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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
DECEMBER 31, 1993 1-7476
AMSOUTH BANCORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 63-0591257
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1400 AMSOUTH-SONAT TOWER 35203
BIRMINGHAM, ALABAMA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(205) 320-7151
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
COMMON STOCK, PAR VALUE $1.00 PER SHARE NEW YORK STOCK EXCHANGE
FLOATING RATE NOTES DUE 1999 NEW YORK STOCK EXCHANGE
STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S)229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 4, 1994 was $1,517,239,000. (Note 1)
As of March 4, 1994 AmSouth Bancorporation had 51,722,454 shares of common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference herein:
Proxy Statement for Annual Meeting to be held April 21, 1994: Part III
Note 1: In calculating the market value of securities held by nonaffiliates of
AmSouth as disclosed on the cover page of this Form 10-K, AmSouth has treated
as securities held by affiliates only voting stock owned as of March 4, 1994
by its directors and principal executive officers and voting stock held by
AmSouth's employee benefit plans; AmSouth has not treated securities held by
any of AmSouth's subsidiaries as pledgee or in a fiduciary capacity as
securities held by affiliates of AmSouth. AmSouth's response to this item is
not intended to be an admission that any person is an affiliate of AmSouth for
any purpose other than this response.
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AMSOUTH BANCORPORATION
FORM 10-K
INDEX
PAGE
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PART I
Item 1. Business.................................................. 1
Item 2. Properties................................................ 8
Item 3. Legal Proceedings......................................... 8
Item 4. Submission of Matters to a Vote of Security Holders ...... 9
Executive Officers of the Registrant................................ 9
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 10
Item 6. Selected Financial Data................................... 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 12
Item 8. Financial Statements and Supplementary Data............... 38
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................... 68
PART III
Item 10. Directors and Executive Officers of the Registrant........ 68
Item 11. Executive Compensation.................................... 68
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 68
Item 13. Certain Relationships and Related Transactions............ 68
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.................................................. 68
SIGNATURES.......................................................... 70
EXHIBIT INDEX....................................................... 72
PART I
ITEM 1. BUSINESS
GENERAL
AmSouth Bancorporation (AmSouth) is a bank holding company which was
organized in 1970 as a corporation under the laws of Delaware and commenced
doing business in 1972. At December 31, 1993, AmSouth had total consolidated
assets of approximately $12.5 billion. AmSouth offers a broad range of bank and
bank-related services through its subsidiaries. AmSouth's principal banking
subsidiaries are AmSouth Bank N.A., AmSouth Bank of Florida, and AmSouth Bank
of Tennessee.
AmSouth Bank N.A. (AmSouth Alabama), headquartered in Birmingham, Alabama, is
the largest subsidiary of AmSouth. As of December 31, 1993, AmSouth Alabama had
total consolidated assets of approximately $8.8 billion and total consolidated
deposits of approximately $6.5 billion. AmSouth Alabama is a full service
national banking association with 147 banking offices located throughout
Alabama at December 31, 1993. Based upon total consolidated assets as of
December 31, 1993, AmSouth Alabama was the largest bank headquartered in
Alabama. It offers complete consumer and commercial banking and trust services
to businesses and individuals. The Commercial Banking Group of AmSouth Alabama
offers a variety of products and services, including commercial lending,
international banking, and cash management sales and operations. The Investment
Services Department offers a range of investment products. Consumer Banking
encompasses a wide variety of transaction, credit, and investment services to
meet the needs of a diverse and growing consumer customer base. AmSouth
Alabama's network of automated teller machines is linked with shared automated
tellers in all 50 states. The Trust Division of AmSouth Alabama is the largest
in Alabama with more assets under management than any other bank in Alabama. It
offers a complete array of trust services including estate and trust planning,
investment management for individuals and corporations, land and natural
resources management, employee benefit administration, and management of debt
and equity issues for corporations.
AmSouth Alabama also provides additional services through several
subsidiaries. AmSouth Mortgage Company, Inc. (AmSouth Mortgage) offers first
mortgage loans through 41 originating offices in nine states. It sells these
loans to investors, generally retaining the right to service the loans for a
fee. AmSouth Leasing Corporation is a specialized lender providing equipment
leasing. Brokerage services and investment sales are provided by AmSouth
Investment Services, Inc., a registered broker-dealer.
On January 21, 1994, AmSouth filed applications to convert AmSouth Alabama
from a national banking association to a state-chartered bank that is a member
of the Federal Reserve System. AmSouth expects to realize certain cost savings
as a result of the conversion.
AmSouth Bank of Florida (AmSouth Florida), is a state-chartered nonmember
bank currently headquartered in Pensacola, Florida. AmSouth Florida is in the
process of moving its headquarters to Tampa, Florida, as a result of the
completed and pending acquisitions that will result in a significant portion of
its assets and deposits being located in west and central Florida. At December
31, 1993, AmSouth Florida had total consolidated assets of approximately $2.6
billion and total consolidated deposits of approximately $2.1 billion. AmSouth
Bank of Tennessee (AmSouth Tennessee) is a state-chartered nonmember bank
headquartered in Chattanooga, Tennessee. At December 31, 1993, AmSouth
Tennessee had total assets of approximately $1.0 billion and total deposits of
approximately $779.3 million. AmSouth Florida and AmSouth Tennessee offer
banking services similar to those of AmSouth Alabama. At December 31, 1993,
AmSouth Florida operated 65 offices in Florida, and AmSouth Tennessee operated
20 offices in Tennessee. AmSouth also owns four other smaller banking
subsidiaries: AmSouth Bank of Walker County, located in Jasper, Alabama;
AmSouth Bank of Georgia, located in Summerville, Georgia; and The Georgia State
Bank of Rome, located in Rome, Georgia. The Georgia State Bank of Rome will
merge into AmSouth Bank of Georgia during the first half of 1994.
During 1993, AmSouth completed five business combinations, which are
reflected, to the extent required, in the Consolidated Financial Statements
contained in this Form 10-K for the year ended December 31, 1993. For further
information concerning these transactions see Note B of the Notes to
Consolidated Financial Statements.
As of February 28, 1994, AmSouth and its subsidiaries had 5,177 full-time
employees and 855 part-time employees.
SUBSEQUENT EVENTS
Since December 31, 1993, AmSouth has completed the following business
combinations:
Effective January 3, 1994, Orange Banking Corporation (Orange), headquartered
in Orlando, Florida, the parent company of Orange Bank, merged with AmSouth.
AmSouth issued approximately 1,332,000 shares of common stock in exchange for
all of the outstanding shares of Orange common stock. This acquisition was
accounted for as a pooling-of-interests under generally accepted accounting
principles (GAAP). At December 31, 1993, Orange had total consolidated assets
of approximately $354.4 million and total consolidated deposits of
approximately $322.5 million.
Effective February 10, 1994, FloridaBank, a Federal Savings Bank
(FloridaBank), headquartered in Jacksonville, Florida, merged with AmSouth
Florida. AmSouth issued approximately 759,000 shares of common stock in
exchange for all of the outstanding shares of FloridaBank common stock. This
transaction was accounted for as a pooling-of-interests under GAAP. At December
31, 1993, FloridaBank had total consolidated assets of approximately $271.5
million and total consolidated deposits of approximately $202.6 million.
In addition, AmSouth is a party to the pending business combinations
described below. Except as noted, consummation of each of these transactions
remains subject to fulfillment of a number of conditions, including shareholder
and regulatory approvals. No assurances can be given that such conditions will
be fulfilled or that such transactions will be consummated.
On July 29, 1993, AmSouth signed an agreement to enter into a business
combination with Parkway Bancorp, Inc. (Parkway), which is headquartered in
Fort Myers, Florida, parent company of Parkway Bank. As of December 31, 1993,
Parkway had total consolidated assets of approximately $126.8 million and total
consolidated deposits of approximately $115.9 million. Under the terms of the
agreement, AmSouth will issue 0.4886 of a share of AmSouth common stock for
each of the outstanding shares of Parkway common stock. At December 31, 1993,
Parkway had 1,002,041 shares of common stock outstanding. Shareholder and
regulatory approvals have been received. This transaction will be accounted for
as a pooling-of-interests under GAAP.
On August 3, 1993, AmSouth signed an agreement to acquire First Federal
Savings Bank, Calhoun, Georgia (Calhoun), headquartered in Calhoun, Georgia. At
December 31, 1993, Calhoun had total assets of approximately $72.2 million and
total deposits of approximately $59.2 million. Under the terms of the
agreement, AmSouth will issue 0.9991 of a share of AmSouth common stock for
each of the outstanding shares of Calhoun common stock, subject to adjustment.
At December 31, 1993, Calhoun had 414,330 shares of common stock outstanding.
This transaction will be accounted for as a pooling-of-interests under GAAP.
The Calhoun shareholder meeting is scheduled for March 18, 1994.
On August 9, 1993, AmSouth signed an agreement to enter into a business
combination with Citizens National Corporation (Citizens), which is
headquartered in Naples, Florida, and its subsidiary, Citizens National Bank of
Naples. At December 31, 1993, Citizens had total consolidated assets of
approximately $300.1 million and total consolidated deposits of approximately
$270.0 million. Under the terms of the agreement, AmSouth will issue 0.3609 of
a share of AmSouth common stock for each of the outstanding shares of Citizens
common stock. At December 31, 1993, Citizens had 4,111,388 shares of common
stock
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outstanding. Shareholder and regulatory approvals have been received. This
transaction will be accounted for as a pooling-of-interests under GAAP.
On September 12, 1993, AmSouth signed an agreement to acquire Fortune
Bancorp, Inc. (Fortune), headquartered in Clearwater, Florida, and its
subsidiary, Fortune Bank, a Savings Bank. Under the terms of the agreement,
Fortune shareholders may make an election to receive either cash or AmSouth
common stock based on a formula which takes into consideration AmSouth's stock
price during a future pricing period. Approximately one-half of Fortune's
shares will be exchanged for cash and one-half for AmSouth common stock
(subject to adjustment based upon the average price per share of AmSouth common
stock), with AmSouth issuing a total of approximately 4,481,000 shares and
approximately $142.5 million in cash. At December 31, 1993, Fortune had total
consolidated assets of approximately $2.7 billion and total consolidated
deposits of approximately $1.8 billion. This transaction will be accounted for
as a purchase under GAAP.
On March 9, 1994, AmSouth signed an agreement to enter into a business
combination with The Tampa Banking Company (Tampa), headquartered in Tampa,
Florida, and its subsidiary, The Bank of Tampa. At December 31, 1993, Tampa had
total consolidated assets of approximately $211.1 million and total
consolidated deposits of approximately $196.0 million. Under the terms of the
agreement, AmSouth will issue 1.5592 shares of AmSouth common stock for each of
the outstanding shares of Tampa common stock, subject to adjustment. At
December 31, 1993, Tampa had approximately 626,000 shares of common stock
outstanding. The transaction will be accounted for using the pooling-of-
interests method of accounting under GAAP.
