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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 2001 Commission file number 1-7476
AmSouth Bancorporation
(Exact Name of registrant as specified in its charter)
Delaware 63-0591257
(State or other jurisdiction of 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 April 30, 2001, AmSouth Bancorporation had 370,360,331 shares of
common stock outstanding.
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AMSOUTH BANCORPORATION
FORM 10-Q
INDEX
Page
----
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statement of Condition--March 31, 2001, December 31,
2000, and March 31, 2000......................................... 3
Consolidated Statement of Earnings--Three months ended March 31,
2001 and 2000.................................................... 4
Consolidated Statement of Shareholders' Equity--Three months ended
March 31, 2001................................................... 5
Consolidated Statement of Cash Flows--Three months ended March 31,
2001 and 2000.................................................... 6
Notes to Consolidated Financial Statements........................ 7
Independent Accountants' Review Report............................ 13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 14
Item 3. Quantitative and Qualitative Disclosures About Market Rate
Risk................................................................. 24
Part II.Other Information
Item 1. Legal Proceedings............................................. 24
Item 6. Exhibits and Reports on Form 8-K.............................. 24
Signatures............................................................... 25
Exhibit Index............................................................ 26
Forward-Looking Statements. Statements made in this report that are not
purely historical are forward-looking statements (as defined in the Private
Securities Litigation Reform Act of 1995), including any statements regarding
descriptions of management's plans, objectives or goals for future operations,
products or services, and forecasts of its revenues, earnings or other
measures of performance. Factors that could cause future results to vary from
current management expectations include, but are not limited to: legislation;
general economic conditions, especially in the Southeast; changes in interest
rates; deposit flows; the cost of funds; cost of federal deposit insurance
premiums; demand for loan products; demand for financial services;
competition; changes in the quality or composition of AmSouth's loan and
investment portfolios; changes in accounting principles, policies or
guidelines; other economic, competitive, governmental, regulatory, and
technical factors affecting AmSouth's operations, products, services and
prices; and the outcome of litigation, which is inherently uncertain and
depends on the findings of judges and juries. Forward-looking statements in
this report speak only as of the date of this report. AmSouth does not
undertake a duty to update forward-looking statements to reflect circumstances
or events that occur after the date the forward-looking statements are made.
2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
AMSOUTH BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CONDITION
(Unaudited)
March 31 December 31 March 31
2001 2000 2000
----------- ----------- -----------
(In thousands)
ASSETS
Cash and due from banks................. $ 1,153,243 $ 1,278,691 $ 1,541,259
Federal funds sold and securities
purchased under agreements to resell... 1,651,419 2,155,665 57,843
Trading securities...................... 15,940 11,942 31,923
Available-for-sale securities........... 4,425,716 1,908,917 5,974,961
Held-to-maturity securities (market
value of $4,686,230, $6,729,880 and
$6,756,448, respectively).............. 4,595,735 6,650,439 6,969,210
Loans held for sale..................... 209,564 92,811 114,891
Loans................................... 24,981,703 25,088,186 26,912,786
Less: Allowance for loan losses......... 380,646 380,434 353,784
Unearned income....................... 453,759 471,751 295,315
----------- ----------- -----------
Net loans............................ 24,147,298 24,236,001 26,263,687
Other interest-earning assets........... 24,753 58,800 29,096
Premises and equipment, net............. 635,888 634,201 681,999
Customers' acceptance liability......... 2,118 1,418 6,180
Accrued interest receivable and other
assets................................. 1,964,137 1,907,093 2,019,124
----------- ----------- -----------
$38,825,811 $38,935,978 $43,690,173
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits and interest-bearing
liabilities:
Deposits:
Noninterest-bearing demand............. $ 4,649,832 $ 4,934,466 $ 5,030,443
Interest-bearing demand................ 9,895,703 9,579,868 9,090,952
Savings................................ 1,231,042 1,212,652 2,372,458
Time................................... 7,787,247 7,841,567 7,638,025
Foreign time........................... 269,584 503,414 1,440,749
Certificates of deposit of $100,000 or
more.................................. 2,390,943 2,551,337 2,771,688
----------- ----------- -----------
Total deposits....................... 26,224,351 26,623,304 28,344,315
Federal funds purchased and securities
sold under agreements to repurchase... 2,235,688 2,320,264 3,515,886
Other borrowed funds................... 233,963 536,848 1,841,519
Long-term Federal Home Loan Bank
advances.............................. 5,189,381 4,898,308 5,417,765
Other long-term debt................... 1,003,580 985,097 980,913
----------- ----------- -----------
Total deposits and interest-bearing
liabilities......................... 34,886,963 35,363,821 40,100,398
Acceptances outstanding................. 2,118 1,418 6,180
Accrued expenses and other liabilities.. 1,052,909 757,332 574,451
----------- ----------- -----------
Total liabilities.................... 35,941,990 36,122,571 40,681,029
----------- ----------- -----------
Shareholders' equity:
Preferred stock--no par value:
Authorized--2,000,000 shares; Issued
and outstanding--none................. -0- -0- -0-
Common stock--par value $1 a share:
Authorized--750,000,000 shares;
Issued--416,939,871, 416,941,331 and
416,948,890 shares, respectively...... 416,940 416,941 416,949
Capital surplus........................ 692,032 691,677 690,954
Retained earnings...................... 2,509,653 2,466,048 2,533,827
Cost of common stock in treasury--
45,808,835, 43,134,387 and 24,667,405
shares, respectively.................. (697,930) (651,328) (355,574)
Deferred compensation on restricted
stock................................. (17,494) (2,381) (5,308)
Accumulated other comprehensive loss... (19,380) (107,550) (271,704)
----------- ----------- -----------
Total shareholders' equity........... 2,883,821 2,813,407 3,009,144
----------- ----------- -----------
$38,825,811 $38,935,978 $43,690,173
=========== =========== ===========
See notes to consolidated financial statements.
3
AMSOUTH BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
Three Months
Ended March 31
-----------------
2001 2000
-------- --------
(In thousands
except per share
data)
INTEREST INCOME
Loans....................................................... $525,454 $562,307
Available-for-sale securities............................... 72,422 100,615
Held-to-maturity securities................................. 74,826 115,055
Trading securities.......................................... 8 743
Loans held for sale......................................... 1,963 2,604
Federal funds sold and securities purchased under agreements
to resell.................................................. 24,445 917
Other interest-earning assets............................... 699 457
-------- --------
Total interest income.................................... 699,817 782,698
-------- --------
INTEREST EXPENSE
Interest-bearing demand deposits............................ 83,607 71,725
Savings deposits............................................ 4,909 16,589
Time deposits............................................... 116,585 101,244
Foreign time deposits....................................... 3,797 17,757
Certificates of deposit of $100,000 or more................. 38,467 38,260
Federal funds purchased and securities sold under agreements
to repurchase.............................................. 27,617 51,454
Other borrowed funds........................................ 4,508 26,611
Long-term Federal Home Loan Bank advances................... 74,355 73,956
Other long-term debt........................................ 16,129 16,529
-------- --------
Total interest expense................................... 369,974 414,125
-------- --------
NET INTEREST INCOME......................................... 329,843 368,573
Provision for loan losses................................... 38,200 25,400
-------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES......... 291,643 343,173
-------- --------
NONINTEREST REVENUES
Service charges on deposit accounts......................... 59,871 56,853
Trust income................................................ 28,879 27,485
Consumer investment services income......................... 23,672 64,627
Bank owned life insurance policies.......................... 14,081 12,218
Interchange income.......................................... 13,046 12,015
Mortgage income............................................. 4,899 10,067
Portfolio income............................................ 2,943 4,129
Other noninterest revenues.................................. 34,910 32,643
-------- --------
Total noninterest revenues............................... 182,301 220,037
-------- --------
NONINTEREST EXPENSES
Salaries and employee benefits.............................. 141,732 150,583
Equipment expense........................................... 30,296 32,180
Net occupancy expense....................................... 27,813 29,949
Postage and office supplies................................. 12,909 12,311
Communications expense...................................... 10,278 9,560
Amortization of intangibles................................. 8,517 9,957
Marketing expense........................................... 8,507 11,993
Subscribers' commissions.................................... -0- 30,594
Merger-related costs........................................ -0- 21,954
Other noninterest expenses.................................. 48,015 46,276
-------- --------
Total noninterest expenses............................... 288,067 355,357
-------- --------
INCOME BEFORE INCOME TAXES.................................. 185,877 207,853
Income taxes................................................ 59,666 68,916
-------- --------
NET INCOME............................................... $126,211 $138,937
======== ========
Average common shares outstanding........................... 372,246 391,596
Earnings per common share................................... $ 0.34 $ 0.35
Diluted average common shares outstanding................... 374,940 394,502
Diluted earnings per common share........................... $ 0.34 $ 0.35
See notes to consolidated financial statements.
