178,704 175,544 179,731 Earnings per common share.............. $ .44 $ .37 $ 1.26 $ 1.08 Diluted earnings per common share computation: Numerator: Net income.......................... $ 77,425 $ 66,844 $ 222,004 $ 194,337 Denominator: Average common shares outstanding... 175,411 178,704 175,544 179,731 Dilutive shares contingently issuable........................... 2,347 2,728 2,614 2,916 --------- --------- --------- --------- Average diluted common shares outstanding....................... 177,758 181,432 178,158 182,647 Diluted earnings per common share...... $ .44 $ .37 $ 1.25 $ 1.06
Acquisition--On October 1, 1999, the Corporation completed the acquisition of First American Corporation ("First American"). Including the acquisition of First American, AmSouth today has $43.4 billion in assets and approximately 660 branch banking offices and 1,365 ATMs in nine southeastern states. AmSouth and its subsidiaries provide a full line of traditional and nontraditional financial services including consumer and commercial banking, small business banking, mortgage loans, trust services and investment management. See Item 1.b, Supplemental Combined Financial Information. 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. 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 was 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. From April 15, 1999 to May 30, 1999, AmSouth purchased 655,200 shares at a cost of $20,398,000. The authorization was rescinded by the Board of Directors on May 31, 1999. On September 16, 1999, in an action related to the merger with First American, AmSouth's shareholders approved an increase in the common stock authorized to be issued by AmSouth from 350,000,000 to 750,000,000 shares. 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 & Other for 1998. The following is a summary of the segment performance for the three months and nine months ended September 30, 1999 and 1998:
Consumer Commercial Capital Treasury & Banking Banking Management Other Total -------- ---------- ---------- ---------- -------- (In thousands) Three Months Ended September 30, 1999 Net interest income from external customers........ $ 76,454 $ 89,702 $ (158) $ 29,742 $195,740 Internal funding........... 51,154 (32,012) 250 (19,392) -0- -------- -------- ------- -------- -------- Net interest income........ 127,608 57,690 92 10,350 195,740 Noninterest revenues....... 39,317 11,291 28,638 9,734 88,980 -------- -------- ------- -------- -------- Total revenues............. 166,925 68,981 28,730 20,084 284,720 Provision for loan losses.. 11,203 723 -0- 474 12,400 Noninterest expenses....... 89,938 24,854 19,190 19,064 153,046 -------- -------- ------- -------- -------- Income before income taxes..................... 65,784 43,404 9,540 546 119,274 Income taxes............... 24,771 16,298 3,577 (2,797) 41,849 -------- -------- ------- -------- -------- Segment net income......... $ 41,013 $ 27,106 $ 5,963 $ 3,343 $ 77,425 ======== ======== ======= ======== ======== Three Months Ended September 30, 1998 Net interest income from external customers........ $ 43,430 $ 95,852 $ (556) $ 34,788 $173,514 Internal funding........... 62,970 (40,217) 1,240 (23,993) -0- -------- -------- ------- -------- -------- Net interest income........ 106,400 55,635 684 10,795 173,514 Noninterest revenues....... 36,600 9,076 23,421 8,100 77,197 -------- -------- ------- -------- -------- Total revenues............. 143,000 64,711 24,105 18,895 250,711 Provision for loan losses.. 6,953 80 -0- 967 8,000 Noninterest expenses....... 84,317 23,422 16,026 15,551 139,316 -------- -------- ------- -------- -------- Income before income taxes..................... 51,730 41,209 8,079 2,377 103,395 Income taxes............... 20,196 15,482 2,651 (1,778) 36,551 -------- -------- ------- -------- -------- Segment net income......... $ 31,534 $ 25,727 $ 5,428 $ 4,155 $ 66,844 ======== ======== ======= ======== ======== Nine Months Ended September 30, 1999 Net interest income from external customers........ $205,010 $277,950 $ (597) $ 83,452 $565,815 Internal funding........... 165,862 (105,678) 1,260 (61,444) -0- -------- -------- ------- -------- -------- Net interest income........ 370,872 172,272 663 22,008 565,815 Noninterest revenues....... 117,426 35,140 85,047 28,561 266,174 -------- -------- ------- -------- -------- Total revenues............. 488,298 207,412 85,710 50,569 831,989 Provision for loan losses.. 26,004 1,915 -0- 1,481 29,400 Noninterest expenses....... 268,133 75,418 58,174 58,064 459,789 -------- -------- ------- -------- -------- Income before income taxes..................... 194,161 130,079 27,536 (8,976) 342,800 Income taxes............... 73,071 48,712 10,316 (11,303) 120,796 -------- -------- ------- -------- -------- Segment net income......... $121,090 $ 81,367 $17,220 $ 2,327 $222,004 ======== ======== ======= ======== ======== Nine Months Ended September 30, 1998 Net interest income from external customers........ $141,857 $281,806 $(2,176) $ 98,316 $519,803 Internal funding........... 180,864 (121,430) 4,255 (63,689) -0- -------- -------- ------- -------- -------- Net interest income........ 322,721 160,376 2,079 34,627 519,803 Noninterest revenues....... 110,739 25,148 71,053 54,434 261,374 -------- -------- ------- -------- -------- Total revenues............. 433,460 185,524 73,132 89,061 781,177 Provision for loan losses.. 31,054 4,031 -0- 10,749 45,834 Noninterest expenses....... 251,346 71,276 49,551 62,271 434,444 -------- -------- ------- -------- -------- Income before income taxes..................... 151,060 110,217 23,581 16,041 300,899 Income taxes............... 57,508 41,405 8,073 (424) 106,562 -------- -------- ------- -------- -------- Segment net income......... $ 93,552 $ 68,812 $15,508 $ 16,465 $194,337 ======== ======== ======= ======== ========
9 Item 1.b SUPPLEMENTAL COMBINED FINANCIAL INFORMATION The following unaudited supplemental combined financial information gives retroactive effect to the merger of AmSouth and First American consummated on October 1, 1999 (the "Merger") on a pooling of interests accounting basis. Accordingly, the unaudited supplemental combined financial information combines the historical financial information of AmSouth and First American for all periods presented herein. Certain insignificant reclassifications have been included to ensure consistent presentation. The combined financial information includes merger related costs of $19.7 million and $47.7 million for the three and nine month periods ended September 30, 1999 and $37.1 million and $109.2 million for the same periods of 1998. These amounts were primarily related to the acquisition of companies by First American prior to the Merger. Merger related costs associated with the Merger are expected to primarily be incurred over the next three quarters. The third quarter of 1999 also included $15.6 million of special charges. These special charges included an $8.0 million impairment loss on a portfolio investment, and approximately $7.6 million of other charges conforming First American to AmSouth's accounting policies and practices. These special charges are included in the provision for loan losses, noninterest revenue and noninterest expense. Excluding the merger related costs and these other special charges, AmSouth would have recorded net income of $156.6 million and $443.6 million for the three months and nine months ended September 30, 1999, respectively, or $0.40 and $1.12 per diluted share, respectively. The supplemental data are presented for comparative purposes only and are not necessarily indicative of the future financial position or results of operations of the combined company. 11 AMSOUTH BANCORPORATION AND SUBSIDIARIES SUPPLEMENTAL COMBINED FINANCIAL INFORMATION (Dollars in thousands, except per share data) (Unaudited)