AmSouth continually evaluates business combination opportunities and
frequently conducts due diligence activities in connection with them. As a
result, business combination discussions and, in some cases, negotiations
frequently take place, and transactions involving cash, debt or equity
securities can be expected. Any future business combination or series of
business combinations that AmSouth might undertake may be material, in terms of
assets acquired or liabilities assumed, to AmSouth's financial condition.
Recent business combinations in the banking industry have typically involved
the payment of a premium over book and market values. This practice may result
in dilution of book value and net income per share for the acquirers.
COMPETITION
AmSouth's subsidiaries compete aggressively with banks located in Alabama,
Florida, Tennessee, and Georgia, as well as large banks in major financial
centers and with other financial institutions, such as savings and loan
associations, credit unions, consumer finance companies, brokerage firms,
insurance companies, investment companies, mortgage companies, and financial
service operations of major retailers. Areas of competition include prices,
interest rates, services, and availability of products. AmSouth also competes
with the other bank holding companies headquartered in Alabama, Florida,
Tennessee, Georgia, and other Southeastern states for the acquisition of
financial institutions.
At December 31, 1993, of the bank holding companies headquartered in Alabama,
AmSouth was the largest in terms of equity capital and second largest in terms
of assets. However, in several geographic areas AmSouth's market share is
smaller than that of other banks and financial institutions competing in those
areas. Also, AmSouth is significantly smaller than many of the financial
institutions competing in Florida, Tennessee, and Georgia.
Various regulatory developments and existing laws have allowed financial
institutions to conduct significant activities on an interstate basis for a
number of years. During recent years, a number of financial institutions have
expanded their out-of-state activities, and various states have enacted
legislation intended to allow certain interstate banking combinations which
otherwise would be prohibited by federal law. Under the Bank Holding Company
Act of 1956, as amended (the BHCA), generally no company which owns or controls
a commercial bank in the United States may acquire ownership or control of a
commercial bank in a state other than the state in which the company's banking
subsidiaries are principally located unless the acquisition is specifically
authorized by the laws of the state in which the bank being acquired is
located.
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Congress is currently considering legislation that would generally provide
for nationwide interstate banking, subject to certain limitations, including
the ability of states to opt out of coverage. However, the management of
AmSouth is unable to predict whether or not any such legislation will be
adopted and, if so, what the final form of the legislation will be.
Alabama has a reciprocal interstate banking law that allows banks in several
other states (primarily in the Southeast) and the District of Columbia to
acquire banks in Alabama provided there is reciprocal legislation in the other
jurisdictions. Alabama bank holding companies are thereby permitted to acquire
banks in the jurisdictions specified in the law which have adopted such
reciprocal legislation. These laws have resulted in a significant increase in
competition for banking services in Alabama, Florida, Tennessee, Georgia, and
the other affected areas.
In 1989, the Financial Institutions Reform, Recovery and Enforcement Act of
1989 (FIRREA) was enacted. Among other things, FIRREA amended the Bank Holding
Company Act to give the Federal Reserve Board the authority to approve the
acquisition of savings associations by bank holding companies. A bank holding
company may also consolidate a savings association it has acquired with a bank
subsidiary.
SUPERVISION AND REGULATION
As a bank holding company, AmSouth is subject to the regulation and
supervision of the Board of Governors of the Federal Reserve System (Federal
Reserve Board) under the BHCA. Under the BHCA, bank holding companies may not
in general directly or indirectly acquire the ownership or control of more than
5% of the voting shares or substantially all of the assets of any company,
including a bank, without the prior approval of the Federal Reserve Board. In
addition, bank holding companies are generally prohibited under the BHCA from
engaging in nonbanking activities, subject to certain exceptions.
AmSouth's subsidiary banks (the Subsidiary Banks) are subject to supervision
and examination by applicable federal and state banking agencies. AmSouth
Alabama is a national banking association subject to regulation and supervision
by the Comptroller of the Currency (the Comptroller). All of the other
Subsidiary Banks are state-chartered banks that are not members of the Federal
Reserve System, and therefore are generally subject to the regulations of and
supervision by the Federal Deposit Insurance Corporation (FDIC). The Subsidiary
Banks are also subject to various requirements and restrictions under federal
and state law, including requirements to maintain reserves against deposits,
restrictions on the types and amounts of loans that may be granted and the
interest that may be charged thereon, and limitations on the types of
investments that may be made and the types of services that may be offered.
Various consumer laws and regulations also affect the operations of the
Subsidiary Banks. In addition to the impact of regulation, commercial banks are
affected significantly by the actions of the Federal Reserve Board as it
attempts to control the money supply and credit availability in order to
influence the economy.
PAYMENT OF DIVIDENDS
AmSouth is a legal entity separate and distinct from its banking and other
subsidiaries. The principal source of cash flow of AmSouth, including cash flow
to pay dividends on AmSouth common stock, is dividends from the Subsidiary
Banks. There are statutory and regulatory limitations on the payment of
dividends by the Subsidiary Banks to AmSouth as well as by AmSouth to its
shareholders.
AmSouth Alabama is required by federal law to obtain the prior approval of
the Comptroller for the payment of dividends if the total of all dividends
declared by the Board of Directors of such bank in any year will exceed the
total of (i) the bank's net profits (as defined and interpreted by regulation)
for that year plus (ii) the retained net profits (as defined and interpreted by
regulation) for the preceding two years, less any required transfers to
surplus. A national bank also can pay dividends only to the extent that
retained net profits (including the portion transferred to surplus) exceed bad
debts (as defined by regulation).
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All of the Subsidiary Banks other than AmSouth Alabama are subject to varying
restrictions on the payment of dividends under applicable state laws. With
respect to AmSouth Florida and AmSouth Tennessee, state law imposes dividend
restrictions substantially similar to those imposed under federal law on
AmSouth Alabama. Furthermore, if, in the opinion of the applicable federal bank
regulatory authority, a bank under its jurisdiction is engaged in or is about
to engage in an unsafe or unsound practice (which, depending on the financial
condition of the bank, could include the payment of dividends), such authority
may require, after notice and hearing, that such bank cease and desist from
such practice. The Comptroller and the FDIC have indicated that paying
dividends that deplete a bank's capital base to an inadequate level would be an
unsafe and unsound banking practice. Under the Federal Deposit Insurance
Corporation Improvement Act of 1991 (FDICIA), an insured bank may not pay any
dividend if payment would cause it to become undercapitalized or once it is
undercapitalized. See Item 1. Business -- FDICIA. Moreover, the Federal Reserve
Board, the Comptroller, and the FDIC have issued policy statements which
provide that bank holding companies and insured banks should generally only pay
dividends out of current operating earnings.
If AmSouth Alabama converts to a state-chartered bank that is a member of the
Federal Reserve System, its operations, including its capital adequacy and
capacity for the payment of dividends, are not expected to change in any
material respect. As an Alabama-chartered bank, AmSouth Alabama would no longer
be subject to the regulations of the Comptroller with respect to payment of
dividends, but would be subject to similar restrictions under federal and
Alabama state law.
The payment of dividends by AmSouth and the Subsidiary Banks may also be
affected or limited by other factors, such as the requirement to maintain
adequate capital above regulatory guidelines. At December 31, 1993, under
dividend restrictions imposed under federal and state laws, AmSouth's
subsidiary banks, without obtaining government approvals, could declare
dividends of approximately $150.0 million.
TRANSACTIONS WITH AFFILIATES
There are various legal restrictions on the extent to which AmSouth and its
nonbank subsidiaries can borrow or otherwise obtain credit from its Subsidiary
Banks. Each Subsidiary Bank (and its subsidiaries) is limited in engaging in
borrowing and other "covered transactions" with nonbank or nonsavings bank
affiliates to the following amounts: (i) in the case of any such affiliate, the
aggregate amount of covered transactions of the Subsidiary Bank and its
subsidiaries may not exceed 10% of the capital stock and surplus of such
Subsidiary Bank; and (ii) in the case of all affiliates, the aggregate amount
of covered transactions of the Subsidiary Bank and its subsidiaries may not
exceed 20% of the capital stock and surplus of such Subsidiary Bank. Covered
transactions also are subject to certain collateralization requirements.
"Covered transactions" are defined by statute to include a loan or extension of
credit, as well as a purchase of securities issued by an affiliate, a purchase
of assets (unless otherwise exempted by the Federal Reserve Board), the
acceptance of securities issued by the affiliate as collateral for a loan, and
the issuance of a guarantee, acceptance, or letter of credit on behalf of an
affiliate.
CAPITAL ADEQUACY
The Federal Reserve Board has adopted risk-based capital guidelines for bank
holding companies. The minimum guideline for the ratio of total capital (Total
Capital) to risk-weighted assets (including certain off-balance-sheet items,
such as standby letters of credit) is 8%. At least half of the Total Capital
must be composed of common stock, minority interests in the equity accounts of
consolidated subsidiaries, noncumulative perpetual preferred stock, and a
limited amount of cumulative perpetual preferred stock, less certain goodwill
and other intangible assets (Tier 1 Capital). The remainder may consist of
subordinated debt, other preferred stock, and a limited amount of loan loss
reserves. At December 31, 1993, AmSouth's consolidated Tier 1 Capital and Total
Capital ratios were 10.95% and 13.31%, respectively.
In addition, the Federal Reserve Board has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio of Tier 1 Capital to quarterly average
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assets, less goodwill and certain other intangible assets (the Leverage Ratio),
of 3% for bank holding companies that meet certain specific criteria, including
having the highest regulatory rating. All other bank holding companies
generally are required to maintain a Leverage Ratio of at least 3%, plus an
additional cushion of 100 to 200 basis points. AmSouth's Leverage Ratio at
December 31, 1993 was 8.65%. The guidelines also provide that bank holding
companies experiencing internal growth or making acquisitions will be expected
to maintain strong capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Furthermore, the Federal Reserve Board has indicated that it will consider a
"tangible Tier 1 Capital leverage ratio" (deducting all intangibles) and other
indicia of capital strength in evaluating proposals for expansion or new
activities.
Each of the Subsidiary Banks is subject to risk-based and leverage capital
requirements, similar to those described above, adopted by the Comptroller or
the FDIC, as the case may be. Each of the Subsidiary Banks was in compliance
with applicable minimum capital requirements as of December 31, 1993. Neither
AmSouth nor any of the Subsidiary Banks has been advised by any federal banking
agency of any specific minimum Leverage Ratio requirement applicable to it.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including the termination of deposit insurance by the
FDIC, and to certain restrictions on its business. See Item 1. Business --
FDICIA.
All of the federal banking agencies have made proposals that would add an
additional risk-based capital requirement based upon the amount of an
institution's exposure to interest rate risk. However, the management of
AmSouth is unable to predict whether and when higher capital requirements would
be imposed and, if so, at what levels and on what schedule.