4
AMSOUTH BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
Deferred
Compensation Accumulated
on Other
Common Capital Retained Treasury Restricted Comprehensive
Stock Surplus Earnings Stock Stock Loss Total
-------- -------- ---------- --------- ------------ ------------- ----------
(In thousands)
BALANCE AT JANUARY 1,
2001................... $416,941 $691,677 $2,466,048 $(651,328) $ (2,381) $(107,550) $2,813,407
Comprehensive income:
Net income............. -0- -0- 126,211 -0- -0- -0- 126,211
Other comprehensive
income, net of tax:
Cumulative effect of
accounting change (net
of $6,324 tax
expense).............. -0- -0- -0- -0- -0- 32,262 32,262
Net gain on derivative
instruments (net of
$3,917 tax expense)... -0- -0- -0- -0- -0- 7,274 7,274
Changes in unrealized
gains and losses on
available-for-sale
securities, net of
reclassification
adjustment (net of
$31,143 tax expense).. -0- -0- -0- -0- -0- 48,634 48,634
----------
Comprehensive income.... 214,381
Cash dividends
declared............... -0- -0- (81,311) -0- -0- -0- (81,311)
Common stock
transactions:
Purchase of common
stock................. -0- -0- -0- (73,622) -0- -0- (73,622)
Employee stock plans... (1) 355 (951) 23,887 (15,113) -0- 8,177
Dividend reinvestment
plan.................. -0- -0- (344) 3,133 -0- -0- 2,789
-------- -------- ---------- --------- -------- --------- ----------
BALANCE AT MARCH 31,
2001................... $416,940 $692,032 $2,509,653 $(697,930) $(17,494) $ (19,380) $2,883,821
======== ======== ========== ========= ======== ========= ==========
Disclosure of
reclassification
amount:
Unrealized holding gains
on available-for-sale
securities arising
during the period...... $ 50,187
Less: Reclassification
adjustment for gains
realized in net
income................. 1,553
---------
Net unrealized gains on
available-for-sale
securities, net of
tax.................... $ 48,634
=========
See notes to consolidated financial statements.
5
AMSOUTH BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31
-----------------------
2001 2000
---------- -----------
(In thousands)
OPERATING ACTIVITIES
Net income............................................ $ 126,211 $ 138,937
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses............................ 38,200 25,400
Depreciation and amortization of premises and
equipment........................................... 21,607 21,887
Amortization of premiums and discounts on held-to-
maturity securities and available-for-sale
securities.......................................... (916) 515
Noncash portion of merger-related costs.............. -0- 3,941
Net gain on branch sale.............................. -0- (5,007)
Net (increase) decrease in loans held for sale....... (116,753) 56,499
Net (increase) decrease in trading securities........ (5,204) 19,537
Net gains on sales of available-for-sale
securities.......................................... (2,488) (3,266)
Gains on sales of loans to dealer conduits........... -0- (1,404)
Gains on sales of loans to mortgage conduits......... -0- (7,291)
Net loss on loans held for accelerated disposition... -0- 1,551
Net increase in accrued interest receivable and
other assets........................................ (41,367) (148,415)
Net increase (decrease) in accrued expenses and
other liabilities................................... 87,670 (81,904)
Provision for deferred income taxes.................. 50,828 68,916
Amortization of intangible assets.................... 8,506 9,924
Other operating activities, net...................... 9,565 11,755
---------- -----------
Net cash provided by operating activities.......... 175,859 111,575
---------- -----------
INVESTING ACTIVITIES
Proceeds from maturities and prepayments of available-
for-sale securities.................................. 158,045 142,464
Proceeds from sales of available-for-sale securities.. 100,784 139,718
Purchases of available-for-sale securities............ (444,197) (355,003)
Proceeds from maturities, prepayments and calls of
held-to-maturity securities.......................... 175,838 239,242
Purchases of held-to-maturity securities.............. (204,683) (159,177)
Net decrease in federal funds sold and securities
purchased under agreements to resell................. 504,246 74,840
Net decrease (increase) in other interest-earning
assets............................................... 34,047 (11,232)
Net decrease (increase) in loans, excluding dealer
securitization and mortgage and dealer conduits
sales................................................ 36,065 (1,158,259)
Proceeds from sales of loans to dealer conduits....... -0- 250,182
Proceeds from sales of loans to mortgage conduits..... -0- 500,038
Net purchases of premises and equipment............... (23,294) (25,579)
Net cash from sales of branches, business operations,
subsidiaries and other assets........................ -0- (28,240)
---------- -----------
Net cash provided (used) by investing activities... 336,851 (391,006)
---------- -----------
FINANCING ACTIVITIES
Net (decrease) increase in deposits................... (398,953) 473,466
Net decrease in federal funds purchased and securities
sold under agreements to repurchase.................. (84,576) (579,861)
Net decrease in other borrowed funds.................. (302,885) (294,201)
Issuance of long-term Federal Home Loan Bank advances
and other long-term debt............................. 500,000 2,625,000
Payments for maturing long-term debt.................. (208,927) (1,828,266)
Cash dividends paid................................... (79,065) (151,612)
Proceeds from employee stock plans and dividend
reinvestment plan.................................... 9,870 16,183
Purchase of common stock.............................. (73,622) (5,828)
---------- -----------
Net cash (used) provided by financing activities... (638,158) 254,881
---------- -----------
Decrease in cash and cash equivalents................. (125,448) (24,550)
Cash and cash equivalents at beginning of period...... 1,278,691 1,565,809
---------- -----------
Cash and cash equivalents at end of period............ $1,153,243 $ 1,541,259
========== ===========
See notes to consolidated financial statements.
6
AMSOUTH BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended March 31, 2001 and 2000
General--The consolidated financial statements conform to accounting
principles generally accepted in the United States. The accompanying interim
financial statements are unaudited; however, in the opinion of management, all
adjustments necessary for the fair presentation of the consolidated financial
statements have been included. All such adjustments are of a normal recurring
nature. Certain amounts in the prior year's financial statements have been
reclassified to conform with the 2001 presentation. These reclassifications
had no effect on net income. The notes included herein should be read in
conjunction with the notes to consolidated financial statements included in
AmSouth Bancorporation's (AmSouth) 2000 annual report on Form 10-K.
Accounting Changes--Effective January 1, 2001, AmSouth adopted Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and for Hedging Activities," (Statement 133) as amended, and, at that time,
designated anew the derivative instruments used for risk management into
hedging relationships in accordance with the requirements of the new standard.
Derivative instruments used to hedge changes in the fair value of assets and
liabilities due to changes in interest rates were designated as fair value
hedges. Derivative instruments used to hedge the variability of forecasted
cash flows attributable to interest rate risk were designated as cash flow
hedges. The impact of adopting Statement 133 on AmSouth's financial condition
was a net-of-tax increase to other comprehensive income of approximately
$5,650,000, of which $2,031,000 is expected to be reclassified into earnings
during 2001 due to the receipt of variable interest on its hedged variable
rate loans. The impact to net income of adopting Statement 133 was immaterial.
AmSouth also recorded an increase to other comprehensive income of $26,612,000
as a result of transferring $2,107,919,000 of securities from held-to-maturity
to available-for-sale in conjunction with the adoption of Statement 133. The
transition amounts were determined based on the interpretive guidance issued
by the Financial Accounting Standards Board (FASB) to date. The FASB continues
to issue interpretive guidance which could require changes to AmSouth's
application of Statement 133 and adjustments to the transition amounts.
In September 2000, Statement of Financial Accounting Standards No. 140,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" (Statement 140), was issued by the FASB.
Statement 140 replaces Statement 125, issued in June 1996. Statement 140
revises the standards for accounting for securitizations and other transfers
of financial assets and collateral and requires certain disclosures, but
carries over most of Statement 125's provisions without reconsideration.
