Exhibit 13

AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



OVERVIEW This section of the annual report provides a narrative discussion and analysis of AmSouth Bancorporations (AmSouth or the Company) consolidated
financial condition for the previous two years and results of operations for the previous three years, although some tables may cover more than three years to comply with Securities and Exchange Commission (SEC) disclosure requirements or to
illustrate trends over a longer period of time. Managements Discussion and Analysis discusses the key factors that drive AmSouths performance as well as the associated risks to future profitability and liquidity. All tables, graphs and
financial statements included in this report should be considered an integral part of this analysis. Managements Discussion and Analysis is divided into six main sections: Executive Summary, Earnings Performance,
Consolidated Balance Sheet Analysis, Risk Management, Line of Business Results and Comparison of 2004 with 2003. The Executive Summary provides discussion on various topics, such as an overview of AmSouths businesses, its business mix and strategy, key performance metrics tracked by AmSouth, an overview of the
economy, a discussion of regulatory agreements and related settlements, a GAAP to non-GAAP reconciliation table, a financial highlights section, a summary of results for 2005 and 2004, an earnings outlook for 2006, and a summary of critical
accounting estimates used by Management in the preparation of the consolidated financial statements. The Earnings Performance section presents a discussion of the main components of the consolidated statements of earnings. Sources of
revenue and expense items are defined and trends in each area are discussed in detail. The Consolidated Balance Sheet Analysis covers the main components of the consolidated balance sheets. It discusses the different balance sheet
categories and related trends in loans, investments and other earning assets, as well as deposits, other funding sources and shareholders equity. The Risk Management section of the Managements Discussion and Analysis defines
the main areas of risk encountered by AmSouth, how those risks are managed and relevant trends in each area. The last sections of Managements Discussion and Analysis include a discussion of results from AmSouths principal lines of
business and a summary comparison of 2004 to 2003 results.


Managements Discussion and Analysis contains forward-looking statements that involve inherent risks and uncertainties. Actual results may differ
materially from those contained in these forward-looking statements. For additional information regarding forward-looking statements, see the section titled Forward-Looking Statements in Managements Discussion and Analysis. EXECUTIVE SUMMARY COMPANY OVERVIEW AmSouth is a regional bank holding company headquartered in Birmingham, Alabama, with approximately $53 billion
in assets, more than 675 branch banking offices and over 1,200 ATMs. AmSouth operates in Florida, Tennessee, Alabama, Mississippi, Louisiana and Georgia. AmSouth is a leader among regional banks in the Southeast and has three principal business
segments. Consumer Banking delivers a full range of financial services to individuals and small businesses, including loan products such as residential mortgages, equity lending, loans for automobile and other personal financing needs, and various
products designed to meet the needs of small businesses. Consumer Banking also offers various deposit products to meet customers savings and transaction needs. Commercial Banking meets the requirements of corporate and middle market customers
with a comprehensive array of credit, treasury management, international and capital markets services. Included among these are several specialty services such as real estate finance, asset-based lending and commercial leasing. Wealth Management is
comprised of trust, Private Client Services and broker-dealer services. This area includes traditional trust services, as well as a substantial selection of investment management services. AmSouth also provides a complete listing of banking products
and services at its website, www.amsouth.com.




25



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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



BUSINESS MIX AmSouths business model is based on a balanced and diversified business mix that provides a broad range of financial products and
services, delivered through multiple distribution channels. In addition to typical lending and deposit-taking activities, AmSouth offers investment products and services for both individual and institutional clients. This business mix produces
revenue from the interest income earned on earning assets such as loans and securities, less the cost of funding those assets from sources such as customer deposits and borrowed funds, as well as fee income from service charges, trust, consumer
investment services, interchange (electronic transactions), and other products and services. AmSouth also incurs noninterest expense, which represents costs of doing business, including items such as salaries and employee benefits, occupancy and
equipment. BUSINESS STRATEGY AmSouths ultimate goal is to manage its business to produce sustained, quality earnings growth over time. AmSouths strategy for achieving this goal focuses on internally generated earnings growth,
primarily driven by seven strategic initiatives which were established by Management and approved by the Board of Directors. The seven initiatives include several operating tactics that AmSouth believes can generate the strongest earnings growth and
returns for shareholders without creating undue concentrations of risk and reflect the primary areas where resources are invested. The initiatives for the current three-year strategic planning cycle, which began in 2004, include:  

Sustained growth in Consumer Banking;  

Continued aggressive growth in Business Banking;  

Grow Commercial Banking with improved credit quality;  

Double the contribution from Wealth Management;  

Double Floridas contribution;  

Emphasis on sales productivity, service quality and customer retention; and  

Leverage technology across all lines of business with increasing emphasis on Internet services.