SUPPORT OF SUBSIDIARY BANKS
Under Federal Reserve Board policy, AmSouth is expected to act as a source of
financial strength to, and to commit resources to support, each of the
Subsidiary Banks. This support may be required at times when, absent such
Federal Reserve Board policy, AmSouth may not be inclined to provide it. In
addition, any capital loans by a bank holding company to any of its subsidiary
banks are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary bank. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
Under the Federal Deposit Insurance Act (the FDI Act), a depository
institution insured by the FDIC can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC after August 9, 1989 in
connection with (i) the default of a commonly controlled FDIC-insured
depository institution or (ii) any assistance provided by the FDIC to any
commonly controlled FDIC-insured depository institution "in danger of default."
"Default" is defined generally as the appointment of a conservator or receiver
and "in danger of default" is defined generally as the existence of certain
conditions indicating that a default is likely to occur in the absence of
regulatory assistance.
FDICIA
On December 19, 1991, FDICIA was enacted. FDICIA substantially revised the
depository institution regulatory and funding provisions of the FDI Act and
made revisions to several other federal banking statutes. Among other things,
FDICIA requires the federal banking regulators to take prompt corrective action
in respect of FDIC-insured depository institutions that do not meet minimum
capital requirements. FDICIA establishes five capital tiers: "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized." Under applicable
regulations, a FDIC-insured bank is defined to be well capitalized if it
maintains a Leverage Ratio of at least 5%, a risk-adjusted
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Tier 1 Capital Ratio of at least 6%, and a Total Capital Ratio of at least 10%
and is not otherwise in a "troubled condition" as specified by its appropriate
federal regulatory agency. A FDIC-insured depository institution is defined to
be adequately capitalized if it maintains a Leverage Ratio of at least 4%, a
risk-adjusted Tier 1 Capital Ratio of at least 4%, and a Total Capital Ratio of
at least 8%. In addition, a FDIC-insured depository institution will be
considered: (i) undercapitalized if it fails to meet any minimum required
measure; (ii) significantly undercapitalized if it is significantly below such
measure; and (iii) critically undercapitalized if it fails to maintain a level
of tangible equity equal to not less than 2% of total assets. A FDIC-insured
depository institution may be deemed to be in a capitalization category that is
lower than is indicated by its actual capital position if it receives an
unsatisfactory examination rating.
The capital-based prompt corrective action provisions of FDICIA and the
implementing regulations apply to FDIC-insured depository institutions and are
not directly applicable to holding companies which control such institutions.
However, the Federal Reserve Board has indicated that, in regulating bank
holding companies, it will take appropriate action at the bank holding company
level based on an assessment of the effectiveness of supervisory actions
imposed upon subsidiary depository institutions pursuant to such provisions and
regulations. Although the capital categories defined under the prompt
corrective action regulations are not directly applicable to AmSouth under
existing law and regulations, if AmSouth were placed in a capital category it
would qualify as well-capitalized as of December 31, 1993.
FDICIA generally prohibits a FDIC-insured depository institution from making
any capital distribution (including payment of dividends) or paying any
management fee to its holding company if the depository institution would
thereafter be undercapitalized. Undercapitalized depository institutions are
subject to restrictions on borrowing from the Federal Reserve System. In
addition, undercapitalized depository institutions are subject to growth
limitations and are required to submit capital restoration plans. A depository
institution's holding company must guarantee the capital plan, up to an amount
equal to the lesser of 5% of the depository institution's assets at the time it
becomes undercapitalized or the amount of the capital deficiency when the
institution fails to comply with the plan. The federal banking agencies may not
accept a capital plan without determining, among other things, that the plan is
based on realistic assumptions and is likely to succeed in restoring the
depository institution's capital. If a depository institution fails to submit
an acceptable plan, it is treated as if it is significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets, and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized depository institutions are subject to appointment
of a receiver or conservator.
At December 31, 1993, all of the Subsidiary Banks were well capitalized under
the criteria described above.
Various other legislation, including proposals to revise the bank regulatory
system and to limit the investments that a depository institution may make with
insured funds, is from time to time introduced in Congress. AmSouth management
is unable to predict whether and when other legislative changes would be
imposed.
BROKERED DEPOSITS
The FDIC has adopted regulations under FDICIA governing the receipt of
brokered deposits. Under the regulations, a bank cannot accept, rollover, or
renew brokered deposits unless (i) it is well capitalized or (ii) it is
adequately capitalized and receives a waiver from the FDIC. A bank that cannot
receive brokered deposits also cannot offer "pass-through" insurance on certain
employee benefit accounts. Whether or not it has obtained such a waiver, an
adequately capitalized bank may not pay an interest rate on any deposits in
excess of 75 basis points over certain prevailing market rates specified by
regulation. There are no such restrictions on a bank that is well capitalized.
Because all the Subsidiary Banks were well capitalized as of
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December 31, 1993, AmSouth believes the brokered deposits regulation will have
no material effect on the funding or liquidity of any of the Subsidiary Banks.
FDIC DEPOSIT INSURANCE ASSESSMENTS
The Subsidiary Banks are subject to FDIC deposit insurance assessments. As
required by FDICIA, the FDIC has adopted a new risk-based premium schedule
which has increased the assessment rates for most FDIC-insured depository
institutions. Under the new schedule, the premiums initially range from $.23 to
$.31 for every $100 of deposits. Each insured depository institution is
assigned to one of three capital groups--well capitalized, adequately
capitalized, or undercapitalized--and further assigned to one of three
subgroups within a capital group, on the basis of supervisory evaluations by
the institution's primary federal and, if applicable, state supervisors and
other information relevant to the institution's financial condition and the
risk posed to the applicable insurance fund. The actual assessment rate
applicable to a particular institution will, therefore, depend in part upon the
risk assessment classification so assigned to the institution by the FDIC.
The FDIC is authorized to raise insurance premiums in certain circumstances.
Any increase in premiums would have an adverse effect on AmSouth's earnings.
Under the FDI Act, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe and unsound practices, is in
an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order, or condition imposed by a federal
bank's regulatory agency.
DEPOSITOR PREFERENCE
The recently adopted Omnibus Budget Reconciliation Act of 1993 provides that
deposits and certain claims for administrative expenses and employee
compensation against an insured depository institution would be afforded a
priority over other general unsecured claims against such an institution,
including federal funds and letters of credit, in the "liquidation or other
resolution" of such an institution by any receiver.
ITEM 2. PROPERTIES
The executive offices of AmSouth and AmSouth Alabama are located in the 30-
story AmSouth-Sonat Tower in downtown Birmingham, Alabama. An undivided one-
half interest in this building is owned by AmSouth Alabama through an
unincorporated joint venture. AmSouth Alabama is a principal tenant of this
building. AmSouth Alabama is also a principal tenant of the AmSouth/Harbert
Plaza, a 32-story office building also located in downtown Birmingham, Alabama.
AmSouth Alabama's headquarters and most of its operations are located in the
AmSouth-Sonat Tower and the AmSouth/Harbert Plaza. An additional administrative
and training facility for AmSouth Alabama is currently under construction in
the Birmingham, Alabama area. AmSouth Alabama anticipates occupying the
facility by mid-year 1995. Other bank subsidiaries of AmSouth also have
headquarters, banking, and operational offices located in Alabama, Florida,
Tennessee, and Georgia. AmSouth Mortgage has offices in nine Southeastern
states.
At December 31, 1993, AmSouth and its subsidiaries had 282 offices
(principally bank buildings) of which 168 were owned and 114 were either leased
or subject to a ground lease.
ITEM 3. LEGAL PROCEEDINGS
AmSouth's subsidiaries are routinely involved in litigation incidental to
their business. However, management believes that the ultimate resolution of
these matters will not materially affect the consolidated financial condition
and results of operations of AmSouth.
8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters brought to a vote of security holders during the fourth
quarter of 1993.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of AmSouth, their ages, the positions held by them
with AmSouth and certain of its subsidiaries, and their principal occupations
for the last five years are as follows:
John W. Woods, 62, Chairman and Chief Executive Officer (1972 to date), and
President (August 1993 to date) of AmSouth; Chairman and Chief Executive
Officer (1983 to date), and President (August 1990 to date) of AmSouth
Alabama; Director of AmSouth Mortgage.
C. Stanley Bailey, 44, Vice Chairman of the Board of AmSouth and AmSouth
Alabama (July 1993 to date); Director of AmSouth Bank of Georgia, AmSouth
Mortgage, AmSouth Realty, Inc., and Alabanc Properties, Inc.; formerly
Senior Executive Vice President and Chief Financial Officer of AmSouth and
Senior Executive Vice President and Chief Financial Officer and Financial
Management Group Head of AmSouth Alabama (June 1990 to July 1993) and
Senior Executive Vice President of AmSouth and Senior Executive Vice
President and Operations and Administration Group Head of AmSouth Alabama
(August 1988 to June 1990).
C. Dowd Ritter, 46, Vice Chairman of the Board of AmSouth and AmSouth
Alabama (July 1993 to date); Director of AmSouth Bank of Georgia, AmSouth
Mortgage, and AmSouth Investment Services, Inc.; formerly Senior Executive
Vice President of AmSouth and Senior Executive Vice President and General
Banking Group Head of AmSouth Alabama (May 1991 to July 1993) and Senior
Executive Vice President, Trust Officer and Trust and Financial Services
Group Head of AmSouth Alabama (August 1988 to May 1991).
A. Fox deFuniak, III, 53, Senior Executive Vice President and Birmingham
Banking Group Head of AmSouth Alabama (May 1991 to date); Director of
AmSouth Mortgage; formerly Senior Executive Vice President and Retail
Banking and Marketing Group Head of AmSouth Alabama (November 1989 to May
1991) and Senior Executive Vice President and Regional Executive for the
North Central Region of AmSouth Alabama (August 1988 to November 1989).
W. Michael Graves, 47, Senior Executive Vice President (December 1993 to
date) and Alabama Banking Group Head (July 1993 to date) of AmSouth
Alabama; Director of AmSouth Mortgage; formerly Executive Vice President
and Regional Executive for the Central Region of AmSouth Alabama (May 1991
to July 1993), Executive Vice President in charge of Birmingham and Shelby
County Branch System of AmSouth Alabama (November 1989 to May 1991), and
Executive Vice President and Division Head of the Retail Banking Division
of AmSouth Alabama (August 1988 to November 1989).
E. W. Stephenson, Jr., 47, Chairman of the Board and Chief Executive
Officer of AmSouth Florida and Senior Executive Vice President of AmSouth
(July 1993 to date); Director of AmSouth Florida; formerly Executive Vice
President and Consumer and Marketing Division Head of AmSouth Alabama (May
1991 to July 1993), Executive Vice President and Regional Executive for the
North Central Region of AmSouth Alabama (November 1989 to May 1991) and
Executive Vice President and Regional Executive for the Northern Region of
AmSouth Alabama (1987 to November 1989).