Statement 140 is effective for transfers occurring after March 31, 2001,
except for certain paragraphs related to the isolation standards for financial
institutions subject to receivership by the FDIC or other affected entities.
For these entities, Statement 140's isolation standards would be effective for
transfers of financial assets occurring after December 31, 2001. Therefore,
affected institutions will have until December 31, 2001, to modify documents
establishing securitization structures to comply with the new isolation
standards. AmSouth is reviewing its conduit and securitization structures
under this new guidance and plans to make any necessary revisions in the
structure of these transactions to ensure these sales comply with the new
guidance. The expanded disclosures about securitizations and collateral are
effective for fiscal years ending after December 15, 2000. The adoption of
Statement 140 will not have a material impact on AmSouth's financial condition
or results of operations.
Cash Flows--For the three months ended March 31, 2001 and 2000, AmSouth
paid interest of $371,005,000 and $401,652,000, respectively. During the three
months ended March 31, 2001, AmSouth received income tax refunds of
$38,686,000, and during the three months ended March 31, 2000, AmSouth paid
income taxes of $558,000. Noncash transfers from loans to foreclosed
properties for the three months ended March 31, 2001 and 2000, were $5,551,000
and $10,104,000, respectively, and noncash transfers from foreclosed
properties to loans were $85,000 and $164,000, respectively. For the three
months ended March 31, 2000, noncash transfers from loans to available-for-
sale securities and to other assets of approximately $9,450,000 and $229,000,
respectively, were made in connection with the participation of mortgages to
third-party conduits.
7
Derivatives--In accordance with Statement 133, AmSouth recognizes all of
its derivative instruments as either assets or liabilities in the statement of
financial condition at fair value. For those derivative instruments that are
designated and qualify as hedging instruments, AmSouth designates the hedging
instrument, based upon the exposure being hedged, as either a fair value hedge
or a cash flow hedge.
For derivative instruments that are designated and qualify as fair value
hedges, the gain or loss on the derivative instrument as well as the
offsetting loss or gain on the hedged item attributable to the hedged risk are
recognized in other noninterest revenue during the period of the change in
fair values. For derivative instruments that are designated and qualify as
cash flow hedges, the effective portion of the gain or loss on the derivative
instrument is reported as a component of other comprehensive income and
reclassified into earnings in the same period or periods during which the
hedged transaction affects earnings. The remaining gain or loss on the
derivative instrument in excess of the cumulative change in the present value
of future cash flows of the hedged item, if any, is recognized in other
noninterest income during the period of change. For derivative instruments not
designated as hedging instruments, the gain or loss is recognized in current
earnings during the period of change.
Fair Value Hedging Strategy--AmSouth has entered into interest rate swap
agreements for interest rate risk exposure management purposes. The interest
rate swap agreements utilized by AmSouth effectively modify AmSouth's exposure
to interest risk by converting a portion of AmSouth's fixed-rate certificates
of deposit to floating rate. AmSouth also has interest rate swap agreements
which effectively convert portions of its fixed-rate long-term debt to
floating rate. During the period ended March 31, 2001, AmSouth recognized a
net gain of $50,000 related to the ineffective portion of its hedging
instruments.
Cash Flow Hedging Strategy--AmSouth has entered into interest rate swap
agreements that effectively convert a portion of its floating-rate loans to a
fixed-rate basis, thus reducing the impact of interest-rate changes on future
interest income. Approximately $925,000,000 of AmSouth's loans were designated
as the hedged items to the interest rate swaps agreements at March 31, 2001.
During the period ended March 31, 2001, AmSouth recognized a net gain of
$138,000 related to the ineffective portion of its hedging instruments.
Comprehensive Income--Total comprehensive income was $214.4 million and
$116.1 million for the three months ended March 31, 2001 and 2000,
respectively. Total comprehensive income consists of net income, the change in
the unrealized gains or losses on AmSouth's available-for-sale securities
portfolio arising during the period and the effective portion of cash flow
hedges marked to market.
8
Earnings Per Common Share--The following table sets forth the computation of
earnings per common share and diluted earnings per common share:
Three Months
Ended March 31
-----------------
2001 2000
-------- --------
(In thousands
except per share
data)
Earnings per common share computation:
Numerator:
Net income.............................................. $126,211 $138,937
Denominator:
Average common shares outstanding....................... 372,246 391,596
Earnings per common share................................. $ .34 $ .35
Diluted earnings per common share computation:
Numerator:
Net income.............................................. $126,211 $138,937
Denominator:
Average common shares outstanding....................... 372,246 391,596
Dilutive shares contingently issuable................... 2,694 2,906
-------- --------
Average diluted common shares outstanding.............. 374,940 394,502
Diluted earnings per common share......................... $ .34 $ .35
Shareholders' Equity--On April 20, 2000, AmSouth's Board of Directors
approved the repurchase by AmSouth of up to 35.0 million shares of its
outstanding common stock over a two year period for the purpose of funding
employee benefit and dividend reinvestment plans and for general corporate
purposes. Through March 31, 2001, 26.7 million shares have been purchased under
this authorization at a cost of $443.3 million. Cash dividends of $0.21 per
common share were declared in the first quarter of 2001. This represents a five
percent increase over the dividend paid during the first quarter of 2000.
9
Business Segment Information--AmSouth has three reportable segments:
Consumer Banking, Commercial Banking, and Wealth Management. Treasury & Other
is comprised of balance sheet management activities that include the
investment portfolio, nondeposit funding and off-balance sheet financial
instruments. Treasury & Other also includes income from bank owned life
insurance policies, net gains on sales of fixed assets, merger-related costs,
and corporate expenses such as corporate overhead and goodwill amortization.
As a result of the sale of IFC Holdings, Inc. (IFC) at the end of the third
quarter of 2000, all revenues and expenses of IFC for 2000 have been
reclassified into Treasury & Other from Wealth Management. The following is a
summary of the segment performance for the three months ended March 31, 2001
and 2000:
Consumer Commercial Wealth Treasury
Banking Banking Management & Other Total
-------- ---------- ---------- -------- --------
(In thousands)
Three Months Ended March
31, 2001
Net interest income from
external customers........ $ 96,606 $ 176,833 $ (388) $ 56,792 $329,843
Internal funding........... 135,514 (81,114) 1,197 (55,597) -0-
-------- --------- ------- -------- --------
Net interest income........ 232,120 95,719 809 1,195 329,843
Noninterest revenues....... 81,282 25,462 52,724 22,833 182,301
-------- --------- ------- -------- --------
Total revenues............. 313,402 121,181 53,533 24,028 512,144
Provision for loan losses.. 28,652 9,336 -0- 212 38,200
Noninterest expenses....... 170,642 46,523 39,227 31,675 288,067
-------- --------- ------- -------- --------
Income/(loss) before income
taxes..................... 114,108 65,322 14,306 (7,859) 185,877
Income taxes/(benefits).... 42,951 24,519 5,360 (13,164) 59,666
-------- --------- ------- -------- --------
Segment net income......... $ 71,157 $ 40,803 $ 8,946 $ 5,305 $126,211
======== ========= ======= ======== ========
Three Months Ended March
31, 2000
Net interest income from
external customers........ $112,689 $ 209,991 $ (162) $ 46,055 $368,573
Internal funding........... 115,712 (103,857) 601 (12,456) -0-
-------- --------- ------- -------- --------
Net interest income........ 228,401 106,134 439 33,599 368,573
Noninterest revenues....... 82,119 20,993 46,959 69,966 220,037
-------- --------- ------- -------- --------
Total revenues............. 310,520 127,127 47,398 103,565 588,610
Provision for loan losses.. 21,270 4,114 -0- 16 25,400
Noninterest expenses....... 179,665 39,512 39,918 96,262 355,357
-------- --------- ------- -------- --------
Income before income
taxes..................... 109,585 83,501 7,480 7,287 207,853
Income taxes/(benefits).... 41,204 31,396 2,813 (6,497) 68,916
-------- --------- ------- -------- --------
Segment net income......... $ 68,381 $ 52,105 $ 4,667 $ 13,784 $138,937
======== ========= ======= ======== ========
10
Securitizations--During the period ended March 31, 2001, there were no
securitizations or transfers to the dealer conduits or residential mortgage
conduits. Therefore, no gains or losses on transfers were recognized during
the period ended March 31, 2001. No gains or losses were recognized on
commercial loans sold to third-party conduits nor was any retained interest
recorded due to the relatively short life of the commercial loans sold into
the conduits (average life of 30 days). The following table provides the
assumptions used in the subsequent valuation of retained interests at March
31, 2001, the cash flows received from and paid to third-party conduits and
securitization trusts during the year and the sensitivity of the current fair
value of residual cash flows to a hypothetical immediate 10 and 20 percent
adverse change in the current assumptions:
Residential Dealer
Mortgage Conduit Dealer Conduit Securitization
---------------- -------------- --------------
(Dollars in millions)
Cash flow information:
Servicing fees and retained
interests..................... $ 7.6 $ 5.3 $ 2.1
Valuation assumptions at March
31, 2001:
Discount rate.................. 15-20% 15% 15%
Prepayment rate................ 15-25% CPR 1 1/2% ABS 1 1/2% ABS
Weighted average life (years).. 3.61 1.34 1.41
Expected credit losses......... .15% 1.35% 1.33%
Residual cash flow sensitivity:
Fair value of servicing and
retained interests at March
31, 2001...................... $ 57.5 $19.8 $36.2
Prepayment speed:
10% change.................. (3.8) (1.1) (0.2)
20% change.................. (6.2) (2.7) (0.4)
Credit losses:
10% change.................. (0.2) (0.2) (1.0)
20% change.................. (0.5) (0.9) (2.0)
This sensitivity test is hypothetical and isolates the potential impact of
changes in a single assumption on total fair value. These and other
assumptions used in the calculation of fair values may in fact exhibit some
correlation (which would potentially magnify the impact of a scenario) or may
exhibit some negative correlation (which would potentially have some partial
offsetting benefit). Also, changes in assumptions do not provide linear
results. Thus, it is not possible to extrapolate the impact of other scenarios
from these projections.
