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SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q





Quarterly Report Pursuant to Section 13 or 15(d) of the


Securities Exchange Act of 1934





For the Quarterly Period Ended September 30, 2002

Commission file number 1-7476





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AmSouth Bancorporation


(Exact Name of registrant as specified in its charter)





Delaware

63-0591257(State or other jurisdiction of
Incorporation or Organization)

(I.R.S. Employer Identification No.)





AmSouth Center1900 Fifth Avenue NorthBirmingham, Alabama

35203(Address of principal executive offices)

(Zip Code)





(205) 320-7151


(Registrants telephone number, including area code)





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x No  ̈





As of October 31, 2002,
AmSouth Bancorporation had 355,413,000 shares of common stock outstanding.





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##### Table of Contents




AMSOUTH BANCORPORATION


FORM 10-Q


INDEX





PagePart I.

Financial InformationItem 1.

Financial Statements (Unaudited)Consolidated Statement of ConditionSeptember 30, 2002, December 31, 2001, and September 30, 2001

3Consolidated Statement of EarningsThree months and nine months ended September 30, 2002 and 2001

4Consolidated Statement of Shareholders EquityNine months ended September 30, 2002

5Consolidated Statement of Cash FlowsNine months ended September 30, 2002 and 2001

6Notes to Consolidated Financial Statements

7Independent Accountants Review Report

13Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

14Item 3.

Quantitative and Qualitative Disclosures About Market Rate Risk

29Item 4.

Controls and Procedures

29Part II.

Other InformationItem 1.

Legal Proceedings

29Item 6.

Exhibits and Reports on Form 8-K

29Signatures

30Certifications

31Exhibit Index

33





Forward-Looking Statements. Statements made in this report that
are not purely historical are forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995), including any statements regarding descriptions of managements plans, objectives or goals for future operations,
products or services, and forecasts of its revenues, earnings or other measures of performance. Forward-looking statements are based on current management expectations and, by their nature, are subject to risks and uncertainties. A number of
factors-many of which are beyond AmSouths control-could cause actual conditions, events or results to differ significantly from those described in the forward-looking statements. Some of these factors which could cause results to differ
materially from current management expectations include, but are not limited to: execution of AmSouths strategic initiatives; legislation; general economic conditions, especially in the Southeast; the performance of the stock and bond markets;
changes in interest rates, yield curves and interest rate spread relationships; deposit flows; the cost of funds; cost of federal deposit insurance premiums; demand for loan products; demand for financial services; competition; changes in the
quality or composition of AmSouths loan and investment portfolios including capital market inefficiencies that may affect the marketability and valuation of available-for-sale securities; changes in accounting and tax principles, policies or
guidelines; other economic, competitive, governmental, regulatory, and technical factors affecting AmSouths operations, products, services and prices; unexpected judicial actions and developments; and the outcome of litigation, which is
inherently uncertain and depends on the findings of judges and juries. To the extent that terrorist attacks or other geopolitical conflicts cause a prolonged negative impact on the economy, the effects may include adverse changes in customers
borrowing, investing or spending patterns; market disruptions; adverse effects on the performance of the United States and foreign equity markets; currency fluctuations; exchange controls; restriction of asset growth; negative effects on credit
quality; and other effects that could adversely impact the performance, earnings, and revenue growth of the financial services industry, including AmSouth. Forward-looking statements speak only as of the date they are made. AmSouth does not
undertake a duty to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.




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PART I


FINANCIAL INFORMATION


Item 1.    Financial Statements (Unaudited)





AMSOUTH BANCORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENT OF CONDITION


(Unaudited)





September 30 2002


December 31 2001


September 30 2001(In thousands)ASSETSCash and due from banks

$
1,364,146


$
1,441,561


$
1,035,436Federal funds sold and securities purchased under agreements to resell


271,068



400,000



300,000Trading securities


315,156



12,979



18,906Available-for-sale securities


4,448,355



4,829,512



4,749,826Held-to-maturity securities (market value of $4,362,854, $4,071,008 and $4,535,163, respectively)


4,215,161



4,002,474



4,389,327Loans held for sale


28,984



291,782



161,103Loans


27,012,900



25,852,221



25,534,112Less:    Allowance for loan losses


379,878



363,607



360,717Unearned income


726,050



727,728



633,052Net loans


25,906,972



24,760,886



24,540,343Other interest-earning assets


67,071



40,458



337,625Premises and equipment, net


792,853



729,383



677,916Accrued interest receivable and other assets


2,200,961



2,091,379



2,054,323$
39,610,727


$
38,600,414


$
38,264,805LIABILITIES AND SHAREHOLDERS' EQUITYDeposits and interest-bearing liabilities:Deposits:Noninterest-bearing demand

$
5,181,668


$
5,280,621


$
4,715,663Interest-bearing demand


10,951,276



10,518,922



10,161,426Savings


1,300,439



1,229,871



1,221,159Time


6,481,177



6,800,056



7,324,214Foreign time


531,743



309,641



290,527Certificates of deposit of $100,000 or more


2,185,499



2,027,906



2,160,959Total deposits


26,631,802



26,167,017



25,873,948Federal funds purchased and securities sold under agreements to repurchase


1,954,121



2,080,296



2,071,030Other borrowed funds


76,428



79,454



81,173Long-term Federal Home Loan Bank advances


5,352,681



5,093,834



5,106,188Other long-term debt


1,051,918



1,008,421



1,025,167Total deposits and interest-bearing liabilities


35,066,950



34,429,022



34,157,506Accrued expenses and other liabilities


1,421,030



1,216,293



1,136,637Total liabilities


36,487,980



35,645,315



35,294,143Shareholders' equity:Preferred stockno par value:Authorized2,000,000 shares; Issued and outstandingnone


-0-



-0-



-0-Common stockpar value $1 a share:Authorized750,000,000 shares; Issued416,914,000, 416,931,00) and 416,935,000 shares,
respectively


416,914



416,931



416,935Capital surplus


703,068



699,863



697,996Retained earnings


2,878,670



2,677,933



2,618,080Cost of common stock in treasury59,127,000, 53,896,000 and 52,017,000 shares, respectively


(960,513
)


(848,005
)


(813,814
)Deferred compensation on restricted stock


(15,747
)


(16,624
)


(17,532
)Accumulated other comprehensive income


100,355



25,001



68,997Total shareholders' equity


3,122,747



2,955,099



2,970,662$
39,610,727


$
38,600,414


$
38,264,805





See notes to consolidated financial statements.




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AMSOUTH BANCORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENT OF EARNINGS


(Unaudited)





Nine Months ended September 30

Three Months ended September 302002

2001

2002

2001(In thousands except per share data)INTEREST INCOMELoans

$
1,269,432

$
1,508,937

$
418,820

$
480,993Available-for-sale securities


256,374


240,699


84,366


84,794Held-to-maturity securities


186,026


216,539


62,465


68,816Trading securities


641


266


482


130Loans held for sale


9,895


13,200


2,068


3,698Federal funds sold and securities purchased under agreements to resell


2,407


43,108


1,256


7,836Other interest-earning assets


1,235


4,018


457


2,102Total interest income


1,726,010


2,026,767


569,914


648,369INTEREST EXPENSEInterest-bearing demand deposits


88,623


217,629


30,668


61,961Savings deposits


5,584


13,367


1,878


3,817Time deposits


184,024


328,731


59,145


101,607Foreign time deposits


4,099


8,383


1,668


2,152Certificates of deposit of $100,000 or more


53,863


102,585


18,140


30,036Federal funds purchased and securities sold under agreements to repurchase


21,385


64,649


7,452


15,664Other borrowed funds


3,077


7,997


1,008


1,271Long-term Federal Home Loan Bank advances


204,348


220,905


68,840


72,855Other long-term debt


29,330


43,267


9,765


12,969Total interest expense


594,333


1,007,513


198,564


302,332NET INTEREST INCOME


1,131,677


1,019,254


371,350


346,037Provision for loan losses


160,100


133,500


51,400


49,200NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES


971,577


885,754


319,950


296,837NONINTEREST REVENUESService charges on deposit accounts


210,353


191,128


77,672


64,688Trust income


80,599


85,138


25,357


28,050Consumer investment services income


61,464


72,364


18,912


26,261Interchange income


46,458


41,458


16,418


14,377Bank owned life insurance policies


46,270


40,393


14,587


12,959Bankcard income


18,442


15,680


6,475


5,624Mortgage income


17,457


20,033


7,112


8,567Portfolio income


11,970


9,802


4,267


3,507Other noninterest revenues


54,114


86,302


17,536


28,317Total noninterest revenues


547,127


562,298


188,336


192,350NONINTEREST EXPENSESSalaries and employee benefits


461,109


442,501


151,482


152,725Equipment expense


89,699


90,493


30,155


29,984Net occupancy expense


88,018


83,879


30,011


28,199Postage and office supplies


37,119


36,498


11,973


12,299Marketing expense


26,668


26,541


8,903


9,458Communications expense


22,947


31,282


5,788


10,111Amortization of intangibles


3,936


25,548


1,224


8,486Other noninterest expenses


139,962


140,510


43,460


45,908Total noninterest expenses


869,458


877,252


282,996


297,170INCOME BEFORE INCOME TAXES


649,246


570,800


225,290


192,017Income taxes


195,306


174,975


69,289


55,924NET INCOME

$
453,940

$
395,825

$
156,001

$
136,093Average common shares outstanding


359,653


368,945


357,567


365,970Earnings per common share

$
1.26

$
1.07

$
.44

$
.37Diluted average common shares outstanding


364,197


372,489


361,961


370,116Diluted earnings per common share

$
1.25

$
1.06

$
.43

$
.37





See notes to consolidated financial statements.




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AMSOUTH BANCORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY


(Unaudited)








Common Stock


Capital Surplus

Retained Earnings


Treasury Stock


Deferred Compensation on Restricted Stock


Accumulated Other Comprehensive Income/(Loss)


Total(In thousands)BALANCE AT JANUARY 1, 2002

$
416,931


$
699,863

$
2,677,933


$
(848,005
)

$
(16,624
)

$
25,001


$
2,955,099Comprehensive income:Net income


-0-



-0-


453,940



-0-



-0-



-0-



453,940Other comprehensive income, net of tax:Change in unrealized gains on derivative instruments (net of $3,951 tax benefit)


-0-



-0-


-0-



-0-



-0-



(7,338
)


(7,338
)Changes in unrealized gains and losses on available-for-sale securities, net of reclassification adjustment (net of
$35,680 tax expense)


-0-



-0-


-0-



-0-



-0-



82,692



82,692Comprehensive income

























529,294Cash dividends declared


-0-



-0-


(238,631
)


-0-



-0-



-0-



(238,631
)Common stock transactions:Purchase of common stock


-0-



-0-


-0-



(172,991
)


-0-



-0-



(172,991
)Employee stock plans


(17
)


3,129


(14,568
)


53,010



877



-0-



42,431Dividend reinvestment plan


-0-



76


(4
)


7,473



-0-



-0-



7,545BALANCE AT SEPTEMBER 30, 2002

$
416,914


$
703,068

$
2,878,670


$
(960,513
)

$
(15,747
)

$
100,355


$
3,122,747Disclosure of reclassification amount:Unrealized holding gains on available-for-sale securities arising during the period




















$
88,480Less: Reclassification adjustment for gains realized in net income





















5,788Net unrealized gains on available-for-sale securities, net of tax




















$
82,692Unrealized holding gains on derivatives arising during the period




















$
6,532Less: Reclassification adjustment for gains realized in net income





















13,870Net unrealized gains on derivatives, net of tax




















$
(7,338
)





See notes to consolidated financial statements.




