Form 10-Q
Table of Contents

 
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, 2002
    
Commission file number 1-7476
 

 
AmSouth Bancorporation
(Exact Name of registrant as specified in its charter)
 
Delaware
 
63-0591257
(State or other jurisdiction
of Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
AmSouth Center
   
1900 Fifth Avenue North
   
Birmingham, Alabama
 
35203
(Address of principal executive offices)
 
(Zip Code)
 
(205) 320-7151
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x No ¨
 
As of October 31, 2002, AmSouth Bancorporation had 355,413,000 shares of common stock outstanding.
 


Table of Contents
 
AMSOUTH BANCORPORATION
FORM 10-Q
INDEX
 
              
Page

Part I.
  
Financial Information    
    
    
Item 1.
  
Financial Statements (Unaudited)
    
            
3
            
4
            
5
            
6
            
7
            
13
    
Item 2.
     
14
    
Item 3.
     
29
    
Item 4.
     
29
Part II.
  
Other Information
    
    
Item 1.
     
29
    
Item 6.
     
29
  
30
  
31
  
33
 
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. Forward-looking statements are based on current management expectations and, by their nature, are subject to risks and uncertainties. A number of factors-many of which are beyond AmSouth’s control-could cause actual conditions, events or results to differ significantly from those described in the forward-looking statements. Some of these factors which could cause results to differ materially from current management expectations include, but are not limited to: execution of AmSouth’s strategic initiatives; legislation; general economic conditions, especially in the Southeast; the performance of the stock and bond markets; 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, regulatory, and technical factors affecting AmSouth’s operations, products, services and prices; unexpected judicial actions and developments; and the outcome of litigation, which is inherently uncertain and depends on the findings of judges and juries. To the extent that terrorist attacks or other geopolitical conflicts cause a prolonged negative impact on the economy, the effects may include adverse changes in customers’ borrowing, investing or spending patterns; market disruptions; adverse effects on the performance of the United States and foreign equity markets; 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 speak only as of the date they are made. 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


Table of Contents
 
PART I
FINANCIAL INFORMATION
Item 1.    Financial Statements (Unaudited)
 
AMSOUTH BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CONDITION
(Unaudited)
 
    
September 30
2002

    
December 31
2001

    
September 30
2001

 
    
(In thousands)
 
ASSETS
                          
Cash and due from banks
  
$
1,364,146
 
  
$
1,441,561
 
  
$
1,035,436
 
Federal funds sold and securities purchased under agreements to resell
  
 
271,068
 
  
 
400,000
 
  
 
300,000
 
Trading securities
  
 
315,156
 
  
 
12,979
 
  
 
18,906
 
Available-for-sale securities
  
 
4,448,355
 
  
 
4,829,512
 
  
 
4,749,826
 
Held-to-maturity securities (market value of $4,362,854, $4,071,008 and $4,535,163, respectively)
  
 
4,215,161
 
  
 
4,002,474
 
  
 
4,389,327
 
Loans held for sale
  
 
28,984
 
  
 
291,782
 
  
 
161,103
 
Loans
  
 
27,012,900
 
  
 
25,852,221
 
  
 
25,534,112
 
Less:    Allowance for loan losses
  
 
379,878
 
  
 
363,607
 
  
 
360,717
 
            Unearned income
  
 
726,050
 
  
 
727,728
 
  
 
633,052
 
    


  


  


Net loans
  
 
25,906,972
 
  
 
24,760,886
 
  
 
24,540,343
 
Other interest-earning assets
  
 
67,071
 
  
 
40,458
 
  
 
337,625
 
Premises and equipment, net
  
 
792,853
 
  
 
729,383
 
  
 
677,916
 
Accrued interest receivable and other assets
  
 
2,200,961
 
  
 
2,091,379
 
  
 
2,054,323
 
    


  


  


    
$
39,610,727
 
  
$
38,600,414
 
  
$
38,264,805
 
    


  


  


LIABILITIES AND SHAREHOLDERS' EQUITY
                          
Deposits and interest-bearing liabilities:
                          
Deposits:
                          
Noninterest-bearing demand
  
$
5,181,668
 
  
$
5,280,621
 
  
$
4,715,663
 
Interest-bearing demand
  
 
10,951,276
 
  
 
10,518,922
 
  
 
10,161,426
 
Savings
  
 
1,300,439
 
  
 
1,229,871
 
  
 
1,221,159
 
Time
  
 
6,481,177
 
  
 
6,800,056
 
  
 
7,324,214
 
Foreign time
  
 
531,743
 
  
 
309,641
 
  
 
290,527
 
Certificates of deposit of $100,000 or more
  
 
2,185,499
 
  
 
2,027,906
 
  
 
2,160,959
 
    


  


  


Total deposits
  
 
26,631,802
 
  
 
26,167,017
 
  
 
25,873,948
 
Federal funds purchased and securities sold under agreements to repurchase
  
 
1,954,121
 
  
 
2,080,296
 
  
 
2,071,030
 
Other borrowed funds
  
 
76,428
 
  
 
79,454
 
  
 
81,173
 
Long-term Federal Home Loan Bank advances
  
 
5,352,681
 
  
 
5,093,834
 
  
 
5,106,188
 
Other long-term debt
  
 
1,051,918
 
  
 
1,008,421
 
  
 
1,025,167
 
    


  


  


Total deposits and interest-bearing liabilities
  
 
35,066,950
 
  
 
34,429,022
 
  
 
34,157,506
 
Accrued expenses and other liabilities
  
 
1,421,030
 
  
 
1,216,293
 
  
 
1,136,637
 
    


  


  


Total liabilities
  
 
36,487,980
 
  
 
35,645,315
 
  
 
35,294,143
 
    


  


  


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—416,914,000, 416,931,00) and 416,935,000 shares, respectively
  
 
416,914
 
  
 
416,931
 
  
 
416,935
 
Capital surplus
  
 
703,068
 
  
 
699,863
 
  
 
697,996
 
Retained earnings
  
 
2,878,670
 
  
 
2,677,933
 
  
 
2,618,080
 
Cost of common stock in treasury—59,127,000, 53,896,000 and 52,017,000 shares, respectively
  
 
(960,513
)
  
 
(848,005
)
  
 
(813,814
)
Deferred compensation on restricted stock
  
 
(15,747
)
  
 
(16,624
)
  
 
(17,532
)
Accumulated other comprehensive income
  
 
100,355
 
  
 
25,001
 
  
 
68,997
 
    


  


  


Total shareholders' equity
  
 
3,122,747
 
  
 
2,955,099
 
  
 
2,970,662
 
    


  


  


    
$
39,610,727
 
  
$
38,600,414
 
  
$
38,264,805
 
    


  


  


 
See notes to consolidated financial statements.

3


Table of Contents
 
AMSOUTH BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
 
    
Nine Months
ended
September 30

  
Three Months
ended
September 30

    
2002

  
2001

  
2002

  
2001

    
(In thousands except per share data)
INTEREST INCOME
                           
Loans
  
$
1,269,432
  
$
1,508,937
  
$
418,820
  
$
480,993
Available-for-sale securities
  
 
256,374
  
 
240,699
  
 
84,366
  
 
84,794
Held-to-maturity securities
  
 
186,026
  
 
216,539
  
 
62,465
  
 
68,816
Trading securities
  
 
641
  
 
266
  
 
482
  
 
130
Loans held for sale
  
 
9,895
  
 
13,200
  
 
2,068
  
 
3,698
Federal funds sold and securities purchased under agreements to resell
  
 
2,407
  
 
43,108
  
 
1,256
  
 
7,836
Other interest-earning assets
  
 
1,235
  
 
4,018
  
 
457
  
 
2,102
    

  

  

  

Total interest income
  
 
1,726,010
  
 
2,026,767
  
 
569,914
  
 
648,369
    

  

  

  

INTEREST EXPENSE
                           
Interest-bearing demand deposits
  
 
88,623
  
 
217,629
  
 
30,668
  
 
61,961
Savings deposits
  
 
5,584
  
 
13,367
  
 
1,878
  
 
3,817
Time deposits
  
 
184,024
  
 
328,731
  
 
59,145
  
 
101,607
Foreign time deposits
  
 
4,099
  
 
8,383
  
 
1,668
  
 
2,152
Certificates of deposit of $100,000 or more
  
 
53,863
  
 
102,585
  
 
18,140
  
 
30,036
Federal funds purchased and securities sold under agreements to repurchase
  
 
21,385
  
 
64,649
  
 
7,452
  
 
15,664
Other borrowed funds
  
 
3,077
  
 
7,997
  
 
1,008
  
 
1,271
Long-term Federal Home Loan Bank advances
  
 
204,348
  
 
220,905
  
 
68,840
  
 
72,855
Other long-term debt
  
 
29,330
  
 
43,267
  
 
9,765
  
 
12,969
    

  

  

  

Total interest expense
  
 
594,333
  
 
1,007,513
  
 
198,564
  
 
302,332
    

  

  

  

NET INTEREST INCOME
  
 
1,131,677
  
 
1,019,254
  
 
371,350
  
 
346,037
Provision for loan losses
  
 
160,100
  
 
133,500
  
 
51,400
  
 
49,200
    

  

  

  

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
  
 
971,577
  
 
885,754
  
 
319,950
  
 
296,837
    

  

  

  

NONINTEREST REVENUES
                           
Service charges on deposit accounts
  
 
210,353
  
 
191,128
  
 
77,672
  
 
64,688
Trust income
  
 
80,599
  
 
85,138
  
 
25,357
  
 
28,050
Consumer investment services income
  
 
61,464
  
 
72,364
  
 
18,912
  
 
26,261
Interchange income
  
 
46,458
  
 
41,458
  
 
16,418
  
 
14,377
Bank owned life insurance policies
  
 
46,270
  
 
40,393
  
 
14,587
  
 
12,959
Bankcard income
  
 
18,442
  
 
15,680
  
 
6,475
  
 
5,624
Mortgage income
  
 
17,457
  
 
20,033
  
 
7,112
  
 
8,567
Portfolio income
  
 
11,970
  
 
9,802
  
 
4,267
  
 
3,507
Other noninterest revenues
  
 
54,114
  
 
86,302
  
 
17,536
  
 
28,317
    

  

  

  

Total noninterest revenues
  
 
547,127
  
 
562,298
  
 
188,336
  
 
192,350
    

  

  

  

NONINTEREST EXPENSES
                           
Salaries and employee benefits
  
 
461,109
  
 
442,501
  
 
151,482
  
 
152,725
Equipment expense
  
 
89,699
  
 
90,493
  
 
30,155
  
 
29,984
Net occupancy expense
  
 
88,018
  
 
83,879
  
 
30,011
  
 
28,199
Postage and office supplies
  
 
37,119
  
 
36,498
  
 
11,973
  
 
12,299
Marketing expense
  
 
26,668
  
 
26,541
  
 
8,903
  
 
9,458
Communications expense
  
 
22,947
  
 
31,282
  
 
5,788
  
 
10,111
Amortization of intangibles
  
 
3,936
  
 
25,548
  
 
1,224
  
 
8,486
Other noninterest expenses
  
 
139,962
  
 
140,510
  
 
43,460
  
 
45,908
    

  

  

  

Total noninterest expenses
  
 
869,458
  
 
877,252
  
 
282,996
  
 
297,170
    

  

  

  

INCOME BEFORE INCOME TAXES
  
 
649,246
  
 
570,800
  
 
225,290
  
 
192,017
Income taxes
  
 
195,306
  
 
174,975
  
 
69,289
  
 
55,924
    

  

  

  

NET INCOME
  
$
453,940
  
$
395,825
  
$
156,001
  
$
136,093
    

  

  

  

Average common shares outstanding
  
 
359,653
  
 
368,945
  
 
357,567
  
 
365,970
Earnings per common share
  
$
1.26
  
$
1.07
  
$
.44
  
$
.37
Diluted average common shares outstanding
  
 
364,197
  
 
372,489
  
 
361,961
  
 
370,116
Diluted earnings per common share
  
$
1.25
  
$
1.06
  
$
.43
  
$
.37
 
See notes to consolidated financial statements.