Third Quarter Third Quarter 1999 % Change 1998 - ------------------------------------------------------------------------------- Excluding merger related costs and other special charges: Earnings: Net income.............................. $ 156,554 6.4% $ 147,130 Provision for loan losses............... 27,604 66.2 16,604 Noninterest revenue..................... 225,218 12.9 199,545 Noninterest expense..................... 336,879 8.3 310,971 Per Share: Diluted earnings per common share....... $ 0.40 8.1 $ 0.37 Earnings per common share............... 0.40 5.3 0.38 Ratios: Return on average assets................ 1.46% 1.49% Return on average common equity......... 19.03 18.87 Efficiency ratio........................ 55.09 55.13 - ------------------------------------------------------------------------------- Including merger related costs and other special charges: Earnings: Net interest income..................... $ 380,347 6.3% $ 357,761 Provision for loan losses............... 30,604 84.3 16,604 Noninterest revenue excluding gain on sale of businesses..................... 207,753 4.1 199,545 Net gain on sale of businesses.......... 8,624 -- -- Noninterest expense excluding merger related costs.......................... 340,680 9.6 310,971 Merger related costs.................... 19,672 (47.0) 37,139 Income taxes............................ 71,122 4.2 68,250 ----------- ----------- Net income.............................. $ 134,646 8.3 $ 124,342 =========== =========== - ------------------------------------------------------------------------------- Per share: Diluted earnings per common share....... $ 0.34 6.3% $ 0.32 Earnings per common share............... 0.35 9.4 0.32 - ------------------------------------------------------------------------------- Average Balances: Total assets............................ $42,619,886 8.6% $39,246,344 Interest-earning assets................. 38,833,086 8.0 35,972,211 Loans net of unearned income............ 25,715,288 7.8 23,857,684 Deposits................................ 27,539,662 1.9 27,029,115 Total shareholders' equity.............. 3,264,009 5.5 3,093,142 - ------------------------------------------------------------------------------- At quarter end: Common shares issued and outstanding.... 391,949 0.4% 390,475 Book value per common share............. $ 8.10 0.7 $ 8.04 Tangible book value per common share.... $ 6.99 2.0 $ 6.85 - ------------------------------------------------------------------------------- Ratios: Return on average assets................ 1.25% 1.26% Return on average common equity......... 16.37 15.95 Average shareholders' equity to average total assets........................... 7.66 7.88 Efficiency ratio........................ 59.79 61.72 - ------------------------------------------------------------------------------- Credit quality information: Nonaccrual loans........................ $ 161,842 46.6% $ 110,362 Nonperforming assets.................... $ 186,329 46.9 $ 126,854 Nonperforming assets to loans net of unearned income, foreclosed properties and repossessions...................... 0.71% 0.54% Net charge-offs......................... $ 31,046 116.1% $ 14,368 Allowance for loan losses to loans net of unearned income..................... 1.39% 1.55% Net charge-offs to average loans net of unearned income........................ 0.48 0.24 Allowance for loan losses to nonperforming loans.................... 225.79 331.27 Allowance for loan losses to nonperforming assets................... 196.12 288.20 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
12 AMSOUTH BANCORPORATION AND SUBSIDIARIES SUPPLEMENTAL COMBINED FINANCIAL INFORMATION (Dollars in thousands, except per share data) (Unaudited)
Year through September 30, ---------------------------------- 1999 % Change 1998 - -------------------------------------------------------------------------------- Excluding merger related costs and other special charges: Earnings: Net income................................ $ 443,619 8.1 % $ 410,430 Provision for loan losses................. 64,926 (4.1) 67,713 Noninterest revenue....................... 640,586 6.0 604,265 Noninterest expense ...................... 1,016,578 4.6 971,593 Per Share: Diluted earnings per common share......... $ 1.12 7.7 $ 1.04 Earnings per common share................. 1.13 6.6 1.06 Ratios: Return on average assets.................. 1.44% 1.43% Return on average common equity........... 18.28 17.89 Efficiency ratio.......................... 56.90 57.25 - -------------------------------------------------------------------------------- Including merger related costs and other special charges: Earnings: Net interest income....................... $ 1,126,684 4.9 % $ 1,074,221 Provision for loan losses................. 67,926 0.3 67,713 Noninterest revenue excluding gain on sale of businesses ........................... 623,121 8.1 576,291 Net gain on sale of businesses............ 8,624 (69.2) 27,974 Noninterest expense excluding merger related costs ........................... 1,020,380 5.0 971,593 Merger related costs...................... 47,710 (56.3) 109,202 Income taxes.............................. 219,391 14.2 192,110 ----------- ----------- Net income................................ $ 403,022 19.3 $ 337,868 =========== =========== - -------------------------------------------------------------------------------- Per share: Diluted earning per common share.......... $ 1.02 20.0 % $ 0.85 Earning per common share.................. 1.03 18.4 0.87 - -------------------------------------------------------------------------------- Average Balances: Total assets.............................. $41,263,284 7.5 % $38,399,780 Interest-earning assets................... 37,594,118 7.0 35,123,035 Loans net of unearned income.............. 25,115,170 4.1 24,115,351 Deposits.................................. 27,569,991 2.4 26,923,051 Total shareholders' equity................ 3,244,820 5.8 3,066,939 - -------------------------------------------------------------------------------- At quarter end: Common shares issued and outstanding...... 391,949 0.4 % 390,475 Book value per common share............... $ 8.10 0.7 $ 8.04 Tangible book value per common share...... $ 6.99 2.0 $ 6.85 - -------------------------------------------------------------------------------- Ratios: Return on average assets.................. 1.31% 1.18% Return on average common equity........... 16.61 14.73 Average shareholders' equity to average total assets............................. 7.86 7.99 Efficiency ratio.......................... 60.08 63.69 - -------------------------------------------------------------------------------- Credit quality information: Nonaccrual loans.......................... $ 161,842 46.6 % $ 110,362 Nonperforming assets...................... $ 186,329 46.9 $ 126,854 Nonperforming assets to loans net of unearned income, foreclosed properties and repossessions........................ 0.71% 0.54% Net charge-offs........................... $ 76,255 37.1 % $ 55,613 Allowance for loan losses to loans net of unearned income.......................... 1.39% 1.55% Net charge-offs to average loans net of unearned income.......................... 0.41 0.31 Allowance for loan losses to nonperforming loans.................................... 225.79 331.27 Allowance for loan losses to nonperforming assets................................... 196.12 288.20