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AMSOUTH BANCORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENT OF CASH FLOWS


(Unaudited)





Nine Months Ended September 302002


2001(In thousands)OPERATING ACTIVITIESNet income

$
453,940


$
395,825Adjustments to reconcile net income to net cash provided by operating activities:Provision for loan losses


160,100



133,500Depreciation and amortization of premises and equipment


69,246



66,370Amortization of premiums and discounts on held-to-maturity securities and available-for-sale securities


1,514



(17,319
)Net decrease (increase) in loans held for sale


287,031



(68,292
)Net (increase) decrease in trading securities


(302,182
)


6,539Net gains on sales of available-for-sale securities


(9,276
)


(8,251
)Gains on sales of loans to mortgage conduits


-0-



(1,993
)Gains on sales of business operations, subsidiaries, and other assets


-0-



(3,983
)Net increase in accrued interest receivable and other assets


(95,059
)


(119,449
)Net increase in accrued expenses and other liabilities


150,192



117,902Provision for deferred income taxes


132,120



158,801Amortization of intangible assets


3,904



25,515Other operating activities, net


35,438



31,013Net cash provided by operating activities


886,968



716,178INVESTING ACTIVITIESProceeds from maturities and prepayments of available-for-sale securities


1,042,113



892,245Proceeds from sales of available-for-sale securities


770,745



361,163Purchases of available-for-sale securities


(1,245,007
)


(1,814,799
)Proceeds from maturities, prepayments and calls of held-to-maturity securities


1,582,618



1,238,921Purchases of held-to-maturity securities


(1,627,161
)


(939,830
)Net decrease in federal funds sold and securities purchased under agreements to resell


128,932



1,855,665Net increase in other interest-earning assets


(26,613
)


(276,565
)Net increase in loans, excluding mortgage conduit sales


(1,696,225
)


(596,919
)Proceeds from sales of loans to mortgage conduits


-0-



100,248Net purchases of premises and equipment


(132,716
)


(110,085
)Net cash received (paid) on sales of branches, business operations, subsidiaries and other assets


-0-



13,000Net cash (used) provided by investing activities


(1,203,314
)


723,044FINANCING ACTIVITIESNet increase (decrease) in deposits


475,104



(766,532
)Net decrease in federal funds purchased and securities sold under agreements to repurchase


(126,175
)


(249,234
)Net decrease in other borrowed funds


(3,026
)


(455,675
)Issuance of long-term Federal Home Loan Bank advances and other long-term debt


276,591



600,983Payments for maturing long-term debt


(17,889
)


(393,282
)Cash dividends paid


(239,663
)


(234,786
)Proceeds from employee stock plans and dividend reinvestment plan


46,980



36,373Purchase of common stock


(172,991
)


(218,064
)Net cash provided (used) by financing activities


238,931



(1,680,217
)Decrease in cash and cash equivalents


(77,415
)


(240,995
)Cash and cash equivalents at beginning of period


1,441,561



1,276,431Cash and cash equivalents at end of period

$
1,364,146


$
1,035,436





See notes to consolidated financial statements.




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AMSOUTH BANCORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





Nine Months Ended September 30, 2002 and 2001





GeneralThe consolidated financial statements conform to accounting principles generally accepted in the United States. The accompanying interim financial statements are unaudited; however, in the opinion of management,
all adjustments necessary for the fair presentation of the consolidated financial statements have been included. All such adjustments are of a normal recurring nature. The notes included herein should be read in conjunction with the notes to
consolidated financial statements included in AmSouth Bancorporations (AmSouth) 2001 annual report on Form 10-K.





Accounting ChangesIn July 2001, the Financial Accounting Standards Board (FASB) issued Statement No. 141, Business Combinations (Statement 141), and Statement No. 142, Goodwill and Other Intangible
Assets (Statement 142). Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after September 30, 2001. Statement 141 also specifies the criteria for intangible assets acquired in a
purchase method business combination to be recognized and reported apart from goodwill. Statement 142 requires companies to no longer amortize goodwill and intangible assets with indefinite useful lives, but instead test these assets for impairment
at least annually in accordance with the provisions of Statement 142. Under Statement 142 intangible assets with definite useful lives continue to be amortized over their respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with the FASBs Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (Statement 144).





AmSouth adopted the provisions of Statement 142 effective January 1, 2002. As of the date of adoption, AmSouth had unamortized goodwill in the amount of $288.4 million, and
unamortized identifiable intangible assets in the amount of $18.7 million, all of which were subject to the transition provisions of Statements 141 and 142. As part of its adoption of Statement 142, AmSouth performed a transitional impairment test
on its goodwill assets, which indicated that no impairment charge was required. AmSouth does not currently have any other indefinite-lived intangible assets recorded in its statement of financial condition. In addition, no material reclassifications
or adjustments to the useful lives of finite-lived intangible assets were made as a result of adopting the new guidance. The full impact of adopting Statement 142 is expected to result in an increase in net income of approximately $29.0 million or
approximately $.08 per share in 2002 as a result of AmSouth no longer having to amortize goodwill against earnings. At September 30, 2002 and 2001, AmSouth had $14.8 million and $17.6 million, respectively, in unamortized identifiable intangible
assets, substantially all of which were core deposit intangibles. Total amortization expense associated with these intangible assets during the nine months and three months ended September 30, 2002 was $3.9 million and $1.2 million, respectively,
and was $3.5 million and $1.2 million, respectively, for the same periods in 2001. Assuming retroactive adoption of Statement 142, net income for the year ended December 31, 2001 and the nine month and three month periods ended September 30, 2001
would have been $565.3 million, $417.6 million and $143.3 million, respectively, and diluted earnings per share would have been $1.52, $1.12 and $.39 for the same periods, respectively.




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





Twelve Months Ended December 31, 2001

Nine Months Ended September 30, 2001

Three Months Ended September 30, 2001Net Income

Earnings Per Share

Net Income

Earnings Per Share

Net Income

Earnings Per Share(In thousands except per share data)Earnings per common share computation:Net income/EPS as reported

$
536,346

$
1.46

$
395,825

$
1.07

$
136,093

$
37Add back: Goodwill amortization


29,385


.08


22,057


.06


7,323


.02Less: Tax on deductible goodwill


442


.00


332


.00


110


.00Adjusted net income/EPS

$
565,289

$
1.54

$
417,550

$
1.13

$
143,306

$
.39Diluted earnings per common share computation:Net income/diluted EPS as reported

$
536,346

$
1.45

$
395,825

$
1.06

$
136,093

$
.37Add back: Goodwill amortization


29,385


.07


22,057


.06


7,323


.02Less: Tax on deductible goodwill


442


.00


332


.00


110


.00Adjusted net income/diluted EPS

$
565,289

$
1.52

$
417,550

$
1.12

$
143,306

$
.39





On January 1, 2002, AmSouth adopted Statement 144. Statement 144
supersedes FASB Statement No. 121 (Statement 121) and provides a single accounting model for long-lived assets to be disposed of. Although retaining many of the fundamental recognition and measurement provisions of Statement 121, the new rules
significantly change the criteria that would have to be met to classify an asset as held-for-sale. Statement 144 also supersedes the provisions of Accounting Principle Board (APB) Opinion 30 with regard to reporting the effects of a disposal of a
segment of a business and requires expected future operating losses from discontinued operations to be displayed in discontinued operations in the period(s) in which the losses are incurred (rather than as of the measurement date as presently
required by APB Opinion 30). In addition, more dispositions will qualify for discontinued operations treatment in the income statement. The adoption of Statement 144 did not have a material impact on AmSouths financial condition or results of
operations.





In April 2002, FASB issued Statement of Financial Accounting Standards No. 145, Recission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections (Statement 145). Statement 145 rescinds Statement 4, which required all gains and losses from extinguishment of debt to be aggregated and, if
material, classified as an extraordinary item, net of related income tax effect. In addition, Statement 145 amends Statement 13 on leasing to require that certain lease modifications that have economic effects similar to sale-leaseback transactions
be accounted for in the same manner as sale-leaseback transactions. Provisions of Statement 145 related to the recission of Statement 4 are effective for financial statements issued by AmSouth after January 1, 2003. The provisions of the statement
related to sale-leaseback transactions were effective for any transactions occurring after May 15, 2002. All other provisions of the statement were effective as of the end of the second quarter of 2002. The adoption of the provisions of Statement
145 did not have a material impact on AmSouths financial condition or results of operations, nor does AmSouth expect the future adoption of the other provisions of Statement 145 to have a material impact on AmSouths financial results.





In July 2002, FASB issued Statement of Financial Accounting Standards No. 146, Accounting for Costs
Associated with Exit or Disposal Activities (Statement 146). Statement 146 requires companies to recognize costs associated with the exit or disposal of activities as they are incurred rather than at the date a plan of disposal or commitment
to exit is initiated. Types of costs covered by Statement 146 include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, facility closing, or other exit or disposal
activity. Statement 146 will apply to all exit or disposal activities initiated after December 31, 2002. At this time, AmSouth does not expect the adoption of the provisions of Statement 146 to have a material impact on AmSouths financial
results.




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##### Table of Contents




In October 2002, FASB issued Statement of Financial Accounting Standards No. 147,
Acquisition of Certain Financial Institutions (Statement 147). Statement 147 amends the previous accounting guidance which required for certain acquisitions of financial institutions where the fair market value of liabilities assumed was
greater than the fair value of the tangible assets and identifiable intangible assets acquired to recognize and account for the excess as an unidentifiable intangible asset. Under the old guidance this unidentifiable intangible asset was to be
amortized over a period no greater than the life of the long-term interest bearing assets acquired. Under Statement 147, this excess, if acquired in a business combination, represents goodwill that should be accounted for in accordance with
Statement 142. In addition, Statement 147 amends Statement 144 to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor- and borrower-relationship intangible assets and credit cardholder
intangible assets. Consequently, those intangible assets are subject to the same undiscounted cash flow recoverability test and impairment loss recognition and measurement provisions that Statement 144 requires. The provisions of Statement 147 were
effective October 1, 2002. AmSouth does not expect the adoption of the provisions of Statement 147 to have a material impact on AmSouths financial results.