11
The following table presents managed loan information on loans which have
been securitized or sold to conduits. This information includes the total
principal amount outstanding, the portion that has been derecognized and the
portion that continues to be recognized in the statement of financial
condition as of March 31, 2001, along with quantitative information about
delinquencies and net credit losses (in millions). The following table
includes commercial loans sold to third-party conduits, residential mortgages
and dealer loans sold to third-party conduits during prior years, dealer loans
securitized in 2000, and mortgage loans which were securitized through REMICS
in 1998:
Other
Residential Dealer Residential Commercial
Mortgages Loans Mortgages Loans
----------- ------ ----------- ----------
(Dollars in millions)
Outstanding as of 3/31/01:
Loans held in portfolio........... $1,495 $3,069 $4,713 $ 8,758
Loans securitized/sold............ 2,538 1,474 -0- 1,826
REMIC (bond portfolio)............ 142 -0- 249 -0-
------ ------ ------ -------
Total managed loans.............. $4,175 $4,543 $4,962 $10,584
------ ------ ------ -------
Total delinquencies at 3/31/01..... $ 102 $ 103 $ 123 $ 231
Delinquencies as a percent of
ending managed loans.............. 2.44% 2.26% 2.48% 2.18%
Net credit losses during 2001...... $ 0.4 $ 14 $ 2 $ 15
Net credit losses as a percent of
ending managed loans.............. 0.04% 1.26% 0.18% 0.57%
------ ------ ------ -------
12
Independent Accountants' Review Report
The Board of Directors
AmSouth Bancorporation
We have reviewed the accompanying consolidated statement of condition of
AmSouth Bancorporation and subsidiaries as of March 31, 2001 and 2000, and the
related consolidated statement of earnings and cash flows for the three-month
periods ended March 31, 2001 and 2000, and the consolidated statement of
shareholders' equity for the three-month period ended March 31, 2001. These
financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with the standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data, and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with auditing standards generally accepted in the
United States, which will be performed for the full year with the objective of
expressing an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements referred
to above for them to be in conformity with accounting principles generally
accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated statement of condition of
AmSouth Bancorporation and subsidiaries as of December 31, 2000, and the
related consolidated statements of earnings, shareholders' equity, and cash
flows for the year then ended (not presented herein) and in our report dated
January 31, 2001, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated statement of condition as of December 31, 2000 is
fairly stated, in all material respects, in relation to the consolidated
statement of condition from which it has been derived.
/s/ ERNST & YOUNG LLP
May 11, 2001
13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
AmSouth Bancorporation (AmSouth) recorded net income for the quarter ended
March 31, 2001 of $126.2 million, a 9.2 percent decrease compared to last
year's first quarter earnings of $138.9 million. Diluted earnings per share
was $.34 for the first quarter of 2001, down 2.9 percent from $.35 for the
same period of 2000. Return on average assets was 1.33 percent for the first
quarter of 2001 compared to 1.28 percent for the same period in 2000. Return
on equity decreased to 18.08 percent for the first three months of 2001 from
18.96 percent for the first quarter of 2000. The decrease in net income
reflected lower net interest income and noninterest revenues as well as higher
provision charges for loan losses. These items were offset by an 18.9 percent
decrease in noninterest expenses in the quarter compared to the same period in
2000. The year over year decrease reflects the impact of the sale of
approximately $5 billion in earning assets during 2000 and the third quarter
sale of IFC Holdings, Inc. (IFC). See "Net Interest Income" and "Noninterest
Revenues and Noninterest Expenses" for additional discussion.
Total assets at March 31, 2001 were $38.8 billion compared to $43.7 billion
at March 31, 2000, while total interest-earning assets were $35.3 billion at
March 31, 2001 compared to $39.9 billion at the end of the first quarter of
2000. These decreases reflected the impact of securities and loans sales
associated with the third quarter 2000 financial restructuring. Loans net of
unearned income at March 31, 2001 decreased $2.1 billion from March 31, 2000
to $24.5 billion. The investment portfolio, which consists of available-for-
sale (AFS) and held-to-maturity (HTM) securities, decreased to $9.0 billion at
March 31, 2001, compared to $12.9 billion at March 31, 2000, primarily as a
result of the balance sheet restructuring in the third quarter of 2000. On
January 1, 2001, AmSouth transferred approximately $2.1 billion of securities
from HTM to AFS in conjunction with AmSouth's adoption of Statement 133.
On the funding side of the balance sheet, total deposits at March 31, 2001
decreased by $2.1 billion compared to March 31, 2000. Excluding the $1.2
billion decrease in foreign time deposits (Eurodollar deposits), domestic
deposits declined by $949 million. Decreases in domestic deposits occurred in
noninterest-bearing demand deposits and savings deposits. These decreases were
partially offset by increases in interest-bearing demand deposits and time
deposits. Federal funds purchased and securities sold under agreements to
repurchase and other borrowed funds decreased by $1.3 billion and $1.6
billion, respectively, compared to March 31, 2000. The decrease reflects the
use of proceeds from the restructuring transactions to reduce short-term
borrowings including foreign time deposits.
Net Interest Income
Net interest income (NII) on a fully taxable equivalent basis for the three
months ended March 31, 2001 was $329.8 million, a decrease of $38.7 million,
or 10.5%, as compared to the first quarter of 2000. The decrease in net
interest income was primarily due to a decrease in average interest-earning
assets for the quarter, resulting from the third quarter 2000 financial
restructuring. Average interest-earning assets for the first quarter of 2001
were $35.1 billion, a decrease of $4.9 billion from the same period of 2000.
However, the net interest margin improved 16 basis points to 3.93% as the
financial restructuring removed lower yielding assets from the balance sheet
and freed up funds to pay down higher cost borrowings. Average borrowings for
the quarter decreased to $8.7 billion, a $3.5 billion decrease from $12.2
billion during the first quarter of 2000. Further margin expansion was limited
by AmSouth's $1.7 billion average position in lower-yielding federal funds
sold and securities purchased under agreements to resell during the first
quarter. As loan demand accelerates, AmSouth's plan is to shift these funds
into higher yielding loans, raising the level of loans on the balance sheet
and expanding the margin. Future interest-earning asset growth is expected to
moderate in a range of four to six percent on an annualized basis. Management
is also actively working to increase core deposits as a means of funding asset
growth. AmSouth expects its net interest margin to improve to a range of 4.00
to 4.20 percent for the full year 2001.