9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
AmSouth's common stock is listed for trading on the New York Stock Exchange
under the symbol ASO. The following table sets forth certain common stock data
for the last five years.
COMMON STOCK DATA 1993 1992 1991 1990 1989
- ----------------- ------- ------- ------ ------ ------
Cash dividends declared.............. $ 1.22 $ 1.07 $ .98 $ .94 $ .89
Book value........................... 22.01 19.10 17.65 16.40 15.32
Market value at year end............. 31 1/4 32 5/8 21 1/2 13 15 7/8
Market price range:
High................................ 35 7/8 32 5/8 22 1/8 17 1/8 19 3/8
Low................................. 27 3/8 21 3/8 12 3/8 11 1/2 15
Total trading volume (In thousands).. 21,059 12,363 8,434 5,150 4,073
Dividend yield at year end........... 4.48% 3.56% 4.84% 7.38% 5.88%
Dividend payout ratio................ 39.35 42.63 47.34 47.72 52.05
Price earnings ratio................. 10.08X 13.00X 10.39X 6.60X 9.28X
Shareholders of record at year end... 12,985 9,343 9,146 9,582 9,735
Average shares outstanding (In
thousands).......................... 47,153 42,993 39,957 38,261 39,400
Quarterly high and low sales prices of and cash dividends declared on AmSouth
common stock are set forth in Note U of the Notes to Consolidated Financial
Statements.
As of March 4, 1994, there were approximately 14,000 holders of record of
AmSouth's common stock.
10
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the last five
years.
1993 1992 1991 1990 1989
----------- ----------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
EARNINGS SUMMARY
Revenue from earning
assets................. $ 776,961 $ 704,516 $ 781,453 $ 812,551 $ 809,102
Interest expense........ 314,884 311,079 446,741 515,026 531,359
----------- ----------- ---------- ---------- ----------
Gross interest margin... 462,077 393,437 334,712 297,525 277,743
Provision for loan
losses................. 18,980 36,555 46,029 41,583 44,766
----------- ----------- ---------- ---------- ----------
Net interest margin..... 443,097 356,882 288,683 255,942 232,977
Noninterest revenues,
excluding investment
securities gains....... 193,145 159,634 150,246 129,808 119,532
Investment securities
gains.................. 1,216 4,615 12,256 435 5,325
Noninterest expenses.... 420,087 370,056 340,748 288,488 275,446
----------- ----------- ---------- ---------- ----------
Income before income
taxes.................. 217,371 151,075 110,437 97,697 82,388
Income taxes............ 71,144 43,026 27,636 22,297 15,185
----------- ----------- ---------- ---------- ----------
Net income............ $ 146,227 $ 108,049 $ 82,801 $ 75,400 $ 67,203
=========== =========== ========== ========== ==========
PER COMMON SHARE
Net income............. $ 3.10 $ 2.51 $ 2.07 $ 1.97 $ 1.71
Cash dividends
declared.............. 1.22 1.07 .98 .94 .89
Average common shares
outstanding............ 47,153 42,993 39,957 38,261 39,400
SELECTED YEAR END
BALANCES
Loans net of unearned
income................. $ 7,930,224 $ 6,138,955 $5,722,831 $5,839,697 $5,831,472
Assets.................. 12,547,871 10,208,606 9,924,891 9,148,383 8,992,781
Deposits................ 9,567,882 7,799,816 7,779,491 7,449,207 7,047,319
Long-term debt.......... 163,142 136,245 138,972 128,715 130,593
Shareholders' equity.... 1,090,009 824,755 753,542 625,199 600,042
SELECTED AVERAGE
BALANCES
Loans net of unearned
income................. 7,043,158 5,757,366 5,631,432 5,734,370 5,596,839
Assets.................. 11,464,442 9,591,147 9,266,471 8,938,682 8,688,212
Deposits................ 8,744,725 7,608,189 7,441,424 7,093,047 6,811,193
Long-term debt.......... 158,777 137,994 134,655 131,477 130,803
Shareholders' equity.... 979,435 790,873 681,853 606,744 587,974
SELECTED RATIOS
Return on average
assets................. 1.28% 1.13% .89% .84% .77%
Return on average
equity................. 14.93 13.66 12.14 12.43 11.43
Gross interest spread... 4.55 4.72 4.24 3.96 3.85
Operating efficiency.... 62.34 64.07 65.56 63.96 64.59
Allowance for loan
losses to loans net of
unearned income........ 1.49 1.51 1.56 1.50 1.60
Nonperforming assets to
loans net of unearned
income, foreclosed
properties and
repossessions.......... .92 1.59 2.74 2.85 2.18
Ending equity to ending
assets................. 8.69 8.08 7.59 6.83 6.67
Average equity to
average assets......... 8.54 8.25 7.36 6.79 6.77
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
For the year ended December 31, 1993, AmSouth reported earnings per share of
$3.10, which includes the effect of business combinations accounted for by the
pooling-of-interests method, versus $2.51 for the year ended 1992 and $2.07 for
the year ended 1991. Net income exceeded $146 million compared to $108 million
for 1992, a 35.3% increase. Balance sheet growth was strong, the gross interest
margin continued at historically wide spreads, credit quality costs were at a
minimum, noninterest revenue growth was solid, and noninterest expense control
was strong.
The return on average assets for 1993 was 1.28% versus 1.13% for the
preceding year. Return on average equity was 14.93% versus 13.66% for 1992. Two
increasingly important ratios are the efficiency ratio and the productivity
ratio. The efficiency ratio is defined as total noninterest expense as a
percent of the sum of the gross interest margin on a fully taxable equivalent
basis plus total noninterest revenues. The efficiency ratio for 1993 was 62.3%,
which was an improvement of 1992's efficiency ratio of 64.1%. Management's goal
is to reduce the efficiency ratio below 60%. The productivity ratio, which is
defined as total noninterest expense as a percentage of total average assets,
was 3.66% for 1993 versus 3.86% for 1992.
EARNING ASSETS
AmSouth's earning assets consist of loans, investment securities, securities
held for sale, and other earning assets. Further discussion of the significant
aspects of each of these earning assets follows. Table 1 illustrates the
composition of average earning assets for the years ended December 31, 1993,
1992, and 1991.
TABLE 1--COMPOSITION OF AVERAGE EARNING ASSETS
1993 1992 1991
-------------------- ------------------- -------------------
AVERAGE PERCENT AVERAGE PERCENT AVERAGE PERCENT
BALANCE OF TOTAL BALANCE OF TOTAL BALANCE OF TOTAL
----------- -------- ---------- -------- ---------- --------
(DOLLARS IN THOUSANDS)
Loans net of unearned
income................. $ 7,043,158 66.8% $5,757,366 65.7% $5,631,432 66.9%
Investment securities... 2,399,460 22.8 2,535,970 29.0 2,476,627 29.4
Securities held for
sale................... 605,558 5.7 81,374 0.9 14,415 0.2
Other earning assets.... 494,948 4.7 381,110 4.4 294,735 3.5
----------- ----- ---------- ----- ---------- -----
$10,543,124 100.0% $8,755,820 100.0% $8,417,209 100.0%
=========== ===== ========== ===== ========== =====
12
LOANS AND LOAN QUALITY
Loans are the predominant earning asset for AmSouth. As expected, loans
provide the highest level of revenues and the highest degree of risk for the
company. When analyzing potential loans, management assesses both interest rate
objectives and credit quality objectives in determining whether to extend a
given loan and the appropriate pricing for that loan. AmSouth maintains a
diversified portfolio in order to spread its risk and reduce its exposure to
economic downturns which may occur in different segments of the economy or in
particular industries.
TABLE 2--COMPOSITION OF LOANS
DECEMBER 31
----------------------------------
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
(IN MILLIONS)
Commercial.................................. $2,374 $2,290 $2,285 $2,312 $2,366
Commercial real estate:
Commercial real estate mortgage........... 1,057 888 822 928 930
Real estate construction.................. 342 236 238 237 289
------ ------ ------ ------ ------
Total commercial real estate............ 1,399 1,124 1,060 1,165 1,219
Consumer:
Residential first mortgages............... 2,263 1,061 932 931 893
Other residential mortgages............... 488 442 412 345 298
Dealer indirect........................... 599 496 506 589 590
Other consumer............................ 877 794 608 602 575
------ ------ ------ ------ ------
Total consumer.......................... 4,227 2,793 2,458 2,467 2,356
------ ------ ------ ------ ------
8,000 6,207 5,803 5,944 5,941
Less unearned income........................ 70 68 80 104 110
------ ------ ------ ------ ------
$7,930 $6,139 $5,723 $5,840 $5,831
====== ====== ====== ====== ======
The composition of the loan portfolio at AmSouth, as shown in Table 2, has
shifted over the last several years. In 1989, consumer loans represented
approximately 40% of total loans outstanding, while in 1993, consumer loans
represented approximately 53% of total loans outstanding. Residential first
mortgages have increased as a percentage of the total consumer portfolio. In
1989, residential first mortgages represented 38% of total consumer loans
compared to 54% in 1993. Residential first mortgages grew $1.2 billion from
December 31, 1992 to December 31, 1993. Of this total growth, $820.5 million
was related to the acquisitions of First Chattanooga Financial Corporation
(FCFC) and Mid-State Federal Savings Bank (Mid-State). Both of these financial
institutions were thrifts prior to the mergers, and residential first mortgages
represented the majority of loans held in their portfolios. The remaining
$381.5 million was growth in the existing AmSouth portfolio. At December 31,
1993, the residential first mortgages held by AmSouth's subsidiaries were
predominantly adjustable-rate mortgages. The majority of fixed-rate residential
loans maintained by AmSouth on its balance sheet had 15-year final maturities
or shorter. Other residential mortgages primarily consisted of home equity
lines of credit as well as second mortgages on residential property.
13
Table 3 provides the composition of the loan portfolio by industry. Real
estate loans are categorized by the type of collateral. At December 31, 1993,
38% of the total commercial real estate portfolio was represented by owner
occupied properties. Owner occupied properties include mortgages where the
borrower is a primary tenant, such as a factory or warehouse loan. Nonowner
occupied lending represents those loans where the primary method of repayment
is anticipated to come from rental income. The former is considered to have
inherently less credit risk than the latter.