Cash FlowsFor the nine months ended September 30, 2002 and 2001, AmSouth paid interest of $602.7 million and $1.0 billion, respectively. During the nine months ended September 30, 2002,
AmSouth paid income taxes of $35.5 million and during the nine months ended September 30, 2001, AmSouth received income tax refunds of $11.3 million. Noncash transfers from loans to foreclosed properties for the nine months ended September 30, 2002
and 2001, were $38.1 million and $30.3 million, respectively, and noncash transfers from foreclosed properties to loans were $293 thousand and $687 thousand, respectively. During the nine months ended September 30, 2002, AmSouth also had noncash
transfers from loans to available-for-sale securities in connection with a mortgage loan securitization of $301.7 million. During the same period in 2001, AmSouth had noncash transfers from loans to available-for-sale securities and to other assets
of approximately $1.6 million and $1.0 million, respectively, in connection with the participation of loans to third-party conduits. During the nine months ended September 30, 2002, AmSouth had noncash transfers from loans to loans held for sale of
$22.8 million.





Stock-Based CompensationAmSouth has long-term incentive compensation plans that
permit the granting of incentive awards in the form of stock options, restricted stock awards and stock appreciation rights. Generally, the terms of these plans stipulate that the exercise price of options may not be less than the fair market value
of AmSouths common stock at the date the options are granted. Options generally vest between one and three years from the date of grant, with all of the 2002 option grants vesting ratably over three years. All of the options granted during
2002 expire ten years from the date of grant. All other options granted generally expire not later than ten years from the date of grant.





AmSouth has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (Statement 123) which allows an entity to continue to measure
compensation costs for those plans using the intrinsic value-based method of accounting prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees. AmSouth has elected to follow APB Opinion 25 and related interpretations
in accounting for its employee stock options. Accordingly, compensation cost for fixed and variable stock-based awards is measured by the excess, if any, of the fair market price of the underlying stock over the amount the individual is required to
pay. Compensation cost for fixed awards is measured at the grant date, while compensation cost for variable awards is estimated until both the number of shares an individual is entitled to receive and the exercise or purchase price are known
(measurement date). If AmSouth had chosen to account for its employee stock options under the fair value method of Statement 123, AmSouth would have reported net income for the three months and nine months ended September 30, 2002 of $149.9 million
and $434.9 million, respectively, and diluted earnings per share of $.42 and $1.20 for the same periods, respectively.





This pro forma information includes expenses related to all 2002 grants, as well as the expense related to the unvested portion of prior year grants and assumes that the fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average assumptions for the three




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months and nine months ending September 30, 2002, respectively: a risk-free interest rate of 4.23% and 4.93%, a dividend yield of 4.18% and 4.36%, a volatility factor of 31.21% and 31.39%, and a
weighted-average expected life for both periods of 7.0 years. The weighted-average fair value of options granted during the three months and nine months ended September 30, 2002 was $5.14 and $4.94, respectively. The estimated fair value of the
options is then amortized to expense over the options vesting period to determine the expense for the periods.





DerivativesIn accordance with FASB Statement No. 133, Accounting for Derivative Instruments and for Hedging Activities (Statement 133), AmSouth recognizes all of its derivative instruments as either assets or
liabilities in the statement of financial condition at fair value. For those derivative instruments that are designated and qualify as hedging instruments, AmSouth designates the hedging instrument, based upon the exposure being hedged, as either a
fair value hedge or a cash flow hedge. Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate
risk, are considered fair value hedges under Statement 133. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows or other types of forecasted transactions are considered cash
flow hedges.





For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on
the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in other noninterest revenue during the period of the change in fair values. For derivative instruments that are
designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the
hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is recognized in other noninterest revenue during
the period of change. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of change.





AmSouth, at the hedges inception and at least quarterly thereafter, performs a formal assessment to determine whether changes in the fair values or cash flows of the
derivative instruments have been highly effective in offsetting changes in the fair values or cash flows of the hedged items and whether they are expected to be highly effective in the future. If it is determined a derivative instrument has not been
or will not continue to be highly effective as a hedge, hedge accounting is discontinued prospectively and the derivative instrument continues to be carried at fair value with all changes in fair value being recorded in noninterest revenue but with
no corresponding offset being recorded on the hedged item or in other comprehensive income for cash flow hedges.





Fair Value Hedging StrategyAmSouth has entered into interest rate swap agreements for interest rate risk exposure management purposes. The interest rate swap agreements utilized by AmSouth effectively modify
AmSouths exposure to interest rate risk by converting a portion of AmSouths fixed-rate certificates of deposit to floating rate. AmSouth also has interest rate swap agreements which effectively convert portions of its fixed-rate
long-term debt to floating rate. During the nine months ended September 30, 2002 and 2001, AmSouth recognized a net loss of $2.4 million and a net gain of $185 thousand, respectively, related to the ineffective portion of its hedging instruments.





Cash Flow Hedging StrategyAmSouth has entered into interest rate swap agreements that effectively
convert a portion of its floating-rate loans to a fixed-rate basis, thus reducing the impact of interest-rate changes on future interest income. Approximately $350 million and $725 million of AmSouths loans were designated as the hedged items
to interest rate swap agreements at September 30, 2002 and 2001, respectively. During the nine months ended September 30, 2002 and 2001, AmSouth recognized a net loss of $48 thousand and a net gain of $208 thousand, respectively, related to the
ineffective portion of its hedging instruments.





Comprehensive IncomeTotal comprehensive income was
$180.5 million and $529.3 million for the three and nine months ended September 30, 2002 and $213.1 million and $572.4 million for the three and nine months ended September 30, 2001. Total comprehensive income consists of net income, the change in
the unrealized




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##### Table of Contents

gains or losses on AmSouths available-for-sale securities portfolio arising during the period and the effective portion of cash flow hedges marked to market.





Earnings Per Common ShareThe following table sets forth the computation of earnings per common share and diluted
earnings per common share:





Three Months Ended September 30

Nine Months Ended September 302002

2001

2002

2001(In thousands except per share data)Earnings per common share computation:Numerator:Net income

$
156,001

$
136,093

$
453,940

$
395,825Denominator:Average common shares outstanding


357,567


365,970


359,653


368,945Earnings per common share

$
.44

$
.37

$
1.26

$
1.07Diluted earnings per common share computation:Numerator:Net income

$
156,001

$
136,093

$
453,940

$
395,825Denominator:Average common shares outstanding


357,567


365,970


359,653


368,945Dilutive shares contingently issuable


4,394


4,146


4,544


3,544Average diluted common shares outstanding


361,961


370,116


364,197


372,489Diluted earnings per common share

$
.43

$
.37

$
1.25

$
1.06





Shareholders EquityIn September 2001,
AmSouths Board of Directors approved the repurchase by AmSouth of up to 25.0 million shares of its outstanding common stock over a two year period for the purpose of funding employee benefit and dividend reinvestment plans and for general
corporate purposes. During the three month and nine month periods ended September 30, 2002, AmSouth purchased 3.5 million and 8.2 million shares, respectively, under this authorization at a cost of $72.5 million and $173.0 million, respectively. The
total shares repurchased under this authorization through September 30, 2002 was 10.4 million shares at a cost of $214.2 million. During the month of October 2002, AmSouth repurchased an additional 2.7 million shares at a cost of $53.3 million under
this plan. Cash dividends of $.22 per common share were declared in the third quarter of 2002. This represents a five percent increase over the dividend declared during the third quarter of 2001.





Business Segment InformationAmSouth has three reportable segments: Consumer Banking, Commercial Banking, and Wealth
Management. During the third quarter of 2002, AmSouth management changed the way revenue and expenses associated with Private Client Service (PCS) customers loans and deposit balances are reviewed for business segment purposes. Prior to the
reporting change, the estimated spread on the PCS customers loan and deposit balances, as well as NIR and NIE associated with those balances and accounts, was included within the Commercial or Consumer segments based on the loan or deposit
type. Beginning in the third quarter, these revenues and expenses are also being included within the Wealth Management segment since this segment is principally responsible for maintaining the relationships with these customers. These shared
revenues and expenses are reversed within Treasury & Other to eliminate the double counting. Year-to-date 2002 segment information and 2001 segment information have been restated to reflect this reporting change. For the three month and nine
month periods ended September 30, 2002, $12.1 million and $34.4 million, respectively, of net income associated with PCS customer accounts was included in the Wealth Management segment and eliminated within Treasury & Other. For the same periods
in 2001, $8.6 million and $23.8 million of net income, respectively, was added to Wealth Managements results and eliminated within Treasury & Other. Treasury & Other also includes balance sheet management activities that include the
investment portfolio, non-deposit funding and off-balance sheet financial instruments. Income from bank owned life insurance policies, gains and losses related to the ineffective portion of derivative hedging instruments, net gains on sales of fixed
assets, taxable-equivalent adjustments associated with lease restructuring transactions, the amortization of goodwill and deposit intangibles and corporate expenses such as corporate overhead are also shown in Treasury & Other.




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##### Table of Contents

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





Consumer Banking

Commercial Banking


Wealth Management


Treasury & Other


Total(In thousands)Three Months Ended September 30, 2002Net interest income before internal funding

$
197,275

$
124,721


$
35,543


$
13,811


$
371,350Internal funding


98,421


(27,493
)


(6,957
)


(63,971
)


-0-Net interest income


295,696


97,228



28,586



(50,160
)


371,350Noninterest revenues


97,531


27,342



45,439



18,024



188,336Total revenues


393,227


124,570



74,025



(32,136
)


559,686Provision for loan losses


34,447


6,496



231



10,226



51,400Noninterest expenses


178,813


43,769



45,974



14,440



282,996Income/(Loss) before income taxes


179,967


74,305



27,820



(56,802
)


225,290Income taxes/(benefits)


67,667


27,939



10,460



(36,777
)


69,289Segment net income/(loss)

$
112,300

$
46,366


$
17,360


$
(20,025
)

$
156,001Revenues from external customers

$
294,806

$
152,063


$
43,590


$
69,227


$
559,686Three Months Ended September 30, 2001Net interest income before internal funding

$
133,805

$
156,431


$
26,608


$
29,193


$
346,037Internal funding


127,759


(59,228
)


(4,934
)


(63,597
)


-0-Net interest income


261,564


97,203



21,674



(34,404
)


346,037Noninterest revenues


90,303


26,618



55,359



20,070



192,350Total revenues


351,867


123,821



77,033



(14,334
)


538,387Provision for loan losses


33,976


35,170



192



(20,138
)


49,200Noninterest expenses


178,741


45,438



48,963



24,028



297,170Income/(Loss) before income taxes


139,150


43,213



27,878



(18,224
)


192,017Income taxes/(benefits)


52,321


16,248



10,482



(23,127
)


55,924Segment net income

$
86,829

$
26,965


$
17,396


$
4,903


$
136,093Revenues from external customers

$
224,108

$
183,049


$
54,102


$
77,128


$
538,387Nine Months Ended September 30, 2002Net interest income before internal funding