14
Asset/Liability Management
AmSouth maintains a formal asset and liability management process to
quantify, monitor and control interest rate risk and to assist management in
maintaining stability in the net interest margin under varying interest rate
environments. AmSouth accomplishes this process through the development and
implementation of lending, funding, pricing and hedging strategies designed to
maximize NII performance under varying interest rate environments subject to
specific liquidity and interest rate risk guidelines.
An earnings simulation model is the primary tool used to assess the
direction and magnitude of changes in NII resulting from changes in interest
rates. Key assumptions in the model include prepayment speeds on mortgage-
related assets; cash flows and maturities of derivatives and other financial
instruments held for purposes other than trading; changes in market
conditions, loan volumes and pricing; deposit volume, mix and rate
sensitivity; customer preferences; and management's financial and capital
plans. These assumptions are inherently uncertain, and, as a result, the model
cannot precisely estimate NII or precisely predict the impact of higher or
lower interest rates on NII. Actual results will differ from simulated results
due to timing, magnitude and frequency of interest rate changes and changes in
market conditions and management's strategies, among other factors.
Based on the results of the simulation model as of March 31, 2001, AmSouth
would expect NII to increase $8 million or approximately 0.5 percent and
decrease $10 million or approximately 0.7 percent if interest rates gradually
increase or decrease, respectively, from current rates by 100 basis points
over a 12-month period. This level of interest rate risk is within AmSouth's
policy guidelines. As of March 31, 2000, the simulation model indicated that
NII would decrease $36.9 million and increase $35.6 million if interest rates
gradually increased or decreased, respectively, from their current rates by
100 basis points over a 12-month period.
The reduction in AmSouth's interest sensitivity compared to the first
quarter of 2000 was primarily the result of the financial restructuring
initiated in the third quarter of 2000. As part of the financial
restructuring, AmSouth sold $4.0 billion of low-yielding fixed-rate investment
securities and securitized and sold approximately $1.0 billion of low-yielding
fixed-rate automobile loans. These fixed-rate assets were primarily funded by
floating-rate overnight and other short-term borrowings. This action reduced
the impact of interest rate fluctuations on NII. In comparison to December 31,
2000 results, the simulation model at March 31, 2001 showed a slight increase
in AmSouth's interest rate sensitivity. The change in the results of the
simulation model reflected an extension of the maturities of commercial paper
used by off-balance sheet conduits to fund loans previously purchased from
AmSouth. The extension of the commercial paper maturities, which occurred
during the first quarter of 2001, reduced the impact of interest rate changes,
over a 12-month period, on the interest spread received by AmSouth on these
loans. In addition, changes in the market dynamics as a result of Federal
Reserve rate cuts during the first quarter, changes in the forecasted mix of
earning assets and changes in AmSouth's deposit pricing strategy also impacted
the change in the interest sensitivity results from year-end results.
As part of its activities to manage interest rate risk, AmSouth, from time
to time, utilizes various derivative instruments such as interest rate swaps,
caps and floors. There were maturities, calls and closeouts of interest rate
swaps totaling $70 million during the first three months of 2001. At March 31,
2001, AmSouth had interest rate swaps, all of which receive fixed rates,
totaling a notional amount of $2.6 billion. At March 31, 2001, AmSouth also
held other derivative instruments to provide customers and AmSouth a means of
managing the risks of changing interest and foreign exchange rates. These
other derivative 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.
15
Table 5 presents a five-quarter analysis of the allowance for loan losses.
At March 31, 2001, the allowance for loan losses was $380.6 million, or 1.55%
of loans net of unearned income, compared to $353.8 million, or 1.33%, for the
prior year. This increase primarily reflects a deterioration of credit quality
in AmSouth's syndicated commercial loan portfolio primarily due to a weakening
economy. The coverage ratio of the allowance for loan losses to nonperforming
loans was 181.84% at March 31, 2001, a decrease from the March 31, 2000 ratio
of 289.12%.
Net charge-offs for the quarter ended March 31, 2001, were $38.0 million,
an increase of $12.6 million from $25.4 million a year earlier. Annualized net
charge-offs to average loans net of unearned income were .63% and .38%,
respectively, for the three months ended March 31, 2001 and 2000. The increase
in net charge-offs occurred primarily in the commercial loan and the dealer
indirect automobile portfolios and primarily reflected the impact of a slowing
economy. Commercial loan net charge-offs increased $7.4 million for the three
months versus the same period of 2000. Net charge-offs in AmSouth's dealer
indirect portfolio increased $1.9 million for the first three months of 2001
versus the same period of the prior year. In addition, net charge-offs for the
revolving credit portfolio and other consumer portfolio increased $1.6 million
and $1.1 million, respectively, for the three months ended March 31, 2001
versus the same period of the prior year. Annualized net charge-offs for the
commercial and consumer loan portfolios were .40% and 1.03%, respectively, for
the three months ended March 31, 2001, compared to .17% and .74%,
respectively, for the same period of 2000. Consistent with the increased
charge-offs, the provision for loan losses for the first quarter was $38.2
million compared to $25.4 million for the year-earlier period.
Table 6 presents a five-quarter comparison of the components of
nonperforming assets. At March 31, 2001, nonperforming assets as a percentage
of loans net of unearned income, foreclosed properties and repossessions
increased 38 basis points to .93% compared to .55% at March 31, 2000. The
level of nonperforming assets increased $82.4 million during the same period.
Included in nonperforming assets at March 31, 2001 and 2000, was $152.5
million and $58.3 million, respectively, in loans that were considered to be
impaired, substantially all of which were on a nonaccrual basis. Collateral-
dependent loans, which were measured at the fair value of the collateral,
constituted a majority of these impaired loans. At March 31, 2001 and 2000,
there was $59.3 million and $21.2 million, respectively, in the allowance for
loan losses specifically allocated to these impaired loans. The average
balance of impaired loans for the three months ended March 31, 2001 and 2000,
was $128.5 million and $63.7 million, respectively. AmSouth recorded no
material interest income on its impaired loans during the three months ended
March 31, 2001.
Noninterest Revenues and Noninterest Expenses
For the three months ended March 31, 2001, noninterest revenues (NIR)
totaled $182.3 million, compared to $220.0 million for the prior-year period,
a 17.1% decrease. The decrease in NIR was primarily due to the sale of IFC in
the third quarter of 2000. Excluding the revenues from IFC, NIR in the first
quarter of 2001 would have shown an increase of 4.9% from an adjusted $173.8
million of NIR in 2000. This increase in NIR versus the prior year first
quarter was primarily due to higher consumer investment services income,
service charges on deposits, trust income and bank owned life insurance (BOLI)
income offset by a decrease in mortgage and portfolio income. IFC contributed
$44.4 million of consumer investment services income during the first quarter
of 2000. Excluding IFC, consumer investment services income in the first
quarter of 2001 increased by $3.4 million or approximately 17.0 percent versus
the first quarter of 2000. The increase reflected higher annuity income
associated with the continued strong performance of AmSouth's platform annuity
sales program. The increase in service charge income was primarily the result
of higher treasury management fees as a result of higher sales to corporate
customers and new opportunities created by the merger with First American
Corporation (First American). The increase in service charge income also
reflected higher revenue from overdraft and NSF fees. Trust income increased
by $1.4 million compared to the same period of 2000 adjusted for the impact of
the IFC sale. The growth occurred despite the substantial declines in the
capital markets and was primarily generated from new business won during the
fourth and first quarters as well as early stage success with AmSouth's wealth
management initiative. Income from BOLI increased $1.9 million as a result of
AmSouth receiving a benefit payment in the first quarter of 2001. Partially
offsetting these increases was a decrease in mortgage income of
16
0$5.2 million compared to the first quarter of 2000. This decline reflected a
$7.3 million decrease in gains from the sale of mortgage loans to third-party
conduits offset by higher gains on the sale of mortgage servicing of
approximately $2.1 million. Portfolio income decreased as a result of fewer
sales of available-for-sale securities in 2001. Management anticipates that
sustainable noninterest revenue growth in a range of five to eight percent may
be achievable with the strongest growth coming in consumer investment
services.
