-------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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, 2001 Commission file number 1-7476 ----------------- AmSouth Bancorporation (Exact Name of registrant as specified in its charter) Delaware 63-0591257 (State or other (I.R.S. Employer jurisdiction of Identification No.) Incorporation or Organization) AmSouth--Sonat Tower 1900 Fifth Avenue North Birmingham, Alabama 35203 (Address of principal (Zip Code) executive offices) (205) 320-7151 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] As of October 31, 2001, AmSouth Bancorporation had 364,421,000 shares of common stock outstanding. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- AMSOUTH BANCORPORATION FORM 10-Q INDEX Page ---- Part I. Financial Information Item 1. Financial Statements (Unaudited) Consolidated Statement of Condition--September 30, 2001, December 31, 2000, and September 30, 2000................................................................... 3 Consolidated Statement of Earnings--Nine months and three months ended September 30, 2001 and 2000.......................................................... 4 Consolidated Statement of Shareholders' Equity--Nine months ended September 30, 2001................................................................................. 5 Consolidated Statement of Cash Flows--Nine months ended September 30, 2001 and 2000................................................................................. 6 Notes to Consolidated Financial Statements............................................. 7 Independent Accountants' Review Report................................................. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................................................... 13 Item 3. Quantitative and Qualitative Disclosures About Market Rate Risk..................... 25 Part II. Other Information Item 1. Legal Proceedings................................................................... 25 Item 6. Exhibits and Reports on Form 8-K.................................................... 25 Signatures....................................................................................... 26 Exhibit Index.................................................................................... 27 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: the execution of AmSouth's strategic initiatives; legislation; general economic conditions, especially in the Southeast; changes in interest rates, yield curves and interest rate spread relationships; 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 including capital market inefficiencies that may affect the marketability and valuation of available-for-sale securities; changes in accounting and tax principles, policies or guidelines; other economic, competitive, governmental, and regulatory factors affecting AmSouth's operations, products, services, compliance costs and prices; and the outcome of litigation, which is inherently uncertain and depends on the findings of judges and juries. The terrorist attacks of September 11, 2001 have had a negative impact on the economy. It is impossible to predict what future effect these events or any United States response may have. To the extent there is a prolonged negative impact on the economy, the effects may include adverse changes in customers' borrowing, investing or spending patterns, market disruptions, currency fluctuations, exchange controls, restriction of asset growth, negative effects on credit quality and other effects that could adversely impact the performance, earnings and revenue growth of the financial services industry, including AmSouth. 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) September 30 December 31 September 30 2001 2000 2000 ------------ ----------- ------------ (In thousands) A S S E T S Cash and due from banks............................................................. $ 1,035,436 $ 1,276,431 $ 1,152,088 Federal funds sold and securities purchased under agreements to resell.............. 300,000 2,155,665 205,465 Trading securities.................................................................. 18,906 11,942 13,079 Available-for-sale securities....................................................... 4,749,826 1,908,917 1,939,431 Held-to-maturity securities (market value of $4,535,163, $6,729,880 and $6,620,957, respectively)...................................................................... 4,389,327 6,650,439 6,754,735 Loans held for sale................................................................. 161,103 92,811 1,041,632 Loans............................................................................... 25,534,112 25,088,186 24,914,228 Less: Allowance for loan losses..................................................... 360,717 380,434 365,164 Unearned income............................................................... 633,052 471,751 432,436 ----------- ----------- ----------- Net loans.................................................................. 24,540,343 24,236,001 24,116,628 Other interest-earning assets....................................................... 337,625 61,060 1,536,012 Premises and equipment, net......................................................... 677,916 634,201 635,481 Accrued interest receivable and other assets........................................ 2,054,323 1,908,511 2,013,330 ----------- ----------- ----------- $38,264,805 $38,935,978 $39,407,881 =========== =========== =========== L I A B I L I T I E S A N D S H A R E H O L D E R S ' E Q U I T Y Deposits and interest-bearing liabilities: Deposits: Noninterest-bearing demand.................................................... $ 4,715,663 $ 4,934,466 $ 4,601,826 Interest-bearing demand....................................................... 10,161,426 9,579,868 9,503,470 Savings....................................................................... 1,221,159 1,212,652 1,283,441 Time.......................................................................... 7,324,214 7,841,567 8,111,633 Foreign time.................................................................. 290,527 503,414 341,440 Certificates of deposit of $100,000 or more................................... 2,160,959 2,551,337 2,948,621 ----------- ----------- ----------- Total deposits............................................................. 25,873,948 26,623,304 26,790,431 Federal funds purchased and securities sold under agreements to repurchase 2,071,030 2,320,264 2,253,812 Other borrowed funds 81,173 536,848 833,421 Long-term Federal Home Loan Bank advances 5,106,188 4,898,308 5,013,982 Other long-term debt 1,025,167 985,097 980,759 ----------- ----------- ----------- Total deposits and interest-bearing liabilities............................ 34,157,506 35,363,821 35,872,405 Accrued expenses and other liabilities.............................................. 1,136,637 758,750 773,790 ----------- ----------- ----------- Total liabilities.......................................................... 35,294,143 36,122,571 36,646,195 ----------- ----------- ----------- 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--416,935,522, 416,941,331 and 416,948,890 shares, respectively 416,935 416,941 416,949 Capital surplus 697,996 691,677 690,953 Retained earnings 2,618,080 2,466,048 2,420,968 Cost of common stock in treasury--52,017,327, 43,134,387 and 41,811,565 shares, respectively (813,814) (651,328) (636,395) Deferred compensation on restricted stock (17,532) (2,381) (3,324) Accumulated other comprehensive income/(loss) 68,997 (107,550) (127,465) ----------- ----------- ----------- Total shareholders' equity................................................. 2,970,662 2,813,407 2,761,686 ----------- ----------- ----------- $38,264,805 $38,935,978 $39,407,881 =========== =========== =========== See notes to consolidated financial statements. 3 AMSOUTH BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS (Unaudited) Nine Months Ended Three Months Ended September 30 September 30 --------------------- ------------------ 2001 2000 2001 2000 ---------- ---------- -------- --------- (In thousands except per share data) INTEREST INCOME Loans..................................................................... $1,508,937 $1,699,559 $480,993 $ 569,912 Available-for-sale securities............................................. 240,699 295,151 84,794 95,098 Held-to-maturity securities............................................... 216,539 342,947 68,816 113,449 Trading securities........................................................ 266 2,102 130 613 Loans held for sale....................................................... 13,200 6,569 3,698 2,285 Federal funds sold and securities purchased under agreements to resell.... 43,108 2,731 7,836 897 Other interest-earning assets............................................. 4,018 1,270 2,102 416 ---------- ---------- -------- --------- Total interest income............................................... 2,026,767 2,350,329 648,369 782,670 ---------- ---------- -------- --------- INTEREST EXPENSE Interest-bearing demand deposits.......................................... 217,629 238,952 61,961 87,349 Savings deposits.......................................................... 13,367 31,806 3,817 5,651 Time deposits............................................................. 328,731 322,791 101,607 115,863 Foreign time deposits..................................................... 8,383 58,918 2,152 19,820 Certificates of deposit of $100,000 or more............................... 102,585 124,023 30,036 45,019 Federal funds purchased and securities sold under agreements to repurchase 64,649 155,501 15,664 53,015 Other borrowed funds...................................................... 7,997 86,815 1,271 27,131 Long-term Federal Home Loan Bank advances................................. 220,905 221,422 72,855 73,370 Other long-term debt...................................................... 43,267 51,114 12,969 17,674 ---------- ---------- -------- --------- Total interest expense.............................................. 1,007,513 1,291,342 302,332 444,892 ---------- ---------- -------- --------- NET INTEREST INCOME....................................................... 1,019,254 1,058,987 346,037 337,778 Provision for loan losses................................................. 133,500 172,000 49,200 123,800 ---------- ---------- -------- --------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES....................... 885,754 886,987 296,837 213,978 ---------- ---------- -------- --------- NONINTEREST REVENUES Service charges on deposit accounts....................................... 