$
586,574

$
385,292


$
103,312


$
56,499


$
1,131,677Internal funding


293,075


(99,317
)


(21,804
)


(171,954
)


-0-Net interest income


879,649


285,975



81,508



(115,455
)


1,131,677Noninterest revenues


267,534


86,114



145,639



47,840



547,127Total revenues


1,147,183


372,089



227,147



(67,615
)


1,678,804Provision for loan losses


104,686


33,785



674



20,955



160,100Noninterest expenses


544,415


131,314



141,095



52,634



869,458Income/(Loss) before income taxes


498,082


206,990



85,378



(141,204
)


649,246Income taxes/(benefits)


187,279


77,828



32,102



(101,903
)


195,306Segment net income/(loss)

$
310,803

$
129,162


$
53,276


$
(39,301
)

$
453,940Revenues from external customers

$
854,108

$
471,406


$
141,291


$
211,999


$
1,678,804Nine Months Ended September 30, 2001Net interest income before internal funding

$
349,830

$
502,309


$
74,953


$
92,162


$
1,019,254Internal funding


404,485


(212,278
)


(13,866
)


(178,341
)


-0-Net interest income


754,315


290,031



61,087



(86,179
)


1,019,254Noninterest revenues


259,496


77,851



160,667



64,284



562,298Total revenues


1,013,811


367,882



221,754



(21,895
)


1,581,552Provision for loan losses


89,338


63,879



545



(20,262
)


133,500Noninterest expenses


522,958


136,606



142,977



74,711



877,252Income/(Loss) before income taxes


401,515


167,397



78,232



(76,344
)


570,800Income taxes/(benefits)


150,969


62,941



29,415



(68,350
)


174,975Segment net income/(loss)

$
250,546

$
104,456


$
48,817


$
(7,994
)

$
395,825Revenues from external customers

$
609,326

$
580,160


$
156,790


$
235,276


$
1,581,552




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##### Table of Contents

LOGO





INDEPENDENT ACCOUNTANTS REVIEW REPORT





The Board of Directors


AmSouth Bancorporation





We have reviewed the accompanying consolidated statements of condition of AmSouth Bancorporation and subsidiaries as of September 30, 2002 and 2001, and the related consolidated statements of earnings for the three-month and
nine-month periods ended September 30, 2002 and 2001, the consolidated statements of cash flows for the nine-month periods ended September 30, 2002 and 2001, and the consolidated statement of shareholders equity for the nine-month period ended
September 30, 2002. These financial statements are the responsibility of the Companys management.





We
conducted our reviews in accordance with the standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and
making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, which will be performed for the
full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.





Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements referred to above for them to be in conformity with
accounting principles generally accepted in the United States.





We have previously audited, in accordance
with auditing standards generally accepted in the United States, the consolidated statement of condition of AmSouth Bancorporation and subsidiaries as of December 31, 2001, and the related consolidated statements of earnings, shareholders
equity, and cash flows for the year then ended (not presented herein) and in our report dated January 15, 2002, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the
accompanying consolidated statement of condition as of December 31, 2001 is fairly stated, in all material respects, in relation to the consolidated statement of condition from which it has been derived.





LOGO





Birmingham, Alabama


November 4, 2002




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##### Table of Contents




Item 2.    
Managements Discussion and Analysis of Financial Condition and Results of Operations





Overview





AmSouth Bancorporation (AmSouth) reported net income for the quarter ended
September 30, 2002 of $156.0 million, up 17.3 percent from the same period a year ago. Diluted earnings per share for the third quarter of 2002 was $.43, an increase of 16.2 percent over $.37 per share for the same period of 2001. Return on average
assets was 1.60 percent and return on average equity was 20.19 percent for the three months ended September 30, 2002. This compares to a return on average assets of 1.41 percent and a return on average equity of 18.59 percent for the third quarter
of 2001.





Net income for the nine months ended September 30, 2002 was $453.9 million, up 14.7 percent for the same
period a year ago. Diluted earnings per share was $1.25 for the first nine months of 2002, up 17.9 percent over $1.06 reported for the same period in 2001. Return on average assets was 1.59 percent and return on average equity was 20.13 percent for
the nine months ended September 30, 2002. This compares to a return on average assets of 1.38 percent and a return on average equity of 18.47 percent for the first nine months of 2001.





Major contributors to the growth in net income for the three and nine month periods ended September 30, 2002 compared to the same periods in 2001 were higher net interest
income primarily associated with a significant improvement in the net interest margin (NIM) coupled with a reduction in noninterest expenses. Net income, however, was negatively impacted by decreases in noninterest revenues (NIR) and an increase in
the provision for loan losses.





Statement of Condition





Total assets at September 30, 2002 were $39.6 billion, up from $38.6 billion at December 31, 2001. This $1.0 billion increase in total
assets was primarily the result of increases in loans net of unearned income, trading securities, and held-to-maturity (HTM) securities partially offset by a decrease in available-for-sale (AFS) securities and loans held for sale. Loans net of
unearned income at September 30, 2002 increased $1.2 billion compared to year-end. This increase was attributable to $1.5 billion of growth in consumer loans partially offset by decreases in commercial and commercial real estate loans. The increase
in consumer loans was driven by increases in home equity loans and lines, residential mortgages and dealer indirect automobile lending. The increase in home equity lending reflected AmSouths continued efforts to attract these loans due to
their attractive spreads and historically low levels of losses. These efforts included a strong sales effort aided by an emphasis on AmSouths branch incentive scorecard, increased marketing activity, and back office improvements that make the
product more attractive to customers and easier for our branch personnel to originate. The increase in residential first mortgages reflected a decision by management to suspend the practice of selling a specific portion of residential mortgages into
the secondary market. This strategy also resulted in a decrease in loans held for sale of approximately $263 million compared to December 31, 2001. The increase in trading securities reflected higher purchases of securities, primarily short-term
commercial paper, as a result of excess liquidity associated with deposit growth. The decrease in available-for-sale securities primarily reflected the continued runoff of mortgage backed securities as sharp declines in intermediate-term interest
rates accelerated prepayments associated with an increase in the level of mortgage refinancings.





On the liability
side of the balance sheet, total deposits at September 30, 2002, increased by $464.8 million compared to December 31, 2001. The increase in total deposits reflected an increase in interest-bearing demand deposits, which include interest checking and
money market accounts, of $432.4 million. This increase reflected higher money market deposits as AmSouth, during the third quarter of 2002, introduced a new money market deposit product targeting money market mutual funds in trust accounts. Higher
foreign time deposits and certificates of deposit of $100 thousand or more offset decreases in time deposits. The growth in these time deposit categories came entirely from core customers funds. Long-term Federal Home Loan Bank (FHLB)
borrowings grew from 2001 year-end levels as AmSouth took advantage of low interest rates in anticipation of having to replace approximately $500 million of FHLB borrowings maturing early in 2003.




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##### Table of Contents




Net Interest Income





Net interest income (NII) on a fully taxable equivalent basis for the third quarter of 2002 was $384.0 million, up $19.6 million, or 5.4 percent compared to the third
quarter of last year, but down $11.1 million, or 11.2 percent on an annualized basis, compared to the second quarter of 2002. The increase in NII compared to the same period in 2001 reflected a higher net interest margin and higher average
interest-earning assets. The NIM was 4.36 percent for the third quarter of 2002, up 20 basis points from 4.16 percent for the same quarter in 2001. The improvement in the NIM reflected an increase in the proportion of AmSouths earning assets
which were supported by low-cost and noninterest-bearing deposits as higher cost time deposits and wholesale, short-term borrowings were partially replaced by low-cost and noninterest-bearing deposits. The improvement in the margin also reflected an
increase in interest revenue associated with retained interests on loans sold to third-party conduits which resulted in a 5 basis point increase to the NIM in the third quarter of 2002 when compared to the same period in 2001. The decline in NII in
the third quarter versus the second quarter of 2002 was the result of compression in the NIM of 25 basis points. The NIM compression was the result of several factors. $400 million in interest rate swaps matured without replacement while loans held
in third-party conduits continued to decline. Other factors included growth in higher cost time and money market deposits; lower loan yields during the third quarter from a combination of tighter underwriting, declining yields on fixed rate loans
and a continuing shift in the mix of loans as a result of an emphasis on variable rate lending; deposit growth in excess of loan growth which created surplus funding held in overnight funds and other very short-term liquid assets; and accelerated
prepayments on loans and investment securities as intermediate-term interest rates sharply declined.





Average
interest-earning assets for the third quarter of 2002 totaled $34.9 billion, an increase of $154.1 million from the third quarter of 2001. The increase for the quarter came principally from loan growth during the third quarter of 2002. On the
funding side, average low-cost deposits for the third quarter of 2002, which includes noninterest-bearing and interest-bearing demand deposits and savings accounts increased $889 million or 5.6 percent over the third quarter of 2001.





On a year-to-date basis, NII on a fully taxable equivalent basis was $1.2 billion in 2002, an increase of $107 million or 10.0
percent compared to the first nine months of 2001. The increase in NII reflected a higher NIM offset by lower average interest-earning assets. The NIM was 4.54 percent for the first nine months of 2002, an increase of 47 basis points versus 4.07
percent for the same period in 2001. This improvement reflected an increase in the proportion of earning assets funded by low-cost and noninterest-bearing deposits. Another contributor to the improvement in the margin was an increase in interest
revenues associated with retained interests on loans sold to third-party conduits, which represented 10 basis points of the increase in NIM compared to the same period in 2001.





The decline in average interest-earning assets for the first nine months of 2002 versus the same period in 2001 reflected decreases in HTM securities and federal funds sold
and securities purchased under agreements to resell. The decrease in these items was primarily the result of AmSouths strategy to shift assets into higher-yielding consumer loans, primarily home equity loans and a decrease in average deposits
for the period, primarily higher-cost time deposits. The decrease in average time deposits for the period reflected managements strategy, during the second half of 2001, to reduce AmSouths reliance on higher cost sources of funding. This
strategy resulted in the migration of time deposits into low-cost deposit categories or into alternative financial products offered by AmSouth such as fixed annuities.





Asset/Liability Management





AmSouth maintains a formal asset and liability management process to quantify, monitor and control interest rate risk and to assist management in maintaining stability in the NIM under varying interest rate environments. AmSouth
accomplishes this process through the development and implementation of lending, funding, pricing and hedging strategies designed to maximize NII performance under varying interest rate environments subject to specific liquidity and interest rate
risk guidelines.




15




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##### Table of Contents




An earnings simulation model is the primary tool used to assess the direction and
magnitude of changes in NII resulting from changes in interest rates. Key assumptions in the model include prepayment speeds on mortgage-related assets; cash flows and maturities of derivatives and other financial instruments held for purposes other
than trading; changes in market conditions, loan volumes and pricing; deposit volume, mix and rate sensitivity; customer preferences; and managements financial and capital plans. These assumptions are inherently uncertain, and, as a result,
the model cannot precisely estimate NII or precisely predict the impact of higher or lower interest rates on NII. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes and changes in market
conditions and managements strategies, among other factors.