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 13 Independent Accountants' Review Report The Board of Directors AmSouth Bancorporation We have reviewed the accompanying consolidated statements of condition of AmSouth Bancorporation and subsidiaries as of September 30, 1999 and 1998, and the related consolidated statements of earnings for the three-month and nine- month periods ended September 30, 1999 and 1998, and consolidated statements of cash flows for the nine-month periods ended September 30, 1999 and 1998, and the consolidated statement of shareholders' equity for the nine-month period ended September 30, 1999. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with 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 November 10, 1999 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations In October 1999, AmSouth acquired First American Corporation and First American Corporation merged into AmSouth (the "Merger"), with AmSouth the surviving entity. AmSouth is a bank holding company whose principal subsidiary as of September 30, 1999 was AmSouth Bank. Because the merger occurred after September 30, 1999, the historical financial statements in this report do not give effect to the Merger. The results presented in the historical financial statements and, except where noted, in this discussion represent the results of AmSouth and do not include the results of First American Corporation for any of the periods presented. See the Supplemental Combined Financial Information included in Item 1.b for combined financial information giving retroactive effect to the Merger on a pooling of interests accounting basis. AmSouth reported net income of $222.0 million for the nine months ended September 30, 1999, a 14.2% increase over net income of $194.3 million for the same period of 1998. Diluted earnings per common share were $1.25 and $1.06 for the nine month periods ended September 30, 1999 and 1998, respectively. AmSouth's year-to-date earnings resulted in an annualized return on average assets (ROA) of 1.46% and an annualized return on average equity (ROE) of 20.77% for 1999 compared to 1.34% and 18.37%, respectively, for the first nine months of 1998. Net income for the third quarter of 1999 was $77.4 million compared to $66.8 million for the same period of 1998. Diluted earnings per common share for these periods were $.44 and $.37, respectively. ROA and ROE for the third quarter of 1999 were 1.47% and 21.35%, respectively, compared to 1.34% and 18.65%, respectively, for the third quarter of 1998. Total assets were $21.3 billion at quarter end, compared to 1998's quarter- end assets of $19.7 billion. The increase was primarily the result of continued loan growth over the past year. Loans net of unearned income at September 30, 1999, increased $1.2 billion from September 30, 1998, to $13.7 billion. On a managed basis, which includes commercial and residential loans participated to third-party conduits, loans increased $2.5 billion to $16.3 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 September 30, 1999 decreased slightly, with increases in interest-bearing and noninterest- bearing demand deposits offsetting a 7.8% and 9.7% decrease in time deposits and certificates of deposit of $100,000 or more, respectively. AmSouth increased its use of federal funds purchased and securities sold under agreements to repurchase as a funding source. Federal funds purchased and securities sold under agreements to repurchase increased to $1.9 billion at September 30, 1999, a 44.6% increase over 1998 third-quarter end. AmSouth continued to increase its use of Federal Home Loan Bank (FHLB) advances as a funding source. FHLB advances increased to $3.5 billion at September 30, 1999, a 37.2% increase over 1998 third-quarter end. Net Interest Income Net interest income on a fully taxable equivalent basis for the nine months ended September 30, 1999, was $570.2 million, an 8.8% 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 3.91% for the nine months ended September 30, 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. Net interest income on a fully taxable equivalent basis for the three months ended September 30, 1999 was $197.3 million, a 12.7% increase over the same period of 1998. The net interest margin and the net interest spread increased 29 and 33 basis points, respectively, from the prior year. The reasons for the increases were primarily the same as those discussed in the year-to-date analysis. 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 14 interest rate environments. AmSouth 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 September 30, 1999, AmSouth would expect NII to decrease $15.7 million and increase $5.6 million if interest rates gradually increase or decrease, respectively, from current rates by 100 basis points over a 12-month period. This level of interest rate risk is well within the Company's policy guidelines. Based on September 30, 1998 simulation model results, AmSouth would have expected decreases of $0.2 million and $4.2 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 $1.5 billion. There have been $15.0 million in maturities or terminations of interest rate swaps in 1999. Interest rate swaps in the notional amount of $450.0 million were called during the first nine months of 1999. At September 30, 1999, AmSouth had interest rate swaps, all of which receive fixed rates, totaling a notional amount of $1.9 billion. The swaps added in 1999 as hedges were designated to certain deposits, commercial loans and indebtedness of AmSouth Bank. At September 30, 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 6 presents a five-quarter analysis of the allowance for loan losses. At September 30, 1999, the allowance for loan losses was $177.6 million, or 1.30% of loans net of unearned income, compared to $175.0 million, or 1.40%, for the prior year. The coverage ratio of the allowance for loan losses to nonperforming loans decreased from 236.10% at September 30, 1998, to 167.39% at September 30, 1999. Over the same period, the level