4


Table of Contents
 
AMSOUTH BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(Unaudited)
 
 
   
Common
Stock

   
Capital
Surplus

 
Retained
Earnings

   
Treasury
Stock

    
Deferred
Compensation
on Restricted
Stock

    
Accumulated
Other
Comprehensive
Income/(Loss)

   
Total

 
   
(In thousands)
 
BALANCE AT JANUARY 1, 2002
 
$
416,931
 
 
$
699,863
 
$
2,677,933
 
 
$
(848,005
)
  
$
(16,624
)
  
$
25,001
 
 
$
2,955,099
 
Comprehensive income:
                                                       
Net income
 
 
-0-
 
 
 
-0-
 
 
453,940
 
 
 
-0-
 
  
 
-0-
 
  
 
-0-
 
 
 
453,940
 
Other comprehensive income, net of tax:
                                                       
Change in unrealized gains on derivative instruments (net of $3,951 tax benefit)
 
 
-0-
 
 
 
-0-
 
 
-0-
 
 
 
-0-
 
  
 
-0-
 
  
 
(7,338
)
 
 
(7,338
)
Changes in unrealized gains and losses on available-for-sale securities, net of reclassification adjustment (net of $35,680 tax expense)
 
 
-0-
 
 
 
-0-
 
 
-0-
 
 
 
-0-
 
  
 
-0-
 
  
 
82,692
 
 
 
82,692
 
                                                   


Comprehensive income
                                                 
 
529,294
 
Cash dividends declared
 
 
-0-
 
 
 
-0-
 
 
(238,631
)
 
 
-0-
 
  
 
-0-
 
  
 
-0-
 
 
 
(238,631
)
Common stock transactions:
                                                       
Purchase of common stock
 
 
-0-
 
 
 
-0-
 
 
-0-
 
 
 
(172,991
)
  
 
-0-
 
  
 
-0-
 
 
 
(172,991
)
Employee stock plans
 
 
(17
)
 
 
3,129
 
 
(14,568
)
 
 
53,010
 
  
 
877
 
  
 
-0-
 
 
 
42,431
 
Dividend reinvestment plan
 
 
-0-
 
 
 
76
 
 
(4
)
 
 
7,473
 
  
 
-0-
 
  
 
-0-
 
 
 
7,545
 
   


 

 


 


  


  


 


BALANCE AT SEPTEMBER 30, 2002
 
$
416,914
 
 
$
703,068
 
$
2,878,670
 
 
$
(960,513
)
  
$
(15,747
)
  
$
100,355
 
 
$
3,122,747
 
   


 

 


 


  


  


 


Disclosure of reclassification amount:
                                                       
Unrealized holding gains on available-for-sale securities arising during the period
                                         
$
88,480
 
       
Less: Reclassification adjustment for gains realized in net income
                                         
 
5,788
 
       
                                           


       
Net unrealized gains on available-for-sale securities, net of tax
                                         
$
82,692
 
       
                                           


       
Unrealized holding gains on derivatives arising during the period
                                         
$
6,532
 
       
Less: Reclassification adjustment for gains realized in net income
                                         
 
13,870
 
       
                                           


       
Net unrealized gains on derivatives, net of tax
                                         
$
(7,338
)
       
                                           


       
 
See notes to consolidated financial statements.

5


Table of Contents
 
AMSOUTH BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
 
    
Nine Months Ended September 30

 
    
2002

    
2001

 
    
(In thousands)
 
OPERATING ACTIVITIES
                 
Net income
  
$
453,940
 
  
$
395,825
 
Adjustments to reconcile net income to net cash provided by operating activities:
                 
Provision for loan losses
  
 
160,100
 
  
 
133,500
 
Depreciation and amortization of premises and equipment
  
 
69,246
 
  
 
66,370
 
Amortization of premiums and discounts on held-to-maturity securities and available-for-sale securities
  
 
1,514
 
  
 
(17,319
)
Net decrease (increase) in loans held for sale
  
 
287,031
 
  
 
(68,292
)
Net (increase) decrease in trading securities
  
 
(302,182
)
  
 
6,539
 
Net gains on sales of available-for-sale securities
  
 
(9,276
)
  
 
(8,251
)
Gains on sales of loans to mortgage conduits
  
 
-0-
 
  
 
(1,993
)
Gains on sales of business operations, subsidiaries, and other assets
  
 
-0-
 
  
 
(3,983
)
Net increase in accrued interest receivable and other assets
  
 
(95,059
)
  
 
(119,449
)
Net increase in accrued expenses and other liabilities
  
 
150,192
 
  
 
117,902
 
Provision for deferred income taxes
  
 
132,120
 
  
 
158,801
 
Amortization of intangible assets
  
 
3,904
 
  
 
25,515
 
Other operating activities, net
  
 
35,438
 
  
 
31,013
 
    


  


Net cash provided by operating activities
  
 
886,968
 
  
 
716,178
 
    


  


INVESTING ACTIVITIES
                 
Proceeds from maturities and prepayments of available-for-sale securities
  
 
1,042,113
 
  
 
892,245
 
Proceeds from sales of available-for-sale securities
  
 
770,745
 
  
 
361,163
 
Purchases of available-for-sale securities
  
 
(1,245,007
)
  
 
(1,814,799
)
Proceeds from maturities, prepayments and calls of held-to-maturity securities
  
 
1,582,618
 
  
 
1,238,921
 
Purchases of held-to-maturity securities
  
 
(1,627,161
)
  
 
(939,830
)
Net decrease in federal funds sold and securities purchased under agreements to resell
  
 
128,932
 
  
 
1,855,665
 
Net increase in other interest-earning assets
  
 
(26,613
)
  
 
(276,565
)
Net increase in loans, excluding mortgage conduit sales
  
 
(1,696,225
)
  
 
(596,919
)
Proceeds from sales of loans to mortgage conduits
  
 
-0-
 
  
 
100,248
 
Net purchases of premises and equipment
  
 
(132,716
)
  
 
(110,085
)
Net cash received (paid) on sales of branches, business operations, subsidiaries and other assets
  
 
-0-
 
  
 
13,000
 
    


  


Net cash (used) provided by investing activities
  
 
(1,203,314
)
  
 
723,044
 
    


  


FINANCING ACTIVITIES
                 
Net increase (decrease) in deposits
  
 
475,104
 
  
 
(766,532
)
Net decrease in federal funds purchased and securities sold under agreements to repurchase
  
 
(126,175
)
  
 
(249,234
)
Net decrease in other borrowed funds
  
 
(3,026
)
  
 
(455,675
)
Issuance of long-term Federal Home Loan Bank advances and other long-term debt
  
 
276,591
 
  
 
600,983
 
Payments for maturing long-term debt
  
 
(17,889
)
  
 
(393,282
)
Cash dividends paid
  
 
(239,663
)
  
 
(234,786
)
Proceeds from employee stock plans and dividend reinvestment plan
  
 
46,980
 
  
 
36,373
 
Purchase of common stock
  
 
(172,991
)
  
 
(218,064
)
    


  


Net cash provided (used) by financing activities
  
 
238,931
 
  
 
(1,680,217
)
    


  


Decrease in cash and cash equivalents
  
 
(77,415
)
  
 
(240,995
)
Cash and cash equivalents at beginning of period
  
 
1,441,561
 
  
 
1,276,431
 
    


  


Cash and cash equivalents at end of period
  
$
1,364,146
 
  
$
1,035,436
 
    


  


 
See notes to consolidated financial statements.

6


Table of Contents
 
AMSOUTH BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Nine Months Ended September 30, 2002 and 2001
 
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. The notes included herein should be read in conjunction with the notes to consolidated financial statements included in AmSouth Bancorporation’s (AmSouth) 2001 annual report on Form 10-K.
 
Accounting Changes—In July 2001, the Financial Accounting Standards Board (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 September 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 requires companies to no longer amortize goodwill and intangible assets with indefinite useful lives, but instead test these assets for impairment at least annually in accordance with the provisions of Statement 142. Under Statement 142 intangible assets with definite useful lives continue 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. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (Statement 144).
 
AmSouth adopted the provisions of Statement 142 effective January 1, 2002. As of the date of adoption, AmSouth had unamortized goodwill in the amount of $288.4 million, and unamortized identifiable intangible assets in the amount of $18.7 million, all of which were subject to the transition provisions of Statements 141 and 142. As part of its adoption of Statement 142, AmSouth performed a transitional impairment test on its goodwill assets, which indicated that no impairment charge was required. AmSouth does not currently have any other indefinite-lived intangible assets recorded in its statement of financial condition. In addition, no material reclassifications or adjustments to the useful lives of finite-lived intangible assets were made as a result of adopting the new guidance. The full impact of adopting Statement 142 is expected to result in an increase in net income of approximately $29.0 million or approximately $.08 per share in 2002 as a result of AmSouth no longer having to amortize goodwill against earnings. At September 30, 2002 and 2001, AmSouth had $14.8 million and $17.6 million, respectively, in unamortized identifiable intangible assets, substantially all of which were core deposit intangibles. Total amortization expense associated with these intangible assets during the nine months and three months ended September 30, 2002 was $3.9 million and $1.2 million, respectively, and was $3.5 million and $1.2 million, respectively, for the same periods in 2001. Assuming retroactive adoption of Statement 142, net income for the year ended December 31, 2001 and the nine month and three month periods ended September 30, 2001 would have been $565.3 million, $417.6 million and $143.3 million, respectively, and diluted earnings per share would have been $1.52, $1.12 and $.39 for the same periods, respectively.

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The following table sets forth the reconcilement of net income and earnings per share excluding goodwill amortization for the year ended December 31, 2001 and the nine and three month periods ended September 30, 2001:
 
    
Twelve Months Ended December 31, 2001

  
Nine Months Ended September 30, 2001

  
Three Months Ended September 30, 2001

    
Net Income

  
Earnings Per Share

  
Net Income

  
Earnings Per Share

  
Net Income

  
Earnings Per Share

    
(In thousands except per share data)
Earnings per common share computation:
                                         
Net income/EPS as reported
  
$
536,346
  
$
1.46
  
$
395,825
  
$
1.07
  
$
136,093
  
$
37
Add back: Goodwill amortization
  
 
29,385
  
 
.08
  
 
22,057
  
 
.06
  
 
7,323
  
 
.02
Less: Tax on deductible goodwill
  
 
442
  
 
.00
  
 
332
  
 
.00
  
 
110
  
 
.00
    

  

  

  

  

  

Adjusted net income/EPS
  
$
565,289
  
$
1.54
  
$
417,550
  
$
1.13
  
$
143,306
  
$
.39
Diluted earnings per common share computation:
                                         
Net income/diluted EPS as reported
  
$
536,346
  
$
1.45
  
$
395,825
  
$
1.06
  
$
136,093
  
$
.37
Add back: Goodwill amortization
  
 
29,385
  
 
.07
  
 
22,057
  
 
.06
  
 
7,323
  
 
.02
Less: Tax on deductible goodwill
  
 
442
  
 
.00
  
 
332
  
 
.00
  
 
110
  
 
.00
    

  

  

  

  

  

Adjusted net income/diluted EPS
  
$
565,289
  
$
1.52
  
$
417,550
  
$
1.12
  
$
143,306
  
$
.39
 
On January 1, 2002, AmSouth adopted Statement 144. Statement 144 supersedes FASB Statement No. 121 (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 Accounting Principle Board (APB) Opinion 30 with regard to reporting the effects of a disposal of a segment of a business and requires 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 Opinion 30). In addition, more dispositions will qualify for discontinued operations treatment in the income statement. The adoption of Statement 144 did not have a material impact on AmSouth’s financial condition or results of operations.
 