Based on the results of the simulation model as
of September 30, 2002, AmSouth would expect NII to increase $12.5 million or approximately 0.8 percent and decrease $14.2 million or approximately 1.0 percent if interest rates gradually increase or decrease, respectively, from current rates by 100
basis points over a 12-month period. By comparison, as of September 30, 2001, the simulation model indicated that NII would decrease $5 million or approximately 0.4 percent and increase $7 million or approximately 0.5 percent if interest rates
gradually increased or decreased, respectively, from their then-current rates by 100 basis points over a 12-month period. Even in a more severe stress test scenario, assuming 10 percent deposit outflow, an immediate 100 basis point rise in
short-term interest rates and a corresponding rise in deposit rates, net interest income is expected to be negatively impacted only 0.4 percent. In a shock down 50 basis points scenario, net interest income is expected to be negatively impacted 0.8
percent. This level of interest rate risk is well within AmSouths policy guidelines. Current policy states that NII should not fluctuate more than 2.5 percent in the event that interest rates gradually increase or decrease 100 basis points
over a period of twelve months.





AmSouths neutral interest rate risk profile was the result of continued
actions taken over the last several quarters. These actions included the continued increase in the level of variable-rate loans on the balance sheet accompanied by the reduction in the level of fixed-rate loans and investment securities. In
addition, less rate sensitive, low-cost deposits have increased while higher cost and more rate sensitive time deposits have declined. AmSouth also extended the maturity of purchased funds and allowed $1.1 billion notional amount of receive
fixed/pay floating interest rate swaps to mature without replacement since the third quarter of 2001. AmSouth plans to continue its neutral interest rate risk position through 2002 by balancing the production of variable-rate lending,
especially equity lines, with the production of fixed-rate loans, including fixed-rate residential mortgages. These actions should help protect AmSouths interest rate risk neutrality even if interest rates begin to rise.





As part of its activities to manage interest rate risk, AmSouth utilizes various derivative instruments such as interest rate
swaps. At September 30, 2002, AmSouth had interest rate swaps in the notional amount of $1.1 billion, all of which were receive fixed/pay floating rate swaps. Of these swaps, $350 million of notional value was used to hedge the cash flow
of variable-rate commercial loans and $715 million of notional value was used to hedge the fair value of fixed-rate consumer certificates of deposit and corporate and bank debt. Interest rate swaps with notional value of $971 million matured during
the first nine months of 2002. There are no receive fixed/pay floating interest rate swaps expected to mature during the remainder of 2002.





In addition to using derivative instruments as an interest rate risk management tool, AmSouth also acts as an intermediary for interest rate swaps, caps, floors, and foreign exchange contracts on
behalf of its customers. AmSouth minimizes its market and liquidity risks by taking offsetting positions. AmSouth manages its credit risk, or potential risk of loss from default by counterparties, through credit limit approval and monitoring
procedures. Market value changes on intermediated swaps and other derivatives are recognized in income in the period of change. At September 30, 2002, AmSouth had $102.8 million of assets and $101.5 million of liabilities associated with $1.1
billion notional amount of interest rate swaps with corporate customers and $1.1 billion notional amount of offsetting interest rate swaps with other banks to hedge AmSouths rate exposure on its corporate customers swaps.




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##### Table of Contents




Liquidity Management





AmSouths goal in liquidity management is to satisfy the cash flow requirements of depositors and borrowers while at the same time meeting its cash flow needs.
This is accomplished through the active management of both the asset and liability sides of the balance sheet. The liquidity position of AmSouth is monitored on a daily basis by AmSouths Treasury Division. In addition, the Asset/Liability
Committee, which consists of members of AmSouths senior management team, reviews liquidity on a regular basis and approves any changes in strategy that are necessary as a result of balance sheet or anticipated cash flow changes. Management
also compares, on a monthly basis, AmSouths liquidity position to established corporate liquidity guidelines.





The primary sources of liquidity on the asset side of the balance sheet are maturities and cash flows from loans and investments as well as the ability to securitize or sell certain loans and investments. Liquidity on the liability
side is generated primarily through growth in core deposits and the ability to obtain economical wholesale funding in national and regional markets through a variety of sources. See Table 10 for a breakout by maturity date of AmSouths
contractual obligations and other commercial commitments.





As an additional source of liquidity, AmSouth
periodically sells loans or pools of loans to qualifying special purpose entities called conduits in securitization transactions. The conduits are financed by the issuance of securities to asset-backed commercial paper issuers and are accounted for
as sales. These transactions allow AmSouth to utilize its balance sheet capacity and capital for higher yielding, interest-earning assets, while continuing to manage the customer relationship. At September 30, 2002, the outstanding balance of loans
sold to conduits was approximately $2.9 billion, including $1.0 billion of commercial loans, $1.6 billion of residential first mortgages and $277 million of dealer indirect automobile loans. This balance was down from $3.76 billion in outstanding
loan balances in conduits at December 31, 2001. AmSouth provides credit enhancements to these securitizations by providing standby letters of credit, which create exposure to credit risk to the extent of the letters of credit. At September 30, 2002,
AmSouth had $137.3 million of letters of credit supporting the conduit transactions. This credit risk is reviewed quarterly and a reserve for loss exposure is maintained in other liabilities.





AmSouth also provides liquidity lines of credit to these asset-backed commercial paper issuers under 364 day commitments. These liquidity lines can be drawn upon in
the unlikely event of a commercial paper market disruption or other factors, such as credit rating downgrades of one of the asset-backed commercial paper issuers or of AmSouth as the provider of liquidity and credit support, which could prevent the
asset-backed commercial paper issuers from being able to issue commercial paper. To date, there have been no drawdowns of the liquidity lines; however, AmSouth includes this liquidity risk in its monthly liquidity risk analysis to ensure that it
would have sufficient sources of liquidity to meet demand. AmSouth also reviews the impact of the potential drawdown of the liquidity lines on its regulatory capital requirements. As of September 30, 2002, this analysis showed that AmSouth would
retain its well-capitalized position even if the liquidity lines were completely drawn down.





Credit Quality





AmSouth maintains an allowance for loan losses which management believes is adequate to absorb losses
inherent in the loan portfolio. A formal review is prepared quarterly to assess the risk in the portfolio and to determine the adequacy of the allowance for loan losses. The review includes analyses of historical performance, the level of
nonperforming and adversely rated loans, specific analyses of certain problem loans, loan activity since the previous quarter, reports prepared by the Credit Review Department, consideration of current economic conditions, and other pertinent
information. The level of allowance to net loans outstanding will vary depending on the overall results of this quarterly review. The review is presented to and subsequently approved by senior management and reviewed by the Audit and Community
Responsibility Committee of the Board of Directors.





Table 5 presents a five-quarter analysis of the allowance for
loan losses. At September 30, 2002, the allowance for loan losses was $379.9 million, or 1.45 percent of loans net of unearned income, compared to $360.7 million, or 1.45 percent, at September 30, 2001 and $363.6 million, or 1.45 percent, at
December 31,




17




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##### Table of Contents

2001. The coverage ratio of the allowance for loan losses to nonperforming loans was 251 percent at September 30, 2002, an increase from the September 30, 2001 ratio of 211 percent. The increase
in the allowance at September 30, 2002 versus September 30, 2001 primarily reflected an increase in loan loss exposure as loan balances have increased over prior year levels.





Net charge-offs for the quarter ended September 30, 2002, were $42.9 million, or 0.66 percent of average loans, on an annualized basis, a decrease of $26.2 million from the
$69.1 million, or 1.11 percent of average loans, reported in the same period a year earlier. The decrease in net charge-offs was the result of a decrease in commercial net charge-offs partially offset by higher consumer charge-offs. The decrease in
commercial charge-offs reflected the impact of approximately $30 million of shared national credit loan charge-offs recorded in the third quarter of 2001. The increase in net charge-offs in the consumer portfolio reflected higher charge-offs within
the equity lending and revolving credit portfolios. The overall increase in consumer loan net charge-offs reflected the continued impact of the weakened economy as well as the continued growth and seasoning of the consumer loan portfolio. On a
year-to-date basis, 2002 net charge-offs were $143.8 million, or 0.75 percent of average loans on an annualized basis, compared to $153.2 million, or 0.83 percent, for the same period of 2001. This decrease reflected lower commercial net charge-offs
partially offset by an increase in consumer net charge-offs. As described in the quarterly comparison the reduction in the commercial charge-offs was primarily driven by the impact of approximately $30 million of shared national credit loans charged
off in the third quarter of 2001. On the consumer side, the increase was across most categories of consumer loans led by higher net charge-offs in the equity lending and dealer indirect automobile loan portfolio and reflected the continued impact of
a slow economy. The provision for loan losses for the third quarter and the first nine months of 2002 was $51.4 million and $160.1 million, respectively, compared to $49.2 million and $133.5 million for the corresponding year-earlier periods. The
increase in the provision for loan losses is consistent with the overall growth in AmSouths loan portfolio.





Table 6 presents a five-quarter comparison of the components of nonperforming assets. At September 30, 2002, nonperforming assets as a percentage of loans net of unearned income, foreclosed properties and repossessions decreased 10
basis points to 0.72 percent compared to 0.82 percent at September 30, 2001, reflecting a $15.4 million decrease in nonperforming assets. Compared to the year-end 2001 level of 0.76 percent, nonperforming assets have remained relatively flat through
the first nine months of 2002.





Included in nonperforming assets at September 30, 2002 and 2001, was $93.9 million
and $114.8 million, respectively, in loans that were considered to be impaired, substantially all of which were on a nonaccrual basis. At September 30, 2002 and 2001, there was $23.1 million and $25.4 million, respectively, in the allowance for loan
losses specifically allocated to $77.8 million and $88.8 million, respectively of impaired loans. No specific reserves were required for $16.1 million and $26.0 million of impaired loans at September 30, 2002 and 2001, respectively. The average
recorded investment in impaired loans for the three months ended September 30, 2002 and 2001, was $96.5 million and $126.4 million, respectively, and $101.8 million and $130.6 million, respectively, for the nine months ended September 30, 2002 and
2001. AmSouth recorded no material interest income on its impaired loans during the three and nine months ended September 30, 2002. At September 30, 2002, AmSouth had approximately $65.1 million of potential problem commercial loans which were not
included in the nonaccrual loans or in the 90 days past due categories at quarter-end but for which management had concerns as to the ability of such borrowers to comply with their present loan repayment terms.