of nonperforming loans increased $31.9 million. The increase was primarily the result of three commercial credits placed on non-accrual during the quarter. Two of the credits were to borrowers in the health care services sector for whom a material portion of their services are long-term, acute care services and whose revenues are substantially dependent upon reimbursements from government-sponsored programs such as Medicare and Medicaid. Reimbursement rates from such programs are strictly regulated and subject to funding appropriations from federal and state governments. Implementation by the United States government of the Prospective Payment System for the Medicare system and other changes in the Medicare program have, in recent quarters, resulted in significantly lower Medicare revenues for health care service providers like the aforesaid borrowers than would have been received under the old Medicare payment methodology. AmSouth cannot 15 predict exactly what will be the future effect of such changes on this portion of its health care-related lending portfolio. However, this portion of the portfolio, together with the rest of the health care-related portfolio, will continue to be closely monitored. At September 30, 1999, AmSouth had approximately $120.0 million of loans in this portion of its health care lending portfolio, $32.4 million of which were considered nonperforming at quarter-end. On a combined basis, AmSouth and First American had approximately $146.6 million of loans outstanding to this segment of the health care industry at September 30, 1999, $36.9 million of which were considered nonperforming at quarter-end. Net charge-offs for the quarter ended September 30, 1999, were $11.9 million, an increase of $4.9 million or 69.6% from $7.0 million a year earlier. The increase was the result of higher charge-offs in the commercial, dealer, indirect and other residential mortgage portfolios. For the nine months ended September 30, 1999, net charge-offs were $27.9 million, a decrease of $7.2 million, or 20.4 %, from $35.1 million for the same period of 1998. Annualized net charge-offs to average loans net of unearned income were 0.35% and 0.28%, respectively, for the three months and nine months ended September 30, 1999, compared to 0.22% and 0.38% for the same periods of the prior year. The decrease in net charge-offs occurred primarily in AmSouth's revolving credit portfolio, which decreased $635.0 thousand and $11.4 million for the three months and nine months versus the same periods of 1998. The decline in revolving credit net charge-offs reflects the sale of approximately $169.5 million of underperforming credit card loans in the second quarter of 1998. In addition, net charge-offs for the direct consumer lending portfolio decreased $510.0 thousand and $2.2 million for the three months and nine months versus the same periods of the prior year. This decrease was offset by a $2.3 million and $4.7 million increase in net charge-offs in AmSouth's indirect lending portfolio for the three and nine month periods ended September 30, 1999 versus the same periods of 1998. Annualized net charge-offs for the consumer loan portfolio were 0.50% of average consumer loans for the three months ended September 30, 1999 compared to 0.43% for the same period of 1998. Annualized net charge-offs for the consumer loan portfolio fell to 0.45% of average consumer loans for the nine months ended September 30, 1999 compared to 0.67% for the prior year. The provision for loan losses for the third quarter was $12.4 million and $29.4 million for the first nine months of 1999 compared to $8.0 million and $45.8 million for the year-earlier periods. 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 7 presents a five-quarter comparison of the components of nonperforming assets. At September 30, 1999, nonperforming assets as a percentage of loans net of unearned income, foreclosed properties and repossessions, increased 23 basis points to 0.90% compared to September 30, 1998. The level of nonperforming assets increased $39.2 million during the same period. Included in nonperforming assets at September 30, 1999 and 1998, was $56.7 million and $42.2 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 almost all of these impaired loans. At September 30, 1999 and 1998, there was $20.6 million and $4.8 million, respectively, in the allowance for loan losses specifically allocated to these impaired loans. The average balance of impaired loans for the three months ended September 30, 1999 and 1998, was $39.1 million and $44.4 million, respectively, and $32.6 million and $48.1 million, respectively, for the nine months ended September 30, 1999 and 1998. AmSouth recorded no material interest income on its impaired loans during the three months and nine months ended September 30, 1999. Noninterest Revenues and Noninterest Expenses Year-to-date noninterest revenues totaled $266.2 million at September 30, 1999, compared to $261.4 million for the prior-year period. Included in noninterest revenues for 1998 was a $28.0 million gain from the sale of AmSouth's bond administration and stock transfer businesses and the sale of certain credit card assets during the second quarter of 1998. Excluding the effects of this one-time gain, noninterest revenues rose $32.8 million or 14.0% compared to the same period a year earlier. Growth occurred in most major categories, including consumer investment services income, mortgage income and portfolio income. Consumer investment services income increased $10.2 million primarily as a result of a higher sales volume of annuity products. Mortgage income increased $5.3 million primarily as a result of gains on the sales of residential mortgage loans to third- 16 party conduits partially offset by a decrease in gains on sale of servicing. Other noninterest revenues increased $10.2 million primarily due to an increase in income from commercial loan conduit activity. Noninterest revenues for the third quarter of 1999 were $89.0 million. Noninterest revenues for the quarter increased 15.3% compared to the same period last year. Changes for the quarter were primarily for the same reasons discussed in the year-to-date analysis. Year-to-date noninterest expenses increased 5.8% to $459.8 million at September 30, 1999, compared to $434.4 million for the prior year. Salaries and employee benefits increased $22.5 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. Equipment expense increased $1.4 million when compared to the same period a year ago. The increase is due to the implementation of consumer and commercial automation projects and additional expenses associated with the addition of Florida branches purchased from another bank. Noninterest expenses for the third quarter of 1999 were $153.0 million, an increase of 9.9% over the same period of 1998. Changes for the quarter were primarily for the same reasons discussed in the year-to-date analysis. Capital Adequacy At September 30, 1999, shareholders' equity totaled $1.5 billion or 6.92% of total assets. Since December 31, 1998, shareholders' equity increased $44.8 