While these strategic initiatives are impacted to varying
degrees by the performance of the financial markets and other external factors, such as economic growth rates and the level of interest rates, AmSouth believes that its market demographics, business mix and strategy position the Company for
sustained earnings growth throughout almost any economic cycle. KEY PERFORMANCE MEASURES To measure its overall performance, AmSouth monitors several key metrics that are common for banks. Profitability Measures  

Diluted Earnings Per Share represents the net income earned for each share of stock outstanding on a fully diluted basis, which includes the effect of restricted stock and
the effect of stock options to the extent that the market value of the underlying stock exceeds the options exercise prices.  

Return on Equity measures the profit earned by a company through investing shareholders equity. It is computed by dividing net income by average shareholders
equity for the period being measured.  

Return on Assets measures how efficiently a company utilizes its assets to generate net income. It is computed by dividing net income by average total assets for the period
being measured.  

The Net Interest Margin measures how effectively a company utilizes its interest-earning assets in relationship to the interest cost of funding them. It is computed by
dividing net interest income, on a fully taxable-equivalent basis, by average earning assets for the period being measured.  

The Efficiency Ratio measures productivity in banking and represents the amount of expense utilized to generate a dollar of revenue. The efficiency ratio is calculated by
dividing total noninterest expense by the sum of net interest income, on a fully taxable-equivalent basis, and total noninterest revenue.




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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



Credit Quality Measures  

The Net Charge-off Ratio measures the level of net charge-offs (gross charge-offs less recoveries) or net loan losses, relative to the average loans outstanding for the
period being measured.  

The Nonperforming Assets Ratio measures the level of nonaccrual loans (including nonaccrual leases), foreclosed properties and repossessed assets relative to total loans,
foreclosed properties and repossessed assets.  

The Allowance for Loan and Lease Losses Ratio represents the allowance for loan and lease losses expressed as a percentage of total net loans at the end of the period being
measured.  

The ratio of the Allowance for Loan and Lease Losses to Nonperforming Loans measures the extent to which the allowance for loan and lease losses covers nonperforming loans. ECONOMIC OVERVIEW The United States economy expanded at a slightly above-average rate in 2005, benefiting from strong consumer and business spending. Real Gross Domestic Product (GDP), the broadest measure of the nations output
of goods and services, increased about 3.5 percent in 2005, compared with 4.2 percent in 2004 and 2.7 percent in 2003, or an average of 3.3 percent over the past ten years. While business spending is likely to remain strong, emerging indications of
softer consumer spending momentum raise some concern about sustaining above-average overall growth. Economic growth, combined with the
Federal Reserves concern about long-term inflation, led the Federal Reserve to increase its short-term benchmark interest rate eight times in 25 basis point increments in 2005, adding 200 basis points to the five 25 basis point increases in
2004. This brought the Fed Funds rate to 4.25 percent at the end of 2005. These increases were matched by equal


increases in the Prime lending rate, which ended 2005 at 7.25 percent. Since the initial increase in June 2004, the Federal Reserves objective has been
to shift from a highly stimulative, or accommodative, policy to a neutral stance. After the December 2005 policy meeting, the Federal Reserve announced that monetary policy had reached a neutral position. However, while the underlying
inflation rate remains well within the Federal Reserves threshold, concerns remained about possible higher inflation in future periods. As a result, additional Fed Funds rate increases may be implemented early in 2006 to achieve anti-inflation
objectives. In contrast with the substantial 200 basis point Fed Funds rate increase in 2005, longer-term financial market interest rates
did not increase as much as history might have predicted, creating a flattening of the yield curve. For example, from the beginning of 2005 to the end of 2005, the market yield on the two-year U.S. Treasury rate increased about 130 basis points
while the five-year U.S. Treasury rate increased only 75 basis points and the 10-year only 20 basis points, resulting in less difference between short-term and long-term interest rates than is historically the case. Among various explanations,
foreign investors continued to recycle the outflow of United States trade deficit dollars back into United States assets and investors remained comfortable about the inflation outlook. Two years of above-average economic growth led to continued strong increases in commercial and small business lending much like that experienced in 2004.
Additionally, the historically strong housing market, specifically home starts and sales, along with relatively attractive mortgage interest rates and flexible financing resulted in continued strength in residential mortgage lending. Finally,
relatively low market interest rates and generally unchanged equity markets did not compete significantly for consumer savings, resulting in generally favorable deposit trends in the banking industry and specifically at AmSouth.




