In determining the appropriate level for the allowance, management ensures that the overall allowance appropriately reflects a margin for the imprecision inherent in most estimates of expected credit losses. To reflect model and estimation risk associated with the formula and specific allowance method used for the allocated portion, the unallocated amount is adjusted to reflect management’s evaluation of various conditions, the effect of which is not directly measured in the determination of the allocated allowance. The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with specific problem credits or portfolio segments. The conditions evaluated in connection with the unallocated allowance include the following, which existed at the balance sheet date: credit quality trends, including trends in nonperforming loans expected to result from existing conditions; general economic and business conditions; loan levels and concentrations; the seasoning of the portfolio; specific industry conditions within portfolio segments; recent loss experience within particular segments of the portfolio; and bank regulatory results.

The chief credit officer reviews these conditions quarterly with executive management. To the extent that any of these conditions is evidenced by a specifically identifiable problem credit or portfolio segment, as of the evaluation date, management’s estimate of the effect of such condition may be reflected as a specific allowance, applicable to such credit or portfolio segment. Where any of these conditions is not evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, management’s evaluation of the probable loss related to such condition is reflected in the unallocated allowance.

At December 31, 2000, the allowance for loan losses was $380.4 million versus $354.7 million at year-end 1999. Beyond the impact of net charge-offs and the provision for loan losses, the allowance in 2000 was reduced by $5.5 million as a result of selling $750 million of indirect automobile loans to third-party conduits during the second quarter of 2000. The $5.5 million represented allowance allocated to these loans at the time of their sale. In addition, the allowance was reduced by $7.5 million specifically allocated to approximately $1.0 billion of indirect automobile loans securitized during 2000. AmSouth also reduced its allowance for loan losses in conjunction with the sale of approximately $134 million of certain classified, syndicated loans. AmSouth reduced its loan loss allowance to reflect the $61.6 million of allowance specifically allocated to the syndicated loans sold. Included as a reduction to the allowance in Table 18 was the reclassification of a portion of the allowance directly related to off-balance sheet commitments. AmSouth included, in Table 18, the amount reclassified for all years shown. The amount reclassified to other liabilities represented off-balance sheet commitments for which AmSouth specifically calculated a reserve level and for which it could separate the credit risk from that of any related loans on AmSouth’s balance sheet. The level of allowance for these off-balance sheet commitments is calculated using a rate which correlates to credit risks associated with similar types of funded loans.

The overall level of allowance at December 31, 2000, versus December 31, 1999, increased primarily as a result of deterioration of credit quality within AmSouth’s syndicated commercial loan portfolio. This deterioration was primarily the result of higher interest rates and a weaker economy. The allowance allocated to commercial and industrial loans increased by 31.6 percent in 2000. This increase reflected a higher level of impaired and classified loans within the commercial loan area. The decreases in the allocation of the allowance associated with commercial loans secured by real estate and construction loans reflected lower nonperforming loans in these categories at December 31, 2000, versus 1999. Alternatively, the increase in the allocation of the allowance for commercial real estate mortgages reflected an increase in nonperforming loans in this category. On the consumer side of the portfolio, the decrease in the allowance allocated to residential mortgages, the dealer indirect portfolio and other consumer loans was the direct result of a decrease in the amount of such loans outstanding at year-end 2000 versus 1999. Loan growth was the reason for the increase in the allowance allocated to other residential mortgages. The increase in the allowance allocated to the revolving credit portfolio reflected an increase in charge-offs experienced in this category which resulted in a higher loss factor being applied to this portfolio. The 5.5 percent increase in the unallocated allowance primarily reflected the generally weaker economic conditions at December 31, 2000.

At December 31, 2000, the allowance for loan losses to net loans was 1.55 percent while coverage of nonperforming loans was 211.8 percent. This compares with an allowance for loan losses to net loans at the end of 1999 of 1.35 percent and to nonperforming loans for the same period of 1999 of 251.3 percent.

Line of Business Results
AmSouth segregates financial information used to assess its performance and allocate resources based on three reportable segments. The three reportable segments include Consumer Banking, Commercial Banking and Wealth Management. The financial performance for each segment is determined based on the Company’s management accounting process, which assigns balance sheet and income statement items to each segment based on managerial responsibility. Segments are also defined by customer base and product type. Performance of the operating segments reflects the management process and structure of AmSouth and is not necessarily comparable with similar information for any other financial institution. Selected financial information and a description of the methodologies used to measure the financial performance of the business segments are presented in Note 22 to the Consolidated Financial Statements.