Noninterest Revenues and Noninterest Expenses





Noninterest revenue (NIR) was $188.3 million during the third quarter of 2002, a 2.1 percent decline from the corresponding period in 2001. The decrease in NIR compared to
2001 was primarily due to a decrease in trust income, consumer investment services income, mortgage income and other noninterest revenues partially offset by increases in service charges on deposits, income from bank owned life insurance (BOLI),
bankcard and interchange income. Trust revenues were down $2.7 million in the third quarter when compared to the same period in 2001. This decrease reflected the continued weakness in the stock market and lower revenues related to the outsourcing of
Retirement Services record-keeping plans. The soft economy and current market conditions




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also negatively impacted consumer investment services income, which decreased $7.3 million in the third quarter of 2002 when compared to the same period of 2001. The decrease in consumer
investment services income reflected slower annuity and investment product sales. Mortgage income was lower in the third quarter compared to the same period in 2001 primarily as a result of lower income from the bulk sale of mortgage loans and
servicing in the secondary market and a $2.0 million gain on the sale of mortgage loans to third-party conduits recorded in the third quarter of 2001. The decrease in income from mortgage loan and servicing sales reflected the decision, during the
third quarter of 2002, to suspend AmSouths practice of selling a select portion of its mortgage loan portfolio into the secondary market. These decreases in mortgage income were partially offset by a $2.3 million increase associated with
changes in the fair market value of mortgage derivative instruments. AmSouth has historically utilized derivative instruments, primarily forward contracts, to economically hedge future sales of mortgage loans. Because these forward contracts did not
meet the strict requirements for hedge accounting treatment, AmSouth was required to record changes in the fair value of these forward contracts as an increase or decrease to earnings while any offsetting increase in the value of mortgage loans
these contracts were hedging was not permitted to be recorded as earnings. In addition to forward contracts, loan commitments associated with mortgages AmSouth planned to originate and sell were also considered derivative instruments and were marked
to market through earnings and tended to partially offset the changes in value of the forward contracts. As a result of AmSouths decision to halt the bulk sales of mortgage loans in the secondary markets, AmSouth, as of September 30, 2002, no
longer held derivative instruments associated with its mortgage operation. Other noninterest revenues for the quarter declined $10.8 million when compared to the same period last year. This decrease was due primarily to a steady decrease in
servicing and other fee income related to an automobile loan securitization and conduit transactions that occurred during the 2000 fiscal year. The decrease in fee income reflects the continued pay down of loan balances associated with these
transactions. The decrease in other NIR in the third quarter of 2002 also reflected a $1.7 million loss, recorded in the third quarter of 2002, on a commercial lease transaction due to a drop in residual value and the impact of $4.9 million of gains
associated with the sale of an equity related interest and a branch facility in the third quarter of 2001.





Partially offsetting the decreases in these NIR categories was an increase in service charges on deposit accounts. Service charges on deposit accounts increased approximately $13.0 million versus the third quarter of 2001. This
increase reflected higher treasury management fees and higher revenues from overdraft fees. The increase in overdraft fees reflected a change made last quarter making overdraft charges consistent for both electronic and paper-based payments. BOLI
and interchange income for the third quarter also increased compared to the same quarter in 2001. The increase in BOLI income reflected the receipt of benefit payments during the period. The increase in interchange income reflected AmSouths
continued emphasis on debit card sales and reflected increased utilization of checkcards and business checkcards and higher ATM fees.





On a year-to-date basis, NIR was $547.1 million, a decrease of $15.2 million or 2.7 percent versus the first nine months of 2001. The decrease in NIR on a year-to-date basis was primarily associated with decreases in trust,
consumer investment services and mortgage income as well as other NIR partially offset by higher service charges on deposit accounts, BOLI income and interchange fees. The reasons for the decreases in trust and consumer investment services income
were consistent with those discussed in the quarterly analysis above. The decrease in mortgage income was primarily the result of a $4.1 million decrease in mortgage derivative income (see discussion in quarterly analysis above) and the impact in
2001 of a $2.0 million gain from the sale of mortgage loans to third-party conduits. These decreases were partially offset by a $2.3 million increase in mortgage conduit income during the first nine months of 2002 versus the same period in 2001.
Other NIR, on a year-to-date basis, decreased by $32.2 million compared to 2001. A portion of the decrease was associated with the items described in the quarterly analysis. The remaining decrease reflected a $2.2 million decrease associated with
lower market valuations on derivative instruments, a $4.2 million charge recorded in 2002 associated with a loss on a fixed asset and the sale of branch facilities and other assets. The decrease between years was also impacted by a $4.4 million
adjustment associated with an equity investment and approximately $3.8 million of gains related to the sale of leased equipment and an equity investment stock sale recorded in 2001. The reasons for the increases in service charges on deposit
accounts, BOLI income and interchange income are consistent with those discussed in the quarterly analysis above.




19




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##### Table of Contents




Noninterest expenses (NIE) for the third quarter of 2002 declined $14.2 million
or 4.8 percent compared to the same period in 2001. Excluding the impact of the accounting change that resulted in goodwill no longer being amortized against earnings beginning in 2002, NIE decreased $6.9 million or 2.4 percent in the third quarter
of 2002 when compared to the corresponding period in 2001. Excluding the impact of goodwill amortization, the decrease in NIE was primarily the result of lower communication and other noninterest expenses. The decrease in communications expense was
primarily the result of lower expenses associated with the consolidation and renegotiation of services associated with a change in vendor. The decrease in other NIE primarily reflected a $3.1 million recovery associated with the sale of a credit
derivative contract. AmSouth recorded a $3.7 million charge in the second quarter associated with the same credit derivative contract after AmSouth eliminated its credit exposure to the corporate customer for which the credit derivative provided
protection. During the third quarter, the corporate customer for which the credit derivative provided protection released negative financial information which enabled AmSouth to sell the credit derivative contract and recover a portion of the amount
it had written off.





On a year-to-date basis, NIE decreased $7.8 million or 1.0 percent for the first nine months
of 2002 compared to the same period in 2001. Excluding the impact of goodwill amortization in 2001, however, NIE increased $14.3 million or 1.7 percent when comparing the first nine months of 2002 with the same period in 2001. The increase in NIE
excluding goodwill amortization primarily reflected increases in salaries and employee benefits and net occupancy expense partially offset by a decrease in communication expense. The increase in salaries and employee benefits primarily reflected
higher employee benefit costs associated with higher insurance and pension costs as well as higher incentive accruals related to improved performance. The increase in occupancy expense reflected higher depreciation expenses associated with the
opening of new branches and other capital projects. The decrease in communication expense, as described in the quarterly analysis, was primarily the result of lower expense associated with a change in vendor. As described above in both the quarterly
and year-to-date analysis, amortization expense declined as a result of the adoption of Statement 142 on January 1, 2002. Statement 142 no longer permits the amortization of goodwill and intangible assets with indefinite useful lives but requires
these assets to be tested for impairment at least annually. For more information on the impact of adopting Statement 142, see the Notes to Consolidated Financial Statements section in Part I of this report.





Capital Adequacy





At September 30, 2002, shareholders equity totaled $3.1 billion or 7.88 percent of total assets. Since December 31, 2001, shareholders equity increased $167.6 million primarily as a result of net income for the
first nine months of $453.9 million. The increase in shareholders equity from net income was partially offset by the declaration of dividends of $238.6 million and the purchase of 8.2 million shares of AmSouth common stock for $173.0 million
during the first nine months of 2002. In addition, shareholders equity increased $82.7 million as a result of higher valuation of the AFS portfolio and decreased $7.3 million due to changes in other comprehensive income associated with cash
flow hedges.





Table 9 presents the capital amounts and risk-adjusted capital ratios for AmSouth and AmSouth Bank
at September 30, 2002 and 2001. At September 30, 2002, AmSouth exceeded the regulatory minimum required risk-adjusted Tier 1 Capital Ratio of 4.00% and risk-adjusted Total Capital Ratio of 8.00%. In addition, the risk-adjusted capital ratios for
AmSouth Bank were above the regulatory minimums, and the Bank was well capitalized at September 30, 2002.





Earnings Outlook





Looking ahead, the net interest margin is expected to decline in the
fourth quarter to a range between 4.15 percent and 4.25 percent. This decrease reflects the full impact of maintaining additional liquidity for anticipated future loan growth, the runoff of interest rate swaps in the third quarter, lower levels of
interest from retained interests in loans sold to third-party conduits as these balances continue to decline, and higher prepayment activity. AmSouth expects nonperforming loans and net charge-offs to fluctuate for the remainder of 2002 in a
relatively narrow band around the levels of the last few quarters. Noninterest revenue growth in the low to mid




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




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##### Table of Contents




Table 1Financial Summary





September 30

% Change2002

2001(In thousands)Balance sheet summaryEnd-of-period balances:Loans net of unearned income

$
26,286,850

$
24,901,060

5.6
%Total assets


39,610,727


38,264,805

3.5Total deposits


26,631,802


25,873,948

2.9Shareholders' equity


3,122,747


2,970,662

5.1Year-to-date average balances:Loans net of unearned income

$
25,619,749

$
24,702,003

3.7
%Total assets


38,135,437


38,359,859

(0.6
)Total deposits


25,632,711


26,002,930

(1.4
)Shareholders' equity


3,015,084


2,865,476

5.2





Nine Months Ended September 30


% Change


Three Months Ended September 30


% Change2002


2001



2002


2001(In thousands except per share data)Earnings summaryNet income

$
453,940


$
395,825


14.7
%

$
156,001


$
136,093


14.6
%Earnings per common share


1.26



1.07


17.8



.44



.37


18.9Diluted earnings per common share


1.25



1.06


17.9



.43



.37


16.2Return on average assets (annualized)


1.59
%


1.38
%





1.60
%


1.41
%Return on average equity (annualized)


20.13



18.47






20.19



18.59Return on average equity (excluding goodwill, annualized)


20.13



19.48






20.19



19.58Operating efficiency


50.62



53.95






49.45



53.37Operating efficiency (excluding goodwill)


50.62



52.59






49.45



52.06Selected ratiosAverage equity to assets


7.91
%


7.47
%





7.93
%


7.60
%End-of-period equity to assets


7.88



7.76






7.88



7.76End-of-period tangible equity to assets


7.17



7.00






7.17



7.00Allowance for loan losses to loans net of unearned income


1.45



1.45






1.45



1.45Common stock dataCash dividends declared

$
.66


$
.63





$
.22


$
.21Book value at end of period


8.73



8.14






8.73



8.14Market value at end of period


20.74



18.07






20.74



18.07Average common shares outstanding


359,653



368,945






357,567



365,970Average common shares outstanding-diluted


364,197



372,489






361,961



370,116




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##### Table of Contents

Table 2Year-to-Date Yields Earned on Average Interest-Earning Assets


and Rates Paid on Average Interest-Bearing Liabilities





2002


2001Nine Months Ended September
30


Nine Months Ended September
30Average Balance


Revenue/ Expense

Yield/ Rate


Average Balance


Revenue/ Expense

Yield/ Rate(Taxable equivalent basis-dollars in thousands)AssetsInterest-earning assets:Loans net of unearned income