Noninterest expenses decreased 18.9% to $288.1 million at March 31, 2001,
compared to $355.4 million for the prior year. Excluding the impact of merger-
related charges and expenses related to IFC recorded in the first quarter of
2000, NIE decreased 1.9 percent or $5.5 million in the first quarter of 2001
compared to $293.5 million in the same period of 2000. Salaries and employee
benefits decreased $4.2 million when compared to the same period a year ago
adjusted for the IFC sale. This decrease reflects synergies achieved as a
result of the merger with First American partially offset by merit increases.
Excluding the impact of IFC, marketing expense decreased $3.4 million or 28.8%
to $8.5 million primarily due to cost control initiatives implemented in 2000.
Equipment expense, excluding IFC, decreased 5.7% to $30.3 million, primarily
due to synergies achieved as a result of the merger with First American. Net
occupancy expense, adjusted for the IFC sale, decreased $1.3 million due
primarily to branch closures and sales. As a result of the sale of IFC, no
expense for subscriber commissions occurred in the first quarter of 2001,
compared to $30.6 million in the same period last year. Partially offsetting
these decreases was an increase in other noninterest expenses associated with
higher collection charges and non-credit losses.
Capital Adequacy
At March 31, 2001, shareholders' equity totaled $2.9 billion or 7.4% of
total assets. Since December 31, 2000, shareholders' equity increased $70.4
million primarily as a result of net income for the quarter of $126.2 million.
In addition, shareholders' equity increased $75.2 million as a result of
higher valuation of the AFS portfolio, of which $26.6 million was a result of
transferring approximately $2.1 billion of securities from held-to-maturity to
available-for-sale in conjunction with AmSouth's adoption of Statement 133.
The increase in shareholders' equity also reflected $12.9 million of other
comprehensive income associated with cash flow hedges, of which $5.7 million
related to the initial adoption of Statement 133. These increases in
shareholders' equity were offset by the declaration of dividends of $81.3
million and the purchase of 4.3 million shares of AmSouth common stock for
$73.6 million during the first quarter.
Table 9 presents the capital amounts and risk-adjusted capital ratios for
AmSouth and AmSouth Bank at March 31, 2001 and 2000. At March 31, 2001,
AmSouth exceeded the regulatory minimum required risk-adjusted Tier 1 Capital
Ratio of 4.00% and risk-adjusted Total Capital Ratio of 8.00%. In addition,
the risk-adjusted capital ratios for AmSouth Bank were above the regulatory
minimums, and the Bank was well capitalized at March 31, 2001.
17
Table 1--Financial Summary
March 31
------------------------ %
2001 2000 Change
----------- ----------- ------
(In thousands)
Balance sheet summary
End-of-period balances:
Loans net of unearned income................ $24,527,944 $26,617,471 (7.9)%
Total assets................................ 38,825,811 43,690,173 (11.1)
Total deposits.............................. 26,224,351 28,344,315 (7.5)
Shareholders' equity........................ 2,883,821 3,009,144 (4.2)
Year-to-date average balances:
Loans net of unearned income................ $24,645,798 $26,681,345 (7.6)%
Total assets................................ 38,498,447 43,594,571 (11.7)
Total deposits.............................. 26,077,285 27,830,850 (6.3)
Shareholders' equity........................ 2,831,229 2,947,234 (3.9)
Three Months
Ended March 31
------------------------ %
2001 2000 Change
----------- ----------- ------
(In thousands except per share
data)
Earnings summary
Net income.................................. $ 126,211 $ 138,937 (9.2)%
Earnings per common share................... 0.34 0.35 (2.9)
Diluted earnings per common share........... 0.34 0.35 (2.9)
Return on average assets (annualized)....... 1.33% 1.28%
Return on average equity (annualized)....... 18.08 18.96
Operating efficiency........................ 55.12 59.71
Selected ratios
Average equity to assets.................... 7.35% 6.76%
End-of-period equity to assets.............. 7.43 6.89
End-of-period tangible equity to assets..... 6.63 6.00
Allowance for loan losses to loans net of
unearned income............................ 1.55 1.33
Common stock data
Cash dividends declared..................... $ 0.21 $ 0.20
Book value at end of period................. 7.77 7.67
Market value at end of period............... 16.81 14.94
Average common shares outstanding........... 372,246 391,596
Average common shares outstanding-diluted... 374,940 394,502
18
Table 2--Quarterly Yields Earned on Average Interest-Earning Assets and Rates
Paid on Average Interest-Bearing Liabilities
2001 2000
---------------------------- -------------------------------------------------------------------------------
First Quarter Fourth Quarter Third Quarter Second Quarter
---------------------------- ---------------------------- ---------------------------- ---------------------
Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/
Balance Expense Rate Balance Expense Rate Balance Expense Rate Balance Expense
----------- -------- ------ ----------- -------- ------ ----------- -------- ------ ----------- --------
(Taxable equivalent basis-dollars in thousands)
Assets
Interest-earning
assets:
Loans net of
unearned income.. $24,645,798 $530,572 8.73% $24,599,887 $556,775 9.00% $25,613,223 $573,685 8.91% $26,642,183 $584,125
Available-for-
sale securities:
Taxable.......... 3,900,993 71,850 7.47 1,869,932 34,361 7.31 5,678,994 94,775 6.64 5,989,040 99,186
Tax-free......... 95,192 1,830 7.80 62,293 1,136 7.25 64,747 1,145 7.04 66,625 1,100
----------- -------- ----------- -------- ----------- -------- ----------- --------
Total available-
for-sale
securities....... 3,996,185 73,680 7.48 1,932,225 35,497 7.31 5,743,741 95,920 6.64 6,055,665 100,286
----------- -------- ----------- -------- ----------- -------- ----------- --------
Held-to-maturity
securities:
Taxable.......... 4,256,209 72,571 6.91 6,298,607 108,737 6.87 6,445,507 110,990 6.85 6,522,650 112,119
Tax-free......... 347,660 6,316 7.37 395,589 7,078 7.12 397,506 7,170 7.18 391,612 7,147
----------- -------- ----------- -------- ----------- -------- ----------- --------
Total held-to-
maturity
securities....... 4,603,869 78,887 6.95 6,694,196 115,815 6.88 6,843,013 118,160 6.87 6,914,262 119,266
----------- -------- ----------- -------- ----------- -------- ----------- --------
Total investment
securities...... 8,600,054 152,567 7.19 8,626,421 151,312 6.98 12,586,754 214,080 6.77 12,969,927 219,552
Other interest-
earning assets... 1,883,404 27,115 5.84 2,120,770 36,453 6.84 258,080 4,211 6.49 232,846 3,740
----------- -------- ----------- -------- ----------- -------- ----------- --------
Total interest-
earning assets... 35,129,256 710,254 8.20 35,347,078 744,540 8.38 38,458,057 791,976 8.19 39,844,956 807,417
Cash and other
assets............ 3,710,493 3,660,557 3,929,663 4,149,891
Allowance for loan
losses............ (381,223) (367,361) (348,796) (352,305)
Market valuation
on available-for-
sale securities... 39,921 (8,998) (178,535) (252,612)
----------- ----------- ----------- -----------
$38,498,447 $38,631,276 $41,860,389 $43,389,930
=========== =========== =========== ===========
Liabilities and
Shareholders'
Equity
Interest-bearing
liabilities:
Interest-bearing
demand deposits.. $ 9,707,570 83,607 3.49 $ 9,401,061 88,712 3.75 $ 9,502,341 87,349 3.66 $ 9,514,403 79,878
Savings