191,128 170,959 64,688 57,273 Trust income.............................................................. 85,138 85,635 28,050 29,083 Consumer investment services income....................................... 72,364 177,745 26,261 56,154 Bank owned life insurance policies........................................ 40,393 36,633 12,959 12,204 Interchange income........................................................ 41,458 37,070 14,377 12,123 Mortgage income........................................................... 20,033 13,144 8,567 (8,478) Portfolio income.......................................................... 9,802 (108,164) 3,507 (116,239) Loss on sale of loans held for accelerated disposition.................... -0- (23,414) -0- (21,656) Dealer securitization loss................................................ -0- (18,925) -0- (18,925) Gains (losses) on sales of businesses..................................... -0- 46 -0- (492) Other noninterest revenues................................................ 101,982 99,259 33,941 29,479 ---------- ---------- -------- --------- Total noninterest revenues.......................................... 562,298 469,988 192,350 30,526 ---------- ---------- -------- --------- NONINTEREST EXPENSES Salaries and employee benefits............................................ 442,501 444,643 152,725 149,092 Equipment expense......................................................... 90,493 92,555 29,984 29,246 Net occupancy expense..................................................... 83,879 87,137 28,199 29,089 Postage and office supplies............................................... 36,498 38,430 12,299 12,725 Communications expense.................................................... 31,282 30,620 10,111 10,593 Amortization of intangibles............................................... 25,548 28,941 8,486 9,395 Marketing expense......................................................... 26,541 28,458 9,458 7,480 Subscribers' commissions.................................................. -0- 82,618 -0- 24,739 Merger-related costs...................................................... -0- 110,178 -0- -0- Other noninterest expenses................................................ 140,510 138,571 45,908 44,261 ---------- ---------- -------- --------- Total noninterest expenses.......................................... 877,252 1,082,151 297,170 316,620 ---------- ---------- -------- --------- INCOME/(LOSS) BEFORE INCOME TAXES......................................... 570,800 274,824 192,017 (72,116) Income taxes/(benefits)................................................... 174,975 72,256 55,924 (35,850) ---------- ---------- -------- --------- NET INCOME/(LOSS)................................................... $ 395,825 $ 202,568 $136,093 $ (36,266) ========== ========== ======== ========= Average common shares outstanding......................................... 368,945 384,808 365,970 376,240 Earnings/(Loss) per common share.......................................... $ 1.07 $ 0.53 $ 0.37 $ (0.10) Diluted average common shares outstanding................................. 372,489 387,724 370,116 376,240 Diluted earnings/(loss) per common share.................................. $ 1.06 $ 0.52 $ 0.37 $ (0.10) See notes to consolidated financial statements. 4 AMSOUTH BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited) Deferred Accumulated Compensation Other Common Capital Retained Treasury on 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- 395,825 -0- -0- -0- 395,825 Other comprehensive income, net of tax:.................................... Cumulative effect of accounting change (net of $6,324 tax expense)..... -0- -0- -0- -0- -0- 32,262 32,262 Change in unrealized gains on derivative instruments (net of $8,009 tax expense).................... -0- -0- -0- -0- -0- 14,873 14,873 Changes in unrealized gains and losses on available-for-sale securities, net of reclassification adjustment (net of $68,345 tax expense)............................... -0- -0- -0- -0- -0- 129,412 129,412 ---------- Comprehensive income........................ 572,372 Cash dividends declared..................... -0- -0- (236,088) -0- -0- -0- (236,088) Common stock transactions:.................. Purchase of common stock................ -0- -0- -0- (218,064) -0- -0- (218,064) Employee stock plans.................... (6) 6,205 (7,361) 47,192 (15,151) -0- 30,879 Dividend reinvestment plan.............. -0- 114 (344) 8,386 -0- -0- 8,156 -------- -------- ---------- --------- -------- --------- ---------- BALANCE AT SEPTEMBER 30, 2001............... $416,935 $697,996 $2,618,080 $(813,814) $(17,532) $ 68,997 $2,970,662 ======== ======== ========== ========= ======== ========= ========== Disclosure of reclassification amount: Unrealized holding gains on available-for- sale securities arising during the period.. $ 134,561 Less: Reclassification adjustments for gains realized in net income..................... 5,149 --------- Net unrealized gains on available-for-sale securities, net of tax..................... $ 129,412 ========= Unrealized holding gains on derivatives arising during the period.................. $ 21,006 Less: Reclassifiction adjustment for gains realized in net income..................... 6,133 --------- Net unrealized gains on derivatives, net of tax........................................ $ 14,873 ========= See notes to consolidated financial statements. 5 AMSOUTH BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Nine Months Ended September 30 ------------------------ 2001 2000 ----------- ----------- (In thousands) OPERATING ACTIVITIES Net income......................................... $ 395,825 $ 202,568 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses....................... 133,500 172,000 Depreciation and amortization of premises and equipment...................................... 66,370 64,127 Amortization of premiums and discounts on held-to-maturity securities and available-for-sale securities.................. (17,319) 4,059 Noncash portion of merger-related costs......... -0- 67,052 Net gain on branch sales........................ -0- (7,668) Net (increase) decrease in loans held for sale.. (68,292) 32,349 Net decrease in trading securities.............. 6,539 27,239 Net (gains) losses on sales of available-for-sale securities.................. (8,251) 98,280 Gains on sales of loans to dealer conduits...... -0- (9,323) Net loss on dealer securitization............... -0- 18,925 Write-down of mortgage conduit assets........... -0- 24,751 Gains on sales of loans to mortgage conduits.... (1,993) (15,808) Gains on sales of business operations, subsidiaries, and other assets................. (3,983) -0- Net loss on loans held for accelerated disposition.................................... -0- 23,414 Net increase in accrued interest receivable and other assets............................... (119,449) (211,429) Net increase (decrease) in accrued expenses and other liabilities.......................... 117,902 (38,877) Provision for deferred income taxes............. 158,801 72,256 Amortization of intangible assets............... 25,515 28,908 Other operating activities, net................. 31,013 37,062 ----------- ----------- Net cash provided by operating activities..... 716,178 589,885 ----------- ----------- INVESTING ACTIVITIES Proceeds from maturities and prepayments of available-for-sale securities..................... 892,245 470,549 Proceeds from sales of available-for-sale securities........................................ 361,163 2,900,801 Purchases of available-for-sale securities......... (1,814,799) (769,000) Proceeds from maturities, prepayments and calls of held-to-maturity securities.................... 1,238,921 759,794 Purchases of held-to-maturity securities........... (939,830) (449,472) Net decrease (increase) in federal funds sold and securities purchased under agreements to resell... 1,855,665 (73,273) Net increase in other interest-earning assets...... (276,565) (23,605) Net increase in loans, excluding dealer securitization and mortgage and dealer conduits sales............................................. (596,919) (1,775,388) Proceeds from sales of loans to dealer conduits.... -0- 1,001,106 Proceeds from sales of loans to mortgage conduits.. 100,248 1,199,711 Net purchases of premises and equipment............ (110,085) (27,838) Net cash received (paid) on sales of branches, business operations, subsidiaries and other assets............................................ 13,000 (37,664) ----------- ----------- Net cash provided by investing activities..... 723,044 3,175,721 ----------- ----------- FINANCING ACTIVITIES Net decrease in deposits........................... (766,532) (898,025) Net decrease in federal funds purchased and securities sold under agreements to repurchase.... (249,234) (1,841,935) Net decrease in other borrowed funds............... (455,675) (1,302,299) Issuance of long-term Federal Home Loan Bank advances and other long-term debt................. 600,983 5,375,000 Payments for maturing long-term debt............... (393,282) (4,982,144) Cash dividends paid................................ (234,786) (230,774) Proceeds from employee stock plans and dividend reinvestment plan................................. 36,373 49,218 Purchase of common stock........................... (218,064) (345,044) ----------- ----------- Net cash used for financing activities........ (1,680,217) (4,176,003) ----------- ----------- Decrease in cash and cash equivalents.............. (240,995) (410,397) Cash and cash equivalents at beginning of period... 1,276,431 1,562,485 ----------- ----------- Cash and cash equivalents at end of period......... $ 1,035,436 $ 1,152,088 =========== =========== See notes to consolidated financial statements. 