Earnings Overview AmSouth reported diluted earnings per common share of $.86 in 2000 compared to $.86 in 1999 and $1.20 in 1998. Net income totaled $329.1 million in 2000, $340.5 million in 1999 and $474.1 million in 1998.

AmSouths’ reported earnings in 2000 were impacted by charges associated with the integration of First American following its merger with AmSouth in 1999 (the Merger), rapidly rising interest rates, a slowing economy and related deterioration in credit quality.

The Federal Reserve raised short-term interest rates 175 basis points in a little more than ten months during 1999 and 2000, resulting in slower loan growth and higher rates paid on interest-bearing deposits and floating rate borrowed funds. To address the impact of rapidly rising rates, AmSouth in the third quarter initiated a comprehensive financial restructuring, substantially reducing low-yielding investments and loans and, as a result, significantly reducing earning assets. AmSouth sold approximately $4.0 billion of low-yield securities from its available-for-sale portfolio and securitized approximately $1.0 billion of lower yielding automobile loans. The proceeds were used to reduce wholesale borrowings. These actions significantly reduced interest rate risk while improving the net interest margin and capital ratios and created substantial balance sheet capacity for more profitable earning asset growth. At the same time, AmSouth, as a result of the higher interest rates, recorded a permanent impairment loss of $24.8 million associated with mortgage conduit-related assets. Together, these items produced pretax charges of $148.8 million. See further discussion in the Noninterest Revenues Section beginning on page 40.

As interest rates rose and the economy slowed during 2000, credit quality began to rapidly deteriorate, particularly among syndicated commercial loans–loans to large corporate borrowers that AmSouth shares with other banks. To address these credit quality issues, AmSouth, as part of the restructuring, sold approximately $200 million of problem syndicated loans, including $47 million that were recorded in AHAD, and strengthened the allowance for loan losses. Together, these steps resulted in pretax charges totaling $110.0 million.

AmSouth also completed the integration and conversion of First American’s systems and branches, incurring pretax charges of $110.2 million. As part of the integration of First American, AmSouth evaluated each business unit and, as a result, decided to sell IFC and the branch network located in Arkansas. Together, these sales resulted in after-tax charges totaling $4.2 million.

Adjusting for the impact of merger-related and other charges mentioned above, earnings were $562.1 million in 2000. This represented a 7.0 percent decrease from 1999 earnings, adjusted for merger-related and other charges, of $604.7 million. On the same basis, fully diluted earnings per share were $1.46 in 2000 versus $1.53 in 1999.

Earnings in 1999 declined compared to 1998 due to merger-related charges, increases in noninterest expenses, and higher credit costs. Higher net interest income and noninterest revenues partially offset the negative variances and merger-related charges.

AmSouth’s reported earnings in 1999 reflected the impact of the Merger, credit quality issues brought on by federal legislation that reduced Medicare reimbursements to healthcare providers, and an impairment loss on a portfolio investment. Reported earnings in 1999 included pretax charges of $258.3 million resulting from the merger with First American and $43.1 million in connection with First American’s 1998 mergers with various banks including Deposit Guaranty Corporation.