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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



REGULATORY AGREEMENTS AND RELATED SETTLEMENTS Net income for 2004 includes a $50.0 million charge for payments related to agreements (the settlement agreements) reached with the U.S. Attorney for the Southern District of Mississippi, the Federal Reserve, the Alabama Department of
Banking and the Financial Crimes Enforcement Network (FinCEN) in connection with deficiencies in AmSouth Banks reporting of suspicious activities under the Bank Secrecy Act. Also included in net income during 2004 is approximately $4.0 million
of pre-tax professional fees related to the settlement agreements. Table 1


reflects a reconciliation of certain 2004 amounts and ratios as reported under generally accepted accounting principles (GAAP) compared to those amounts and
ratios excluding expenses for the settlement agreements and related professional fees. These expenses represent matters which Management believes are not indicative of AmSouths legal and regulatory affairs arising in the normal course of
business. Therefore, the presentation of this information is provided to help investors analyze AmSouths financial condition and results of operations. Refer to Note 12 for additional information.




TABLE 1  GAAP TO NON-GAAP RECONCILIATION(Dollars in millions, except per share data)

GAAP


Settlementagreements andrelatedprofessional fees


Non-GAAP2004Noninterest expense

$
1,456.9


$
(54.0
)

$
1,402.9Net income

$
623.5


$
52.4


$
675.9Earnings per common share

$
1.77


$
0.15


$
1.92Diluted earnings per common share

$
1.74


$
0.15


$
1.89Return on average assets


1.30
%


0.11
%


1.41
%Return on average shareholders equity


18.60
%


1.57
%


20.17
%Efficiency ratio


57.12
%


(2.12
)%


55.00
%Management believes non-GAAP financial measures provide information useful to investors in understanding the performance of underlying operations,
business and performance trends and for comparison of AmSouths results to those of others in the financial services industry. Specifically, these measures permit evaluation and a comparison of results for ongoing business operations, and it is
on this basis that Management internally assesses the performance of AmSouths operations.Although AmSouth believes that the above mentioned non-GAAP financial measures enhance investors understanding of the Companys business
and performance, these non-GAAP financial measures should not be considered an alternative to GAAP.




SUMMARY RESULTS For AmSouth, 2005 was another year of solid performance characterized by growth in loans and deposits, sound expense management and lower credit costs due to continuing improvement in credit quality. Net income
reached $725.7 million in 2005, which resulted in diluted earnings per share of $2.04, an increase from 2004 diluted earnings per share of $1.74. Return on equity for 2005 was 20.44 percent, return on assets was 1.43 percent and the efficiency ratio
was 52.01 percent.


In addition to the results of operations presented in accordance with GAAP, Management uses, and this annual report contains, certain non-GAAP financial measures, such as net income, noninterest expense and
earnings-related ratios such as earnings per common share, return on average assets, return on average shareholders equity and the efficiency ratio, each excluding the $54.0 million ($52.4 million, net of taxes) in costs associated with the
settlement agreements and related professional fees during 2004.




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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



Excluding the impact of the settlement agreements and related professional fees, 2004 net income was $675.9 million or $1.89 per diluted share, resulting in
a return on equity of 20.17 percent and return on assets of 1.41 percent. The efficiency ratio was 55.00 percent on the same basis. (See GAAP to Non-GAAP Reconciliation in Table 1.) Net interest income ended the year at $1.525 billion, up 3.3 percent or $49.2 million from 2004. The net interest margin declined to 3.38 percent for
2005 from 3.47 percent in 2004, largely resulting from a flattening of the yield curve and competitive pricing pressures for both loans and deposits. This flattening was the result of several Federal Reserve increases in short-term rates, while
long-term rates remained relatively unchanged. More specifically, during the eighteen months ended December 31, 2005, the Federal Reserve raised interest rates 13 times for a total of 325 basis points, resulting in narrower market spreads. The year also presented challenges related to earning asset growth, which also affected net interest income. Average earning assets grew
at a 5.8 percent rate during 2005. Loan demand was strong throughout most of the year, and certain types of loans such as commercial real estate and residential mortgage loans grew at a double-digit pace. However, rising short-term rates triggered
an unusually high level of payoffs on certain existing variable-rate balances. Equity lines, in particular, experienced above-average payoffs, which muted overall loan growth to some extent. Additionally, net sales of equity and student loans during
the year constrained average earning assets. Investment securities balances were lower than in 2004 as the Company elected not to reinvest the majority of securities cash flows back into investment securities, given the low reinvestment rates that
were available during the year. The overall runoff of higher yielding assets and the replacement of those assets at lower yields also adversely impacted net interest income.