6 AMSOUTH BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Nine Months Ended September 30, 2001 and 2000 General--The consolidated financial statements conform to accounting principles generally accepted in the United States. The accompanying interim financial statements are unaudited; however, in the opinion of management, all adjustments necessary for the fair presentation of the consolidated financial statements have been included. All such adjustments are of a normal recurring nature. Certain amounts in the prior year's financial statements have been reclassified to conform with the 2001 presentation. These reclassifications had no effect on net income. The notes included herein should be read in conjunction with the notes to consolidated financial statements included in AmSouth Bancorporation's (AmSouth) 2000 annual report on Form 10-K. Accounting Changes--Effective January 1, 2001, AmSouth adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and for Hedging Activities" (Statement 133), as amended, and, at that time, designated anew the derivative instruments used for risk management into hedging relationships in accordance with the requirements of the new standard. Derivative instruments used to hedge changes in the fair value of assets and liabilities due to changes in interest rates were designated as fair value hedges. Derivative instruments used to hedge the variability of forecasted cash flows attributable to interest rate risk were designated as cash flow hedges. The after-tax transition adjustment associated with the adoption of Statement 133 was immaterial to net income and increased other comprehensive income by 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. AmSouth also recorded an increase to other comprehensive income of $26,612,000 as a result of transferring $2,107,919,000 of securities from held-to-maturity to available-for-sale in conjunction with the adoption of Statement 133. The transition amounts were determined based on the interpretive guidance issued by the Financial Accounting Standards Board (FASB) to date. The FASB continues to issue interpretive guidance which could require changes to AmSouth's application of Statement 133 and adjustments to the transition amounts. In September 2000, Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (Statement 140), was issued by the FASB. Statement 140 replaces Statement 125, issued in June 1996. Statement 140 revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but carries over most of Statement 125's provisions without reconsideration. Statement 140 is effective for transfers occurring after March 31, 2001, except for certain paragraphs related to the isolation standards for financial institutions subject to receivership by the FDIC or other affected entities. For these entities, Statement 140's isolation standards will be effective for transfers of financial assets occurring after December 31, 2001. Therefore, affected institutions will have until December 31, 2001, to modify documents establishing securitization structures to comply with the new isolation standards. AmSouth is reviewing its conduit and securitization structures under this new isolation guidance and plans to make any necessary revisions in the structure of these transactions to ensure these sales comply with the new guidance. The expanded disclosures about securitizations and collateral are effective for fiscal years ending after December 15, 2000. AmSouth has adopted the disclosure requirements and does not expect the remaining provisions of Statement 140 to have a material impact on its financial condition or results of operations. In July 2001, the FASB issued Statement No. 141, "Business Combinations" (Statement 141), and Statement No. 142, "Goodwill and Other Intangible Assets" (Statement 142). Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Statement 141 also specifies the criteria for intangible assets acquired in a purchase method business combination to be recognized and reported apart from goodwill. Statement 142 will require goodwill and intangible assets with indefinite useful lives to no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 will also require intangible assets with definite useful lives 7 to be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with the FASB's Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (Statement 121). AmSouth is required to adopt the provisions of Statement 141 immediately and Statement 142 effective January 1, 2002. Furthermore, any goodwill and any intangible assets determined to have an indefinite useful life that are acquired in a purchase business combination completed after June 30, 2001 will not be amortized, but will continue to be evaluated for impairment in accordance with the appropriate pre-Statement 142 accounting literature. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 will continue to be amortized prior to the adoption of Statement 142. Statement 141 will require upon adoption of Statement 142, that AmSouth evaluate its existing intangible assets and goodwill that were acquired in prior purchase business combinations, and make any necessary reclassifications to conform with the new criteria in Statement 141. Upon adoption of Statement 142, AmSouth will be required to reassess the useful lives and residual values of all intangible assets acquired in purchase business combinations, and make any necessary amortization period adjustments by the end of the first interim period after adoption. In addition, to the extent an intangible asset is identified as having an indefinite useful life, AmSouth will be required to test the intangible asset for impairment in accordance with the provisions of Statement 142 within the first interim period. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period. As of the date of adoption, AmSouth expects to have unamortized goodwill in the amount of $288.6 million, and unamortized identifiable intangible assets in the amount of $18.3 million, all of which will be subject to the transition provisions of Statements 141 and 142. The full impact of adoption is yet to be determined, however, amortization expense related to goodwill was $32.5 million, or $.08 per share, and $22.1 million, or $.06 per share, for the year ended December 31, 2000 and the nine months ended September 30, 2001, respectively. On October 3, 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (Statement 144). Statement 144 supersedes FASB Statement 121 and provides a single accounting model for long-lived assets to be disposed of. Although retaining many of the fundamental recognition and measurement provisions of Statement 121, the new rules significantly change the criteria that would have to be met to classify an asset as held-for-sale. Statement 144 also supersedes the provisions of APB Opinion 30 with regard to reporting the effects of a disposal of a segment of a business and will require expected future operating losses from discontinued operations to be displayed in discontinued operations in the period(s) in which the losses are incurred (rather than as of the measurement date as presently required by APB 30). In addition, more dispositions will qualify for discontinued operations treatment in the income statement. This statement will be effective for AmSouth beginning January 2002. AmSouth does not anticipate that this statement will have a material impact on its financial condition or results of operations. Cash Flows--For the nine months ended September 30, 2001 and 2000, AmSouth paid interest of $1.0 billion and $1.3 billion, respectively. During the nine months ended September 30, 2001 and 2000, AmSouth received income tax refunds of $11.3 million and $6.3 million, respectively. Noncash transfers from loans to foreclosed properties for the nine months ended September 30, 2001 and 2000, were $30.3 and $22.9 million, respectively, and noncash transfers from foreclosed properties to loans were $687 thousand and $1.3 million, respectively. For the nine months ended September 30, 2001, AmSouth had noncash transfers from loans to available-for-sale securities and other assets of approximately $1.6 million and $1.0 million, respectively, in connection with the participation of loans to third-party conduits. For the same period of 2000, AmSouth had noncash transfers from loans to available-for-sale securities, other assets and other liabilities of approximately $30.8 million, $22.7 million and $11.4 million, respectively, in connection with the participation of loans to third-party conduits. 8 Derivatives--In accordance with Statement 133, AmSouth recognizes all of its derivative instruments as either assets or liabilities in the statement of financial condition at fair value. For those derivative instruments that are designated and qualify as hedging instruments, AmSouth designates the hedging instrument, based upon the exposure being hedged, as either a fair value hedge or a cash flow hedge. For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in other noninterest revenue during the period of the change in fair values. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is recognized in other noninterest revenue during the period of change. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of change. Fair Value Hedging Strategy--AmSouth has entered into interest rate swap agreements for interest rate risk exposure management purposes. The interest rate swap agreements utilized by AmSouth effectively modify AmSouth's exposure to interest rate risk by converting a portion of AmSouth's fixed-rate certificates of deposit to floating rate. AmSouth also has interest rate swap agreements which effectively convert portions of its fixed-rate long-term debt to floating rate. During the nine-month period ended September 30, 2001, AmSouth recognized a net gain of $185,000 related to the ineffective portion of its hedging instruments. Cash Flow Hedging Strategy--AmSouth has entered into interest rate swap agreements that effectively convert a portion of its floating-rate loans to a fixed-rate basis, thus reducing the impact of interest-rate changes on future interest income. Approximately $725 million of AmSouth's loans were designated as the hedged items to the interest rate swap agreements at September 30, 2001. During the nine-month period ended September 30, 2001, AmSouth recognized a net gain of $208,000 related to the ineffective portion of its hedging instruments. Comprehensive Income--Total comprehensive income was $213.1 million and $572.4 million for the three and nine months ended September 30, 2001 and $89.6 million and $324.0 million for the three and nine months ended September 30, 2000. Total comprehensive income consists of net income, the change in the unrealized gains or losses on AmSouth's available-for-sale securities portfolio arising during the period and the effective portion of cash flow hedges marked to market. 9 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 ----------------- ----------------- 2001 2000 2001 2000 -------- -------- -------- -------- (In thousands except per share data) Earnings per common share computation: Numerator: Net income/(loss).......................... $136,093 $(36,266) $395,825 $202,568 Denominator: Average common shares outstanding.......... 