In April 2002, FASB issued Statement of Financial Accounting Standards No. 145, “Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections” (Statement 145). Statement 145 rescinds Statement 4, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. In addition, Statement 145 amends Statement 13 on leasing to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. Provisions of Statement 145 related to the recission of Statement 4 are effective for financial statements issued by AmSouth after January 1, 2003. The provisions of the statement related to sale-leaseback transactions were effective for any transactions occurring after May 15, 2002. All other provisions of the statement were effective as of the end of the second quarter of 2002. The adoption of the provisions of Statement 145 did not have a material impact on AmSouth’s financial condition or results of operations, nor does AmSouth expect the future adoption of the other provisions of Statement 145 to have a material impact on AmSouth’s financial results.
 
In July 2002, FASB issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (Statement 146). Statement 146 requires companies to recognize costs associated with the exit or disposal of activities as they are incurred rather than at the date a plan of disposal or commitment to exit is initiated. Types of costs covered by Statement 146 include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, facility closing, or other exit or disposal activity. Statement 146 will apply to all exit or disposal activities initiated after December 31, 2002. At this time, AmSouth does not expect the adoption of the provisions of Statement 146 to have a material impact on AmSouth’s financial results.

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In October 2002, FASB issued Statement of Financial Accounting Standards No. 147, “Acquisition of Certain Financial Institutions” (Statement 147). Statement 147 amends the previous accounting guidance which required for certain acquisitions of financial institutions where the fair market value of liabilities assumed was greater than the fair value of the tangible assets and identifiable intangible assets acquired to recognize and account for the excess as an unidentifiable intangible asset. Under the old guidance this unidentifiable intangible asset was to be amortized over a period no greater than the life of the long-term interest bearing assets acquired. Under Statement 147, this excess, if acquired in a business combination, represents goodwill that should be accounted for in accordance with Statement 142. In addition, Statement 147 amends Statement 144 to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets. Consequently, those intangible assets are subject to the same undiscounted cash flow recoverability test and impairment loss recognition and measurement provisions that Statement 144 requires. The provisions of Statement 147 were effective October 1, 2002. AmSouth does not expect the adoption of the provisions of Statement 147 to have a material impact on AmSouth’s financial results.
 
Cash Flows—For the nine months ended September 30, 2002 and 2001, AmSouth paid interest of $602.7 million and $1.0 billion, respectively. During the nine months ended September 30, 2002, AmSouth paid income taxes of $35.5 million and during the nine months ended September 30, 2001, AmSouth received income tax refunds of $11.3 million. Noncash transfers from loans to foreclosed properties for the nine months ended September 30, 2002 and 2001, were $38.1 million and $30.3 million, respectively, and noncash transfers from foreclosed properties to loans were $293 thousand and $687 thousand, respectively. During the nine months ended September 30, 2002, AmSouth also had noncash transfers from loans to available-for-sale securities in connection with a mortgage loan securitization of $301.7 million. During the same period in 2001, AmSouth had noncash transfers from loans to available-for-sale securities and to other assets of approximately $1.6 million and $1.0 million, respectively, in connection with the participation of loans to third-party conduits. During the nine months ended September 30, 2002, AmSouth had noncash transfers from loans to loans held for sale of $22.8 million.
 
Stock-Based Compensation—AmSouth has long-term incentive compensation plans that permit the granting of incentive awards in the form of stock options, restricted stock awards and stock appreciation rights. Generally, the terms of these plans stipulate that the exercise price of options may not be less than the fair market value of AmSouth’s common stock at the date the options are granted. Options generally vest between one and three years from the date of grant, with all of the 2002 option grants vesting ratably over three years. All of the options granted during 2002 expire ten years from the date of grant. All other options granted generally expire not later than ten years from the date of grant.
 
AmSouth has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (Statement 123) which allows an entity to continue to measure compensation costs for those plans using the intrinsic value-based method of accounting prescribed by APB Opinion No. 25, “Accounting for Stock Issued to Employees.” AmSouth has elected to follow APB Opinion 25 and related interpretations in accounting for its employee stock options. Accordingly, compensation cost for fixed and variable stock-based awards is measured by the excess, if any, of the fair market price of the underlying stock over the amount the individual is required to pay. Compensation cost for fixed awards is measured at the grant date, while compensation cost for variable awards is estimated until both the number of shares an individual is entitled to receive and the exercise or purchase price are known (measurement date). If AmSouth had chosen to account for its employee stock options under the fair value method of Statement 123, AmSouth would have reported net income for the three months and nine months ended September 30, 2002 of $149.9 million and $434.9 million, respectively, and diluted earnings per share of $.42 and $1.20 for the same periods, respectively.
 
This pro forma information includes expenses related to all 2002 grants, as well as the expense related to the unvested portion of prior year grants and assumes that the fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for the three

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months and nine months ending September 30, 2002, respectively: a risk-free interest rate of 4.23% and 4.93%, a dividend yield of 4.18% and 4.36%, a volatility factor of 31.21% and 31.39%, and a weighted-average expected life for both periods of 7.0 years. The weighted-average fair value of options granted during the three months and nine months ended September 30, 2002 was $5.14 and $4.94, respectively. The estimated fair value of the options is then amortized to expense over the options’ vesting period to determine the expense for the periods.
 
Derivatives—In accordance with FASB Statement No. 133, “Accounting for Derivative Instruments and for Hedging Activities” (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. Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges under Statement 133. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows or other types of forecasted transactions are considered cash flow hedges.
 
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.
 
AmSouth, at the hedge’s inception and at least quarterly thereafter, performs a formal assessment to determine whether changes in the fair values or cash flows of the derivative instruments have been highly effective in offsetting changes in the fair values or cash flows of the hedged items and whether they are expected to be highly effective in the future. If it is determined a derivative instrument has not been or will not continue to be highly effective as a hedge, hedge accounting is discontinued prospectively and the derivative instrument continues to be carried at fair value with all changes in fair value being recorded in noninterest revenue but with no corresponding offset being recorded on the hedged item or in other comprehensive income for cash flow hedges.
 
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 months ended September 30, 2002 and 2001, AmSouth recognized a net loss of $2.4 million and a net gain of $185 thousand, respectively, 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 $350 million and $725 million of AmSouth’s loans were designated as the hedged items to interest rate swap agreements at September 30, 2002 and 2001, respectively. During the nine months ended September 30, 2002 and 2001, AmSouth recognized a net loss of $48 thousand and a net gain of $208 thousand, respectively, related to the ineffective portion of its hedging instruments.
 
Comprehensive Income—Total comprehensive income was $180.5 million and $529.3 million for the three and nine months ended September 30, 2002 and $213.1 million and $572.4 million for the three and nine months ended September 30, 2001. Total comprehensive income consists of net income, the change in the unrealized

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gains or losses on AmSouth’s available-for-sale securities portfolio arising during the period and the effective portion of cash flow hedges marked to market.
 
Earnings Per Common Share—The following table sets forth the computation of earnings per common share and diluted earnings per common share:
 
    
Three Months Ended September 30

  
Nine Months Ended September 30

    
2002

  
2001

  
2002

  
2001

    
(In thousands except per share data)
Earnings per common share computation:
                           
Numerator:
                           
Net income
  
$
156,001
  
$
136,093
  
$
453,940
  
$
395,825
Denominator:
                           
Average common shares outstanding
  
 
357,567
  
 
365,970
  
 
359,653
  
 
368,945
Earnings per common share
  
$
.44
  
$
.37
  
$
1.26
  
$
1.07
Diluted earnings per common share computation:
                           
Numerator:
                           
Net income
  
$
156,001
  
$
136,093
  
$
453,940
  
$
395,825
Denominator:
                           
Average common shares outstanding
  
 
357,567
  
 
365,970
  
 
359,653
  
 
368,945
Dilutive shares contingently issuable
  
 
4,394
  
 
4,146
  
 
4,544
  
 
3,544
    

  

  

  

Average diluted common shares outstanding
  
 
361,961
  
 
370,116
  
 
364,197
  
 
372,489
Diluted earnings per common share
  
$
.43
  
$
.37
  
$
1.25
  
$
1.06
 
Shareholders’ Equity—In September 2001, AmSouth’s Board of Directors approved the repurchase by AmSouth of up to 25.0 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. During the three month and nine month periods ended September 30, 2002, AmSouth purchased 3.5 million and 8.2 million shares, respectively, under this authorization at a cost of $72.5 million and $173.0 million, respectively. The total shares repurchased under this authorization through September 30, 2002 was 10.4 million shares at a cost of $214.2 million. During the month of October 2002, AmSouth repurchased an additional 2.7 million shares at a cost of $53.3 million under this plan. Cash dividends of $.22 per common share were declared in the third quarter of 2002. This represents a five percent increase over the dividend declared during the third quarter of 2001.
 
Business Segment Information—AmSouth has three reportable segments: Consumer Banking, Commercial Banking, and Wealth Management. During the third quarter of 2002, AmSouth management changed the way revenue and expenses associated with Private Client Service (PCS) customers’ loans and deposit balances are reviewed for business segment purposes. Prior to the reporting change, the estimated spread on the PCS customers’ loan and deposit balances, as well as NIR and NIE associated with those balances and accounts, was included within the Commercial or Consumer segments based on the loan or deposit type. Beginning in the third quarter, these revenues and expenses are also being included within the Wealth Management segment since this segment is principally responsible for maintaining the relationships with these customers. These shared revenues and expenses are reversed within Treasury & Other to eliminate the double counting. Year-to-date 2002 segment information and 2001 segment information have been restated to reflect this reporting change. For the three month and nine month periods ended September 30, 2002, $12.1 million and $34.4 million, respectively, of net income associated with PCS customer accounts was included in the Wealth Management segment and eliminated within Treasury & Other. For the same periods in 2001, $8.6 million and $23.8 million of net income, respectively, was added to Wealth Management’s results and eliminated within Treasury & Other. Treasury & Other also includes balance sheet management activities that include the investment portfolio, non-deposit funding and off-balance sheet financial instruments. Income from bank owned life insurance policies, gains and losses related to the ineffective portion of derivative hedging instruments, net gains on sales of fixed assets, taxable-equivalent adjustments associated with lease restructuring transactions, the amortization of goodwill and deposit intangibles and corporate expenses such as corporate overhead are also shown in Treasury & Other.