deposits......... 1,211,685 4,909 1.64 1,244,649 5,224 1.67 1,333,857 5,651 1.69 1,722,267 9,566
Time deposits.... 7,824,754 116,585 6.04 8,010,342 122,922 6.10 7,816,704 115,863 5.90 7,593,438 105,684
Foreign time
deposits......... 332,426 3,797 4.63 397,954 5,622 5.62 1,234,991 19,820 6.38 1,427,241 21,341
Certificates of
deposit of
$100,000 or
more............. 2,518,103 38,467 6.20 2,659,888 42,201 6.31 2,861,681 45,019 6.26 2,813,227 40,744
Federal funds
purchased and
securities sold
under agreements
to repurchase.... 2,341,302 27,617 4.78 2,388,137 32,909 5.48 3,540,942 53,015 5.96 3,720,045 51,032
Other interest-
bearing
liabilities...... 6,383,876 94,992 6.03 6,485,954 102,391 6.28 7,411,097 118,175 6.34 8,266,919 124,080
----------- -------- ----------- -------- ----------- -------- ----------- --------
Total interest-
bearing
liabilities...... 30,319,716 369,974 4.95 30,587,985 399,981 5.20 33,701,613 444,892 5.25 35,057,540 432,325
-------- ---- -------- ---- -------- ---- --------
Net interest
spread............ 3.25% 3.18% 2.94%
Noninterest-
bearing demand
deposits.......... 4,482,747 4,527,554 4,640,946 4,770,285
Other
liabilities....... 864,755 758,421 744,397 658,389
Shareholders'
equity............ 2,831,229 2,757,316 2,773,433 2,903,716
----------- ----------- ----------- -----------
$38,498,447 $38,631,276 $41,860,389 $43,389,930
=========== =========== =========== ===========
Net interest
income/margin on a
taxable equivalent
basis............. 340,280 3.93% 344,559 3.88% 347,084 3.59% 375,092
==== ==== ====
Taxable equivalent
adjustment:
Loans............ 5,118 18,786 3,773 16,785
Available-for-
sale securities.. 1,257 882 822 848
Held-to-maturity
securities....... 4,062 4,775 4,711 4,823
Trading
securities....... -0- -0- -0- -0-
-------- -------- -------- --------
Total taxable
equivalent
adjustment....... 10,437 24,443 9,306 22,456
-------- -------- -------- --------
Net interest
income.......... $329,843 $320,116 $337,778 $352,636
======== ======== ======== ========
First Quarter
--------------------------------
Yield/ Average Revenue/ Yield/
Rate Balance Expense Rate
------ ------------ -------- ------
Assets
Interest-earning
assets:
Loans net of
unearned income.. 8.82% $26,681,345 $563,191 8.49%
Available-for-
sale securities:
Taxable.......... 6.66 6,014,598 100,290 6.71
Tax-free......... 6.64 65,763 1,183 7.24
------------ --------
Total available-
for-sale
securities....... 6.66 6,080,361 101,473 6.71
------------ --------
Held-to-maturity
securities:
Taxable.......... 6.91 6,612,916 112,836 6.86
Tax-free......... 7.34 387,092 6,962 7.23
------------ --------
Total held-to-
maturity
securities....... 6.94 7,000,008 119,798 6.88
------------ --------
Total investment
securities...... 6.81 13,080,369 221,271 6.80
Other interest-
earning assets... 6.46 270,785 4,721 7.01
------------ --------
Total interest-
earning assets... 8.15 40,032,499 789,183 7.93
Cash and other
assets............ 4,138,693
Allowance for loan
losses............ (355,515)
Market valuation
on available-for-
sale securities... (221,106)
------------
$43,594,571
============
Liabilities and
Shareholders'
Equity
Interest-bearing
liabilities:
Interest-bearing
demand deposits.. 3.38 $ 9,086,434 71,725 3.17
Savings
deposits......... 2.23 2,352,997 16,589 2.84
Time deposits.... 5.60 7,619,385 101,244 5.34
Foreign time
deposits......... 6.01 1,296,318 17,757 5.51
Certificates of
deposit of
$100,000 or
more............. 5.83 2,778,322 38,260 5.54
Federal funds
purchased and
securities sold
under agreements
to repurchase.... 5.52 4,044,026 51,454 5.12
Other interest-
bearing
liabilities...... 6.04 8,166,443 117,096 5.77
------------ --------
Total interest-
bearing
liabilities...... 4.96 35,343,925 414,125 4.71
------ -------- ------
Net interest
spread............ 3.19% 3.22%
Noninterest-
bearing demand
deposits.......... 4,697,394
Other
liabilities....... 606,018
Shareholders'
equity............ 2,947,234
------------
$43,594,571
============
Net interest
income/margin on a
taxable equivalent
basis............. 3.79% 375,058 3.77%
====== ======
Taxable equivalent
adjustment:
Loans............ 884
Available-for-
sale securities.. 858
Held-to-maturity
securities....... 4,743
Trading
securities....... -0-
--------
Total taxable
equivalent
adjustment....... 6,485
--------
Net interest
income.......... $368,573
========
----
NOTE: The taxable equivalent adjustment has been computed based on the
statutory federal income tax rate, adjusted for applicable state income
taxes net of the related federal tax benefit. Loans net of unearned income
includes nonaccrual loans for all periods presented. Available-for-sale
securities excludes certain noninterest-earning, marketable equity
securities. Statement 133 valuation adjustments related to time deposits,
certificates of deposit of $100,000 or more and other interest-bearing
liabilities are included in other liabilities.
19
Table 3--Maturities and Interest Rates Exchanged on Swaps
Mature During
-------------------------------------------------------
2001 2002 2003 2004 2005 2008 2009 Total
----- ----- ----- ----- ----- ----- ----- ------
(Dollars in millions)
Receive fixed swaps:
Notional amount..... $ 537 $ 970 $ 290 $ 350 $ 150 $ 125 $ 175 $2,597
Receive rate........ 6.40% 6.62% 6.34% 6.21% 6.25% 6.15% 6.22% 6.42%
Pay rate............ 5.01% 5.18% 5.20% 5.21% 5.28% 5.38% 5.26% 5.17%
--------
NOTE: The interest rates exchanged are calculated assuming that interest
rates remain unchanged from March 31, 2001. Call option expiration date
is used as maturity date until the option expires. The information
presented could change as LIBOR rates change and call options are
exercised or expire.
Table 4--Loans and Credit Quality
Net Charge-offs
Loans* Nonperforming Three Months
March 31 Loans** March 31 Ended March 31
------------------------ ----------------- ----------------
2001 2000 2001 2000 2001 2000
------------ ----------- -------- -------- ------- -------
(In thousands)
Commercial:
Commercial &
industrial........... $ 7,189,519 $ 8,203,477 $140,889 $ 35,021 $15,289 $ 7,129
Commercial loans--
secured by real
estate............... 1,568,868 1,976,573 19,121 38,247 (295) 463
------------ ----------- -------- -------- ------- -------
Total commercial..... 8,758,387 10,180,050 160,010 73,268 14,994 7,592
------------ ----------- -------- -------- ------- -------
Commercial real estate:
Commercial real estate
mortgages............ 2,426,021 2,432,683 26,461 15,948 165 (113)
Real estate
construction......... 2,398,445 2,238,612 5,011 6,160 289 (60)
------------ ----------- -------- -------- ------- -------
Total commercial real
estate.............. 4,824,466 4,671,295 31,472 22,108 454 (173)
------------ ----------- -------- -------- ------- -------
Consumer:
Residential first
mortgages............ 1,495,249 1,638,740 12,355 13,099 438 317
Other residential
mortgages............ 4,712,525 4,179,034 4,613 10,198 2,257 2,435
Dealer indirect....... 3,068,844 4,153,408 2 682 11,121 9,191
Revolving credit...... 490,391 467,470 -0- 253 5,056 3,425
Other consumer........ 1,178,082 1,327,474 881 2,757 3,668 2,597
------------ ----------- -------- -------- ------- -------
Total consumer....... 10,945,091 11,766,126 17,851 26,989 22,540 17,965
------------ ----------- -------- -------- ------- -------
$ 24,527,944 $26,617,471 $209,333 $122,365 $37,988 $25,384
============ =========== ======== ======== ======= =======
--------
* Net of unearned income.
** Exclusive of accruing loans 90 days past due and $29.2 million of
nonperforming assets classified as held for accelerated disposition at
March 31, 2000.