365,970 376,240 368,945 384,808 Earnings/(Loss) per common share.............. $ .37 $ (0.10) $ 1.07 $ .53 Diluted earnings per common share computation: Numerator: Net income/(loss).......................... $136,093 $(36,266) $395,825 $202,568 Denominator: Average common shares outstanding.......... 365,970 376,240 368,945 384,808 Dilutive shares contingently issuable...... 4,146 -0- 3,544 2,916 -------- -------- -------- -------- Average diluted common shares outstanding.. 370,116 376,240 372,489 387,724 Diluted earnings/(loss) per common share...... $ .37 $ (0.10) $ 1.06 $ .52 Shareholders' Equity--On April 20, 2000, AmSouth's Board of Directors (The Board) 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 September 30, 2001, 34.5 million shares have been purchased under this authorization at a cost of $587.8 million. On September 19, 2001, The Board approved an additional 25 million shares of common stock for repurchase over the next two years. Through September, no shares had been repurchased under this authorization. Cash dividends of $0.21 per common share were declared in the third quarter of 2001. This represents a five percent increase over the dividend paid during the third quarter of 2000. 10 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, non-deposit funding and off-balance sheet financial instruments. Treasury & Other also includes income from bank owned life insurance policies, ineffectiveness related to hedging strategies, net gains on sales of businesses and other assets, net gains on sales of fixed assets, taxable-equivalent adjustments associated with lease restructuring transactions, merger-related costs, and corporate expenses such as corporate overhead and goodwill amortization. As a result of the sale of IFC Holdings, Inc. (IFC) at the end of the third quarter of 2000, all revenues and expenses of IFC for 2000 have been reclassified into Treasury & Other from Wealth Management. The following is a summary of the segment performance for the three months and nine months ended September 30, 2001 and 2000: Consumer Commercial Wealth Treasury Banking Banking Management & Other Total ---------- ---------- ---------- --------- ---------- (In thousands) Three Months Ended September 30, 2001 Net interest income from external customers $ 133,806 $ 156,426 $ (291) $ 56,096 $ 346,037 Internal funding........................... 126,387 (55,287) 1,501 (72,601) -0- ---------- --------- -------- --------- ---------- Net interest income........................ 260,193 101,139 1,210 (16,505) 346,037 Noninterest revenues....................... 90,303 26,618 54,392 21,037 192,350 ---------- --------- -------- --------- ---------- Total revenues............................. 350,496 127,757 55,602 4,532 538,387 Provision for loan losses.................. 33,976 35,170 -0- (19,946) 49,200 Noninterest expenses....................... 178,741 45,438 41,427 31,564 297,170 ---------- --------- -------- --------- ---------- Income/(Loss) before income taxes.......... 137,779 47,149 14,175 (7,086) 192,017 Income taxes/(benefits).................... 51,843 17,712 5,323 (18,954) 55,924 ---------- --------- -------- --------- ---------- Segment net income......................... $ 85,936 $ 29,437 $ 8,852 $ 11,868 $ 136,093 ========== ========= ======== ========= ========== Three Months Ended September 30, 2000 Net interest income from external customers $ 109,437 $ 185,763 $ (302) $ 42,880 $ 337,778 Internal funding........................... 135,552 (88,773) 1,049 (47,828) -0- ---------- --------- -------- --------- ---------- Net interest income........................ 244,989 96,990 747 (4,948) 337,778 Noninterest revenues....................... 64,424 22,388 52,919 (109,205) 30,526 ---------- --------- -------- --------- ---------- Total revenues............................. 309,413 119,378 53,666 (114,153) 368,304 Provision for loan losses.................. 24,071 11,357 -0- 88,372 123,800 Noninterest expenses....................... 169,973 40,148 34,950 71,549 316,620 ---------- --------- -------- --------- ---------- Income/(Loss) before income taxes.......... 115,369 67,873 18,716 (274,074) (72,116) Income taxes/(benefits).................... 43,379 25,520 7,037 (111,786) (35,850) ---------- --------- -------- --------- ---------- Segment net income/(loss).................. $ 71,990 $ 42,353 $ 11,679 $(162,288) $ (36,266) ========== ========= ======== ========= ========== Nine Months Ended September 30, 2001 Net interest income from external customers $ 349,829 $ 502,303 $ (1,017) $ 168,139 $1,019,254 Internal funding........................... 400,579 (205,809) 4,244 (199,014) -0- ---------- --------- -------- --------- ---------- Net interest income........................ 750,408 296,494 3,227 (30,875) 1,019,254 Noninterest revenues....................... 259,496 77,851 157,807 67,144 562,298 ---------- --------- -------- --------- ---------- Total revenues............................. 1,009,904 374,345 161,034 36,269 1,581,552 Provision for loan losses.................. 89,338 63,879 -0- (19,717) 133,500 Noninterest expenses....................... 522,959 136,605 120,845 96,843 877,252 ---------- --------- -------- --------- ---------- Income/(Loss) before income taxes.......... 397,607 173,861 40,189 (40,857) 570,800 Income taxes/(benefits).................... 149,642 65,284 15,078 (55,029) 174,975 ---------- --------- -------- --------- ---------- Segment net income......................... $ 247,965 $ 108,577 $ 25,111 $ 14,172 $ 395,825 ========== ========= ======== ========= ========== Nine Months Ended September 30, 2000 Net interest income from external customers $ 350,968 $ 597,893 $ (612) $ 110,738 $1,058,987 Internal funding........................... 381,748 (260,613) 2,564 (123,699) -0- ---------- --------- -------- --------- ---------- Net interest income........................ 732,716 337,280 1,952 (12,961) 1,058,987 Noninterest revenues....................... 238,685 65,016 150,496 15,791 469,988 ---------- --------- -------- --------- ---------- Total revenues............................. 971,401 402,296 152,448 2,830 1,528,975 Provision for loan losses.................. 64,332 19,208 -0- 88,460 172,000 Noninterest expenses....................... 527,732 115,825 109,907 328,687 1,082,151 ---------- --------- -------- --------- ---------- Income/(Loss) before income taxes.......... 379,337 267,263 42,541 (414,317) 274,824 Income taxes/(benefits).................... 142,630 100,491 15,995 (186,860) 72,256 ---------- --------- -------- --------- ---------- Segment net income/(loss).................. $ 236,707 $ 166,772 $ 26,546 $(227,457) $ 202,568 ========== ========= ======== ========= ========== 11 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 September 30, 2001 and 2000, and the related consolidated statement of earnings for the three-month and nine-month periods ended September 30, 2001 and 2000, the consolidated statement of cash flows for the nine-month periods ended September 30, 2001 and 2000, and the consolidated statement of shareholders' equity for the nine-month period ended September 30, 2001. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with the standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States. We have previously audited, in accordance with auditing standards generally accepted in the United States, the consolidated statement of condition of AmSouth Bancorporation and subsidiaries as of December 31, 2000, and the related consolidated statements of earnings, shareholders' equity, and cash flows for the year then ended (not presented herein) and in our report dated January 31, 2001, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated statement of condition as of December 31, 2000 is fairly stated, in all material respects, in relation to the consolidated statement of condition from which it has been derived. /S/ ERNST & YOUNG LLP November 8, 2001 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview AmSouth Bancorporation (AmSouth) reported net income for the quarter ended September 30, 2001 of $136.1 million, or $.37 per share and $395.8 million, or $1.06 per share for the first nine months of 2001. In the same periods last year, AmSouth recorded a net loss for the quarter ended September 30, 2000 of $36.3 million, or $.10 per share, and net income of $202.6 million, or $.52 per share, respectively. For the three months and nine months ended September 30, 2001, AmSouth's return on average assets (ROA) was 1.41 percent and 1.38 percent, respectively, compared to a loss on average assets of .34 percent for the third quarter of 2000 and .63 percent ROA for the first nine months of 2000. Return on average equity (ROE) increased to 18.59 percent and 18.47 percent for the third quarter and first nine months of 2001 from a loss on average equity of 5.20 percent for the same quarter of 2000 and 9.41 percent ROE for the first nine months of 2000. Total assets at September 30, 2001 were $38.3 billion, down from $38.9 billion at year-end reflecting a decrease in Federal funds sold and securities purchased under agreements to resell, offset by increases in loans, the investment portfolio and other interest earning assets. Loans net of unearned income at September 30, 2001 increased $285 million over year-end. This increase was attributable to $977 million of growth in consumer loans offset by decreases in commercial and commercial real estate loans. The increase in consumer loans was driven by increases in home equity loans and lines. This increase also reflected higher levels of residential mortgages and indirect automobile loans being retained on the balance sheet. The decrease in commercial loans reflected management's decision, beginning in 2000, to reduce AmSouth's exposure to syndicated commercial loans while the commercial real estate portfolio decline reflected the impact of borrowers taking advantage of lower rate permanent financing from other financial institutions. Managed loans, which include loans contained in third-party conduits and loans securitized, decreased by $1.1 billion at September 30, 2001 from year-end levels. This decrease reflected lower levels of commercial loans, as previously discussed, as well as a decrease in residential first mortgages and indirect auto loans on an overall managed basis. The investment portfolio, which consists of available-for-sale (AFS) and held-to-maturity (HTM) securities, increased to $9.1 billion at September 30, 2001, compared to $8.6 billion at December 31, 2000. Federal funds sold and securities purchased under agreements to resell decreased to $300 million at September 30, 2001 from $2.2 billion at December 31, 2000. The decrease reflected management's decision to shift lower yielding Federal funds into higher yielding consumer loans and to offset planned decreases in higher cost time deposits. On the funding side of the balance sheet, total deposits at September 30, 2001 decreased by $749 million compared to December 31, 2000. Excluding the $213 million decrease in foreign time deposits (Eurodollar deposits), domestic deposits declined by $536 million. Decreases in domestic deposits occurred primarily in higher cost time deposits. These decreases were partially offset by increases in low cost deposits, which include noninterest-bearing and interest-bearing demand deposits and savings deposits. Federal funds purchased and securities sold under agreements to repurchase and other borrowed funds decreased by $249 million and $456 million, respectively, compared to December 31, 2000. The decrease in short-term borrowings including foreign time deposits reflected the use of proceeds from the third quarter of 2000 balance sheet restructuring transactions. Net Interest Income Net interest income (NII) on a fully taxable equivalent basis was $364.4 million for the third quarter of 2001, an increase of $17.3 million, or 5.0 percent, as compared to the third quarter of 2000 and an increase of $5.4 million or 6.0 percent annualized when compared to the second quarter of 2001. The increase in net interest income on a year over year and quarter over quarter basis reflected a higher net interest margin partially offset by lower average interest-earning assets. Average interest-earning assets for the third quarter of 2001 were $34.8 billion, a decrease of $3.7 billion from the same period in 2000 and a decrease of $166 million from the immediately preceding quarter. The increase in the margin reflected a favorable shift in the mix of both assets and liabilities. More profitable consumer loans replaced narrower spread commercial loans while the decline in 13 higher cost time deposits was offset with growth in low-cost deposits. On a year-to-date basis, net interest income on a fully taxable equivalent basis was $1.1 billion in 2001, a decrease of $33.5 million or 3.1 percent compared to the first nine months of 2000. The decrease in net interest income for the first nine months of 2001 primarily reflected a $4.5 billion decrease in average interest-earning assets, resulting from the third quarter 2000 balance sheet restructuring. The restructuring also contributed to the 31 basis point increase in the net interest margin for the first nine months of 2001 compared to the same period of 2000. AmSouth expects its margin to improve in the fourth quarter of 2001 reflecting the maturity of $2.3 billion in higher cost time deposits which have or will mature during the third and fourth quarters at a time when renewal rates would be approximately 350 basis points lower. 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, changes in market conditions, volume differences and management's strategies, among other factors. Based on the results of the simulation model as of September 30, 2001, AmSouth would expect NII to decrease $5 million or approximately .4 percent and increase $7 million or approximately .5 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 September 30, 2000, the simulation model indicated that NII would decrease $14.5 million or approximately 1.0 percent and increase $4.3 million or approximately .3 percent if interest rates gradually increased or decreased, respectively, from their then-current rates by 100 basis points over a 12-month period. 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 $606 million during the first nine months of 2001. At September 30, 2001, AmSouth had interest rate swaps, all of which receive fixed rates, totaling a notional amount of $2.1 billion. At September 30, 2001, AmSouth also held other derivative instruments to provide customers and AmSouth a means of managing the risks of changing interest and foreign exchange rates. The amounts of these other derivative instruments were immaterial. 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. 14 Table 6 presents a five-quarter analysis of the allowance for loan losses. At September 30, 2001, the allowance for loan losses was $360.7 million, or 1.45 percent of loans net of unearned income, compared to $365.2 million, or 1.49 percent, at September 30, 2000 and $380.7 million, or 1.54 percent at June 30, 2001. The decrease in the allowance versus the second quarter of 2001 primarily reflected a significant reduction in AmSouth's exposure to nonperforming syndicated loans as a result of charging off approximately $30 million of shared national credit loans in the third quarter of 2001. The decrease in the allowance also reflected a reduction in classified commercial loans. The decrease in exposure to commercial loans was somewhat offset by an increase in the allowance associated with the consumer loan portfolio as loss experience in the consumer portfolio increased. The coverage ratio of the allowance for loan losses to nonperforming loans was 211 percent at September 30, 2001, an increase from the June 30, 2001 ratio of 193 percent. Net charge-offs for the quarter ended September 30, 2001, were $69.1 million or 1.11 percent of average loans, on an annualized basis, an increase of $33.7 million from the $35.4 million or .55 percent of average loans reported a year earlier and $23.1 million higher than the $46.1 million of net charge-offs or .75 percent of average loans reported in the second quarter of 2001. The increase in net charge-offs for the quarter occurred in both the commercial and consumer portfolios with commercial and commercial real estate net charge-offs increasing $26.5 million compared to the third quarter of 2000 and $17.9 million compared to the second quarter of 2001. As described in the previous paragraph, the increase reflected approximately $30 million of shared national credit loans. In the consumer portfolio, net charge-offs for the third quarter were $25.5 million compared to $20.4 million in the second quarter of 2001 and $18.3 million for third quarter of 2000. Compared to the third quarter of 2000, the increase in consumer net charge-offs in the third quarter of 2001 reflected increases in most consumer loan categories. The increase versus the second quarter of 2001 was primarily the result of increases in indirect automobile loans, direct consumer loans and residential first mortgages partially offset by decreases in equity lending and bankcard and revolving credit net charge-offs. The overall increase in the consumer net charge-offs primarily reflected a continued slowing of the economy and higher rates of personal bankruptcy filings. For the nine months ended September 30, 2001, net charge-offs were $153.2 million or an annualized .83 percent of average loans compared to $83.5 million or .42 percent for the same period of 2000. On a year-to-date basis, the increase in net charge-offs occurred in both the commercial and consumer portfolios. As described in the quarterly comparisons, the increased net charge-offs reflected the impact of a slowing economy and higher rates of personal bankruptcy filings as well as the charge-offs of shared national credit loans. Fourth quarter net charge-offs are expected to return to the 70 to 80 basis point range recognized in the second quarter of 2001. The provision for loan losses for the third quarter of 2001 was $49.2 million compared to $123.8 million in the third quarter of 2000 and $46.1 million in the second quarter of 2001. For the first nine months of 2001, the provision was $133.5 million compared to $172.0 million for the corresponding year-earlier period. Table 7 presents a five-quarter comparison of the components of nonperforming assets. At September 30, 2001, nonperforming assets as a percentage of loans net of unearned income, foreclosed properties and repossessions decreased by eight basis points to 0.82 percent compared to 0.90 percent at the end of the second quarter of 2001. Compared to the third quarter of 2000, this percentage increased 16 basis points from 0.66 percent. The decrease from the second quarter of 2001 reflected the charge-off of approximately $30 million of shared national credit loans. The increase compared to the prior year was primarily associated with a higher level of nonperforming syndicated commercial loans at September 30, 2001 compared to September 30, 2000 and reflected the impact of a slower economy. Included in nonperforming assets at September 30, 2001 and 2000, was $114.8 million and $80.2 million, respectively, in loans that were considered to be impaired, substantially all of which were on a nonaccrual basis. At September 30, 2001 and 2000, there was $25.4 million and $42.5 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, 2001 and 2000, was $126.4 million and $61.9 million, respectively, and $130.6 million and $66.6 million, respectively, for the nine months ended September 30, 2001 and 2000. 