million as dividends of $89.3 million and the purchase of 2,024,000 shares of AmSouth common stock for $62.0 million offset the increase from net income of $222.0 million. Table 10 presents the capital amounts and risk-adjusted capital ratios for AmSouth and AmSouth Bank at September 30, 1999 and 1998. At September 30, 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 September 30, 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 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, testing and implementation phases for all internal mission critical systems are 100% complete, with all phases meeting relevant regulatory guidelines. Even after testing and implementation, AmSouth has continued and 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 17 mission critical services have certified their Year 2000 readiness and all completed their testing by March 31, 1999, as required by federal banking regulations. Further, AmSouth is now utilizing the Year 2000 compliant versions of all third-party mission critical systems, as was required by June 30, 1999, according to federal banking regulations. While AmSouth's greatest focus and efforts to date have been on preparing mission critical systems for the Year 2000, substantially all noncritical systems have been remediated, tested and implemented. In addition, AmSouth is continuing 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 has continued throughout 1999 to assess and evaluate the impact of Year 2000 in its credit analysis of current and future loan customers and plans to continue 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 under fiduciary management are being reviewed to assess the possible impact of the Year 2000 issue on their value. The extent of analysis of particular assets is based on an assessment of their risk characteristics. 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. As noted above, AmSouth believes that it has an effective program in place to resolve the Year 2000 issue. However, for unexpected reasons, 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 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 issue actually 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. 18 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 has formulated event plans and outlined responsibilities for the days immediately preceding and including the date change. Table 1--Financial Summary
September 30 ------------------------ % 1999 1998 Change ----------- ----------- ------ (In thousands) Balance sheet summary End-of-period balances: Loans net of unearned income................ $13,707,616 $12,527,168 9.4% Total assets........... 21,277,795 19,693,343 8.0 Total deposits......... 12,947,290 13,017,167 (0.5) Shareholders' equity... 1,472,458 1,437,957 2.4 Year-to-date average balances: Loans net of unearned income................ $13,282,285 $12,370,269 7.4% Total assets........... 20,341,018 19,432,513 4.7 Total deposits......... 13,068,839 12,890,941 1.4 Shareholders' equity... 1,429,064 1,414,533 1.0 Nine Months Three Months Ended September 30 Ended September 30 ------------------------ % -------------------- % 1999 1998 Change 1999 1998 Change ----------- ----------- ------ --------- --------- ------ (In thousands except per share data) Earnings summary Net income............. $ 222,004 $ 194,337 14.2% $ 77,425 $ 66,844 15.8% Per common share*...... 1.26 1.08 16.7 0.44 0.37 18.9 Per common share-- diluted*.............. 1.25 1.06 17.9 0.44 0.37 18.9 Selected ratios Return on average as- sets (annualized)..... 1.46% 1.34% 1.47% 1.34% Return on average eq- uity (annualized)..... 20.77 18.37 21.35 18.65 Average equity to assets................ 7.03 7.28 6.91 7.16 End-of-period equity to assets................ 6.92 7.30 6.92 7.30 End-of-period tangible equity to assets...... 5.93 6.16 5.93 6.16 Allowance for loan losses to loans net of unearned income....... 1.30 1.40 1.30 1.40 Efficiency ratio....... 54.97 55.31 53.47 55.25 Common stock data* Cash dividends declared.............. $ 0.51 $ 0.40 $ 0.17 $ 0.13 Book value at end of period................ 8.34 8.04 8.34 8.04 Market value at end of period................ 23.44 22.75 23.44 22.75 Average common shares outstanding........... 175,544 179,731 175,411 178,704 Average common shares outstanding--diluted.. 178,158 182,647 177,758 181,432
- -------- * Restated for three-for-two common stock split in May 1999 19 Table 2--Year-to-Date Yields Earned on Average Interest-Earning Assets and Rates Paid on Average Interest-Bearing Liabilities
1999 1998 ------------------------------ ----------------------------- Nine Months Nine Months Ended September 30 Ended September 30 ------------------------------ ----------------------------- Average Revenue/ Yield/ Average Revenue/ Yield/ Balance Expense Rate Balance Expense Rate ------------ --------- ------ ----------- --------- ------ (Taxable equivalent basis-dollars in thousands) Assets Interest-earning assets: Loans net of unearned income..................... $ 13,282,285 $ 838,245 8.44% $12,370,269 $ 811,406 8.77% Available-for-sale securities.................... 3,180,651 161,683 6.80 3,024,666 160,265 7.08 Held-to-maturity securities: Taxable.......................................... 1,929,938 96,266 6.67 2,298,117 115,642 6.73 Tax-free......................................... 147,685 9,472 8.58 110,267 9,118 11.06 ------------ --------- ----------- --------- Total held-to-maturity securities................ 2,077,623 105,738 6.80 2,408,384 124,760 6.93 ------------ --------- ----------- --------- Total investment securities..................... 5,258,274 267,421 6.80 5,433,050 285,025 7.01 Other interest-earning assets.................... 128,213 4,791 5.00 113,045 4,546 5.38 ------------ --------- ----------- --------- Total interest-earning assets.................... 18,668,772 1,110,457 7.95 17,916,364 1,100,977 8.22 Cash and other assets............................. 1,859,909 1,651,194 Allowance for loan losses......................... (177,752) (175,764) Market valuation on available-for-sale securities....................................... (9,911) 40,719 ------------ ----------- $ 20,341,018 $19,432,513 ============ =========== Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand deposits................. $ 4,460,672 102,597 3.08 $ 3,998,916 106,562 3.56 Savings deposits................................. 946,387 13,871 1.96 1,023,954 22,288 2.91 Time deposits.................................... 4,533,585 178,661 5.27 4,860,101 204,286 5.62 Certificates of deposit of $100,000 or more...... 938,547 36,162 5.15 1,039,599 44,263 5.69 Federal funds purchased and securities sold under agreements to repurchase........................ 1,730,657 58,869 4.55 1,378,322 54,128 5.25 Other interest-bearing liabilities............... 3,775,196 150,060 5.31 3,448,590 145,304 5.63 ------------ --------- ----------- --------- Total interest-bearing liabilities............... 16,385,044 540,220 4.41 15,749,482 576,831 4.90 --------- ---- --------- ----- Net interest spread.............................. 3.54% 3.32% ==== ===== Noninterest-bearing demand deposits.............. 2,189,648 1,968,371 Other liabilities................................ 337,262 300,127 Shareholders' equity............................. 1,429,064 1,414,533 ------------ ----------- $ 20,341,018 $19,432,513 ============ =========== Net interest income/margin on a taxable equivalent basis............................................ 570,237 4.08% 524,146 3.91% ==== ===== Taxable equivalent adjustment: Loans............................................ 1,232 1,346 Securities....................................... 3,190 2,997 --------- --------- Total taxable equivalent adjustment.............. 4,422 4,343 --------- --------- Net interest income............................. $ 565,815 $ 519,803 ========= =========