$
25,619,749


$
1,292,693

6.75
%

$
24,702,003


$
1,537,628

8.32
%Available-for-sale securities:Taxable


4,261,173



255,953

8.03



4,137,089



239,276

7.73Tax-free


69,085



4,083

7.90



88,773



5,145

7.75Total available-for-sale securities


4,330,258



260,036

8.03



4,225,862



244,421

7.73Held-to-maturity securities:Taxable


3,688,740



178,647

6.48



4,142,195



209,581

6.76Tax-free


342,068



19,286

7.54



343,829



19,021

7.40Total held-to-maturity securities


4,030,808



197,933

6.57



4,486,024



228,602

6.81Total investment securities


8,361,066



457,969

7.32



8,711,886



473,023

7.26Other interest-earning assets


501,395



14,178

3.78



1,538,899



60,592

5.26Total interest-earning assets


34,482,210



1,764,840

6.84



34,952,788



2,071,243

7.92Cash and other assets


3,880,889









3,703,585Allowance for loan losses


(371,940
)








(381,465
)Market valuation on available-for-sale securities


144,278









84,951$
38,135,437








$
38,359,859Liabilities and Shareholders' EquityInterest-bearing liabilities:Interest-bearing demand deposits

$
10,526,714


$
88,623

1.13


$
9,898,365


$
217,629

2.94Savings deposits


1,299,769



5,584

0.57



1,214,898



13,367

1.47Time deposits


6,488,436



184,024

3.79



7,683,111



328,731

5.72Foreign time deposits


397,881



4,099

1.38



308,491



8,383

3.63Certificates of deposit of $100,000 or more


2,061,077



53,863

3.49



2,350,839



102,585

5.83Federal funds purchased and securities sold under agreements to repurchase


2,008,982



21,385

1.42



2,248,426



64,649

3.84Other interest-bearing liabilities


6,300,865



236,755

5.02



6,319,092



272,169

5.76Total interest-bearing liabilities


29,083,724



594,333

2.73



30,023,222



1,007,513

4.49Net interest spread








4.11
%








3.43
%Noninterest-bearing demand deposits


4,858,834









4,547,226Other liabilities


1,177,795









923,935Shareholders' equity


3,015,084









2,865,476$
38,135,437








$
38,359,859Net interest income/margin on a taxable equivalent basis






1,170,507

4.54
%






1,063,730

4.07
%Taxable equivalent adjustment:Loans






23,261









28,691Available-for-sale securities






3,662









3,722Held-to-maturity securities






11,907









12,063Total taxable equivalent adjustment






38,830









44,476Net interest income





$
1,131,677








$
1,019,254


---

|NOTE: |  | The taxable equivalent adjustment has been computed based on the statutory federal income tax rate, adjusted for applicable state income taxes net of the
related federal tax benefit. Loans net of unearned income includes nonaccrual loans for all periods presented. Available-for-sale securities excludes certain noninterest-earning, marketable equity securities. Statement 133 valuation adjustments
related to time deposits, certificates of deposit of $100,000 or more and other interest-bearing liabilities are included in other liabilities.
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents




Table 3Quarterly Yields Earned on Average Interest-Earning Assets and Rates Paid
on Average Interest-Bearing Liabilities





2002


2001Third Quarter


Second Quarter


First Quarter


Fourth Quarter


Third QuarterAverage Balance


Revenue/ Expense

Yield/ Rate


Average Balance


Revenue/ Expense

Yield/ Rate


Average Balance


Revenue/ Expense

Yield/ Rate


Average Balance


Revenue/ Expense

Yield/ Rate


Average Balance


Revenue/ Expense

Yield/ Rate(Taxable equivalent basis-dollars in thousands)AssetsInterest-earning assets:Loans net of unearned income

$
25,877,960


$
426,248

6.53
%

$
25,701,987


$
433,331

6.76
%

$
25,272,649


$
433,114

6.95
%

$
24,947,167


$
463,816

7.38
%

$
24,762,932


$
494,161

7.92
%Available-for-sale securities:Taxable


4,256,356



84,266

7.85



4,199,230



86,554

8.27



4,328,728



85,133

7.98



4,404,328



84,852

7.64



4,341,632



84,445

7.72Tax-free


64,756



1,252

7.67



68,526



1,365

7.99



74,076



1,466

8.03



79,009



1,580

7.93



81,699



1,590

7.72Total available-for-sale securities


4,321,112



85,518

7.85



4,267,756



87,919

8.26



4,402,804



86,599

7.98



4,483,337



86,432

7.65



4,423,331



86,035

7.72Held-to-maturity securities:Taxable


3,773,509



60,081

6.32



3,684,672



59,602

6.49



3,606,201



58,964

6.63



3,884,256



64,628

6.60



3,987,733



66,416

6.61Tax-free


342,268



6,416

7.44



341,933



6,434

7.55



341,999



6,436

7.63



341,890



6,401

7.43



341,982



6,365

7.38Total held-to-maturity securities


4,115,777



66,497

6.41



4,026,605



66,036

6.58



3,948,200



65,400

6.72



4,226,146



71,029

6.67



4,329,715



72,781

6.67Total investment securities


8,436,889



152,015

7.15



8,294,361



153,955

7.44



8,351,004



151,999

7.38



8,709,483



157,461

7.17



8,753,046



158,816

7.20Other interest-earning assets


620,380



4,263

2.73



396,264



4,628

4.68



486,064



5,287

4.41



553,016



5,711

4.10



1,265,120



13,766

4.32Total interest-earning assets


34,935,229



582,526

6.62



34,392,612



591,914

6.90



34,109,717



590,400

7.02



34,209,666



626,988

7.27



34,781,098



666,743

7.61Cash and other assets


3,914,917









3,819,140









3,908,544









3,841,728









3,678,731Allowance for loan losses


(377,708
)








(372,870
)








(365,104
)








(359,404
)








(382,177
)Market valuation on available-for-sale securities


177,922









123,815









130,575









185,967









127,813$
38,650,360








$
37,962,697








$
37,783,732








$
37,877,957








$
38,205,465Liabilities and Shareholders' EquityInterest-bearing liabilities:Interest-bearing demand deposits

$
10,572,606



30,668

1.15


$
10,503,635



29,034

1.11


$
10,503,137



28,921

1.12


$
10,298,075



36,367

1.40


$
10,080,711



61,961

2.44Savings deposits


1,309,966



1,878

0.57



1,316,202



1,888

0.58



1,272,730



1,818

0.58



1,227,991



2,347

0.76



1,213,940



3,817

1.25Time deposits


6,462,647



59,145

3.63



6,397,321



60,593

3.80



6,606,926



64,286

3.95



6,991,178



78,340

4.45



7,511,350



101,607

5.37Foreign time deposits


482,911



1,668

1.37



371,251



1,329

1.44



337,886



1,102

1.32



360,579



1,430

1.57



313,799



2,152

2.72Certificates of deposit of $100,000 or more


2,178,556



18,140

3.30



1,988,035



17,086

3.45



2,014,841



18,637

3.75



2,051,701



23,334

4.51



2,214,303



30,036

5.38Federal funds purchased and securities sold under agreements to repurchase


1,973,865



7,452

1.50



2,067,050



7,704

1.49



1,986,166



6,229

1.27



2,035,112



8,239

1.61



2,162,744



15,664

2.87Other interest-bearing liabilities


6,406,880



79,613

4.93



6,346,331



79,236

5.01



6,146,522



77,906

5.14



6,164,694



82,086

5.28



6,238,392



87,095

5.54Total interest-bearing liabilities


29,387,431



198,564

2.68



28,989,825



196,870

2.72



28,868,208



198,899

2.79



29,129,330



232,143

3.16



29,735,239



302,332

4.03Net interest spread








3.94
%








4.18
%








4.23
%








4.11
%








3.58
%Noninterest-bearing demand deposits


4,892,434









4,852,478









4,830,915









4,729,238









4,591,157Other liabilities


1,304,866









1,118,620









1,107,735









1,059,602









974,955Shareholders' equity


3,065,629









3,001,774









2,976,874









2,959,787









2,904,114$
38,650,360








$
37,962,697








$
37,783,732








$
37,877,957








$
38,205,465Net interest income/margin on a taxable equivalent basis






383,962

4.36
%






395,044

4.61
%






391,501

4.65
%






394,845

4.58
%






364,411

4.16
%Taxable equivalent adjustment:Loans






7,428









7,714









8,119









13,951









13,168Available-for-sale securities






1,152









1,219









1,291









1,277









1,241Held-to-maturity securities






4,032









3,978









3,897









3,987









3,965Total taxable equivalent adjustment






12,612









12,911









13,307









19,215









18,374Net interest income





$
371,350








$
382,133








$
378,194








$
375,630








$
346,037


---

|NOTE: |  | The taxable equivalent adjustment has been computed based on the statutory federal income tax rate, adjusted for applicable state income taxes net of the
related federal tax benefit. Loans net of unearned income includes nonaccrual loans for all periods presented. Available-for-sale securities excludes certain noninterest-earning, marketable equity securities. Statement 133 valuation adjustments
related to time deposits, certificates of deposit of $100,000 or more and other interest-bearing liabilities are included in other liabilities.
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



24




---

##### Table of Contents




Table 4Loans and Credit Quality





Loans* September
30

Nonperforming Loans** September 30

Net Charge-offs Nine Months
Ended September 302002

2001

2002

2001

2002


2001(In thousands)Commercial:Commercial & industrial

$
6,756,011

$
6,947,116

$
78,543

$
96,216

$
55,312


$
79,374Commercial loanssecured by real estate


1,664,831


1,662,608


14,684


17,060


(106
)


4,293Total commercial


8,420,842


8,609,724


93,227


113,276


55,206



83,667Commercial real estate:Commercial real estate mortgages


2,142,236


2,270,899


19,938


18,518


450



732Real estate construction


2,206,642


2,345,379


15,641


21,012


1,557



373Total commercial real estate


4,348,878


4,616,278


35,579


39,530


2,007



1,105Consumer:Residential first mortgages


2,163,751


1,560,330


10,494


12,449


1,993



1,496Equity loans and lines


6,179,910


5,104,451


11,470


4,546


19,937



11,020Dealer indirect


3,725,620


3,383,871


-0-


1


36,205



30,105Revolving credit


519,326


500,647


-0-


-0-


18,137



15,250Other consumer


928,523


1,125,759


672


893


10,344



10,574Total consumer


13,517,130


11,675,058


22,636


17,889


86,616



68,445$
26,286,850

$
24,901,060

$
151,442

$
170,695

$
143,829


$
153,217


---

|* |  | Net of unearned income.
|- |  | -----------------------

|** |  | Exclusive of accruing loans 90 days past due.
|-- |  | ---------------------------------------------




Table 5Allowance for Loan Losses





2002


20013rd Quarter


2nd Quarter


1st Quarter


4th Quarter


3rd Quarter(Dollars in thousands)Balance at beginning of period

$
371,418


$
367,819


$
363,607


$
360,717


$
380,663Loans charged off


(53,928
)


(59,857
)


(62,806
)


(60,582
)