15 AmSouth recorded no material interest income on its impaired loans during the three and nine months ended September 30, 2001. Noninterest Revenues and Noninterest Expenses Noninterest revenue (NIR) was $192.4 million during the third quarter of 2001 and $562.3 million for the first nine months of 2001 compared to $30.5 million and $470.0 million reported for the corresponding periods in 2000. NIR in 2000, however, was negatively impacted by charges recorded in connection with a third quarter financial restructuring as well as charges associated with business divestitures. The impact of these items was to reduce NIR in third quarter and year-to-date by approximately $171 million. NIR for the quarter and year-to-date period ended September 30, 2000 also included approximately $34.4 million and $117.6 million of revenues associated with IFC Holdings, Inc. (IFC), which was sold by AmSouth in the third quarter of 2000. Excluding the impact of the restructuring and business divestiture charges as well as revenues from IFC, NIR increased by 14.8 percent in the third quarter of 2001 and 7.5 percent on a year-to-date basis from adjusted NIR of $167.5 million and $523.2 million for the quarter and nine months ended September 30, 2000, respectively. The increase in NIR versus the adjusted prior year numbers was primarily due to higher revenues generated across most categories of NIR. Categories showing improvement were led by service charges on deposits, which increased $7.4 million or 12.9 percent, and $20.2 million or 11.8 percent versus the third quarter and first nine months of 2000, respectively. The increase in service charge income was primarily the result of higher treasury management fees as a result of higher sales to corporate customers. The increase in service charge income also reflected higher revenue from overdraft fees. Additionally, consumer investment services income, excluding IFC generated revenues, increased $2.5 million and $6.8 million when compared to the three months and nine months ended September 30, 2000, respectively. This increase was primarily the result of higher annuity income from AmSouth's platform annuity sales program. Interchange income for the three and nine months ended September 30, 2001 was $2.3 million and $4.4 million higher, respectively, than the corresponding periods last year due to higher transaction volumes from AmSouth checkcards and ATMs. Mortgage income in the third quarter of 2001 increased $4.4 million compared to the third quarter of 2000, adjusted for restructuring charges, yet declined by approximately $5.8 million for the nine months ended September 30, 2001, compared to the same period in 2000. The increase for the quarter was driven by higher gains on the bulk sale of mortgage loans and servicing in the secondary market. On a year-to-date comparison, the decrease in mortgage income reflected a $13.8 million decrease in gains on sales of mortgage loans to third-party conduits, partially offset by higher secondary marketing gains from the sale of mortgage loans and servicing. The decline in trust income reflected a drop in net assets under management, primarily as a result of declining market values and a decline in net new business. Noninterest expenses (NIE) decreased from the prior year by 6.1 percent and 18.9 percent for the three months and nine months ended September 30, 2001. Excluding the impact of merger-related charges and expenses related to IFC, NIE increased 5.1 percent or $14.6 million for the quarter and 1.7 percent or $14.8 million year-to-date compared to the same periods of 2000. The increase primarily reflected higher salaries and employee benefits, and within other NIE, professional fees. On a quarterly comparison basis, higher marketing and equipment expenses also contributed to the increase in NIE versus adjusted third quarter 2000 NIE. Salaries and employee benefits increased $8.4 million and $11.9 million for the quarter and year-to-date periods, respectively, compared to the same periods a year ago, adjusted for the IFC sale. This increase reflected higher incentive accruals related to improved performance as well as higher staffing levels. Professional fees increased $2.5 million on a quarterly basis and $4.9 million year-to-date compared to corresponding periods in 2000, excluding IFC. While marketing expenses on a year-to-date basis were down $1.9 million compared to the same period of 2000 as a result of cost control initiatives, third quarter marketing expenses were $2.0 million higher than the third quarter of 2000 as a result of additional expenses associated with AmSouth's equity lending initiative. Equipment expense, excluding IFC, was down $1.8 million or 2.0 percent on a year-to-date basis, primarily due to synergies achieved as a result of the merger with First American. On a quarterly comparison basis, equipment expense was higher due to an increase in software depreciation. As a result of the sale of IFC, 16 no expenses for subscriber commissions were incurred in 2001, compared to $24.7 million and $82.6 million in the third quarter and first nine months of last year. Capital Adequacy At September 30, 2001, shareholders' equity totaled $3.0 billion or 7.76 percent of total assets. Since December 31, 2000, shareholders' equity increased $157.3 million primarily as a result of net income for the nine months of $395.8 million. In addition, shareholders' equity increased $156.0 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 $20.5 million of other comprehensive income associated with cash flow hedges, of which $5.7 million was related to the initial adoption of Statement 133. These increases in shareholders' equity were offset by the declaration of dividends of $236.1 million and the purchase of 12.1 million shares of AmSouth common stock for $218.1 million during the first nine months of 2001. Table 10 presents the capital amounts and risk-adjusted capital ratios for AmSouth and AmSouth Bank at September 30, 2001 and 2000. At September 30, 2001, AmSouth exceeded the regulatory minimum required risk-adjusted Tier 1 Capital Ratio of 4.00% and risk-adjusted Total Capital Ratio of 8.00%. In addition, the risk-adjusted capital ratios for AmSouth Bank were above the regulatory minimums, and the Bank was well capitalized at September 30, 2001. 17 Table 1--Financial Summary September 30 ------------------------- % 2001 2000 Change ------------ ------------ ------ (In thousands) Balance sheet summary End-of-period balances: Loans net of unearned income. $ 24,901,060 $ 24,481,792 1.7% Total assets................. 38,264,805 39,407,881 (2.9) Total deposits............... 25,873,948 26,790,431 (3.4) Shareholders' equity......... 2,970,662 2,761,686 7.6 Year-to-date average balances: Loans net of unearned income. $ 24,702,003 $ 26,309,699 (6.1)% Total assets................. 38,359,859 42,944,326 (10.7) Total deposits............... 26,002,930 27,686,327 (6.1) Shareholders' equity......... 2,865,476 2,874,424 (0.3) Nine Months Ended Three Months Ended September 30 September 30 ------------------ % ------------------ % 2001 2000 Change 2001 2000 Change -------- -------- ------ -------- -------- ------ (In thousands except per share data) Earnings summary Net income/(loss)......................... $395,825 $202,568 95.4% $136,093 $(36,266) 475.3% Earnings/(Loss) per common share.......... 1.07 0.53 101.9 0.37 (0.10) 470.0 Diluted earnings/(loss) per common share.. 1.06 0.52 103.8 0.37 (0.10) 470.0 Return/(Loss) on average assets (annualized)............................ 1.38% 0.63% 1.41% (0.34)% Return/(Loss) on average equity (annualized)............................ 18.47 9.41 18.59 (5.20) Operating efficiency...................... 53.95 69.05 53.37 83.85 Selected ratios Average equity to assets.................. 7.47% 6.69% 7.60% 6.63% End-of-period equity to assets............ 7.76 7.01 7.76 7.01 End-of-period tangible equity to assets... 7.00 6.16 7.00 6.16 Allowance for loan losses to loans net of unearned income......................... 1.45 1.49 1.45 1.49 Common stock data Cash dividends declared................... $ 0.63 $ 0.60 $ 0.21 $ 0.20 Book value at end of period............... 8.14 7.36 8.14 7.36 Market value at end of period............. 18.07 12.50 18.07 12.50 Average common shares outstanding......... 368,945 384,808 365,970 376,240 Average common shares outstanding- diluted................................. 372,489 387,724 370,116 376,240 18 Table 2--Year-to-Date Yields Earned on Average Interest-Earning Assets and Rates Paid on Average Interest-Bearing Liabilities 2001 2000 ----------------------------- ----------------------------- Nine Months Ended Nine Months Ended September 30 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......................... $24,702,003 $1,537,628 8.32% $26,309,699 $1,721,001 8.74% Available-for-sale securities:....................... Taxable........................................... 4,137,089 239,276 7.73 5,893,425 294,251 6.67 Tax-free.......................................... 88,773 5,145 7.75 65,708 3,428 6.97 ----------- ---------- ----------- ---------- Total available-for-sale securities............... 4,225,862 244,421 7.73 5,959,133 297,679 6.67 ----------- ---------- ----------- ---------- Held-to-maturity securities:......................... Taxable........................................... 4,142,195 209,581 6.76 6,526,727 335,945 6.88 Tax-free.......................................... 343,829 19,021 7.40 392,090 21,279 7.25 ----------- ---------- ----------- ---------- Total held-to-maturity securities................. 4,486,024 228,602 6.81 6,918,817 357,224 6.90 ----------- ---------- ----------- ---------- Total investment securities.................... 8,711,886 473,023 7.26 12,877,950 654,903 6.79 Other interest-earning assets........................ 1,538,899 60,592 5.26 257,095 12,672 6.58 ----------- ---------- ----------- ---------- Total interest-earning assets..................... 34,952,788 2,071,243 7.92 39,444,744 2,388,576 8.09 Cash and other assets................................... 3,703,585 4,069,050 Allowance for loan losses............................... (381,465) (352,193) Market valuation on available-for-sale securities....... 84,951 (217,275) ----------- ----------- $38,359,859 $42,944,326 =========== =========== Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand deposits..................... $ 9,898,365 217,629 2.94 $ 9,368,217 238,952 3.41 Savings deposits..................................... 1,214,898 13,367 1.47 1,801,328 31,806 2.36 Time deposits........................................ 7,683,111 328,731 5.72 7,677,021 322,791 5.62 Foreign time deposits................................ 308,491 8,383 3.63 1,319,208 58,918 5.97 Certificates of deposit of $100,000 or more.......... 2,350,839 102,585 5.83 2,817,904 124,023 5.88 Federal funds purchased and securities sold under agreements to repurchase............................ 2,248,426 64,649 3.84 3,767,508 155,501 5.51 Other interest-bearing liabilities................... 6,319,092 272,169 5.76 7,946,193 359,351 6.04 ----------- ---------- ----------- ---------- Total interest-bearing liabilities................ 30,023,222 1,007,513 4.49 34,697,379 1,291,342 4.97 ---------- ---- ---------- ---- Net interest spread..................................... 3.43% 3.12% ==== ==== Noninterest-bearing demand deposits..................... 4,547,226 4,702,649 Other liabilities....................................... 923,935 669,874 Shareholders' equity.................................... 2,865,476 2,874,424 ----------- ----------- $38,359,859 $42,944,326 =========== =========== Net interest income/margin on a taxable equivalent basis 1,063,730 4.07% 1,097,234 3.72% ==== ==== Taxable equivalent adjustment: Loans................................................ 28,691 21,442 Available-for-sale securities........................ 