- -------- 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. 20 Table 3--Quarterly Yields Earned on Average Interest-Earning Assets and Rates Paid on Average Interest-Bearing Liabilities
1999 -------------------------------------------------------------------------------------- Third Quarter Second Quarter First Quarter Fourth Quarter ---------------------------- ---------------------------- ---------------------------- --------------------- Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/ Balance Expense Rate Balance Expense Rate Balance Expense Rate Balance Expense ----------- -------- ------ ----------- -------- ------ ----------- -------- ------ ----------- -------- (Taxable equivalent basis--dollars in thousands) Assets Interest-earning assets: Loans net of unearned income.. $13,360,012 $286,564 8.51% $13,418,941 $280,477 8.38% $13,064,656 $271,204 8.42% $12,787,915 $276,196 Available-for- sale securities.. 3,542,904 59,751 6.69 3,126,831 52,916 6.79 2,864,766 49,016 6.94 3,044,713 52,318 Held-to-maturity securities: Taxable.......... 2,008,203 33,772 6.67 1,866,778 30,850 6.63 1,913,794 31,644 6.71 2,079,172 34,403 Tax-free......... 166,791 3,513 8.36 148,369 3,102 8.39 127,462 2,857 9.09 114,211 2,672 ----------- -------- ----------- -------- ----------- -------- ----------- -------- Total held-to- maturity securities....... 2,174,994 37,285 6.80 2,015,147 33,952 6.76 2,041,256 34,501 6.85 2,193,383 37,075 ----------- -------- ----------- -------- ----------- -------- ----------- -------- Total investment securities...... 5,717,898 97,036 6.73 5,141,978 86,868 6.78 4,906,022 83,517 6.90 5,238,096 89,393 Other interest- earning assets... 110,616 1,392 4.99 124,037 1,645 5.32 150,425 1,754 4.73 138,838 1,615 ----------- -------- ----------- -------- ----------- -------- ----------- -------- Total interest- earning assets... 19,188,526 384,992 7.96 18,684,956 368,990 7.92 18,121,103 356,475 7.98 18,164,849 367,204 Cash and other assets............ 1,876,465 1,867,225 1,835,590 1,768,281 Allowance for loan losses............ (177,814) (178,875) (176,554) (176,519) Market valuation on available-for- sale securities... (59,466) 5,930 24,728 39,685 ----------- ----------- ----------- ----------- $20,827,711 $20,379,236 $19,804,867 $19,796,296 =========== =========== =========== =========== Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand deposits.. $ 4,481,863 35,389 3.13 $ 4,453,899 33,828 3.05 $ 4,445,859 33,380 3.04 $ 4,340,072 36,582 Savings deposits......... 911,476 4,337 1.89 954,475 4,668 1.96 973,896 4,866 2.03 981,293 6,107 Time deposits.... 4,519,111 59,055 5.18 4,560,415 59,478 5.23 4,521,253 60,128 5.39 4,641,398 64,825 Certificates of deposit of $100,000 or more............. 938,684 12,140 5.13 938,094 11,819 5.05 938,864 12,203 5.27 1,021,557 14,126 Federal funds purchased and securities sold under agreements to repurchase.... 1,849,722 21,849 4.69 1,803,325 20,170 4.49 1,535,469 16,850 4.45 1,478,217 17,693 Other interest- bearing liabilities...... 4,126,451 54,949 5.28 3,698,198 48,555 5.27 3,493,989 46,556 5.40 3,436,194 47,407 ----------- -------- ----------- -------- ----------- -------- ----------- -------- Total interest- bearing liabilities...... 16,827,307 187,719 4.43 16,408,406 178,518 4.36 15,909,330 173,983 4.44 15,898,731 186,740 -------- ---- -------- ---- -------- ---- -------- Net interest spread............ 3.53% 3.56% 3.54% ==== ==== ==== Noninterest- bearing demand deposits.......... 2,228,826 2,207,191 2,131,862 2,143,062 Other liabilities....... 332,993 336,898 341,994 335,663 Shareholders' equity............ 1,438,585 1,426,741 1,421,681 1,418,840 ----------- ----------- ----------- ----------- $20,827,711 $20,379,236 $19,804,867 $19,796,296 =========== =========== =========== =========== Net interest income/margin on a taxable equivalent basis............. 197,273 4.08% 190,472 4.09% 182,492 4.08% 180,464 ==== ==== ==== Taxable equivalent adjustment: Loans............ 348 465 419 410 Securities....... 1,185 1,044 961 887 -------- -------- -------- -------- Total taxable equivalent adjustment....... 1,533 1,509 1,380 1,297 -------- -------- -------- -------- Net interest income.......... $195,740 $188,963 $181,112 $179,167 ======== ======== ======== ======== 1998 ----------------------------------- Third Quarter ---------------------------- Yield/ Average Revenue/ Yield/ Rate Balance Expense Rate ------ ------------ -------- ------ Assets Interest-earning assets: Loans net of unearned income.. 8.57% $12,605,379 $275,905 8.68% Available-for- sale securities.. 6.82 3,271,460 56,958 6.91 Held-to-maturity securities: Taxable.......... 6.56 2,217,506 37,154 6.65 Tax-free......... 9.28 113,616 2,834 9.90 ------------ -------- Total held-to- maturity securities....... 6.71 2,331,122 39,988 6.81 ------------ -------- Total investment securities...... 6.77 5,602,582 96,946 6.87 Other interest- earning assets... 4.61 122,408 1,470 4.76 ------------ -------- Total interest- earning assets... 8.02 18,330,369 374,321 8.10 Cash and other assets............ 1,653,319 Allowance for loan losses............ (175,160) Market valuation on available-for- sale securities... 40,383 ------------ $19,848,911 ============ Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand deposits.. 3.34 $ 4,132,755 37,924 3.64 Savings deposits......... 2.47 1,002,891 7,343 2.90 Time deposits.... 5.54 4,787,203 67,869 5.62 Certificates of deposit of $100,000 or more............. 5.49 1,111,031 15,969 5.70 Federal funds purchased and securities sold under agreements to repurchase.... 4.75 1,520,284 20,048 5.23 Other interest- bearing liabilities...... 5.47 3,577,479 50,202 5.57 ------------ -------- Total interest- bearing liabilities...... 4.66 16,131,643 199,355 4.90 ------ -------- ------ Net interest spread............ 3.36% 3.20% ====== ====== Noninterest- bearing demand deposits.......... 1,969,029 Other liabilities....... 326,336 Shareholders' equity............ 1,421,903 ------------ $19,848,911 ============ Net interest income/margin on a taxable equivalent basis............. 3.94% 174,966 3.79% ====== ====== Taxable equivalent adjustment: Loans............ 522 Securities....... 930 -------- Total taxable equivalent adjustment....... 1,452 -------- Net interest income.......... $173,514 ========