20
Table 5--Allowance for Loan Losses
2001 2000
----------- -----------------------------------------------
1st Quarter 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter
----------- ----------- ----------- ----------- -----------
(Dollars in thousands)
Balance at beginning of
period................. $380,434 $365,164 $346,030 $353,784 $354,679
Loans charged off....... (50,506) (55,221) (48,319) (34,471) (40,377)
Recoveries of loans
previously charged
off.................... 12,518 14,411 12,890 11,743 14,993
-------- -------- -------- -------- --------
Net charge-offs......... (37,988) (40,810) (35,429) (22,728) (25,384)
Addition to allowance
charged to expense..... 38,200 55,600 123,800 22,800 25,400
Allowance
sold/transferred, net.. -0- -0- (69,091) (5,500) -0-
Allowance transferred to
other liabilities...... -0- 480 (146) (2,326) (911)
-------- -------- -------- -------- --------
Balance at end of
period................. $380,646 $380,434 $365,164 $346,030 $353,784
======== ======== ======== ======== ========
Allowance for loan
losses to loans net of
unearned income........ 1.55% 1.55% 1.49% 1.35% 1.33%
Allowance for loan
losses to nonperforming
loans*................. 181.84% 211.75% 249.99% 290.58% 289.12%
Allowance for loan
losses to nonperforming
assets*................ 167.02% 193.82% 224.46% 256.94% 243.19%
Net charge-offs to
average loans net of
unearned income
(annualized)........... 0.63% 0.66% 0.55% 0.34% 0.38%
--------
* Exclusive of accruing loans 90 days past due and $35.6 million and $29.2
million of nonperforming assets classified as held for accelerated
disposition at June 30, 2000 and March 31, 2000, respectively.
Table 6--Nonperforming Assets
2001 2000
-------- -------------------------------------------
March 31 December 31 September 30 June 30 March 31
-------- ----------- ------------ -------- --------
(Dollars in thousands)
Nonaccrual loans........ $209,333 $179,659 $146,069 $119,082 $122,365
Foreclosed properties... 13,688 12,360 12,714 13,780 19,839
Repossessions........... 4,888 4,259 3,906 1,810 3,274
-------- -------- -------- -------- --------
Total nonperforming
assets*............... $227,909 $196,278 $162,689 $134,672 $145,478
======== ======== ======== ======== ========
Nonperforming assets* to
loans net of unearned
income, foreclosed
properties and
repossessions.......... 0.93% 0.80% 0.66% 0.53% 0.55%
Accruing loans 90 days
past due............... $ 89,237 $ 85,410 $ 78,314 $ 70,800 $ 66,375
--------
* Exclusive of accruing loans 90 days past due and $35.6 million and $29.2
million of nonperforming assets classified as held for accelerated
disposition at June 30, 2000 and March 31, 2000, respectively.
21
Table 7--Investment Securities
March 31, 2001 March 31, 2000
--------------------- ---------------------
Carrying Market Carrying Market
Amount Value Amount Value
---------- ---------- ---------- ----------
(In thousands)
Held-to-maturity:
U.S. Treasury and federal agency
securities...................... $2,945,415 $2,996,471 $5,200,882 $5,025,562
Other securities................. 1,308,143 1,331,382 1,387,016 1,356,160
State, county and municipal
securities...................... 342,177 358,377 381,312 374,726
---------- ---------- ---------- ----------
$4,595,735 $4,686,230 $6,969,210 $6,756,448
========== ========== ========== ==========
Available-for-sale:
U.S. Treasury and federal agency
securities...................... $3,502,255 $5,067,236
Other securities................. 815,316 833,896
State, county and municipal
securities...................... 108,145 73,829
---------- ----------
$4,425,716 $5,974,961
========== ==========
--------
NOTES:
1. The weighted average remaining life, which reflects the amortization on
mortgage related and other asset-backed securities, and the weighted
average yield on the combined held-to-maturity and available-for-sale
portfolios at March 31, 2001, were approximately 4.4 years and 6.70%,
respectively. Included in the combined portfolios was $7.3 billion of
mortgage-backed securities. The weighted-average remaining life and the
weighted-average yield of mortgage-backed securities at March 31, 2001,
were approximately 4.1 years and 6.68%, respectively. The duration of the
combined portfolios, which considers the repricing frequency of variable
rate securities, is approximately 2.6 years.
2. The available-for-sale portfolio included net unrealized gains of $94.8
million and unrealized losses of $227.2 million at March 31, 2001 and 2000,
respectively.
Table 8--Other Interest-Bearing Liabilities
March 31
---------------------
2001 2000
---------- ----------
(In thousands)
Other borrowed funds:
Short-term bank notes.................................. $ 150,000 $ 550,000
Treasury, tax and loan notes........................... 25,000 608,083
Term Federal Funds purchased........................... -0- 540,000
Commercial paper....................................... 12,686 10,821
Other short-term debt.................................. 46,277 132,615
---------- ----------
Total other borrowed funds........................... $ 233,963 $1,841,519
========== ==========
Other long-term debt:
6.45% Subordinated Notes Due 2018...................... $ 303,398 $ 303,896
6.125% Subordinated Notes Due 2009..................... 174,531 174,387
6.75% Subordinated Debentures Due 2025................. 149,920 149,902
7.75% Subordinated Notes Due 2004...................... 149,710 149,618
7.25% Senior Notes Due 2006............................ 99,637 99,548
6.875% Subordinated Notes Due 2003..................... 49,934 49,895
6.625% Subordinated Notes Due 2005..................... 49,749 49,709
Other long-term debt................................... 8,196 3,958
Statement 133 valuation adjustment..................... 18,505 -0-
---------- ----------
Total other long-term debt........................... $1,003,580 $ 980,913
========== ==========
22
Table 9--Capital Amounts and Ratios
March 31
----------------------------------
2001 2000
---------------- ----------------
Amount Ratio Amount Ratio
---------- ----- ---------- -----
(Dollars in thousands)
Tier 1 capital:
AmSouth................................... $2,569,961 7.69% $2,850,335 7.68%
AmSouth Bank.............................. 3,256,881 9.74 3,419,621 9.23
Total capital:
AmSouth................................... $3,724,657 11.14% $4,037,456 10.88%
AmSouth Bank.............................. 3,937,527 11.77 4,083,113 11.02
Leverage:
AmSouth................................... $2,569,961 6.72% $2,850,335 6.59%
AmSouth Bank.............................. 3,256,881 8.53 3,419,621 7.92
23
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item is included on page 15 of Part 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Several of AmSouth's subsidiaries are defendants in legal proceedings
arising in the ordinary course of business. Some of these proceedings seek
relief or damages that are substantial. The actions relate to AmSouth's
lending, collections, loan servicing, deposit taking, investment, trust, and
other activities.
Among the actions which are pending against AmSouth subsidiaries are
actions filed as class actions. The actions are similar to others that have
been brought in recent years against financial institutions in that they seek
punitive damage awards in transactions involving relatively small amounts of
actual damages. A disproportionately higher number of the lawsuits against
AmSouth have been filed in Mississippi relative to the amount of deposits held
by AmSouth in Mississippi. In addition, lawsuits brought in Alabama and
Mississippi against AmSouth and other corporate defendants typically demand
higher damages than similar lawsuits brought elsewhere. Legislation has been
enacted in Alabama that is designed to limit the potential amount of punitive
damages that can be recovered in individual cases in the future. However,
AmSouth cannot predict the effect of the legislation at this time.
It may take a number of years to finally resolve some of these legal
proceedings pending against AmSouth subsidiaries, due to their complexity and
for other reasons. It is not possible to determine with any certainty at this
time the corporation's potential exposure from the proceedings. At times,
class actions are settled by defendants without admission or even an actual
finding of wrongdoing but with payment of some compensation to purported class
members and large attorney's fees to plaintiff class counsel. Nonetheless,
based upon the advice of legal counsel, AmSouth's management is of the opinion
that the ultimate resolution of these legal proceedings will not have a
material adverse effect on AmSouth's financial condition or results of
operations.
Item 6. Exhibits and Reports on Form 8-K
Item 6(a) -- Exhibits
The exhibits listed in the Exhibit Index at page 26 of this Form 10-Q are
filed herewith or are incorporated by reference herein.
Item 6(b) -- Reports on Form 8-K
No reports on Form 8-K were filed by AmSouth during the period January 1,
2001 to March 31, 2001.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, AmSouth
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
/s/ C. Dowd Ritter
May 14, 2001 By: _________________________________
C. Dowd Ritter
Chairman, President and
Chief Executive Officer
/s/ Donald R. Kimble
May 14, 2001 By: _________________________________
Donald R. Kimble
Executive Vice President,
Chief Accounting Officer
and Controller
25
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
10-a Amendment Number One to the AmSouth Bancorporation Supplemental
Retirement Plan
10-b Amendment of Merger of First American Corporation Supplemental
Executive Retirement Program
15 Letter Re: Unaudited Interim Financial Information
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.
26