(81,320
)Recoveries of loans previously charged off


10,988



10,856



10,918



9,872



12,174Net charge-offs


(42,940
)


(49,001
)


(51,888
)


(50,710
)


(69,146
)Addition to allowance charged to expense


51,400



52,600



56,100



53,600



49,200Balance at end of period

$
379,878


$
371,418


$
367,819


$
363,607


$
360,717Allowance for loan losses to loans net of unearned income


1.45
%


1.45
%


1.45
%


1.45
%


1.45
%Allowance for loan losses to nonperforming loans*


250.84
%


243.26
%


232.16
%


228.29
%


211.32
%Allowance for loan losses to nonperforming assets*


201.29
%


195.99
%


190.60
%


190.29
%


176.69
%Net charge-offs to average loans net of unearned income (annualized)


0.66
%


0.76
%


0.83
%


0.81
%


1.11
%


---

|* |  | Exclusive of accruing loans 90 days past due.
|- |  | ---------------------------------------------



25




---

##### Table of Contents




Table 6Nonperforming Assets





2002


2001September 30


June 30


March 31


December 31


September 30(Dollars in thousands)Nonaccrual loans

$
151,442


$
152,684


$
158,435


$
159,274


$
170,695Foreclosed properties


32,567



32,838



29,462



27,443



28,006Repossessions


4,716



3,982



5,080



4,365



5,449Total nonperforming assets*

$
188,725


$
189,504


$
192,977


$
191,082


$
204,150Nonperforming assets* to loans net of unearned income, foreclosed properties and repossessions


0.72
%


0.74
%


0.76
%


0.76
%


0.82
%Accruing loans 90 days past due

$
93,700


$
91,376


$
117,068


$
116,576


$
102,373


---

|* |  | Exclusive of accruing loans 90 days past due.
|- |  | ---------------------------------------------




Table 7Investment Securities





September 30, 2002

September 30, 2001Carrying Amount

Market Value

Carrying Amount

Market Value(In thousands)Held-to-maturity:U.S. Treasury and federal agency securities

$
2,866,337

$
2,955,499

$
2,729,479

$
2,819,144Other securities


1,006,420


1,032,728


1,317,614


1,355,846State, county and municipal securities


342,404


374,627


342,234


360,173$
4,215,161

$
4,362,854

$
4,389,327

$
4,535,163Available-for-sale:U.S. Treasury and federal agency securities

$
3,613,444




$
3,743,639Other securities


760,563





912,246State, county and municipal securities


74,348





93,941$
4,448,355




$
4,749,826


---

|NOTES: |  | 
|------ |  | 




|1. |  | The weighted average remaining life, which reflects the amortization on mortgage related and other asset-backed securities, and the weighted average yield on
the combined held-to-maturity and available-for-sale portfolios at September 30, 2002, were approximately 2.2 years and 6.08%, respectively. Included in the combined portfolios was $7.3 billion of mortgage-backed securities. The weighted-average
remaining life and the weighted-average yield of mortgage-backed securities at September 30, 2002, were approximately 2.0 years and 6.04%, respectively. The duration of the combined portfolios, which considers the repricing frequency of variable
rate securities, is approximately 1.9 years.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|2. |  | The available-for-sale portfolio included net unrealized gains of $197.1 million and $194.2 million at September 30, 2002 and 2001, respectively.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------



26




---

##### Table of Contents




Table 8Other Interest-Bearing Liabilities





September 302002

2001(In thousands)Other borrowed funds:Treasury, tax and loan notes

$
25,607

$
25,000Commercial paper


6,073


12,524Other borrowings


44,748


43,649Total other borrowed funds

$
76,428

$
81,173Other long-term debt:6.45% Subordinated Notes Due 2018

$
302,652

$
303,1506.125% Subordinated Notes Due 2009


174,715


174,6046.75% Subordinated Debentures Due 2025


149,946


149,9287.75% Subordinated Notes Due 2004


149,847


149,7567.25% Senior Notes Due 2006


99,744


99,6736.875% Subordinated Notes Due 2003


49,982


49,9506.625% Subordinated Notes Due 2005


49,828


49,775Other long-term debt


3,427


8,016Statement 133 valuation adjustment


71,777


40,315Total other long-term debt

$
1,051,918

$
1,025,167





Table 9Capital Amounts and Ratios





September 302002


2001Amount

Ratio


Amount

Ratio(Dollars in thousands)Tier 1 capital:AmSouth

$
2,718,140

7.94
%

$
2,585,570

7.71
%AmSouth Bank


3,303,047

9.68



3,266,068

9.75Total capital:AmSouth

$
3,730,121

10.90
%

$
3,692,807

11.00
%AmSouth Bank


3,990,479

11.69



3,939,061

11.76Leverage:AmSouth

$
2,718,140

7.08
%

$
2,585,570

6.82
%AmSouth Bank


3,303,047

8.61



3,266,068

8.62




27




---

##### Table of Contents




Table 10Contractual Obligations and Commercial Commitments





Payments Due By PeriodTotal

Less than 1 year

1-3 years

3-5 years

After 5 years(Dollars in thousands)Borrowings (1)

$
8,363,371

$
2,915,096

$
1,353,269

$
425,986

$
3,669,020Operating leases


408,409


49,331


79,998


66,815


212,265Time deposits (2)


9,195,601


5,503,802


2,875,937


815,862


-0-Total contractual cash obligations

$
17,967,381

$
8,468,229

$
4,309,204

$
1,308,663

$
3,881,285Amount of Commitment Expiration Per PeriodTotal

Less than 1 year

1-3 years

3-5 years

After 5 years(Dollars in thousands)Commercial letters of credit

$
60,826

$
43,178

$
17,648

$
-0-

$
-0-Standby letters of credit


2,655,408


1,371,495


879,276


320,202


84,435Commitments to extend credit (3)


14,370,328


10,622,036


2,765,745


924,134


58,413Total commercial commitments

$
17,086,562

$
12,036,709

$
3,662,669

$
1,244,336

$
142,848


---

|NOTES: |  | 
|------ |  | 

|1. |  | All maturities are based on contractual maturities. Excludes $71.8 million of FAS 133 valuation adjustments.
|-- |  | ------------------------------------------------------------------------------------------------------------

|2. |  | Excludes $2.8 million of FAS 133 valuation adjustments.
|-- |  | -------------------------------------------------------

|3. |  | Excludes $3.3 billion of loan commitments under equity lines and $2.0 billion under revolving lines of credit which do not have scheduled expiration dates.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------






28




---

##### Table of Contents




Item 3.    
Quantitative and Qualitative Disclosures About Market Risk





The information required by
this item is included on pages 15 and 16 of Part 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.





Item 4.    
Controls and Procedures





An evaluation was performed within the last ninety days under
the supervision and with the participation of AmSouths management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of AmSouths disclosure controls and
procedures. Based on that evaluation, AmSouths management, including the CEO and CFO, concluded that AmSouths disclosure controls and procedures were effective as of September 30, 2002. There have been no significant changes in
AmSouths internal controls or in other factors that could significantly affect internal controls subsequent to September 30, 2002.





PART II





OTHER INFORMATION





Item 1.    
Legal Proceedings





Several of AmSouths subsidiaries are parties to legal
proceedings arising in the ordinary course of business. Some of these proceedings seek relief or damages that are substantial. The actions relate to AmSouths lending, collections, loan servicing, deposit taking, investment, trust, and other
activities.





Among the actions which are pending against AmSouth subsidiaries are actions filed as class actions.
The actions are similar to others that have been brought in recent years against financial institutions in that they seek punitive damage awards and/or injunctive relief relating to transactions involving relatively small amounts of actual damages.
A disproportionately higher number of the more significant lawsuits against AmSouth have been filed in Mississippi relative to the amount of business done by AmSouth in Mississippi. In addition, lawsuits brought in Alabama and Mississippi against
AmSouth and other corporate defendants typically demand higher damages than similar lawsuits brought elsewhere, and often request punitive damages.Legislation has been enacted in Alabama that is designed to limit the potential amount of
punitive damages that can be recovered in individual cases in the future. However, AmSouth cannot predict the effect of the legislation at this time.





It may take a number of years to finally resolve some of these legal proceedings, due to their complexity and for other reasons. It is not possible to determine with any certainty at this time the
corporations potential exposure from the proceedings. At times, class actions are settled by defendants without admission or even an actual finding of wrongdoing but with payment of some compensation to purported class members and large
attorneys fees to plaintiff class counsel. Nonetheless, based upon the advice of legal counsel, AmSouths management is of the opinion that the ultimate resolution of these legal proceedings will not have a material adverse effect on
AmSouths financial condition or results of operations.





Item 6.    
Exhibits and Reports on Form 8-K





Item 6(a)Exhibits





The exhibits listed in the Exhibit Index at page 33 of this Form 10-Q are filed herewith or are incorporated
by reference herein.





Item 6(b)Reports on Form 8-K





One report on Form 8-K was filed by AmSouth during the period July 1, 2002 to September 30, 2002:





The report was filed on August 7, 2002 to furnish copies of required certifications made by the CEO and CFO of AmSouth.




29




---

##### Table of Contents




SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934,
AmSouth has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





November 6, 2002



By:

/s/    C. DOWD
RITTERC. Dowd Ritter Chairman,
President and Chief Executive Officer





November 6, 2002



By:

/s/    DONALD R. KIMBLEDonald R. Kimble Executive Vice
President, Chief Accounting Officer and Controller







30




---

##### Table of Contents




CERTIFICATION





I, C. Dowd Ritter, certify that:





| | 1. |  | I have reviewed this quarterly report on Form 10-Q of AmSouth Bancorporation;
| | -- |  | -----------------------------------------------------------------------------




| | 2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent function):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------




| | 6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Date: November 6, 2002





/s/    C. DOWD RITTERC. Dowd Ritter Chief Executive Officer







31




---

##### Table of Contents




CERTIFICATION





I, Sloan D. Gibson, certify that:





| | 1. |  | I have reviewed this quarterly report on Form 10-Q of AmSouth Bancorporation;
| | -- |  | -----------------------------------------------------------------------------




| | 2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent function):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------




| | 6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Date: November 6, 2002





/s/    SLOAN D. GIBSONSloan D. Gibson Chief Financial Officer




32




---

##### Table of Contents




EXHIBIT INDEX





The following is a list of exhibits including items incorporated by
reference.





3.1

Restated Certificate of Incorporation of AmSouth Bancorporation (1)3.2

By-Laws of AmSouth Bancorporation (2)15

Letter Re: Unaudited Interim Financial Information





NOTES TO EXHIBITS





|(1) |  | Filed as Exhibit 3.1 to AmSouths Report on Form 8-K filed October 15, 1999, incorporated herein by reference.
|--- |  | --------------------------------------------------------------------------------------------------------------

|(2) |  | Filed as Exhibit 3-b to AmSouths Form 10-Q Quarterly Report for the quarter ended March 31, 2001, incorporated herein by reference.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------



33