- ---- 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. 21 Table 4--Maturities and Interest Rates Exchanged on Swaps
Mature During -------------------------------------------------------- 1999 2000 2001 2002 2003 2008 2009 Total ----- ------ ----- ----- ----- ----- ----- ------ (Dollars in millions) Receive fixed swaps: Notional amount... $ 135 $1,019 $ 244 $ 50 $ 115 $ 175 $ 150 $1,888 Receive rate...... 6.22% 6.34% 6.10% 6.26% 6.31% 6.13% 6.17% 6.27% Pay rate.......... 5.37% 5.37% 4.84% 5.39% 5.38% 5.34% 5.37% 5.30%
- -------- NOTE: The interest rates exchanged are calculated assuming that interest rates remain unchanged from September 30, 1999 rates and using call dates of swaps where applicable. The information presented could change as future interest rates increase or decrease. Table 5--Loans and Credit Quality
Net Charge-offs Nine Months Loans* Nonperforming Loans** Ended September September 30 September 30 30 ----------------------- ---------------------- --------------- 1999 1998 1999 1998 1999 1998 ----------- ----------- ----------- ---------- ------- ------- (In thousands) Commercial: Commercial & industrial........... $ 3,821,471 $ 3,607,687 $ 51,753 $ 19,224 $ 6,397 $ 5,357 Commercial loans-- secured by real estate............... 644,124 574,944 4,728 6,810 392 633 ----------- ----------- ----------- ---------- ------- ------- Total commercial..... 4,465,595 4,182,631 56,481 26,034 6,789 5,990 ----------- ----------- ----------- ---------- ------- ------- Commercial real estate: Commercial real estate mortgages............ 1,299,735 1,199,646 13,381 11,802 11 (672) Real estate construction......... 1,403,269 1,298,277 7,445 2,532 294 149 ----------- ----------- ----------- ---------- ------- ------- Total commercial real estate.............. 2,703,004 2,497,923 20,826 14,334 305 (523) ----------- ----------- ----------- ---------- ------- ------- Consumer: Residential first mortgages............ 1,066,364 1,883,539 17,326 26,487 803 1,079 Other residential mortgages............ 2,155,413 1,722,975 10,965 5,135 2,124 1,746 Dealer indirect....... 2,591,647 1,529,581 260 1,316 9,410 4,678 Revolving credit...... 267,930 251,606 -0- -0- 6,091 17,485 Other consumer........ 457,663 458,913 214 835 2,397 4,630 ----------- ----------- ----------- ---------- ------- ------- Total consumer....... 6,539,017 5,846,614 28,765 33,773 20,825 29,618 ----------- ----------- ----------- ---------- ------- ------- $13,707,616 $12,527,168 $ 106,072 $ 74,141 $27,919 $35,085 =========== =========== =========== ========== ======= =======
- -------- * Net of unearned income. ** Exclusive of accruing loans 90 days past due. 22 Table 6--Allowance for Loan Losses
1999 1998 ----------------------------------- ----------------------- 3rd Quarter 2nd Quarter 1st Quarter 4th Quarter 3rd Quarter ----------- ----------- ----------- ----------- ----------- (Dollars in thousands) Balance at beginning of period................. $177,082 $176,595 $176,075 $175,046 $174,079 Loans charged off....... (16,730) (11,703) (13,939) (16,553) (12,584) Recoveries of loans previously charged off.................... 4,804 4,690 4,959 5,282 5,551 -------- -------- -------- -------- -------- Net charge-offs......... (11,926) (7,013) (8,980) (11,271) (7,033) Addition to allowance charged to expense..... 12,400 7,500 9,500 12,300 8,000 -------- -------- -------- -------- -------- Balance at end of period................. $177,556 $177,082 $176,595 $176,075 $175,046 ======== ======== ======== ======== ======== Allowance for loan losses to loans net of unearned income........ 1.30% 1.35% 1.34% 1.37% 1.40% Allowance for loan losses to nonperforming loans.................. 167.39% 215.08% 265.24% 266.49% 236.10% Allowance for loan losses to nonperforming assets................. 143.74% 187.54% 227.85% 228.26% 207.57% Net charge-offs to average loans net of unearned income (annualized)........... 0.35% 0.21% 0.28% 0.35% 0.22%
Table 7--Nonperforming Assets
1999 1998 ------------------------------ ------------------------ September 30 June 30 March 31 December 31 September 30 ------------ ------- -------- ----------- ------------ (Dollars in thousands) Nonaccrual loans........ $106,072 $82,334 $66,580 $66,072 $74,141 Foreclosed properties... 15,962 10,389 10,020 10,237 9,225 Repossessions........... 1,496 1,701 904 828 967 -------- ------- ------- ------- ------- Total nonperforming assets*............... $123,530 $94,424 $77,504 $77,137 $84,333 ======== ======= ======= ======= ======= Nonperforming assets* to loans net of unearned income, foreclosed properties and repossessions.......... 0.90% 0.72% 0.59% 0.60% 0.67% Accruing loans 90 days past due............... $ 25,736 $24,133 $26,077 $23,832 $29,586
- -------- * Exclusive of accruing loans 90 days past due. 23 Table 8--Investment Securities
September 30, 1999 September 30, 1998 --------------------- --------------------- Carrying Market Carrying Market Amount Value Amount Value ---------- ---------- ---------- ---------- (In thousands) Held-to-maturity: U.S. Treasury and federal agency securities....................... $1,762,111 $1,733,285 $1,983,032 $2,010,063 State, county and municipal securities....................... 190,452 179,991 125,751 129,483 Other securities.................. 217,459 213,714 188,308 188,894 ---------- ---------- ---------- ---------- $2,170,022 $2,126,990 $2,297,091 $2,328,440 ========== ========== ========== ========== Available-for-sale: U.S. Treasury and federal agency securities....................... $3,113,323 $2,967,937 Other securities.................. 467,845 313,192 ---------- ---------- $3,581,168 $3,281,129 ========== ==========
- -------- NOTES: 1. The weighted average remaining life, which reflects the amortization on mortgage related and other asset-backed securities, and the weighted average yield on the combined held-to-maturity and available-for-sale portfolios at September 30, 1999, were approximately 5.7 years and 6.80%, respectively. Included in the combined portfolios was $3.8 billion of mortgage-backed securities, $311 million of which were variable rate. The weighted-average remaining life and the weighted-average yield of mortgage- backed securities at September 30, 1999, were approximately 5.4 years and 6.77%, respectively. The duration of the combined portfolios, which considers the repricing frequency of variable rate securities, is approximately 3.6 years. 2. The available-for-sale portfolio included net unrealized gains (losses) of $(65.3) million and $54.0 million at September 30, 1999 and 1998, respectively. Table 9--Other Interest-Bearing Liabilities
September 30 ----------------- 1999 1998 -------- -------- (In thousands) Other borrowed funds: Treasury, tax and loan notes................................ $139,958 $ 100 Short-term bank notes....................................... 250,000 125,000 Other short-term debt....................................... 14,619 187,056 -------- -------- Total other borrowed funds................................. $404,577 $312,156 ======== ======== Other long-term debt: 6.75% Subordinated Debentures Due 2025...................... $149,893 $149,876 6.45% Subordinated Notes Due 2018........................... 304,145 304,642 6.125% Subordinated Notes Due 2009.......................... 174,315 -0- 7.75% Subordinated Notes Due 2004........................... 149,572 149,480 Subordinated Capital Notes Due 1999......................... -0- 99,925 Long-term notes payable..................................... 10,880 35,880 -------- -------- Total other long-term debt................................. $788,805 $739,803 ======== ========