3,722 2,528 Held-to-maturity securities.......................... 12,063 14,277 ---------- ---------- Total taxable equivalent adjustment............... 44,476 38,247 ---------- ---------- Net interest income............................ $1,019,254 $1,058,987 ========== ========== -------- 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--Quarterly Yields Earned on Average Interest-Earning Assets and Rates Paid on Average Interest-Bearing Liabilities 2001 2001 --------------------------- ---------------------------- Third Quarter Second Quarter --------------------------- --------------------------- Average Revenue/ Yield/ Average Revenue/ Yield/ Balance Expense Rate Balance Expense Rate ----------- -------- ------ ----------- -------- ------ (Taxable equivalent basis - dollars in thousands) Assets Interest-earning assets:................................ Loans net of unearned income......................... $24,762,932 $494,161 7.92% $24,695,993 $512,895 8.33% Available-for-sale securities: Taxable............................................ 4,341,632 84,445 7.72 4,163,800 82,981 7.99 Tax-free........................................... 81,699 1,590 7.72 89,578 1,725 7.72 ----------- -------- ----------- -------- Total available-for-sale securities................ 4,423,331 86,035 7.72 4,253,378 84,706 7.99 ----------- -------- ----------- -------- Held-to-maturity securities: Taxable............................................ 3,987,733 66,416 6.61 4,185,593 70,594 6.76 Tax-free........................................... 341,982 6,365 7.38 341,906 6,340 7.44 ----------- -------- ----------- -------- Total held-to-maturity securities.................. 4,329,715 72,781 6.67 4,527,499 76,934 6.82 ----------- -------- ----------- -------- Total investment securities...................... 8,753,046 158,816 7.20 8,780,877 161,640 7.38 Other interest-earning assets........................ 1,265,120 13,766 4.32 1,470,097 19,711 5.38 ----------- -------- ----------- -------- Total interest-earning assets...................... 34,781,098 666,743 7.61 34,946,967 694,246 7.97 Cash and other assets................................... 3,678,731 3,726,748 Allowance for loan losses............................... (382,177) (380,983) Market valuation on available-for-sale securities....... 127,813 86,153 ----------- ----------- $38,205,465 $38,378,885 =========== =========== Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand deposits..................... $10,080,711 61,961 2.44 $ 9,902,714 72,061 2.92 Savings deposits..................................... 1,213,940 3,817 1.25 1,219,045 4,641 1.53 Time deposits........................................ 7,511,350 101,607 5.37 7,716,673 110,539 5.75 Foreign time deposits................................ 313,799 2,152 2.72 279,454 2,434 3.49 Certificates of deposit of $100,000 or more.......... 2,214,303 30,036 5.38 2,323,449 34,082 5.88 Federal funds purchased and securities sold under agreements to repurchase............................ 2,162,744 15,664 2.87 2,243,192 21,368 3.82 Other interest-bearing liabilities................... 6,238,392 87,095 5.54 6,336,607 90,082 5.70 ----------- -------- ----------- -------- Total interest-bearing liabilities................. 29,735,239 302,332 4.03 30,021,134 335,207 4.48 -------- ---- -------- ---- Net interest spread..................................... 3.58% 3.49% ==== ==== Noninterest-bearing demand deposits..................... 4,591,157 4,566,584 Other liabilities....................................... 974,955 930,883 Shareholders' equity.................................... 2,904,114 2,860,284 ----------- ----------- $38,205,465 $38,378,885 =========== =========== Net interest income/margin on a taxable equivalent basis 4.16% 4.12% 364,411 ==== 359,039 ==== Taxable equivalent adjustment: Loans................................................ 13,168 10,405 Available-for-sale securities........................ 1,241 1,224 Held-to-maturity securities.......................... 3,965 4,036 -------- -------- Total taxable equivalent adjustment................ 18,374 15,665 -------- -------- Net interest income.............................. $346,037 $343,374 ======== ======== 2001 2000 ---------------------------- --------------------------- First Quarter Fourth Quarter --------------------------- --------------------------- Average Revenue/ Yield/ Average Revenue/ Yield/ Balance Expense Rate Balance Expense Rate ----------- -------- ------ ----------- -------- ------ Assets Interest-earning assets:................................ Loans net of unearned income......................... $24,645,798 $530,572 8.73% $24,599,887 $556,775 9.00% Available-for-sale securities: Taxable............................................ 3,900,993 71,850 7.47 1,869,932 34,361 7.31 Tax-free........................................... 95,192 1,830 7.80 62,293 1,136 7.25 ----------- -------- ----------- -------- Total available-for-sale securities................ 3,996,185 73,680 7.48 1,932,225 35,497 7.31 ----------- -------- ----------- -------- Held-to-maturity securities: Taxable............................................ 4,256,209 72,571 6.91 6,298,607 108,737 6.87 Tax-free........................................... 347,660 6,316 7.37 395,589 7,078 7.12 ----------- -------- ----------- -------- Total held-to-maturity securities.................. 4,603,869 78,887 6.95 6,694,196 115,815 6.88 ----------- -------- ----------- -------- Total investment securities...................... 8,600,054 152,567 7.19 8,626,421 151,312 6.98 Other interest-earning assets........................ 1,888,326 27,115 5.82 2,123,852 36,453 6.83 ----------- -------- ----------- -------- Total interest-earning assets...................... 35,134,178 710,254 8.20 35,350,160 744,540 8.38 Cash and other assets................................... 3,705,571 3,657,475 Allowance for loan losses............................... (381,223) (367,361) Market valuation on available-for-sale securities....... 39,921 (8,998) ----------- ----------- $38,498,447 $38,631,276 =========== =========== 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 Savings deposits..................................... 1,211,685 4,909 1.64 1,244,649 5,224 1.67 Time deposits........................................ 7,824,754 116,585 6.04 8,010,342 122,922 6.10 Foreign time deposits................................ 332,426 3,797 4.63 397,954 5,622 5.62 Certificates of deposit of $100,000 or more.......... 2,518,103 38,467 6.20 2,659,888 42,201 6.31 Federal funds purchased and securities sold under agreements to repurchase............................ 2,341,302 27,617 4.78 2,388,137 32,909 5.48 Other interest-bearing liabilities................... 6,383,876 94,992 6.03 6,485,954 102,391 6.28 ----------- -------- ----------- -------- Total interest-bearing liabilities................. 30,319,716 369,974 4.95 30,587,985 399,981 5.20 -------- ---- -------- ---- Net interest spread..................................... 3.25% 3.18% ==== ==== Noninterest-bearing demand deposits..................... 4,482,747 4,527,554 Other liabilities....................................... 864,755 758,421 Shareholders' equity.................................... 2,831,229 2,757,316 ----------- ----------- $38,498,447 $38,631,276 =========== =========== Net interest income/margin on a taxable equivalent basis 3.93% 3.88% 340,280 ==== 344,559 ==== Taxable equivalent adjustment: Loans................................................ 5,118 18,786 Available-for-sale securities........................ 1,257 882 Held-to-maturity securities.......................... 4,062 4,775 -------- -------- Total taxable equivalent adjustment................ 10,437 24,443 -------- -------- Net interest income.............................. $329,843 $320,116 ======== ======== 2000 ---------------------------- Third Quarter --------------------------- Average Revenue/ Yield/ Balance Expense Rate ----------- -------- ------ Assets Interest-earning assets:................................ Loans net of unearned income......................... $25,613,223 $573,685 8.91% Available-for-sale securities: Taxable............................................ 5,678,994 94,775 6.64 Tax-free........................................... 64,747 1,145 7.04 ----------- -------- Total available-for-sale securities................ 5,743,741 95,920 6.64 ----------- -------- Held-to-maturity securities: Taxable............................................ 6,445,507 110,990 6.85 Tax-free........................................... 397,506 7,170 7.18 ----------- -------- Total held-to-maturity securities.................. 6,843,013 118,160 6.87 ----------- -------- Total investment securities...................... 12,586,754 214,080 6.77 Other interest-earning assets........................ 262,352 4,211 6.39 ----------- -------- Total interest-earning assets...................... 38,462,329 791,976 8.19 Cash and other assets................................... 3,925,391 Allowance for loan losses............................... (348,796) Market valuation on available-for-sale securities....... (178,535) ----------- $41,860,389 =========== Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand deposits..................... $ 9,502,341 87,349 3.66 Savings deposits..................................... 1,333,857 5,651 1.69 Time deposits........................................ 7,816,704 115,863 5.90 Foreign time deposits................................ 1,234,991 19,820 6.38 Certificates of deposit of $100,000 or more.......... 2,861,681 45,019 6.26 Federal funds purchased and securities sold under agreements to repurchase............................ 3,540,942 53,015 5.96 Other interest-bearing liabilities................... 7,411,097 118,175 6.34 ----------- -------- Total interest-bearing liabilities................. 33,701,613 444,892 5.25 -------- ---- Net interest spread..................................... 2.94% ==== Noninterest-bearing demand deposits..................... 4,640,946 Other liabilities....................................... 744,397 Shareholders' equity.................................... 2,773,433 ----------- $41,860,389 =========== Net interest income/margin on a taxable equivalent basis 3.59% 347,084 ==== Taxable equivalent adjustment: Loans................................................ 3,773 Available-for-sale securities........................ 822 Held-to-maturity securities.......................... 4,711 -------- Total taxable equivalent adjustment................ 