TABLE 3--LOANS BY INDUSTRY
DECEMBER 31
------------- INCREASE
1993 1992 (DECREASE)
------ ------ ----------
(IN MILLIONS)
Commercial:
Manufacturing........................................ $ 415 $ 492 $ (77)
Trade................................................ 346 347 (1)
Transportation, communication and utilities.......... 184 169 15
Health services...................................... 209 126 83
Other services....................................... 314 315 (1)
Construction......................................... 85 89 (4)
Other commercial..................................... 821 752 69
------ ------ ------
Total commercial................................. 2,374 2,290 84
------ ------ ------
Commercial real estate:
Commercial real estate mortgage:
Owner occupied..................................... 402 398 4
Multifamily........................................ 133 110 23
Other nonowner occupied............................ 522 380 142
------ ------ ------
Total commercial real estate mortgages........... 1,057 888 169
------ ------ ------
Real estate construction:
Owner occupied..................................... 130 98 32
Nonowner occupied.................................. 212 138 74
------ ------ ------
Total real estate construction................... 342 236 106
------ ------ ------
Total commercial real estate..................... 1,399 1,124 275
------ ------ ------
Consumer:
Residential first mortgages.......................... 2,263 1,061 1,202
Other residential mortgages.......................... 488 442 46
Revolving credit..................................... 64 68 (4)
Bankcard............................................. 275 295 (20)
Dealer indirect...................................... 599 496 103
Other consumer....................................... 538 431 107
------ ------ ------
Total consumer................................... 4,227 2,793 1,434
------ ------ ------
Total loans outstanding................................ $8,000 $6,207 $1,793
====== ====== ======
Industry and loan type diversification is reviewed quarterly by AmSouth's
management. Exposure limits, where appropriate, for particular industries or
types of loans are established. For example, AmSouth internally monitors loans
which are defined as highly leveraged transactions (HLT) and loans to lesser
developed countries. HLT loans comprised less than 4% of the total commercial
portfolio at December 31, 1993. At December 31, 1993, AmSouth had $1.9 million
in foreign assets of which $816 thousand were loans. AmSouth's foreign assets
and foreign loans at December 31, 1992 were $2.5 million and $1.6 million,
respectively.
14
AmSouth offers loan products to customers with varying maturity schedules.
Table 4 presents the maturities of certain loans at December 31, 1993.
TABLE 4--SELECTED LOAN MATURITIES AND SENSITIVITY TO CHANGE IN INTEREST RATES
DUE AFTER ONE BUT
WITHIN FIVE YEARS DUE AFTER FIVE YEARS
DUE IN ONE -------------------- --------------------
YEAR OR FIXED VARIABLE FIXED VARIABLE
LESS RATE RATE TOTAL RATE RATE TOTAL TOTAL
---------- ----- -------- ----- ----- -------- ----- ------
(IN MILLIONS)
Commercial, financial
and agricultural....... $1,548 $414 $374 $788 $22 $16 $38 $2,374
Real estate construc-
tion................... 260 26 47 73 6 3 9 342
------ ---- ---- ---- --- --- --- ------
Total............. $1,808 $440 $421 $861 $28 $19 $47 $2,716
====== ==== ==== ==== === === === ======
AmSouth has written loan policies which include loan underwriting procedures
and the approval process. Depending primarily on the amount of the loan, there
are various approval levels including the branch or department level, the area
level, and the centralized Corporate Credit Committee. In addition, loans in
excess of $10.0 million are approved by the Executive Committee of the Board of
Directors.
AmSouth has a Loan Review Department which performs ongoing, independent
reviews of specific loans for credit quality and proper documentation and of
the risk management process. This department is centralized and independent of
the lending function. The results of its examinations are reported to the Audit
Committee of the Board of Directors as well as AmSouth's independent auditors.
In addition, regular reports are made to senior management regarding the credit
quality of the loan portfolio as well as trends.
Each commercial loan booked at AmSouth is assigned a risk rating on a
numerical scale from one to eight by the loan officer, subject to review by the
Loan Review Department. Consumer loan portfolios are assigned bulk ratings by
Loan Review on the same scale by type of loan and performance. The risk profile
of the loan portfolio established by these ratings and trends are reported to
management and the Audit Committee. Designated credit officers who are
organizationally independent of the production areas oversee the loan approval
process, review adherence to credit policies and performance of the credit
administration function, and monitor efforts to reduce nonperforming assets and
classified assets.
Management closely monitors loans and other assets which are classified as
nonperforming assets. Nonperforming assets include nonaccrual loans, loans
restructured because of the debtor's financial difficulties, foreclosed
properties, and repossessions. Loans are generally placed on nonaccrual if full
collection of principal and interest becomes doubtful (even if all payments are
current), or if the loan is delinquent in principal or interest payments for 90
days or more, unless the loan is well secured and in the process of collection.
Table 5 details the components of nonperforming assets at year end for each of
the last five years. Nonperforming assets excluding accruing loans 90 days past
due (nonperforming assets), decreased $25.2 million, or 25.7%, during 1993.
This follows a $61.4 million, or 38.5%, decrease during 1992. The continued
decrease in nonperforming assets during 1993 was the result of management's
proactive efforts to reduce AmSouth's level of nonperforming assets as well as
a favorable economic condition resulting from stabilization of the commercial
real estate market. During 1993, AmSouth incurred net credit related costs
(provision for loan losses and foreclosed properties expense) of $14.7 million.
This included both a $6.3 million recovery of a loan previously charged off as
well as a series of gains on the sale of foreclosed properties. Gains on sales
of foreclosed properties for 1993 totaled $4.7 million. Management does not
expect gains on the sale of foreclosed property to be at this level in future
years.
15
TABLE 5--NONPERFORMING ASSETS
DECEMBER 31
----------------------------------------------
1993 1992 1991 1990 1989
------- ------- -------- -------- --------
(DOLLARS IN THOUSANDS)
Nonaccrual loans............... $45,656 $51,652 $ 62,890 $ 84,734 $ 78,895
Restructured loans............. 2,382 4,924 3,368 86 29
------- ------- -------- -------- --------
Nonperforming loans.......... 48,038 56,576 66,258 84,820 78,924
Foreclosed properties.......... 23,714 40,225 91,174 79,714 45,681
Repossessions.................. 1,041 1,196 1,919 4,182 3,619
------- ------- -------- -------- --------
Total nonperforming assets*.. $72,793 $97,997 $159,351 $168,716 $128,224
======= ======= ======== ======== ========
Nonperforming assets* to loans
net of unearned income, fore-
closed properties and repos-
sessions...................... .92% 1.59% 2.74% 2.85% 2.18%
Accruing loans 90 days past
due........................... $19,960 $16,983 $ 19,337 $ 22,612 $ 24,664
- --------
*Exclusive of accruing loans 90 days past due.
TABLE 6--LOANS AND CREDIT QUALITY
LOANS NONPERFORMING LOANS* NET CHARGE-OFFS
DECEMBER 31 DECEMBER 31 DECEMBER 31
--------------------- --------------------- ----------------
1993 1992 1993 1992 1993 1992
---------- ---------- ---------- ---------- ------- -------
(IN THOUSANDS)
Commercial.............. $2,373,517 $2,290,113 $20,109 $26,186 $ 3,511 $12,356
Commercial real estate:
Commercial real estate
mortgage:
Owner occupied........ 402,375 397,792 901 4,156 (5,596) 959
Nonowner occupied..... 654,377 490,208 17,375 17,922 1,167 11,172
---------- ---------- ---------- ---------- ------- -------
Total commercial
real estate mort-
gage............... 1,056,752 888,000 18,276 22,078 (4,429) 12,131
---------- ---------- ---------- ---------- ------- -------
Real estate construc-
tion:
Owner occupied........ 130,405 98,415 1,785 915 -0- 294
Nonowner occupied..... 212,129 137,808 518 2,743 (41) (3,597)
---------- ---------- ---------- ---------- ------- -------
Total real estate
construction....... 342,534 236,223 2,303 3,658 (41) (3,303)
---------- ---------- ---------- ---------- ------- -------
Total commercial
real estate...... 1,399,286 1,124,223 20,579 25,736 (4,470) 8,828
---------- ---------- ---------- ---------- ------- -------
Consumer:
Residential first
mortgages............ 2,262,669 1,060,889 5,466 2,377 272 861
Other residential
mortgages............ 487,984 442,276 -0- -0- 238 640
Dealer indirect....... 599,031 495,857 47 -0- 1,833 3,040
Other consumer........ 877,438 793,761 1,837 2,277 16,097 7,029
---------- ---------- ---------- ---------- ------- -------
Total consumer.... 4,227,122 2,792,783 7,350 4,654 18,440 11,570
---------- ---------- ---------- ---------- ------- -------
$7,999,925 $6,207,119 $48,038 $56,576 $17,481 $32,754
========== ========== ========== ========== ======= =======
- --------
*Exclusive of accruing loans 90 days past due.
Table 6 compares the balances of loans at December 31, 1993 and 1992 with the
related nonperforming loans, excluding accruing loans 90 days past due. In
addition, the net charge-offs by those categories for 1993 and 1992 are
presented. For the year ended December 31, 1993, net charge-offs as a
percentage of average loans net of unearned income totaled 25 basis points as
compared with 57 basis points for year ended
16
December 31, 1992. Normalizing the net charge-off ratio for the above-
mentioned large recovery of a loan previously charged off, the net charge-offs
to average loans net of unearned income would have been 34 basis points for
1993.
For the year ended December 31, 1993, the level of foreclosed properties
decreased $16.5 million, or 41.0%, compared to 1992, primarily due to the
continued sales of properties. The coverage ratio, which is computed as the
appraised value as a percentage of carrying value, was 143.2% at December 31,
1993, compared to 138.3% at December 31, 1992. Table 7 presents a listing of
foreclosed properties by type of property and their carrying value at December
31, 1993.
TABLE 7--COMPOSITION OF FORECLOSED PROPERTIES
CARRYING VALUE PERCENT OF TOTAL APPRAISED VALUE COVERAGE RATIO
-------------- ---------------- --------------- --------------
(DOLLARS IN THOUSANDS)
Shopping centers........ $ 6,318 23.4%
Apartments.............. 7,393 27.3
Land/lots............... 4,693 17.3
Commercial buildings.... 5,303 19.6
Other................... 3,354 12.4
-------- -----
27,061 100.0%
=====
Allowance for foreclosed
property losses........ (3,347)
--------
$ 23,714 $ 33,951 143.2%
======== ======== =====
Table 8 is a reconcilement of the allowance for foreclosed property losses
for 1993, 1992, and 1991. The balance in this allowance account represents
temporary decreases in the value of AmSouth's foreclosed properties and
reflects the company's intention to sell the majority of these properties in
the near future.
TABLE 8--ALLOWANCE FOR FORECLOSED PROPERTY LOSSES
1993 1992 1991
------- ------- -------
(IN THOUSANDS)
Balance at January 1............................. $ 7,484 $ 6,677 $ -0-
Net write-downs/losses........................... (2,887) (14,701) (22,775)
Addition (reduction) to allowance charged (cred-
ited) to expense................................ (3,773) 15,508 29,452
Allowance acquired in bank purchases............. 2,523 -0- -0-
------- ------- -------
Balance at December 31........................... $ 3,347 $ 7,484 $ 6,677
======= ======= =======
During 1993, 1992, and 1991, the average balance of foreclosed properties
and repossessions totaled $33.3 million, $71.1 million, and $99.5 million,
respectively. The approximate pre-tax cost of carrying these assets, assuming
a cost of funds equal to the average rate paid on interest-bearing liabilities
for the year, was $1.2 million for 1993, $3.0 million for 1992, and $6.0
million for 1991. Due to changing interest rates, these costs may not be an
accurate indicator of the possible impact on future earnings if these assets
were converted into earning assets.