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Table of Contents
Treasury & Other also includes a $3.1 million recovery in the third quarter of 2002 related to credit derivative contracts written off for $3.7 million within Treasury & Other in the second quarter of 2002. Revenues from external customers reflect net interest income and NIR earned from external customers and excludes the impact of recording PCS customer account revenues in the Wealth Management segment and the corresponding reversal of this revenue in Treasury & Other. The following is a summary of the segment performance for the three months and nine months ended September 30, 2002 and 2001 utilizing the new approach for the Wealth Management segment described above:
 
    
Consumer Banking

  
Commercial Banking

    
Wealth Management

    
Treasury & Other

    
Total

    
(In thousands)
Three Months Ended September 30, 2002
                                        
Net interest income before internal funding
  
$
197,275
  
$
124,721
 
  
$
35,543
 
  
$
13,811
 
  
$
371,350
Internal funding
  
 
98,421
  
 
(27,493
)
  
 
(6,957
)
  
 
(63,971
)
  
 
-0-
    

  


  


  


  

Net interest income
  
 
295,696
  
 
97,228
 
  
 
28,586
 
  
 
(50,160
)
  
 
371,350
Noninterest revenues
  
 
97,531
  
 
27,342
 
  
 
45,439
 
  
 
18,024
 
  
 
188,336
    

  


  


  


  

Total revenues
  
 
393,227
  
 
124,570
 
  
 
74,025
 
  
 
(32,136
)
  
 
559,686
Provision for loan losses
  
 
34,447
  
 
6,496
 
  
 
231
 
  
 
10,226
 
  
 
51,400
Noninterest expenses
  
 
178,813
  
 
43,769
 
  
 
45,974
 
  
 
14,440
 
  
 
282,996
    

  


  


  


  

Income/(Loss) before income taxes
  
 
179,967
  
 
74,305
 
  
 
27,820
 
  
 
(56,802
)
  
 
225,290
Income taxes/(benefits)
  
 
67,667
  
 
27,939
 
  
 
10,460
 
  
 
(36,777
)
  
 
69,289
    

  


  


  


  

Segment net income/(loss)
  
$
112,300
  
$
46,366
 
  
$
17,360
 
  
$
(20,025
)
  
$
156,001
    

  


  


  


  

Revenues from external customers
  
$
294,806
  
$
152,063
 
  
$
43,590
 
  
$
69,227
 
  
$
559,686
    

  


  


  


  

Three Months Ended September 30, 2001
                                        
Net interest income before internal funding
  
$
133,805
  
$
156,431
 
  
$
26,608
 
  
$
29,193
 
  
$
346,037
Internal funding
  
 
127,759
  
 
(59,228
)
  
 
(4,934
)
  
 
(63,597
)
  
 
-0-
    

  


  


  


  

Net interest income
  
 
261,564
  
 
97,203
 
  
 
21,674
 
  
 
(34,404
)
  
 
346,037
Noninterest revenues
  
 
90,303
  
 
26,618
 
  
 
55,359
 
  
 
20,070
 
  
 
192,350
    

  


  


  


  

Total revenues
  
 
351,867
  
 
123,821
 
  
 
77,033
 
  
 
(14,334
)
  
 
538,387
Provision for loan losses
  
 
33,976
  
 
35,170
 
  
 
192
 
  
 
(20,138
)
  
 
49,200
Noninterest expenses
  
 
178,741
  
 
45,438
 
  
 
48,963
 
  
 
24,028
 
  
 
297,170
    

  


  


  


  

Income/(Loss) before income taxes
  
 
139,150
  
 
43,213
 
  
 
27,878
 
  
 
(18,224
)
  
 
192,017
Income taxes/(benefits)
  
 
52,321
  
 
16,248
 
  
 
10,482
 
  
 
(23,127
)
  
 
55,924
    

  


  


  


  

Segment net income
  
$
86,829
  
$
26,965
 
  
$
17,396
 
  
$
4,903
 
  
$
136,093
    

  


  


  


  

Revenues from external customers
  
$
224,108
  
$
183,049
 
  
$
54,102
 
  
$
77,128
 
  
$
538,387
    

  


  


  


  

Nine Months Ended September 30, 2002
                                        
Net interest income before internal funding
  
$
586,574
  
$
385,292
 
  
$
103,312
 
  
$
56,499
 
  
$
1,131,677
Internal funding
  
 
293,075
  
 
(99,317
)
  
 
(21,804
)
  
 
(171,954
)
  
 
-0-
    

  


  


  


  

Net interest income
  
 
879,649
  
 
285,975
 
  
 
81,508
 
  
 
(115,455
)
  
 
1,131,677
Noninterest revenues
  
 
267,534
  
 
86,114
 
  
 
145,639
 
  
 
47,840
 
  
 
547,127
    

  


  


  


  

Total revenues
  
 
1,147,183
  
 
372,089
 
  
 
227,147
 
  
 
(67,615
)
  
 
1,678,804
Provision for loan losses
  
 
104,686
  
 
33,785
 
  
 
674
 
  
 
20,955
 
  
 
160,100
Noninterest expenses
  
 
544,415
  
 
131,314
 
  
 
141,095
 
  
 
52,634
 
  
 
869,458
    

  


  


  


  

Income/(Loss) before income taxes
  
 
498,082
  
 
206,990
 
  
 
85,378
 
  
 
(141,204
)
  
 
649,246
Income taxes/(benefits)
  
 
187,279
  
 
77,828
 
  
 
32,102
 
  
 
(101,903
)
  
 
195,306
    

  


  


  


  

Segment net income/(loss)
  
$
310,803
  
$
129,162
 
  
$
53,276
 
  
$
(39,301
)
  
$
453,940
    

  


  


  


  

Revenues from external customers
  
$
854,108
  
$
471,406
 
  
$
141,291
 
  
$
211,999
 
  
$
1,678,804
    

  


  


  


  

Nine Months Ended September 30, 2001
                                        
Net interest income before internal funding
  
$
349,830
  
$
502,309
 
  
$
74,953
 
  
$
92,162
 
  
$
1,019,254
Internal funding
  
 
404,485
  
 
(212,278
)
  
 
(13,866
)
  
 
(178,341
)
  
 
-0-
    

  


  


  


  

Net interest income
  
 
754,315
  
 
290,031
 
  
 
61,087
 
  
 
(86,179
)
  
 
1,019,254
Noninterest revenues
  
 
259,496
  
 
77,851
 
  
 
160,667
 
  
 
64,284
 
  
 
562,298
    

  


  


  


  

Total revenues
  
 
1,013,811
  
 
367,882
 
  
 
221,754
 
  
 
(21,895
)
  
 
1,581,552
Provision for loan losses
  
 
89,338
  
 
63,879
 
  
 
545
 
  
 
(20,262
)
  
 
133,500
Noninterest expenses
  
 
522,958
  
 
136,606
 
  
 
142,977
 
  
 
74,711
 
  
 
877,252
    

  


  


  


  

Income/(Loss) before income taxes
  
 
401,515
  
 
167,397
 
  
 
78,232
 
  
 
(76,344
)
  
 
570,800
Income taxes/(benefits)
  
 
150,969
  
 
62,941
 
  
 
29,415
 
  
 
(68,350
)
  
 
174,975
    

  


  


  


  

Segment net income/(loss)
  
$
250,546
  
$
104,456
 
  
$
48,817
 
  
$
(7,994
)
  
$
395,825
    

  


  


  


  

Revenues from external customers
  
$
609,326
  
$
580,160
 
  
$
156,790
 
  
$
235,276
 
  
$
1,581,552
    

  


  


  


  

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Table of Contents
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The Board of Directors
AmSouth Bancorporation
 
We have reviewed the accompanying consolidated statements of condition of AmSouth Bancorporation and subsidiaries as of September 30, 2002 and 2001, and the related consolidated statements of earnings for the three-month and nine-month periods ended September 30, 2002 and 2001, the consolidated statements of cash flows for the nine-month periods ended September 30, 2002 and 2001, and the consolidated statement of shareholders’ equity for the nine-month period ended September 30, 2002. 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, 2001, 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 15, 2002, 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, 2001 is fairly stated, in all material respects, in relation to the consolidated statement of condition from which it has been derived.
 
LOGO
 
Birmingham, Alabama
November 4, 2002

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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, 2002 of $156.0 million, up 17.3 percent from the same period a year ago. Diluted earnings per share for the third quarter of 2002 was $.43, an increase of 16.2 percent over $.37 per share for the same period of 2001. Return on average assets was 1.60 percent and return on average equity was 20.19 percent for the three months ended September 30, 2002. This compares to a return on average assets of 1.41 percent and a return on average equity of 18.59 percent for the third quarter of 2001.
 
Net income for the nine months ended September 30, 2002 was $453.9 million, up 14.7 percent for the same period a year ago. Diluted earnings per share was $1.25 for the first nine months of 2002, up 17.9 percent over $1.06 reported for the same period in 2001. Return on average assets was 1.59 percent and return on average equity was 20.13 percent for the nine months ended September 30, 2002. This compares to a return on average assets of 1.38 percent and a return on average equity of 18.47 percent for the first nine months of 2001.
 
Major contributors to the growth in net income for the three and nine month periods ended September 30, 2002 compared to the same periods in 2001 were higher net interest income primarily associated with a significant improvement in the net interest margin (NIM) coupled with a reduction in noninterest expenses. Net income, however, was negatively impacted by decreases in noninterest revenues (NIR) and an increase in the provision for loan losses.
 
Statement of Condition
 
Total assets at September 30, 2002 were $39.6 billion, up from $38.6 billion at December 31, 2001. This $1.0 billion increase in total assets was primarily the result of increases in loans net of unearned income, trading securities, and held-to-maturity (HTM) securities partially offset by a decrease in available-for-sale (AFS) securities and loans held for sale. Loans net of unearned income at September 30, 2002 increased $1.2 billion compared to year-end. This increase was attributable to $1.5 billion of growth in consumer loans partially 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, residential mortgages and dealer indirect automobile lending. The increase in home equity lending reflected AmSouth’s continued efforts to attract these loans due to their attractive spreads and historically low levels of losses. These efforts included a strong sales effort aided by an emphasis on AmSouth’s branch incentive scorecard, increased marketing activity, and back office improvements that make the product more attractive to customers and easier for our branch personnel to originate. The increase in residential first mortgages reflected a decision by management to suspend the practice of selling a specific portion of residential mortgages into the secondary market. This strategy also resulted in a decrease in loans held for sale of approximately $263 million compared to December 31, 2001. The increase in trading securities reflected higher purchases of securities, primarily short-term commercial paper, as a result of excess liquidity associated with deposit growth. The decrease in available-for-sale securities primarily reflected the continued runoff of mortgage backed securities as sharp declines in intermediate-term interest rates accelerated prepayments associated with an increase in the level of mortgage refinancings.
 
On the liability side of the balance sheet, total deposits at September 30, 2002, increased by $464.8 million compared to December 31, 2001. The increase in total deposits reflected an increase in interest-bearing demand deposits, which include interest checking and money market accounts, of $432.4 million. This increase reflected higher money market deposits as AmSouth, during the third quarter of 2002, introduced a new money market deposit product targeting money market mutual funds in trust accounts. Higher foreign time deposits and certificates of deposit of $100 thousand or more offset decreases in time deposits. The growth in these time deposit categories came entirely from core customers’ funds. Long-term Federal Home Loan Bank (FHLB) borrowings grew from 2001 year-end levels as AmSouth took advantage of low interest rates in anticipation of having to replace approximately $500 million of FHLB borrowings maturing early in 2003.

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Net Interest Income
 
Net interest income (NII) on a fully taxable equivalent basis for the third quarter of 2002 was $384.0 million, up $19.6 million, or 5.4 percent compared to the third quarter of last year, but down $11.1 million, or 11.2 percent on an annualized basis, compared to the second quarter of 2002. The increase in NII compared to the same period in 2001 reflected a higher net interest margin and higher average interest-earning assets. The NIM was 4.36 percent for the third quarter of 2002, up 20 basis points from 4.16 percent for the same quarter in 2001. The improvement in the NIM reflected an increase in the proportion of AmSouth’s earning assets which were supported by low-cost and noninterest-bearing deposits as higher cost time deposits and wholesale, short-term borrowings were partially replaced by low-cost and noninterest-bearing deposits. The improvement in the margin also reflected an increase in interest revenue associated with retained interests on loans sold to third-party conduits which resulted in a 5 basis point increase to the NIM in the third quarter of 2002 when compared to the same period in 2001. The decline in NII in the third quarter versus the second quarter of 2002 was the result of compression in the NIM of 25 basis points. The NIM compression was the result of several factors. $400 million in interest rate swaps matured without replacement while loans held in third-party conduits continued to decline. Other factors included growth in higher cost time and money market deposits; lower loan yields during the third quarter from a combination of tighter underwriting, declining yields on fixed rate loans and a continuing shift in the mix of loans as a result of an emphasis on variable rate lending; deposit growth in excess of loan growth which created surplus funding held in overnight funds and other very short-term liquid assets; and accelerated prepayments on loans and investment securities as intermediate-term interest rates sharply declined.
 