9,306 -------- Net interest income.............................. $337,778 ======== -------- NOTE: The taxable equivalent adjustment has been computed based on the statutory federal income tax rate, adjusted for applicable state income taxes net of the related federal tax benefit. Loans net of unearned income includes nonaccrual loans for all periods presented. Available-for-sale securities excludes certain noninterest-earning, marketable equity securities. Statement 133 valuation adjustments related to time deposits, certificates of deposit of $100,000 or more and other interest-bearing liabilities are included in other liabilities. 20 Table 4--Maturities and Interest Rates Exchanged on Swaps Mature During ------------------------------------------------ 2002 2003 2004 2005 2008 2009 Total ----- ----- ----- ----- ----- ----- ------ (Dollars in millions) Receive fixed swaps: Notional amount. $ 971 $ 290 $ 300 $ 150 $ 175 $ 175 $2,061 Receive rate.... 6.62% 6.34% 6.23% 6.25% 6.13% 6.22% 6.42% Pay rate........ 3.33% 3.31% 3.27% 3.58% 3.64% 3.58% 3.38% -------- NOTE: The interest rates exchanged are calculated assuming that interest rates remain unchanged from September 30, 2001. Call option expiration date is used as maturity date until the option expires. The information presented could change as LIBOR rates change and call options are exercised or expire. Table 5--Loans and Credit Quality Nonperforming Net Charge-offs Loans* Loans** Nine Months Ended September 30 September 30 September 30 ----------------------- ----------------- ---------------- 2001 2000 2001 2000 2001 2000 ----------- ----------- -------- -------- -------- ------- (In thousands) Commercial: Commercial & industrial....... $ 6,947,116 $ 7,478,921 $ 96,216 $ 78,168 $ 79,374 $20,933 Commercial loans--secured by real estate................. 1,662,608 1,748,927 17,060 21,246 4,293 10,700 ----------- ----------- -------- -------- -------- ------- Total commercial.......... 8,609,724 9,227,848 113,276 99,414 83,667 31,633 ----------- ----------- -------- -------- -------- ------- Commercial real estate: Commercial real estate mortgages................... 2,270,899 2,367,155 18,518 20,316 732 (345) Real estate construction...... 2,345,379 2,355,264 21,012 5,496 373 489 ----------- ----------- -------- -------- -------- ------- Total commercial real estate.................. 4,616,278 4,722,419 39,530 25,812 1,105 144 ----------- ----------- -------- -------- -------- ------- Consumer: Residential first mortgages... 1,560,330 1,324,406 12,449 11,528 1,496 733 Equity loans & lines.......... 5,104,451 4,604,648 4,546 7,532 11,020 5,709 Dealer indirect............... 3,383,871 2,845,271 1 4 30,105 27,113 Revolving credit.............. 500,647 478,810 -0- -0- 15,250 10,986 Other consumer................ 1,125,759 1,278,390 893 1,779 10,574 7,223 ----------- ----------- -------- -------- -------- ------- Total consumer............ 11,675,058 10,531,525 17,889 20,843 68,445 51,764 ----------- ----------- -------- -------- -------- ------- $24,901,060 $24,481,792 $170,695 $146,069 $153,217 $83,541 =========== =========== ======== ======== ======== ======= -------- * Net of unearned income. ** Exclusive of accruing loans 90 days past due. 21 Table 6--Allowance for Loan Losses 2001 2000 ---------------------------- ------------------ 3rd 2nd 1st 4th 3rd Quarter Quarter Quarter Quarter Quarter -------- -------- -------- -------- -------- (Dollars in thousands) Balance at beginning of period.................... $380,663 $380,646 $380,434 $365,164 $346,030 Loans charged off................................. (81,320) (57,478) (50,506) (55,221) (48,319) Recoveries of loans previously charged off........ 12,174 11,395 12,518 14,411 12,890 -------- -------- -------- -------- -------- Net charge-offs................................... (69,146) (46,083) (37,988) (40,810) (35,429) Addition to allowance charged to expense.......... 49,200 46,100 38,200 55,600 123,800 Allowance sold/transferred, net................... -0- -0- -0- -0- (69,091) Allowance transferred to other liabilities........ -0- -0- -0- 480 (146) -------- -------- -------- -------- -------- Balance at end of period.......................... $360,717 $380,663 $380,646 $380,434 $365,164 ======== ======== ======== ======== ======== Allowance for loan losses to loans net of unearned income.......................................... 1.45% 1.54% 1.55% 1.55% 1.49% Allowance for loan losses to nonperforming loans*. 211.32% 193.11% 181.84% 211.75% 249.99% Allowance for loan losses to nonperforming assets* 176.69% 170.18% 167.02% 193.82% 224.46% Net charge-offs to average loans net of unearned income (annualized)............................. 1.11% 0.75% 0.63% 0.66% 0.55% -------- * Exclusive of accruing loans 90 days past due. Table 7--Nonperforming Assets 2001 2000 ------------------------------- ----------------------- September 30 June 30 March 31 December 31 September 30 ------------ -------- -------- ----------- ------------ (Dollars in thousands) Nonaccrual loans............................ $170,695 $197,120 $209,333 $179,659 $146,069 Foreclosed properties....................... 28,006 20,380 13,688 12,360 12,714 Repossessions............................... 5,449 6,177 4,888 4,259 3,906 -------- -------- -------- -------- -------- Total nonperforming assets*.............. $204,150 $223,677 $227,909 $196,278 $162,689 ======== ======== ======== ======== ======== Nonperforming assets* to loans net of unearned income, foreclosed properties and repossessions............................. 0.82% 0.90% 0.93% 0.80% 0.66% Accruing loans 90 days past due............. $102,373 $ 88,747 $ 89,237 $ 85,410 $ 78,314 -------- * Exclusive of accruing loans 90 days past due. 22 Table 8--Investment Securities September 30, 2001 September 30, 2000 --------------------- --------------------- Carrying Market Carrying Market Amount Value Amount Value ---------- ---------- ---------- ---------- (In thousands) Held-to-maturity: U.S. Treasury and federal agency securities. $2,729,479 $2,819,144 $4,940,612 $4,834,171 Other securities............................ 1,317,614 1,355,846 1,424,557 1,406,593 State, county and municipal securities...... 342,234 360,173 389,566 380,193 ---------- ---------- ---------- ---------- $4,389,327 $4,535,163 $6,754,735 $6,620,957 ========== ========== ========== ========== Available-for-sale: U.S. Treasury and federal agency securities. $3,743,639 $1,378,344 Other securities............................ 912,246 492,139 State, county and municipal securities...... 93,941 68,948 ---------- ---------- $4,749,826 $1,939,431 ========== ========== -------- 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, 2001, were approximately 3.6 years and 6.58%, respectively. Included in the combined portfolios was $7.7 billion of mortgage-backed securities. The weighted-average remaining life and the weighted-average yield of mortgage-backed securities at September 30, 2001, were approximately 3.1 years and 6.56%, 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 $194.2 million and unrealized losses of $15.0 million at September 30, 2001 and 2000, respectively. 23 Table 9--Other Interest-Bearing Liabilities September 30 ------------------- 2001 2000 ---------- -------- (In thousands) Other borrowed funds: Short-term bank notes.............. $ 0- $500,000 Term Federal Funds purchased....... -0- 250,000 Treasury, tax and loan notes....... 25,000 25,000 Commercial paper................... 12,524 13,803 Other short-term debt.............. 43,649 44,618 ---------- -------- Total other borrowed funds. $ 81,173 $833,421 ========== ======== Other long-term debt: 6.45% Subordinated Notes Due 2018.. $ 303,150 $303,647 6.125% Subordinated Notes Due 2009. 174,604 174,459 6.75% Subordinated Debentures Due 2025 149,928 149,911 7.75% Subordinated Notes Due 2004.. 149,756 149,664 7.25% Senior Notes Due 2006........ 99,673 99,548 6.875% Subordinated Notes Due 2003. 49,950 49,944 6.625% Subordinated Notes Due 2005. 49,775 49,722 Other long-term debt............... 8,016 3,864 Statement 133 valuation adjustment. 40,315 -0- ---------- -------- Total other long-term debt. $1,025,167 $980,759 ========== ======== Table 10--Capital Amounts and Ratios September 30 ---------------------------------- 2001 2000 ---------------- ---------------- Amount Ratio Amount Ratio ---------- ----- ---------- ----- (Dollars in thousands) Tier 1 capital: AmSouth...... $2,585,570 7.71% $2,528,159 7.15% AmSouth Bank. 3,266,068 9.75 3,079,995 8.73 Total capital: AmSouth...... $3,692,807 11.00% $3,689,371 10.44% AmSouth Bank. 3,939,061 11.76 3,757,339 10.65 Leverage: AmSouth...... $2,585,570 6.82% $2,528,159 6.09% AmSouth Bank. 3,266,068 8.62 3,079,995 7.43 24 Item 3. Quantitative and Qualitative Disclosures About Market Risk The information required by this item is included on page 14 of Item 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 more significant lawsuits against AmSouth are filed in Mississippi relative to the amount of business done 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 27 of this Form 10-Q are filed herewith or are incorporated by reference herein. Item 6(b)--Reports on Form 8-K One report on Form 8-K was filed by AmSouth during the period July 1, 2001 to September 30, 2001: A report was filed on September 19, 2001 to report the approval of AmSouth's Board of Directors for the repurchase of up to twenty-five million shares of AmSouth common stock over the next two years. 25 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. November 13, 2001 By: /S/ C. DOWD RITTER --------------------------- C. Dowd Ritter Chairman, President and Chief Executive Officer November 13, 2001 By: /S/ DONALD R. KIMBLE ---------------------------- Donald R. Kimble Executive Vice President, Chief Accounting Officer and Controller 26 EXHIBIT INDEX The following is a list of exhibits including items incorporated by reference. 3-a Restated Certificate of Incorporation of AmSouth Bancorporation(1) 3-b By-Laws of AmSouth Bancorporation(2) 4 Second Addendum to the Agreement for Advances and Security Agreement with Blanket Floating Lien 10-a AmSouth Bancorporation Amended and Restated Supplemental Retirement Plan 10-b AmSouth Bancorporation Amended and Restated Supplemental Thrift Plan 15 Letter Re: Unaudited Interim Financial Information NOTES TO EXHIBITS (1) Filed as Exhibit 3.1 to AmSouth's Report on Form 8-K filed October 15, 1999, incorporated herein by reference. (2) Filed as Exhibit 3-b to AmSouth's Form 10-Q Quarterly Report for the quarter ended March 31, 2001, incorporated herein by reference. 27