AmSouth recognizes interest income on nonaccrual loans on a cash basis only
when there is no substantial doubt as to the collection of principal. During
1993, $3.6 million in revenue would have been recognized had the loans
included in nonaccrual at year end been on an accrual basis for the entire
year. Revenues included approximately $130 thousand recorded in 1993 for these
loans.
17
Despite AmSouth's high audit standards, internal controls, and continuous
loan review system, the risk inherent in the nature of lending results in
periodic loan charge-offs. AmSouth maintains an allowance for loan losses which
it believes is adequate to absorb losses in the loan portfolio. A formal review
is prepared quarterly to assess the risk in the portfolio in determining the
adequacy of the allowance for loan losses. The review includes analyses of
historical performance, the level of nonperforming and rated loans, specific
analyses of certain problem loans, loan activity since the previous quarter,
reports prepared by the Loan Review Department, consideration of current
economic conditions, and other pertinent information. The review is then
presented to and subsequently approved by management and the Audit Committee of
the Board of Directors. The level of allowance to net loans outstanding will
vary depending on the overall results of this quarterly review.
Over the past several years, as AmSouth's overall credit quality has
improved, management has maintained an allowance for loan losses at the end of
the period to loans net of unearned income approximating 1.50%. At December 31,
1993, the allowance at the end of the period to loans net of unearned income
was 1.49%. This produces a coverage ratio for nonperforming loans of 245.8%.
Management will continue to evaluate the level of the allowance for loan
losses. With the change in mix of the company's portfolio, including the
increase in residential first mortgage loans which inherently have less risk,
management will continue to monitor not only the absolute level of the
allowance but also the coverage ratio of nonperforming loans.
Table 9 is a summary of the allocation of the allowance for loan losses as
determined by internal formulas. Although the table assigns amounts to certain
classifications of loans, the balance of the allowance for loan losses at
December 31, 1993 is considered to be a general allowance and, therefore, is
available for charge-offs of any type of loan which may be necessary in the
future.
TABLE 9--ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
PERCENTAGE OF
LOANS* IN EACH
ALLOWANCE CATEGORY TO
ALLOCATION TOTAL LOANS*
---------- --------------
(DOLLARS IN THOUSANDS)
Commercial..................................... $ 32,611 29.9%
Commercial real estate:
Commercial real estate mortgage.............. 18,416 13.3
Real estate construction..................... 5,082 4.3
--------- -----
Total commercial real estate............. 23,498 17.6
Consumer:
Residential first mortgages.................. 3,510 28.5
Other residential mortgages.................. 619 6.2
Dealer indirect.............................. 5,260 6.7
Other consumer............................... 17,752 11.1
--------- -----
Total consumer........................... 27,141 52.5
Unfunded commitments........................... 5,650 --
Standby letters of credit...................... 1,660 --
Unallocated.................................... 27,529 --
--------- -----
$ 118,089 100.0%
========= =====
- --------
*Net of unearned income.
18
Table 10 summarizes AmSouth's loan loss experience and coverage ratios for
the last five years.
TABLE 10--ALLOWANCE FOR LOAN LOSSES
1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
BALANCE AT JANUARY 1.... $ 92,945 $ 89,144 $ 87,660 $ 93,394 $ 73,945
Loans charged off:
Commercial, financial
and agricultural..... (11,185) (15,538) (17,993) (24,039) (11,437)
Real estate
construction......... (176) (525) (352) (752) (148)
Real estate mortgage.. (3,184) (14,174) (21,366) (13,324) (7,413)
Installment........... (19,302) (14,079) (19,446) (18,519) (12,821)
----------- ----------- ----------- ----------- -----------
Total charge-offs... (33,847) (44,316) (59,157) (56,634) (31,819)
----------- ----------- ----------- ----------- -----------
Recoveries of loans
previously charged off:
Commercial, financial
and agricultural..... 6,081 3,182 10,711 6,451 3,907
Real estate
construction......... 217 3,828 194 1 4
Real estate mortgage.. 7,103 542 372 587 572
Installment........... 2,965 4,010 3,335 2,278 2,019
----------- ----------- ----------- ----------- -----------
Total recoveries.... 16,366 11,562 14,612 9,317 6,502
----------- ----------- ----------- ----------- -----------
Net charge-offs......... (17,481) (32,754) (44,545) (47,317) (25,317)
----------- ----------- ----------- ----------- -----------
Addition to allowance
charged to expense..... 18,980 36,555 46,029 41,583 44,766
Allowance acquired in
bank purchases......... 23,645 -0- -0- -0- -0-
----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31.. $ 118,089 $ 92,945 $ 89,144 $ 87,660 $ 93,394
=========== =========== =========== =========== ===========
Loans net of unearned
income, outstanding at
end of period.......... $ 7,930,224 $ 6,138,955 $ 5,722,831 $ 5,839,697 $ 5,831,472
Average loans net of
unearned income,
outstanding for the
period................. $ 7,043,158 $ 5,757,366 $ 5,631,432 $ 5,734,370 $ 5,596,839
RATIOS
Allowance at end of
period to loans net of
unearned income........ 1.49% 1.51% 1.56% 1.50% 1.60%
Allowance at end of
period to average loans
net of unearned income. 1.68 1.61 1.58 1.53 1.67
Allowance at end of
period to nonperforming
loans*................. 245.82 164.28 134.54 103.35 118.33
Allowance at end of
period to nonperforming
assets*................ 162.23 94.84 55.94 51.96 72.84
Net charge-offs to
average loans net of
unearned income........ .25 .57 .79 .83 .45
Net charge-offs to
allowance at end of
period................. 14.80 35.24 49.97 53.98 27.11
Recoveries to prior year
charge-offs............ 36.93 19.54 25.80 29.28 22.72
- --------
*Exclusive of accruing loans 90 days past due.
19
INVESTMENT SECURITIES AND SECURITIES HELD FOR SALE
The investment securities portfolio consists primarily of U.S. Treasury
obligations, federal agency securities, federally-sponsored mortgage
securities, corporate securities, and state, county, and municipal debt
instruments. Investment securities are purchased with the intent and ability to
be held until maturity. Investment securities are utilized to provide an
alternative investment for available funds and to provide a stable source of
interest income. These securities are also used to pledge as collateral for
certain types of transactions. The 1993 average balance of investment
securities declined $136.5 million, or 5.4%, compared to 1992. Slightly over
half of the decline was due to the maturities and calls of tax-free securities.
At December 31, 1993, a total of 48% of AmSouth's tax-free securities were
rated by leading independent agents with 92% of those securities rated "A" or
above. The remaining tax-free securities were not rated, generally because of
the size of the issue and the expense associated with obtaining a rating. At
December 31, 1993, AmSouth did not have more than 10% of its shareholders'
equity invested in the tax-free obligations of any one issuer where the
securities are payable from the same source of income or taxing authority.
TABLE 11--INVESTMENT SECURITIES AND SECURITIES HELD FOR SALE
DECEMBER 31
-----------------------
1993 1992 1991
------- ------- -------
(IN MILLIONS)
Investment Securities:
U.S. Treasury and federal agency securities............ $ 1,249 $ 1,745 $ 1,870
Other securities....................................... 17 264 317
------- ------- -------
Total taxable...................................... 1,266 2,009 2,187
State, county and municipal securities................. 352 406 476
------- ------- -------
$ 1,618 $ 2,415 $ 2,663
======= ======= =======
Securities Held for Sale:
U.S. Treasury and federal agency securities............ $ 1,250 $ 287 $ 101
Other securities....................................... 39 50 -0-
------- ------- -------
Total taxable...................................... 1,289 337 101
State, county and municipal securities................. -0- -0- -0-
------- ------- -------
$ 1,289 $ 337 $ 101
======= ======= =======
Beginning in 1991, management segregated from its investment portfolio
certain securities which are labeled as held for sale. AmSouth defines
securities held for sale as securities to be held for an indefinite period of
time, including securities that management intends to use as part of its
asset/liability strategy, or that may be sold in response to potential
liquidity needs, changes in interest rates, change in prepayment risk, or other
similar factors. These securities are accounted for at the lower of cost or
market. At December 31, 1993, securities held for sale had a carrying value of
$1.3 billion, which approximated market value, and consisted of U.S. Treasury
and federal agency securities, mortgage-backed securities and other securities.
This compares to December 31, 1992, when the company had $336.7 million in
securities held for sale which also consisted of U.S. Treasury and federal
agency securities, mortgage-backed securities and other securities. During 1993
net gains of $12.9 million were recognized on sales of these securities,
compared to $1.0 million in 1992.
At the end of 1993, the investment securities and securities held for sale
portfolios included $1.9 billion of mortgage-backed securities, consisting of
mortgage-backed pass-throughs and collateralized mortgage obligations (CMO's).
Substantially all of the holdings in the mortgage-backed securities are either
direct issues or collateralized by direct issues of the United States
Government or federally sponsored agencies. Approximately 59% of the mortgage-
backed securities are fixed-rate securities. Fixed-rate mortgage-backed pass-
through securities have maximum final maturities of five to fifteen years and
an expected average life of approximately four years. While the final
maturities on floating-rate mortgage-backed pass-through securities are
20
longer, the average life is estimated to be less than five years and the yields
fluctuate with a variety of short-term indices. The yields on floating-rate CMO
securities fluctuate with LIBOR and other short-term indices and have an
expected average life of less than six years. Fixed-rate CMO securities are
included in the held for sale portfolio and are planned amortization classes or
sequential payment classes. While the final stated maturities on these
securities are seven to thirty years, the expected average life is less than
five years. Table 12 presents maturities of the investment and held for sale
securities portfolios at December 31, 1993.