24 Table 10--Capital Amounts and Ratios
September 30 ---------------------------------- 1999 1998 ---------------- ---------------- Amount Ratio Amount Ratio ---------- ----- ---------- ----- (Dollars in thousands) Tier 1 capital: AmSouth................................... $1,288,765 6.60% $1,164,901 6.91% AmSouth Bank.............................. 1,601,921 8.23 1,477,188 8.92 Total capital: AmSouth................................... $2,110,704 10.81% $1,922,398 11.40% AmSouth Bank.............................. 2,079,477 10.68 1,952,234 11.79 Leverage: AmSouth................................... $1,288,765 6.25% $1,164,901 5.94% AmSouth Bank.............................. 1,601,921 7.79 1,477,188 7.54
25 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 was recently enacted in Alabama that is designed to limit the potential amount of punitive damages that can be recovered in individual cases in the future. However, AmSouth cannot predict the exact effect of the legislation at this time. It may take a number of years to finally resolve some of these legal proceedings pending against AmSouth subsidiaries, due to their complexity and for other reasons. It is not possible to determine with any certainty at this time the corporation's potential exposure from the proceedings. At times, class actions are settled by defendants without admission or even an actual finding of wrongdoing but with payment of some compensation to purported class members and large attorney's fees to plaintiff class counsel. Nonetheless, based upon the advice of legal counsel, AmSouth's management is of the opinion that the ultimate resolution of these legal proceedings will not have a material adverse effect on AmSouth's financial condition or results of operations. Item 4. Submission of Matters to a Vote of Security Holders A Special Meeting of Shareholders of AmSouth was held on September 16, 1999, at which the shareholders approved (i) an amendment to AmSouth's Restated Certificate of Incorporation to increase the number of shares of authorized common stock, and (ii) the issuance of AmSouth's common stock pursuant to an Agreement and Plan of Merger dated as of May 31, 1999, with First American Corporation. The following is a tabulation of the voting on this matter. AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION
Votes Broker Votes For Against Abstentions Nonvotes --------- ------- ----------- -------- 119,062,771 7,595,676 629,118 0
ISSUANCE OF AMSOUTH COMMON STOCK
Votes Broker Votes For Against Abstentions Nonvotes --------- ------- ----------- -------- 118,972,536 7,558,617 756,412 0
Item 5. Other Information On October 1, 1999, AmSouth completed the acquisition of First American Corporation pursuant to the Agreement and Plan of Merger with First American Corporation. As a result, each outstanding share of common stock of First American Corporation will be converted into 1.871 shares of AmSouth's common stock. More information concerning the transaction may be found in the Notes to Financial Statements that are part of this Form 10-Q. 26 Item 6. Exhibits and Reports on Form 8-K Item 6(a)--Exhibits The exhibits listed in the Exhibit Index at page 29 of this Form 10-Q are filed herewith or are incorporated by reference herein. Item 6(b)--Reports on Form 8-K Two reports on Form 8-K were filed by AmSouth during the period July 1, 1999 to September 30, 1999: (a) A report was filed on July 28, 1999 to report AmSouth's preliminary results of operations for the second quarter of 1999. (b) A report was filed on August 26, 1999 relating to certain investor presentation materials used by AmSouth. 27 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, AmSouth has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. /s/ C. Dowd Ritter November 16, 1999 By: _________________________________ C. Dowd Ritter President and Chief Executive Officer November 16, 1999 /s/ Robert R. Windelspecht By: _________________________________ Robert R. Windelspecht Executive Vice President and Controller 28 EXHIBIT INDEX The following is a list of exhibits including items incorporated by reference. 2 Agreement and Plan of Merger, dated May 31, 1999 (1) 3-a Restated Certificate of Incorporation of AmSouth Bancorporation (2) 3-b By-Laws of AmSouth Bancorporation (3) 15 Letter Re: Unaudited Interim Financial Information 27 Financial Data Schedule NOTES TO EXHIBITS (1) Filed as Exhibit 2.1 to AmSouth's Report on Form 8-K filed June 8, 1999, incorporated herein by reference. (2) Filed as Exhibit 3.1 to AmSouth's Report on Form 8-K filed October 15, 1999, incorporated herein by reference. (3) Filed as Exhibit 3-b to AmSouth's Form 10-Q Quarterly Report for the quarter ended June 30, 1997, incorporated herein by reference. 29 EX-15 2 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 November 10, 1999, relating to the unaudited consolidated interim financial statements of AmSouth Bancorporation and subsidiaries which are included in its Form 10-Q for the quarter ended September 30, 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. Form S-8 No. 333-89451 pertaining to the First American Corporation 1993 Non-Employee Director Stock Option Plan. Form S-8 No. 333-89455 pertaining to the First American Corporation 1999 Broad-Based Employee Stock Option Plan. Form S-8 No. 333-89457 pertaining to the First American Corporation Star Award Plan. Form S-8 No. 333-89459 pertaining to the Deposit Guaranty Corporation Long Term Incentive Plans. Form S-8 No. 333-89461 pertaining to the First American Corporation 1991 Employee Stock Incentive Plan. Form S-8 No. 333-89463 pertaining to the Heritage Federal Bankshares, Inc. 1994 Stock Option Plan for Non-Employee Directors and 1992 Stock Option Plan and Incentive Compensation Plan for Non-Employee Directors. Form S-8 No. 333-89633 pertaining to the First American Corporation First Incentives Reward Savings Thrift Plan. 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 November 10, 1999 EX-27 3 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 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, 6, AND 7 OF ITEM 2 OF PART I OF THE AMSOUTH BANCORPORATION FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999. 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 584,176 0 22,625 8,783 3,581,168 2,170,022 2,126,990 13,707,616 177,556 21,277,795 12,947,290 2,260,183 358,977 4,238,887 0 0 202,413 1,270,045 21,277,795 837,013 264,231 4,791 1,106,035 331,291 540,220 565,815 29,400 8,860 459,789 342,800 0 0 0 222,004 1.26 1.25 4.08 106,072 25,736 0 0 176,075 42,372 14,453 177,556 0 0 0
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