Average interest-earning assets for the third quarter of 2002 totaled $34.9 billion, an increase of $154.1 million from the third quarter of 2001. The increase for the quarter came principally from loan growth during the third quarter of 2002. On the funding side, average low-cost deposits for the third quarter of 2002, which includes noninterest-bearing and interest-bearing demand deposits and savings accounts increased $889 million or 5.6 percent over the third quarter of 2001.
 
On a year-to-date basis, NII on a fully taxable equivalent basis was $1.2 billion in 2002, an increase of $107 million or 10.0 percent compared to the first nine months of 2001. The increase in NII reflected a higher NIM offset by lower average interest-earning assets. The NIM was 4.54 percent for the first nine months of 2002, an increase of 47 basis points versus 4.07 percent for the same period in 2001. This improvement reflected an increase in the proportion of earning assets funded by low-cost and noninterest-bearing deposits. Another contributor to the improvement in the margin was an increase in interest revenues associated with retained interests on loans sold to third-party conduits, which represented 10 basis points of the increase in NIM compared to the same period in 2001.
 
The decline in average interest-earning assets for the first nine months of 2002 versus the same period in 2001 reflected decreases in HTM securities and federal funds sold and securities purchased under agreements to resell. The decrease in these items was primarily the result of AmSouth’s strategy to shift assets into higher-yielding consumer loans, primarily home equity loans and a decrease in average deposits for the period, primarily higher-cost time deposits. The decrease in average time deposits for the period reflected management’s strategy, during the second half of 2001, to reduce AmSouth’s reliance on higher cost sources of funding. This strategy resulted in the migration of time deposits into low-cost deposit categories or into alternative financial products offered by AmSouth such as fixed annuities.
 
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 NIM 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.

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An earnings simulation model is the primary tool used to assess the direction and magnitude of changes in NII resulting from changes in interest rates. Key assumptions in the model include prepayment speeds on mortgage-related assets; cash flows and maturities of derivatives and other financial instruments held for purposes other than trading; changes in market conditions, loan volumes and pricing; deposit volume, mix and rate sensitivity; customer preferences; and management’s financial and capital plans. These assumptions are inherently uncertain, and, as a result, the model cannot precisely estimate NII or precisely predict the impact of higher or lower interest rates on NII. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes and changes in market conditions and management’s strategies, among other factors.
 
Based on the results of the simulation model as of September 30, 2002, AmSouth would expect NII to increase $12.5 million or approximately 0.8 percent and decrease $14.2 million or approximately 1.0 percent if interest rates gradually increase or decrease, respectively, from current rates by 100 basis points over a 12-month period. By comparison, as of September 30, 2001, the simulation model indicated that NII would decrease $5 million or approximately 0.4 percent and increase $7 million or approximately 0.5 percent if interest rates gradually increased or decreased, respectively, from their then-current rates by 100 basis points over a 12-month period. Even in a more severe stress test scenario, assuming 10 percent deposit outflow, an immediate 100 basis point rise in short-term interest rates and a corresponding rise in deposit rates, net interest income is expected to be negatively impacted only 0.4 percent. In a shock down 50 basis points scenario, net interest income is expected to be negatively impacted 0.8 percent. This level of interest rate risk is well within AmSouth’s policy guidelines. Current policy states that NII should not fluctuate more than 2.5 percent in the event that interest rates gradually increase or decrease 100 basis points over a period of twelve months.
 
AmSouth’s neutral interest rate risk profile was the result of continued actions taken over the last several quarters. These actions included the continued increase in the level of variable-rate loans on the balance sheet accompanied by the reduction in the level of fixed-rate loans and investment securities. In addition, less rate sensitive, low-cost deposits have increased while higher cost and more rate sensitive time deposits have declined. AmSouth also extended the maturity of purchased funds and allowed $1.1 billion notional amount of “receive fixed/pay floating” interest rate swaps to mature without replacement since the third quarter of 2001. AmSouth plans to continue its neutral interest rate risk position through 2002 by balancing the production of variable-rate lending, especially equity lines, with the production of fixed-rate loans, including fixed-rate residential mortgages. These actions should help protect AmSouth’s interest rate risk neutrality even if interest rates begin to rise.
 
As part of its activities to manage interest rate risk, AmSouth utilizes various derivative instruments such as interest rate swaps. At September 30, 2002, AmSouth had interest rate swaps in the notional amount of $1.1 billion, all of which were “receive fixed/pay floating” rate swaps. Of these swaps, $350 million of notional value was used to hedge the cash flow of variable-rate commercial loans and $715 million of notional value was used to hedge the fair value of fixed-rate consumer certificates of deposit and corporate and bank debt. Interest rate swaps with notional value of $971 million matured during the first nine months of 2002. There are no “receive fixed/pay floating” interest rate swaps expected to mature during the remainder of 2002.
 
In addition to using derivative instruments as an interest rate risk management tool, AmSouth also acts as an intermediary for interest rate swaps, caps, floors, and foreign exchange contracts on behalf of its customers. AmSouth minimizes its market and liquidity risks by taking offsetting positions. AmSouth manages its credit risk, or potential risk of loss from default by counterparties, through credit limit approval and monitoring procedures. Market value changes on intermediated swaps and other derivatives are recognized in income in the period of change. At September 30, 2002, AmSouth had $102.8 million of assets and $101.5 million of liabilities associated with $1.1 billion notional amount of interest rate swaps with corporate customers and $1.1 billion notional amount of offsetting interest rate swaps with other banks to hedge AmSouth’s rate exposure on its corporate customers’ swaps.

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Liquidity Management
 
AmSouth’s goal in liquidity management is to satisfy the cash flow requirements of depositors and borrowers while at the same time meeting its cash flow needs. This is accomplished through the active management of both the asset and liability sides of the balance sheet. The liquidity position of AmSouth is monitored on a daily basis by AmSouth’s Treasury Division. In addition, the Asset/Liability Committee, which consists of members of AmSouth’s senior management team, reviews liquidity on a regular basis and approves any changes in strategy that are necessary as a result of balance sheet or anticipated cash flow changes. Management also compares, on a monthly basis, AmSouth’s liquidity position to established corporate liquidity guidelines.
 
The primary sources of liquidity on the asset side of the balance sheet are maturities and cash flows from loans and investments as well as the ability to securitize or sell certain loans and investments. Liquidity on the liability side is generated primarily through growth in core deposits and the ability to obtain economical wholesale funding in national and regional markets through a variety of sources. See Table 10 for a breakout by maturity date of AmSouth’s contractual obligations and other commercial commitments.
 
As an additional source of liquidity, AmSouth periodically sells loans or pools of loans to qualifying special purpose entities called conduits in securitization transactions. The conduits are financed by the issuance of securities to asset-backed commercial paper issuers and are accounted for as sales. These transactions allow AmSouth to utilize its balance sheet capacity and capital for higher yielding, interest-earning assets, while continuing to manage the customer relationship. At September 30, 2002, the outstanding balance of loans sold to conduits was approximately $2.9 billion, including $1.0 billion of commercial loans, $1.6 billion of residential first mortgages and $277 million of dealer indirect automobile loans. This balance was down from $3.76 billion in outstanding loan balances in conduits at December 31, 2001. AmSouth provides credit enhancements to these securitizations by providing standby letters of credit, which create exposure to credit risk to the extent of the letters of credit. At September 30, 2002, AmSouth had $137.3 million of letters of credit supporting the conduit transactions. This credit risk is reviewed quarterly and a reserve for loss exposure is maintained in other liabilities.
 
AmSouth also provides liquidity lines of credit to these asset-backed commercial paper issuers under 364 day commitments. These liquidity lines can be drawn upon in the unlikely event of a commercial paper market disruption or other factors, such as credit rating downgrades of one of the asset-backed commercial paper issuers or of AmSouth as the provider of liquidity and credit support, which could prevent the asset-backed commercial paper issuers from being able to issue commercial paper. To date, there have been no drawdowns of the liquidity lines; however, AmSouth includes this liquidity risk in its monthly liquidity risk analysis to ensure that it would have sufficient sources of liquidity to meet demand. AmSouth also reviews the impact of the potential drawdown of the liquidity lines on its regulatory capital requirements. As of September 30, 2002, this analysis showed that AmSouth would retain its well-capitalized position even if the liquidity lines were completely drawn down.
 
Credit Quality
 
AmSouth maintains an allowance for loan losses which management believes is adequate to absorb losses inherent in the loan portfolio. A formal review is prepared quarterly to assess the risk in the portfolio and to determine the adequacy of the allowance for loan losses. The review includes analyses of historical performance, the level of nonperforming and adversely rated loans, specific analyses of certain problem loans, loan activity since the previous quarter, reports prepared by the Credit Review Department, consideration of current economic conditions, and other pertinent information. The level of allowance to net loans outstanding will vary depending on the overall results of this quarterly review. The review is presented to and subsequently approved by senior management and reviewed by the Audit and Community Responsibility Committee of the Board of Directors.
 
Table 5 presents a five-quarter analysis of the allowance for loan losses. At September 30, 2002, the allowance for loan losses was $379.9 million, or 1.45 percent of loans net of unearned income, compared to $360.7 million, or 1.45 percent, at September 30, 2001 and $363.6 million, or 1.45 percent, at December 31,

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2001. The coverage ratio of the allowance for loan losses to nonperforming loans was 251 percent at September 30, 2002, an increase from the September 30, 2001 ratio of 211 percent. The increase in the allowance at September 30, 2002 versus September 30, 2001 primarily reflected an increase in loan loss exposure as loan balances have increased over prior year levels.
 
Net charge-offs for the quarter ended September 30, 2002, were $42.9 million, or 0.66 percent of average loans, on an annualized basis, a decrease of $26.2 million from the $69.1 million, or 1.11 percent of average loans, reported in the same period a year earlier. The decrease in net charge-offs was the result of a decrease in commercial net charge-offs partially offset by higher consumer charge-offs. The decrease in commercial charge-offs reflected the impact of approximately $30 million of shared national credit loan charge-offs recorded in the third quarter of 2001. The increase in net charge-offs in the consumer portfolio reflected higher charge-offs within the equity lending and revolving credit portfolios. The overall increase in consumer loan net charge-offs reflected the continued impact of the weakened economy as well as the continued growth and seasoning of the consumer loan portfolio. On a year-to-date basis, 2002 net charge-offs were $143.8 million, or 0.75 percent of average loans on an annualized basis, compared to $153.2 million, or 0.83 percent, for the same period of 2001. This decrease reflected lower commercial net charge-offs partially offset by an increase in consumer net charge-offs. As described in the quarterly comparison the reduction in the commercial charge-offs was primarily driven by the impact of approximately $30 million of shared national credit loans charged off in the third quarter of 2001. On the consumer side, the increase was across most categories of consumer loans led by higher net charge-offs in the equity lending and dealer indirect automobile loan portfolio and reflected the continued impact of a slow economy. The provision for loan losses for the third quarter and the first nine months of 2002 was $51.4 million and $160.1 million, respectively, compared to $49.2 million and $133.5 million for the corresponding year-earlier periods. The increase in the provision for loan losses is consistent with the overall growth in AmSouth’s loan portfolio.
 