TABLE 12--INVESTMENT SECURITIES AND SECURITIES HELD FOR SALE
RELATIVE MATURITIES AND WEIGHTED AVERAGE YIELDS
DUE WITHIN DUE AFTER ONE BUT DUE AFTER FIVE BUT DUE AFTER
ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS TEN YEARS
--------------- ----------------------------------------- ----------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
-------- ----- ---------- ------------------- -------- --------- -----
(TAXABLE EQUIVALENT BASIS--DOLLARS IN THOUSANDS)
Investment Securities:
U.S. Treasury and fed-
eral agency securities. $ 8,399 5.80% $ 108,564 6.73% $ 352,358 7.67% $ 779,340 6.73%
State, county and munic-
ipal obligations....... 29,010 10.85 135,220 10.92 101,837 11.39 86,466 11.55
Other securities........ 2,125 7.28 25 6.00 150 4.45 8,959 5.71
-------- ----- ---------- ------ ----------- ------- --------- -----
$ 39,534 9.48 $ 243,809 9.05 $ 454,345 8.50 $ 874,765 7.19
======== ===== ========== ====== =========== ======= ========= =====
Percentage of total
portfolio.............. 2.45% 15.12% 28.18% 54.25%
Taxable equivalent ad-
justment for calcula-
tion of yield.......... $ 1,102 $ 5,169 $ 4,061 $ 3,495
Securities Held for
Sale:
U.S. Treasury and fed-
eral agency securities. $ 52,233 3.10% $ 306,886 4.61% $ 129,207 7.56% $ 761,880 5.47%
Other securities........ -0- -- 998 6.00 1,193 4.03 -0- --
-------- ----- ---------- ------ ----------- ------- --------- -----
$ 52,233 3.10 $ 307,884 4.62 $ 130,400 7.53 $ 761,880 5.47
======== ===== ========== ====== =========== ======= ========= =====
Percentage of total
portfolio.............. 4.17% 24.58% 10.42% 60.83%
- --------
Notes:
1. The weighted average yields were computed by dividing the taxable equivalent
interest income by the book value of the appropriate securities. The taxable
equivalent interest income does not give effect to the disallowance of
interest expense, for federal income tax purposes, related to certain tax-
free assets.
2. The amount of securities indicated as maturing after five but within ten
years includes $344 million of mortgage-backed securities and those
indicated as maturing after ten years includes $1,450 million of mortgage-
backed securities. Although these securities have long-term maturities,
according to mortgage industry standards, the estimated weighted average
remaining life of these securities held in AmSouth's investment portfolio is
less than five years.
3. Federal Reserve Bank stock, Federal Home Loan Bank stock, and preferred
stock of other corporations held by AmSouth are not included in the above
table.
OTHER EARNING ASSETS
The other earning assets category consists of federal funds sold and
securities purchased under agreements to resell, trading account securities,
and mortgage loans held for sale. These assets generally carry relatively low
balances while serving as short-term investment alternatives, assisting in the
management of AmSouth's asset and liability interest rate sensitivity, and
providing a short-term inventory of assets for sale to customers.
The average balance of other earning assets for 1993 was $495 million
compared to $381 million for 1992. The increase over the 1992 average balance
resulted primarily from the increase in mortgage loans held for sale.
At December 31, 1993, other earning assets included $335.4 million of
mortgage loans held for sale compared to $231.3 million at year end 1992. These
loans are primarily originated through AmSouth Mortgage. For 1993, the loan
production volume totaled $2.0 billion compared to $1.6 billion for 1992. This
21
increase was primarily due to a continued lower interest rate environment and
the maintenance of significant volumes of mortgage refinancing. None of the
loans originated and sold by AmSouth Mortgage are subject to recourse
provisions. Mortgage loans serviced for others are not included in the
consolidated statement of condition. The outstanding principal balances of
these loans were $5.0 billion and $4.0 billion at December 31, 1993 and 1992,
respectively.
DEPOSITS
Table 13 outlines the composition of the average deposits of AmSouth for the
last five years. AmSouth's principal source of funds is its deposits, and
AmSouth is committed to provide its customers with a wide variety of products
with modern technology at competitive interest rates. Management continues to
emphasize quality customer service and a strong sales culture as key to
strengthening AmSouth's deposit base.
TABLE 13--AVERAGE DEPOSITS
DECEMBER 31
------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
Noninterest-bearing de-
mand................... $1,491,647 $1,206,281 $1,055,928 $1,110,832 $1,097,889
Interest-bearing demand. 2,968,613 2,777,200 2,651,538 2,342,095 2,084,864
Savings................. 715,409 524,926 435,384 414,446 427,653
Time:
Retail................ 2,203,604 1,925,291 2,125,452 2,100,575 2,064,913
Individual retirement
accounts............. 608,004 482,131 424,224 374,278 330,127
Other................. 162,479 143,007 159,023 154,303 153,980
---------- ---------- ---------- ---------- ----------
Total time.......... 2,974,087 2,550,429 2,708,699 2,629,156 2,549,020
---------- ---------- ---------- ---------- ----------
Certificates of deposit
of $100,000 or more.... 594,969 549,353 589,875 596,518 651,767
---------- ---------- ---------- ---------- ----------
$8,744,725 $7,608,189 $7,441,424 $7,093,047 $6,811,193
========== ========== ========== ========== ==========
Average noninterest-bearing demand deposits continued to increase during 1993
from 1992. Average noninterest-bearing demand deposits increased $285.4 million
or 23.7% in 1993 over 1992. This increase in noninterest-bearing demand
deposits has primarily been within the commercial deposits base. Average time
deposits increased approximately $423.7 million with 65.7% of the increase from
retail or consumer time deposits and 29.7% increase from individual retirement
accounts. The major contributor to both of these increases was the acquisition
of FCFC, completed February 1, 1993.
Table 14 provides a maturity schedule for time deposits of $100,000 or more
at December 31.
TABLE 14--MATURITY OF TIME DEPOSITS OF $100,000 OR MORE
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
Three months or less................................ $273,621 $215,599 $402,123
Over three through six months....................... 114,001 92,671 128,831
Over six through twelve months...................... 194,137 149,501 103,704
Over twelve months.................................. 222,256 160,702 130,809
-------- -------- --------
$804,015 $618,473 $765,467
======== ======== ========
22
OTHER INTEREST-BEARING LIABILITIES
Other interest-bearing liabilities includes all interest-bearing liabilities
except deposits. Short-term liabilities included in this category consist of
federal funds purchased and securities sold under agreements to repurchase
(repurchase agreements), and other borrowed funds. Average federal funds
purchased and repurchase agreements, which provide an overnight source of
funds, increased $241.7 million in 1993 as AmSouth funded its earning asset
growth. For 1992, average federal funds purchased and repurchase agreements
decreased $88.3 million as a result of the growth in deposits and sluggish loan
demand. At December 31, 1993, 1992, and 1991, federal funds purchased and
repurchase agreements totaled $791.2 million, $988.6 million, and $569.9
million, respectively, with weighted average interest rates of 2.73%, 2.85%,
and 3.82% respectively. The maximum amount outstanding at any month end during
each of the last three years was $1.2 billion, $988.6 million, and $962.5
million, respectively. The average daily balance and average interest rates for
each year are presented in Table 17 entitled "Yields on Average Earning Assets
and Rates on Average Interest-Bearing Liabilities".
Other borrowed funds include master notes, commercial paper, Eurodollars
purchased, term federal funds purchased, the current portion of long-term debt,
interest-bearing deferred compensation, and a treasury, tax and loan note.
During 1993, the average balance of other borrowed funds increased $276.8
million primarily as the result of an increase in term federal funds purchased
and the treasury, tax and loan note. In 1992, compared to 1991, the average
balance of other borrowed funds increased $109.1 million as a result of a
$104.6 million increase in the average balance of the treasury, tax and loan
note.
At December 31, 1993 and 1992, AmSouth had long-term debt outstanding of
$163.1 million and $136.2 million, respectively. In general, the debt has been
used to fund acquisitions, inject capital into subsidiary banks, provide
capital for nonbanking subsidiaries, and for other general corporate purposes.
Note K of the Notes to Consolidated Financial Statements includes details and
descriptions of the composition of long-term debt.
On December 21, 1993, the Securities and Exchange Commission declared
effective AmSouth's registration statement on Form S-3, pursuant to which
AmSouth may offer from time to time not more than $300.0 million of unsecured
senior debt securities, unsecured subordinated debt securities, and/or warrants
to purchase such debt securities. AmSouth intends to utilize approximately
$142.5 million of the proceeds from the issuance of such securities to fund the
cash portion of the Fortune Bancorp, Inc. purchase price. Additionally, AmSouth
has lines of credit arrangements with two financial institutions enabling it to
borrow up to $21.0 million subject to such terms as AmSouth and the banks
mutually agree.
23
SHAREHOLDERS' EQUITY
AmSouth has always placed great emphasis on maintaining its strong capital
base. At December 31, 1993, shareholders' equity totaled $1.1 billion, or 8.69%
of total assets, compared to $824.8 million, or 8.08% of total assets, at
December 31, 1992. Management is committed to maintaining shareholders' equity
at a level sufficient to assure its shareholders, customers, and regulators
that AmSouth is financially sound, and to enable AmSouth to sustain an
appropriate degree of leverage to provide a desirable level of profitability.
Regulators use a risk-adjusted capital calculation to aid in their assessment
of capital adequacy. This ratio is weighted to reflect the credit risk
associated with an institution's assets, both recorded and unrecorded. At
December 31, 1993, the minimum required risk-adjusted capital ratio for Tier I
capital (shareholders' equity less certain intangibles) was 4.00% and the
minimum required risk-adjusted total capital ratio was 8.00%. Table 15
illustrates the calculation of the risk-adjusted capital ratios for AmSouth at
year end 1993 and 1992.
TABLE 15--CAPITAL RATIOS
DECEMBER 31
--------------------------
1993 1992
------------ ------------
(DOLLARS IN THOUSANDS)
Risk-adjusted capital ratio:
Total assets............................. $ 12,547,871 $ 10,208,606
Adjusted allowance for loan losses....... 116,745 92,944
Adjustment for risk-weighting of balance
sheet items............................. (4,639,365) (3,448,665)
Adjustment for off-balance sheet items... 1,380,106 1,207,427
Less certain intangible assets........... 67,087 77,254
------------ ------------
Total risk-adjusted assets............. $ 9,338,270 $ 7,983,058
============ ============
Shareholders' equity..................... $ 1,090,009 $ 824,755
Less certain intangible assets........... 67,087 77,254
------------ ------------
Tier I capital........................... 1,022,922 747,501
------------ ------------
Adjusted allowance for loan losses....... 116,745 92,945
Qualifying long-term debt................ 102,909 102,559
------------ ------------
Tier II capital.......................... 219,654 195,504
------------ ------------
Total capital.......................... $ 1,242,576 $ 943,005
============ ============
Tier I capital to total risk-adjusted as-
sets.................................... 10.95% 9.36%
Total capital to total risk-adjusted as-
sets.................................... 13.31 11.81
Other capital ratios:
Leverage................................. 8.65 7.73
Equity to assets......................... 8.69 8.08
Tangible equity to assets................ 7.47 7.11
In addition, the total risk-adjusted capital ratios for the company's banking
subsidiaries at December 31, 1993, along with other pertinent measures of
capital adequacy, were well above the minimum regulatory requirements. The
total risk adjusted capital ratio for each of AmSouth's major subsidiaries was:
AmSouth Bank N.A.................................................. 10.96%
AmSouth Bank of Florida........................................... 15.84%
AmSouth Bank of Tennessee......................................... 18.27%
At December 31, 1993, the book value per share for AmSouth's common stock was
$22.01 compared to $19.10 at December 31, 1992. The market value per common
share at December 31, 1993 was $31.25 or 142.0% of book value, compared to
$32.625 or 170.8% of book value at December 31, 1992. Management believes this
decline in the market value to book value ratio generally resulted from a
cyclical move by sector
24
investors out of bank stocks as well as concerns over the banking industry's
ability to sustain 1993 profit levels. Management closely monitors its capital
ratios and the market value of its common stock. At December 31, 1993, total
market capitalization was $1.55 billion compared to $1.41 billion at December
31, 1992.
During 1993, shareholders' equity increased $265 million, of which $162
million relates to the 5.5 million shares issued for the purchases of FCFC and
Mid-State.
Management monitors the level of goodwill and other intangibles on both a
consolidated and parent company basis. At December 31, 1993, AmSouth had $130.1
million of goodwill of which $43.4 million was at the parent company. The
parent company's double leverage ratio at year end 1993 and 1992 was 104.0% and
101.7%, respectively.
AmSouth is generally dependent upon dividends from its subsidiary banks to
fund the dividends to its shareholders, capital injections to subsidiaries, and
certain other costs. During 1993, AmSouth declared dividends of $1.22 per
common share, which totaled $57.6 million, compared to $1.07 per common share
and $44.7 million in 1992. The dividend payout ratio for 1993 was 39.35%,
compared to 42.63% in 1992. Table 16 shows AmSouth's computation of its rate of
internal capital generation for the last five years.
TABLE 16--RATE OF INTERNAL CAPITAL GENERATION
1993 1992 1991 1990 1989
----- ----- ----- ----- -----
Return on average assets..................... 1.28% 1.13% .89% .84% .77%
/
Average equity to average assets............. 8.54 8.25 7.36 6.79 6.77
=
Return on average equity..................... 14.93 13.66 12.14 12.43 11.43
X
Earnings retention ratio..................... 60.65 57.37 52.66 52.28 47.95
=
Internal capital generation ratio............ 9.06 7.84 6.39 6.50 5.48
GROSS INTEREST MARGIN
The gross interest margin is defined as the difference between the revenue
from earning assets, primarily interest income, and interest expense related to
interest-bearing liabilities. The gross interest margin is a function of the
average balances of earning assets and interest-bearing liabilities and the
yields earned and rates paid on those balances.
In managing the gross interest margin, management must maintain a
satisfactory spread between the yields on earning assets and the related cost
of interest-bearing funds. The gross interest spread is determined by comparing
the taxable equivalent gross interest margin to average earning assets before
deducting the allowance for loan losses. This ratio reflects the overall
profitability of earning assets, including both those funded by interest-
bearing sources and those which incur no interest cost (primarily noninterest-
bearing demand deposits). This ratio is most often used when analyzing a
banking institution's overall gross interest margin profitability compared to
that of other financial institutions. The incremental interest spread compares
the difference between the yields on earnings assets and the cost of interest-
bearing funds. This calculation and similar ratios are used to assist in
pricing decisions for interest related products.
25
Table 17 illustrates for each of the last three years by major categories of
assets and liabilities, the average balances, the components of the gross
interest margin (on a taxable equivalent basis), the yield or rate, and the
incremental and gross interest spreads.
TABLE 17--YIELDS ON AVERAGE EARNING ASSETS AND RATES ON AVERAGE INTEREST-
BEARING LIABILITIES
1993 1992 1991
--------------------------- -------------------------- --------------------------
AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
----------- -------- ------ ---------- -------- ------ ---------- -------- ------
(TAXABLE EQUIVALENT BASIS--DOLLARS IN THOUSANDS)
ASSETS
Earning assets:
Loans net of unearned
income................ $ 7,043,158 $566,399 8.04% $5,757,366 $492,434 8.55% $5,631,432 $562,549 9.99%
Investment securities:
Taxable securities..... 2,020,550 131,975 6.53 2,085,164 157,215 7.54 1,993,779 170,244 8.54
Tax-free securities.... 378,910 41,063 10.84 450,806 47,181 10.47 482,848 51,335 10.63
----------- -------- ----- ---------- -------- ----- ---------- -------- -----
Total investment
securities.......... 2,399,460 173,038 7.21 2,535,970 204,396 8.06 2,476,627 221,579 8.94
Federal funds sold and
securities purchased
under agreements to
resell................ 200,479 5,487 2.74 147,878 5,592 3.78 167,102 9,083 5.44
Trading account
securities............ 49,448 2,496 5.05 31,125 1,807 5.81 30,603 2,221 7.26
Securities held for
sale.................. 605,558 32,641 5.39 81,374 5,231 6.43 14,415 1,051 7.29
Mortgage loans held for
sale.................. 245,021 14,338 5.85 202,107 14,910 7.38 97,030 7,503 7.73
----------- -------- ----- ---------- -------- ----- ---------- -------- -----
Total earning assets. 10,543,124 794,399 7.53 8,755,820 724,370 8.27 8,417,209 803,986 9.55
----- ----- -----
Cash and other assets... 1,029,329 925,374 939,899
Less allowance for loan
losses................. 108,011 90,047 90,637
----------- ---------- ----------
$11,464,442 $9,591,147 $9,266,471
=========== ========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing
liabilities:
Interest-bearing demand
deposits.............. $ 2,968,613 79,407 2.67 $2,777,200 87,198 3.14 $2,651,538 134,738 5.08
Savings deposits....... 715,409 19,395 2.71 524,926 16,711 3.18 435,384 20,234 4.65
Time deposits.......... 2,974,087 134,831 4.53 2,550,429 135,096 5.30 2,708,699 188,801 6.97
Certificates of deposit
of $100,000 or more... 594,969 24,998 4.20 549,353 27,757 5.05 589,875 40,879 6.93
Federal funds purchased
and securities sold
under agreements to
repurchase............ 998,286 30,538 3.06 756,600 27,117 3.58 844,937 47,339 5.60
Other borrowed funds... 438,258 13,850 3.16 161,450 5,650 3.50 52,308 2,655 5.08
Subordinated Capital
Notes................. 99,247 9,530 9.60 99,117 9,496 9.58 98,988 9,487 9.58
Federal Home Loan Bank
advances.............. 14,447 838 5.80 -0- -0- -- -0- -0- --
Floating Rate Notes Due
1999.................. 8,172 310 3.79 8,733 449 5.14 9,249 660 7.14
7 1/2% Convertible
Subordinated Notes.... 3,488 404 11.58 3,266 404 12.37 3,046 404 13.26
Long-term notes
payable............... 33,423 783 2.34 26,878 1,201 4.47 23,372 1,544 6.61
----------- -------- ----- ---------- -------- ----- ---------- -------- -----
Total interest-bearing
liabilities........... 8,848,399 314,884 3.56 7,457,952 311,079 4.17 7,417,396 446,741 6.02
-------- ----- -------- ----- -------- -----
INCREMENTAL INTEREST
SPREAD................. 3.97% 4.10% 3.53%
===== ===== =====
Noninterest-bearing
demand deposits........ 1,491,647 1,206,281 1,055,928
Other liabilities....... 144,961 136,041 111,294
Shareholders' equity.... 979,435 790,873 681,853
----------- ---------- ----------
$11,464,442 $9,591,147 $9,266,471
=========== ========== ==========
GROSS INTEREST
MARGIN/SPREAD ON A
TAXABLE EQUIVALENT
BASIS.................. 479,515 4.55% 413,291 4.72% 357,245 4.24%
===== ===== =====
Taxable equivalent
adjustment:
Loans.................. 3,715 4,605 6,354
Investment securities.. 13,650 15,195 16,112
Other earning assets... 73 54 67
-------- -------- --------
Total taxable
equivalent
adjustment.......... 17,438 19,854 22,533
-------- -------- --------
GROSS INTEREST MARGIN... $462,077 $393,437 $334,712
======== ======== ========
- --------
Note: The taxable equivalent adjustment for 1993 has been computed based on a
35% federal income tax rate (34% for 1992 and 1991) and has given effect
to the disallowance of interest expense, for federal income tax purposes,
related to certain tax-free assets. Loans net of unearned income includes
nonaccrual loans for all years presented.
26
For 1993, AmSouth experienced compression in its spread as the gross interest
spread and incremental spread declined 17 and 13 basis points, respectively.
The compression in spreads was not unique to AmSouth as banking institutions
throughout the country experienced the same trend. Another effect on the gross
interest spread of the company was the acquisition of FCFC. FCFC was a thrift
prior to merger and, accordingly, had a gross interest spread which was lower
than AmSouth's prior to the merger. Table 18 outlines the analysis of change in
the gross interest spread.
TABLE 18--ANALYSIS OF CHANGE IN THE GROSS INTEREST SPREAD
1993/ 1992/
1992 1991
----- -----
Gross interest spread for the prior year ended December 31.... 4.72% 4.24%
Effects of:
Change in the incremental interest spread................... (0.11) 0.47
Change in the relative volume of earning assets funded by
noninterest-bearing sources................................ 0.05 0.17
Change in the yield earned on earning assets funded by non-
interest-bearing sources................................... (0.11) (0.16)
----- -----
Gross interest spread for the current year ended December 31.. 4.55% 4.72%
===== =====
Much of the maintenance of the gross interest spread during 1993 is
attributable to lower cost deposits matching the declines in assets repricing.
The spread between the prime rate and the rate on federal funds purchased
(prime to fed funds spread) for the year ended 1993 approximated 300 basis
points. Management does not anticipate the prime to fed funds spread to be
maintained at those levels. Management anticipates that AmSouth's gross
interest spread will reflect the narrowing of the prime to fed funds spread to
more historically consistent levels.
27
Table 19 shows the change from year to year for each component of the taxable
equivalent gross interest margin separated into the amount generated by volume
changes and the amount generated by changes in the yield/rate. The $66.2
million increase in the margin during 1993 was due to increased balances
slightly offset by a lower yield/rate. In 1992, the higher gross interest
margin compared to 1991 resulted both from positive trends in the volume as
well as yield/rate.
TABLE 19--VOLUME AND YIELD/RATE VARIANCES
1993 COMPARED TO 1992 1992 COMPARED TO 1991
CHANGE DUE TO CHANGE DUE TO
---------------------- ------------------------
YIELD/ YIELD/
VOLUME RATE NET VOLUME RATE NET
---------- ---------- -------- ---------- ----------- --------
(TAXABLE EQUIVALENT BASIS--IN THOUSANDS)
REVENUE EARNED ON
Loans net of unearned
income............... $ 104,790 $ (30,825) $ 73,965 $ 12,336 $ (82,451) $(70,115)
Investment securities:
Taxable securities.. (4,749) (20,491) (25,240) 7,546 (20,575) (13,029)
Tax-free securities. (7,743) 1,625 (6,118) (3,364) (790) (4,154)
---------- ---------- -------- ---------- ----------- --------
Total investment
securities....... (12,492) (18,866) (31,358) 4,182 (21,365) (17,183)