Table 6 presents a five-quarter comparison of the components of nonperforming assets. At September 30, 2002, nonperforming assets as a percentage of loans net of unearned income, foreclosed properties and repossessions decreased 10 basis points to 0.72 percent compared to 0.82 percent at September 30, 2001, reflecting a $15.4 million decrease in nonperforming assets. Compared to the year-end 2001 level of 0.76 percent, nonperforming assets have remained relatively flat through the first nine months of 2002.
 
Included in nonperforming assets at September 30, 2002 and 2001, was $93.9 million and $114.8 million, respectively, in loans that were considered to be impaired, substantially all of which were on a nonaccrual basis. At September 30, 2002 and 2001, there was $23.1 million and $25.4 million, respectively, in the allowance for loan losses specifically allocated to $77.8 million and $88.8 million, respectively of impaired loans. No specific reserves were required for $16.1 million and $26.0 million of impaired loans at September 30, 2002 and 2001, respectively. The average recorded investment in impaired loans for the three months ended September 30, 2002 and 2001, was $96.5 million and $126.4 million, respectively, and $101.8 million and $130.6 million, respectively, for the nine months ended September 30, 2002 and 2001. AmSouth recorded no material interest income on its impaired loans during the three and nine months ended September 30, 2002. At September 30, 2002, AmSouth had approximately $65.1 million of potential problem commercial loans which were not included in the nonaccrual loans or in the 90 days past due categories at quarter-end but for which management had concerns as to the ability of such borrowers to comply with their present loan repayment terms.
 
Noninterest Revenues and Noninterest Expenses
 
Noninterest revenue (NIR) was $188.3 million during the third quarter of 2002, a 2.1 percent decline from the corresponding period in 2001. The decrease in NIR compared to 2001 was primarily due to a decrease in trust income, consumer investment services income, mortgage income and other noninterest revenues partially offset by increases in service charges on deposits, income from bank owned life insurance (BOLI), bankcard and interchange income. Trust revenues were down $2.7 million in the third quarter when compared to the same period in 2001. This decrease reflected the continued weakness in the stock market and lower revenues related to the outsourcing of Retirement Services record-keeping plans. The soft economy and current market conditions

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also negatively impacted consumer investment services income, which decreased $7.3 million in the third quarter of 2002 when compared to the same period of 2001. The decrease in consumer investment services income reflected slower annuity and investment product sales. Mortgage income was lower in the third quarter compared to the same period in 2001 primarily as a result of lower income from the bulk sale of mortgage loans and servicing in the secondary market and a $2.0 million gain on the sale of mortgage loans to third-party conduits recorded in the third quarter of 2001. The decrease in income from mortgage loan and servicing sales reflected the decision, during the third quarter of 2002, to suspend AmSouth’s practice of selling a select portion of its mortgage loan portfolio into the secondary market. These decreases in mortgage income were partially offset by a $2.3 million increase associated with changes in the fair market value of mortgage derivative instruments. AmSouth has historically utilized derivative instruments, primarily forward contracts, to economically hedge future sales of mortgage loans. Because these forward contracts did not meet the strict requirements for hedge accounting treatment, AmSouth was required to record changes in the fair value of these forward contracts as an increase or decrease to earnings while any offsetting increase in the value of mortgage loans these contracts were hedging was not permitted to be recorded as earnings. In addition to forward contracts, loan commitments associated with mortgages AmSouth planned to originate and sell were also considered derivative instruments and were marked to market through earnings and tended to partially offset the changes in value of the forward contracts. As a result of AmSouth’s decision to halt the bulk sales of mortgage loans in the secondary markets, AmSouth, as of September 30, 2002, no longer held derivative instruments associated with its mortgage operation. Other noninterest revenues for the quarter declined $10.8 million when compared to the same period last year. This decrease was due primarily to a steady decrease in servicing and other fee income related to an automobile loan securitization and conduit transactions that occurred during the 2000 fiscal year. The decrease in fee income reflects the continued pay down of loan balances associated with these transactions. The decrease in other NIR in the third quarter of 2002 also reflected a $1.7 million loss, recorded in the third quarter of 2002, on a commercial lease transaction due to a drop in residual value and the impact of $4.9 million of gains associated with the sale of an equity related interest and a branch facility in the third quarter of 2001.
 
Partially offsetting the decreases in these NIR categories was an increase in service charges on deposit accounts. Service charges on deposit accounts increased approximately $13.0 million versus the third quarter of 2001. This increase reflected higher treasury management fees and higher revenues from overdraft fees. The increase in overdraft fees reflected a change made last quarter making overdraft charges consistent for both electronic and paper-based payments. BOLI and interchange income for the third quarter also increased compared to the same quarter in 2001. The increase in BOLI income reflected the receipt of benefit payments during the period. The increase in interchange income reflected AmSouth’s continued emphasis on debit card sales and reflected increased utilization of checkcards and business checkcards and higher ATM fees.
 
On a year-to-date basis, NIR was $547.1 million, a decrease of $15.2 million or 2.7 percent versus the first nine months of 2001. The decrease in NIR on a year-to-date basis was primarily associated with decreases in trust, consumer investment services and mortgage income as well as other NIR partially offset by higher service charges on deposit accounts, BOLI income and interchange fees. The reasons for the decreases in trust and consumer investment services income were consistent with those discussed in the quarterly analysis above. The decrease in mortgage income was primarily the result of a $4.1 million decrease in mortgage derivative income (see discussion in quarterly analysis above) and the impact in 2001 of a $2.0 million gain from the sale of mortgage loans to third-party conduits. These decreases were partially offset by a $2.3 million increase in mortgage conduit income during the first nine months of 2002 versus the same period in 2001. Other NIR, on a year-to-date basis, decreased by $32.2 million compared to 2001. A portion of the decrease was associated with the items described in the quarterly analysis. The remaining decrease reflected a $2.2 million decrease associated with lower market valuations on derivative instruments, a $4.2 million charge recorded in 2002 associated with a loss on a fixed asset and the sale of branch facilities and other assets. The decrease between years was also impacted by a $4.4 million adjustment associated with an equity investment and approximately $3.8 million of gains related to the sale of leased equipment and an equity investment stock sale recorded in 2001. The reasons for the increases in service charges on deposit accounts, BOLI income and interchange income are consistent with those discussed in the quarterly analysis above.

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Noninterest expenses (NIE) for the third quarter of 2002 declined $14.2 million or 4.8 percent compared to the same period in 2001. Excluding the impact of the accounting change that resulted in goodwill no longer being amortized against earnings beginning in 2002, NIE decreased $6.9 million or 2.4 percent in the third quarter of 2002 when compared to the corresponding period in 2001. Excluding the impact of goodwill amortization, the decrease in NIE was primarily the result of lower communication and other noninterest expenses. The decrease in communications expense was primarily the result of lower expenses associated with the consolidation and renegotiation of services associated with a change in vendor. The decrease in other NIE primarily reflected a $3.1 million recovery associated with the sale of a credit derivative contract. AmSouth recorded a $3.7 million charge in the second quarter associated with the same credit derivative contract after AmSouth eliminated its credit exposure to the corporate customer for which the credit derivative provided protection. During the third quarter, the corporate customer for which the credit derivative provided protection released negative financial information which enabled AmSouth to sell the credit derivative contract and recover a portion of the amount it had written off.
 
On a year-to-date basis, NIE decreased $7.8 million or 1.0 percent for the first nine months of 2002 compared to the same period in 2001. Excluding the impact of goodwill amortization in 2001, however, NIE increased $14.3 million or 1.7 percent when comparing the first nine months of 2002 with the same period in 2001. The increase in NIE excluding goodwill amortization primarily reflected increases in salaries and employee benefits and net occupancy expense partially offset by a decrease in communication expense. The increase in salaries and employee benefits primarily reflected higher employee benefit costs associated with higher insurance and pension costs as well as higher incentive accruals related to improved performance. The increase in occupancy expense reflected higher depreciation expenses associated with the opening of new branches and other capital projects. The decrease in communication expense, as described in the quarterly analysis, was primarily the result of lower expense associated with a change in vendor. As described above in both the quarterly and year-to-date analysis, amortization expense declined as a result of the adoption of Statement 142 on January 1, 2002. Statement 142 no longer permits the amortization of goodwill and intangible assets with indefinite useful lives but requires these assets to be tested for impairment at least annually. For more information on the impact of adopting Statement 142, see the Notes to Consolidated Financial Statements section in Part I of this report.
 
Capital Adequacy
 
At September 30, 2002, shareholders’ equity totaled $3.1 billion or 7.88 percent of total assets. Since December 31, 2001, shareholders’ equity increased $167.6 million primarily as a result of net income for the first nine months of $453.9 million. The increase in shareholders’ equity from net income was partially offset by the declaration of dividends of $238.6 million and the purchase of 8.2 million shares of AmSouth common stock for $173.0 million during the first nine months of 2002. In addition, shareholders’ equity increased $82.7 million as a result of higher valuation of the AFS portfolio and decreased $7.3 million due to changes in other comprehensive income associated with cash flow hedges.
 
Table 9 presents the capital amounts and risk-adjusted capital ratios for AmSouth and AmSouth Bank at September 30, 2002 and 2001. At September 30, 2002, 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, 2002.
 
Earnings Outlook
 
Looking ahead, the net interest margin is expected to decline in the fourth quarter to a range between 4.15 percent and 4.25 percent. This decrease reflects the full impact of maintaining additional liquidity for anticipated future loan growth, the runoff of interest rate swaps in the third quarter, lower levels of interest from retained interests in loans sold to third-party conduits as these balances continue to decline, and higher prepayment activity. AmSouth expects nonperforming loans and net charge-offs to fluctuate for the remainder of 2002 in a relatively narrow band around the levels of the last few quarters. Noninterest revenue growth in the low to mid

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single digits and well-contained expense control should also contribute to earnings growth. Though today’s business environment is marked with uncertainty, including the direction of future interest rates and the condition of the economy, AmSouth expects diluted earnings per share for 2002 to be at the high end of the $1.63 to $1.68 guidance range. See the discussion of “Forward-Looking Statements” on page 2, which details a number of factors that could cause results to differ from management’s current expectations.

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Table 1—Financial Summary
 
    
September 30

  
% Change

 
    
2002

  
2001

  
    
(In thousands)
 
Balance sheet summary
                    
End-of-period balances:
                    
Loans net of unearned income
  
$
26,286,850
  
$
24,901,060
  
5.6
%
Total assets
  
 
39,610,727
  
 
38,264,805
  
3.5
 
Total deposits
  
 
26,631,802
  
 
25,873,948
  
2.9
 
Shareholders' equity
  
 
3,122,747
  
 
2,970,662
  
5.1
 
Year-to-date average balances:
                    
Loans net of unearned income
  
$
25,619,749
  
$
24,702,003
  
3.7
%
Total assets
  
 
38,135,437
  
 
38,359,859
  
(0.6
)
Total deposits
  
 
25,632,711
  
 
26,002,930
  
(1.4
)
Shareholders' equity
  
 
3,015,084
  
 
2,865,476
  
5.2
 
 
   
Nine Months Ended September 30

    
% Change

   
Three Months Ended September 30

    
% Change

 
   
2002

   
2001

      
2002

   
2001

    
   
(In thousands except per share data)
 
Earnings summary
                                             
Net income
 
$
453,940
 
 
$
395,825
 
  
14.7
%
 
$
156,001
 
 
$
136,093
 
  
14.6
%
Earnings per common share
 
 
1.26
 
 
 
1.07
 
  
17.8
 
 
 
.44
 
 
 
.37
 
  
18.9
 
Diluted earnings per common share
 
 
1.25
 
 
 
1.06
 
  
17.9
 
 
 
.43
 
 
 
.37
 
  
16.2
 
Return on average assets (annualized)
 
 
1.59
%
 
 
1.38
%
        
 
1.60
%
 
 
1.41
%
      
Return on average equity (annualized)
 
 
20.13
 
 
 
18.47
 
        
 
20.19
 
 
 
18.59
 
      
Return on average equity (excluding goodwill, annualized)
 
 
20.13
 
 
 
19.48
 
        
 
20.19
 
 
 
19.58
 
      
Operating efficiency
 
 
50.62
 
 
 
53.95
 
        
 
49.45
 
 
 
53.37
 
      
Operating efficiency (excluding goodwill)
 
 
50.62
 
 
 
52.59
 
        
 
49.45
 
 
 
52.06
 
      
Selected ratios
                                             
Average equity to assets
 
 
7.91
%
 
 
7.47
%
        
 
7.93
%
 
 
7.60
%
      
End-of-period equity to assets
 
 
7.88
 
 
 
7.76
 
        
 
7.88
 
 
 
7.76
 
      
End-of-period tangible equity to assets
 
 
7.17
 
 
 
7.00
 
        
 
7.17
 
 
 
7.00
 
      
Allowance for loan losses to loans net of unearned income
 
 
1.45
 
 
 
1.45
 
        
 
1.45
 
 
 
1.45
 
      
Common stock data
                                             
Cash dividends declared
 
$
.66
 
 
$
.63
 
        
$
.22
 
 
$
.21
 
      
Book value at end of period
 
 
8.73
 
 
 
8.14
 
        
 
8.73
 
 
 
8.14
 
      
Market value at end of period
 
 
20.74
 
 
 
18.07
 
        
 
20.74
 
 
 
18.07
 
      
Average common shares outstanding
 
 
359,653
 
 
 
368,945
 
        
 
357,567
 
 
 
365,970
 
      
Average common shares outstanding-diluted
 
 
364,197
 
 
 
372,489
 
        
 
361,961
 
 
 
370,116
 
      

22


Table of Contents
Table 2—Year-to-Date Yields Earned on Average Interest-Earning Assets
and Rates Paid on Average Interest-Bearing Liabilities
 
    
2002

    
2001

 
    
Nine Months
Ended September 30

    
Nine Months
Ended September 30

 
    
Average Balance

    
Revenue/ Expense

  
Yield/ Rate

    
Average Balance

    
Revenue/ Expense

  
Yield/ Rate

 
    
(Taxable equivalent basis-dollars in thousands)
 
Assets
                                             
Interest-earning assets:
                                             
Loans net of unearned income
  
$
25,619,749
 
  
$
1,292,693
  
6.75
%
  
$
24,702,003
 
  
$
1,537,628
  
8.32
%
Available-for-sale securities:
                                             
Taxable
  
 
4,261,173
 
  
 
255,953
  
8.03
 
  
 
4,137,089
 
  
 
239,276
  
7.73
 
Tax-free
  
 
69,085
 
  
 
4,083
  
7.90
 
  
 
88,773
 
  
 
5,145
  
7.75
 
    


  

         


  

      
Total available-for-sale securities
  
 
4,330,258
 
  
 
260,036
  
8.03
 
  
 
4,225,862
 
  
 
244,421
  
7.73
 
    


  

         


  

      
Held-to-maturity securities:
                                             
Taxable
  
 
3,688,740
 
  
 
178,647
  
6.48
 
  
 
4,142,195
 
  
 
209,581
  
6.76
 
Tax-free
  
 
342,068
 
  
 
19,286
  
7.54
 
  
 
343,829
 
  
 
19,021
  
7.40
 
    


  

         


  

      
Total held-to-maturity securities
  
 
4,030,808
 
  
 
197,933
  
6.57
 
  
 
4,486,024
 
  
 
228,602
  
6.81
 
    


  

         


  

      
Total investment securities
  
 
8,361,066
 
  
 
457,969
  
7.32
 
  
 
8,711,886
 
  
 
473,023
  
7.26
 
Other interest-earning assets
  
 
501,395
 
  
 
14,178
  
3.78
 
  
 
1,538,899
 
  
 
60,592
  
5.26
 
    


  

         


  

      
Total interest-earning assets
  
 
34,482,210
 
  
 
1,764,840
  
6.84
 
  
 
34,952,788
 
  
 
2,071,243
  
7.92
 
Cash and other assets
  
 
3,880,889
 
                
 
3,703,585
 
             
Allowance for loan losses
  
 
(371,940
)
                
 
(381,465
)
             
Market valuation on available-for-sale securities
  
 
144,278
 
                
 
84,951
 
             
    


                


             
    
$
38,135,437
 
                
$
38,359,859
 
             
    


                


             
Liabilities and Shareholders' Equity
                                             
Interest-bearing liabilities:
                                             
Interest-bearing demand deposits
  
$
10,526,714
 
  
$
88,623
  
1.13
 
  
$
9,898,365
 
  
$
217,629
  
2.94
 
Savings deposits
  
 
1,299,769
 
  
 
5,584
  
0.57
 
  
 
1,214,898
 
  
 
13,367
  
1.47
 
Time deposits
  
 
6,488,436
 
  
 
184,024
  
3.79
 
  
 
7,683,111
 
  
 
328,731
  
5.72
 
Foreign time deposits
  
 
397,881
 
  
 
4,099
  
1.38
 
  
 
308,491
 
  
 
8,383
  
3.63
 
Certificates of deposit of $100,000 or more
  
 
2,061,077
 
  
 
53,863
  
3.49
 
  
 
2,350,839
 
  
 
102,585
  
5.83
 
Federal funds purchased and securities sold under agreements to repurchase
  
 
2,008,982
 
  
 
21,385
  
1.42
 
  
 
2,248,426
 
  
 
64,649
  
3.84
 
Other interest-bearing liabilities
  
 
6,300,865
 
  
 
236,755
  
5.02
 
  
 
6,319,092
 
  
 
272,169
  
5.76
 
    


  

         


  

      
Total interest-bearing liabilities
  
 
29,083,724
 
  
 
594,333
  
2.73
 
  
 
30,023,222
 
  
 
1,007,513
  
4.49
 
             

  

           

  

Net interest spread
                  
4.11
%
                  
3.43
%
                    

                  

Noninterest-bearing demand deposits
  
 
4,858,834
 
                
 
4,547,226
 
             
Other liabilities
  
 
1,177,795
 
                
 
923,935
 
             
Shareholders' equity
  
 
3,015,084
 
                
 
2,865,476
 
             
    


                


             
    
$
38,135,437
 
                
$
38,359,859
 
             
    


                


             
Net interest income/margin on a taxable equivalent basis
           
 
1,170,507
  
4.54
%
           
 
1,063,730
  
4.07
%
                    

                  

Taxable equivalent adjustment:
                                             
Loans
           
 
23,261
                  
 
28,691
      
Available-for-sale securities
           
 
3,662
                  
 
3,722
      
Held-to-maturity securities
           
 
11,907
                  
 
12,063
      
             

                  

      
Total taxable equivalent adjustment
           
 
38,830
                  
 
44,476
      
             

                  

      
Net interest income
           
$
1,131,677
                  
$
1,019,254
      
             

                  

      

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.

23


Table of Contents
 
Table 3—Quarterly Yields Earned on Average Interest-Earning Assets and Rates Paid on Average Interest-Bearing Liabilities
 
   
2002

   
2001

 
   
Third Quarter

   
Second Quarter

   
First Quarter

   
Fourth Quarter

   
Third Quarter

 
   
Average Balance

   
Revenue/ Expense

 
Yield/ Rate

   
Average Balance

   
Revenue/ Expense

 
Yield/ Rate

   
Average Balance

   
Revenue/ Expense

 
Yield/ Rate

   
Average Balance

   
Revenue/ Expense

 
Yield/ Rate

   
Average Balance

   
Revenue/ Expense

 
Yield/ Rate

 
   
(Taxable equivalent basis-dollars in thousands)
 
Assets
                                                                                                   
Interest-earning assets:
                                                                                                   
Loans net of unearned income
 
$
25,877,960
 
 
$
426,248
 
6.53
%
 
$
25,701,987
 
 
$
433,331
 
6.76
%
 
$
25,272,649
 
 
$
433,114
 
6.95
%
 
$
24,947,167
 
 
$
463,816
 
7.38
%
 
$
24,762,932
 
 
$
494,161
 
7.92
%
Available-for-sale securities:
                                                                                                   
Taxable
 
 
4,256,356
 
 
 
84,266
 
7.85
 
 
 
4,199,230
 
 
 
86,554
 
8.27
 
 
 
4,328,728
 
 
 
85,133
 
7.98
 
 
 
4,404,328
 
 
 
84,852
 
7.64
 
 
 
4,341,632
 
 
 
84,445
 
7.72
 
Tax-free
 
 
64,756
 
 
 
1,252
 
7.67
 
 
 
68,526
 
 
 
1,365
 
7.99
 
 
 
74,076
 
 
 
1,466
 
8.03
 
 
 
79,009
 
 
 
1,580
 
7.93
 
 
 
81,699
 
 
 
1,590
 
7.72
 
   


 

       


 

       


 

       


 

       


 

     
Total available-for-sale securities
 
 
4,321,112
 
 
 
85,518
 
7.85
 
 
 
4,267,756
 
 
 
87,919
 
8.26
 
 
 
4,402,804
 
 
 
86,599
 
7.98
 
 
 
4,483,337
 
 
 
86,432
 
7.65
 
 
 
4,423,331
 
 
 
86,035
 
7.72
 
   


 

       


 

       


 

       


 

       


 

     
Held-to-maturity securities:
                                                                                                   
Taxable
 
 
3,773,509
 
 
 
60,081
 
6.32
 
 
 
3,684,672
 
 
 
59,602
 
6.49
 
 
 
3,606,201
 
 
 
58,964
 
6.63
 
 
 
3,884,256
 
 
 
64,628
 
6.60
 
 
 
3,987,733
 
 
 
66,416
 
6.61
 
Tax-free
 
 
342,268
 
 
 
6,416
 
7.44
 
 
 
341,933
 
 
 
6,434
 
7.55
 
 
 
341,999
 
 
 
6,436
 
7.63
 
 
 
341,890
 
 
 
6,401
 
7.43
 
 
 
341,982
 
 
 
6,365
 
7.38
 
   


 

       


 

       


 

       


 

       


 

     
Total held-to-maturity securities
 
 
4,115,777
 
 
 
66,497
 
6.41
 
 
 
4,026,605
 
 
 
66,036
 
6.58
 
 
 
3,948,200
 
 
 
65,400
 
6.72
 
 
 
4,226,146
 
 
 
71,029
 
6.67
 
 
 
4,329,715
 
 
 
72,781
 
6.67
 
   


 

       


 

       


 

       


 

       


 

     
Total investment securities
 
 
8,436,889
 
 
 
152,015
 
7.15
 
 
 
8,294,361
 
 
 
153,955
 
7.44
 
 
 
8,351,004
 
 
 
151,999
 
7.38
 
 
 
8,709,483
 
 
 
157,461
 
7.17
 
 
 
8,753,046
 
 
 
158,816
 
7.20
 
Other interest-earning assets
 
 
620,380
 
 
 
4,263
 
2.73
 
 
 
396,264
 
 
 
4,628
 
4.68
 
 
 
486,064
 
 
 
5,287
 
4.41
 
 
 
553,016
 
 
 
5,711
 
4.10
 
 
 
1,265,120
 
 
 
13,766
 
4.32
 
   


 

       


 

       


 

       


 

       


 

     
Total interest-earning assets
 
 
34,935,229
 
 
 
582,526
 
6.62
 
 
 
34,392,612
 
 
 
591,914
 
6.90
 
 
 
34,109,717
 
 
 
590,400
 
7.02
 
 
 
34,209,666
 
 
 
626,988
 
7.27
 
 
 
34,781,098
 
 
 
666,743
 
7.61
 
Cash and other assets
 
 
3,914,917
 
             
 
3,819,140
 
             
 
3,908,544
 
             
 
3,841,728
 
             
 
3,678,731
 
           
Allowance for loan losses
 
 
(377,708
)
             
 
(372,870
)
             
 
(365,104
)
             
 
(359,404
)
             
 
(382,177
)
           
Market valuation on available-for-sale securities
 
 
177,922
 
             
 
123,815
 
             
 
130,575
 
             
 
185,967
 
             
 
127,813
 
           
   


             


             


             


             


           
   
$
38,650,360
 
             
$
37,962,697
 
             
$
37,783,732
 
             
$
37,877,957
 
             
$
38,205,465
 
           
   


             


             


             


             


           
Liabilities and Shareholders' Equity
                                                                                                   
Interest-bearing liabilities:
                                                                                                   
Interest-bearing demand deposits
 
$
10,572,606
 
 
 
30,668
 
1.15
 
 
$
10,503,635
 
 
 
29,034
 
1.11
 
 
$
10,503,137
 
 
 
28,921
 
1.12
 
 
$
10,298,075
 
 
 
36,367
 
1.40
 
 
$
10,080,711
 
 
 
61,961
 
2.44
 
Savings deposits
 
 
1,309,966
 
 
 
1,878
 
0.57
 
 
 
1,316,202
 
 
 
1,888
 
0.58
 
 
 
1,272,730
 
 
 
1,818
 
0.58
 
 
 
1,227,991
 
 
 
2,347
 
0.76
 
 
 
1,213,940
 
 
 
3,817
 
1.25
 
Time deposits
 
 
6,462,647
 
 
 
59,145
 
3.63
 
 
 
6,397,321
 
 
 
60,593
 
3.80
 
 
 
6,606,926
 
 
 
64,286
 
3.95
 
 
 
6,991,178
 
 
 
78,340
 
4.45
 
 
 
7,511,350
 
 
 
101,607
 
5.37
 
Foreign time deposits
 
 
482,911
 
 
 
1,668
 
1.37
 
 
 
371,251
 
 
 
1,329
 
1.44
 
 
 
337,886
 
 
 
1,102
 
1.32
 
 
 
360,579
 
 
 
1,430
 
1.57
 
 
 
313,799
 
 
 
2,152
 
2.72
 
Certificates of deposit of $100,000 or more
 
 
2,178,556
 
 
 
18,140
 
3.30
 
 
 
1,988,035
 
 
 
17,086
 
3.45
 
 
 
2,014,841
 
 
 
18,637
 
3.75
 
 
 
2,051,701
 
 
 
23,334
 
4.51
 
 
 
2,214,303
 
 
 
30,036
 
5.38
 
Federal funds purchased and securities sold under agreements to repurchase
 
 
1,973,865
 
 
 
7,452
 
1.50
 
 
 
2,067,050
 
 
 
7,704
 
1.49
 
 
 
1,986,166
 
 
 
6,229
 
1.27
 
 
 
2,035,112
 
 
 
8,239
 
1.61
 
 
 
2,162,744
 
 
 
15,664
 
2.87
 
Other interest-bearing liabilities
 
 
6,406,880
 
 
 
79,613
 
4.93
 
 
 
6,346,331
 
 
 
79,236
 
5.01
 
 
 
6,146,522
 
 
 
77,906
 
5.14
 
 
 
6,164,694
 
 
 
82,086
 
5.28
 
 
 
6,238,392
 
 
 
87,095
 
5.54
 
   


 

       


 

       


 

       


 

       


 

     
Total interest-bearing liabilities
 
 
29,387,431
 
 
 
198,564
 
2.68
 
 
 
28,989,825
 
 
 
196,870
 
2.72
 
 
 
28,868,208
 
 
 
198,899
 
2.79
 
 
 
29,129,330
 
 
 
232,143
 
3.16
 
 
 
29,735,239
 
 
 
302,332
 
4.03
 
           

 

         

 

         

 

         

 

         

 

Net interest spread
               
3.94
%
               
4.18
%
               
4.23
%
               
4.11
%
               
3.58
%
                 

               

               

               

               

Noninterest-bearing demand deposits
 
 
4,892,434
 
             
 
4,852,478
 
             
 
4,830,915
 
             
 
4,729,238
 
             
 
4,591,157
 
           
Other liabilities
 
 
1,304,866
 
             
 
1,118,620
 
             
 
1,107,735
 
             
 
1,059,602
 
             
 
974,955
 
           
Shareholders' equity
 
 
3,065,629
 
             
 
3,001,774
 
             
 
2,976,874
 
             
 
2,959,787
 
             
 
2,904,114
 
           
   


             


             


             


             


           
   
$
38,650,360
 
             
$
37,962,697
 
             
$
37,783,732
 
             
$
37,877,957
 
             
$
38,205,465
 
           
   


             


             


             


             


           
Net interest income/margin on a taxable equivalent basis
         
 
383,962
 
4.36
%
         
 
395,044
 
4.61
%
         
 
391,501
 
4.65
%
         
 
394,845
 
4.58
%
         
 
364,411
 
4.16
%
                 

               

               

               

               

Taxable equivalent adjustment:
                                                                                                   
Loans
         
 
7,428
               
 
7,714
               
 
8,119
               
 
13,951
               
 
13,168
     
Available-for-sale securities
         
 
1,152
               
 
1,219
               
 
1,291
               
 
1,277
               
 
1,241
     
Held-to-maturity securities
         
 
4,032
               
 
3,978
               
 
3,897
               
 
3,987
               
 
3,965
     
           

               

               

               

               

     
Total taxable equivalent adjustment
         
 
12,612
               
 
12,911
               
 
13,307
               
 
19,215
               
 
18,374
     
           

               

               

               

               

     
Net interest income
         
$
371,350
               
$
382,133
               
$
378,194
               
$
375,630
               
$
346,037
     
           

               

               

               

               

     

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.

24


Table of Contents
 
Table 4—Loans and Credit Quality
 
   
Loans*
September 30

 
Nonperforming
Loans**
September 30

 
Net Charge-offs
Nine Months Ended September 30

   
2002

 
2001

 
2002

 
2001

 
2002

   
2001

   
(In thousands)
Commercial:
                                     
Commercial & industrial
 
$
6,756,011
 
$
6,947,116
 
$
78,543
 
$
96,216
 
$
55,312
 
 
$
79,374
Commercial loans—secured by real estate
 
 
1,664,831
 
 
1,662,608
 
 
14,684
 
 
17,060
 
 
(106
)
 
 
4,293
   

 

 

 

 


 

Total commercial
 
 
8,420,842
 
 
8,609,724
 
 
93,227
 
 
113,276
 
 
55,206
 
 
 
83,667
   

 

 

 

 


 

Commercial real estate:
                                     
Commercial real estate mortgages
 
 
2,142,236
 
 
2,270,899
 
 
19,938
 
 
18,518
 
 
450
 
 
 
732
Real estate construction
 
 
2,206,642
 
 
2,345,379
 
 
15,641
 
 
21,012
 
 
1,557
 
 
 
373
   

 

 

 

 


 

Total commercial real estate
 
 
4,348,878
 
 
4,616,278
 
 
35,579
 
 
39,530
 
 
2,007
 
 
 
1,105
   

 

 

 

 


 

Consumer:
                                     
Residential first mortgages
 
 
2,163,751
 
 
1,560,330
 
 
10,494
 
 
12,449
 
 
1,993
 
 
 
1,496
Equity loans and lines
 
 
6,179,910
 
 
5,104,451
 
 
11,470
 
 
4,546
 
 
19,937
 
 
 
11,020
Dealer indirect
 
 
3,725,620
 
 
3,383,871
 
 
-0-
 
 
1
 
 
36,205
 
 
 
30,105
Revolving credit
 
 
519,326
 
 
500,647
 
 
-0-
 
 
-0-
 
 
18,137
 
 
 
15,250
Other consumer
 
 
928,523
 
 
1,125,759
 
 
672
 
 
893
 
 
10,344
 
 
 
10,574
   

 

 

 

 


 

Total consumer
 
 
13,517,130
 
 
11,675,058
 
 
22,636
 
 
17,889
 
 
86,616
 
 
 
68,445
   

 

 

 

 


 

   
$
26,286,850
 
$
24,901,060
 
$
151,442
 
$
170,695
 
$
143,829
 
 
$
153,217
   

 

 

 

 


 


  *
 
Net of unearned income.
**
 
Exclusive of accruing loans 90 days past due.
 
Table 5—Allowance for Loan Losses
 
    
2002

    
2001

 
    
3rd Quarter

    
2nd Quarter

    
1st Quarter

    
4th Quarter

    
3rd Quarter

 
    
(Dollars in thousands)
 
Balance at beginning of period
  
$
371,418
 
  
$
367,819
 
  
$
363,607
 
  
$
360,717
 
  
$
380,663
 
Loans charged off
  
 
(53,928
)
  
 
(59,857
)
  
 
(62,806
)
  
 
(60,582
)
  
 
(81,320
)
Recoveries of loans previously charged off
  
 
10,988
 
  
 
10,856
 
  
 
10,918
 
  
 
9,872
 
  
 
12,174
 
    


  


  


  


  


Net charge-offs
  
 
(42,940
)
  
 
(49,001
)
  
 
(51,888
)
  
 
(50,710
)
  
 
(69,146
)
Addition to allowance charged to expense
  
 
51,400
 
  
 
52,600
 
  
 
56,100
 
  
 
53,600
 
  
 
49,200
 
    


  


  


  


  


Balance at end of period
  
$
379,878
 
  
$
371,418
 
  
$
367,819
 
  
$
363,607
 
  
$
360,717
 
    


  


  


  


  


Allowance for loan losses to loans net of unearned income
  
 
1.45
%
  
 
1.45
%
  
 
1.45
%
  
 
1.45
%
  
 
1.45
%
Allowance for loan losses to nonperforming loans*
  
 
250.84
%
  
 
243.26
%
  
 
232.16
%
  
 
228.29
%
  
 
211.32
%
Allowance for loan losses to nonperforming assets*
  
 
201.29
%
  
 
195.99
%
  
 
190.60
%
  
 
190.29
%
  
 
176.69
%
Net charge-offs to average loans net of unearned income (annualized)
  
 
0.66
%
  
 
0.76
%
  
 
0.83
%
  
 
0.81
%
  
 
1.11
%

*
 
Exclusive of accruing loans 90 days past due.

25


Table of Contents
 
Table 6—Nonperforming Assets
 
    
2002

    
2001

 
    
September 30

    
June 30

    
March 31

    
December 31

    
September 30

 
    
(Dollars in thousands)
 
Nonaccrual loans
  
$
151,442
 
  
$
152,684
 
  
$
158,435
 
  
$
159,274
 
  
$
170,695
 
Foreclosed properties
  
 
32,567
 
  
 
32,838
 
  
 
29,462
 
  
 
27,443
 
  
 
28,006
 
Repossessions
  
 
4,716
 
  
 
3,982
 
  
 
5,080
 
  
 
4,365
 
  
 
5,449
 
    


  


  


  


  


Total nonperforming assets*
  
$
188,725
 
  
$
189,504
 
  
$
192,977
 
  
$
191,082
 
  
$
204,150