To counter the moderate earning asset growth, the Company focused on increasing its low-cost deposit base through a new money market offering that featured
competitive rates to customers opening new checking accounts and who maintained certain levels of deposits. These efforts were successful in raising significant funding, which provided net interest income support. Earnings in 2005 reflect higher noninterest revenues from interchange, commercial credit fees and other noninterest sources of income. However, decreases
in service charges, trust, portfolio and bankcard income combined to more than offset these improvements. A lower loan and lease loss provision, primarily due to improved credit quality, as evidenced by the lower charge-off level, contributed to
increased earnings in 2005. The lower levels of net charge-offs are the result of an improved economy, as well as the sale of the Companys credit card portfolio, and lower overall losses in the consumer portfolio. Also impacting earnings was a
$44.0 million pre-tax gain on the sale of the Companys mutual fund management unit in the third quarter of 2005. In 2004, a $166.1 million gain from the sale of the Companys credit card portfolio is reflected in noninterest revenues. Noninterest expenses were significantly lower in 2005. The largest two components of the decrease are the $54.0 million for the settlement
agreements and related professional fees described on page 28 and $129.6 million of costs related to the prepayment of $1.25 billion of Federal Home Loan Bank (FHLB) borrowings, both recorded in 2004. Excluding these two items, noninterest expense
was well-controlled, increasing $18.6 million, or 1.5 percent over 2004. This increase was largely the result of increases in salaries and employee benefits from normal merit increases and higher pension costs, as well as increased occupancy and
equipment expense. Offsetting these increases were lower marketing and postage and supplies costs.




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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



FINANCIAL HIGHLIGHTS  AMSOUTH BANCORPORATION AND SUBSIDIARIES(Dollars in thousands, except per share data)

2005EARNINGS SUMMARYNet interest income

$
1,525,274Provision for loan and lease losses


93,950Net interest income after provision for loan and lease losses


1,431,324Noninterest revenues


915,180Noninterest expenses


1,291,923Income before income taxes


1,054,581Income taxes


328,876Net income

$
725,705Earnings per common share

$
2.07Diluted earnings per common share


2.04Return on average assets


1.43
%Return on average equity


20.44Operating efficiency**


52.01BALANCE SHEET SUMMARYAt year-endLoans net of unearned income

$
35,897,939Assets


52,607,110Deposits


36,348,382Shareholders equity


3,634,577Average balancesLoans net of unearned income


33,836,996Assets


50,740,057Deposits


35,279,571Shareholders equity


3,550,047SELECTED RATIOSAverage equity to average assets


7.00
%Allowance for loan and lease losses to loans net of unearned income


1.02COMMON STOCK DATACash dividends declared

$
1.01Book value


10.44Tangible book value


9.59Market value at year-end


26.21Market price range:High


28.29Low


23.85Total trading volume(1)


253,618Dividend yield at year-end


3.97
%Dividend payout ratio


48.79Shareholders of record at year-end


25,872Weighted-average common shares outstanding  basic(1)


350,702Weighted-average common shares outstanding  diluted(1)


355,554  (1)
In thousands *
Refer to Table 1 for a GAAP Basis to Non-GAAP Basis Reconciliation **
The efficiency ratio is presented on a fully taxable-equivalent (FTE) basis. The computation of the FTE adjustment is based on the statutory federal income tax rate of 35%, adjusted
for applicable state income taxes net of the related federal tax benefit.




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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



2004(Dollars in thousands, except per share data)

GAAP


Non-GAAP*


2003


2002


2001


2000EARNINGS SUMMARYNet interest income

$
1,476,025


$
1,476,025


$
1,414,635


$
1,472,640


$
1,366,722


$
1,361,198Provision for loan and lease losses


127,750



127,750



173,700



213,550



187,100



227,600Net interest income after provision for loan and lease losses


1,348,275



1,348,275



1,240,935



1,259,090



1,179,622



1,133,598Noninterest revenues


1,032,142



1,032,142



855,778



739,361



748,222



669,494Noninterest expenses


1,456,938



1,402,966



1,205,577



1,126,622



1,157,232



1,348,530Income before income taxes


923,479



977,451



891,136



871,829



770,612



454,562Income taxes


299,981



301,510



265,015



262,682



234,266



125,435Net income

$
623,498


$
675,941


$
626,121


$
609,147


$
536,346


$
329,127Earnings per common share

$
1.77


$
1.92


$
1.79


$
1.70


$
1.46


$
0.86Diluted earnings per common share


1.74



1.89



1.77



1.68



1.45



0.86Return on average assets


1.30
%


1.41
%


1.47
%


1.58
%


1.40
%


0.79
%Return on average equity


18.60



20.17



20.08



20.10



18.56



1 1.57Operating efficiency**


57.12



55.00



52.08



49.78



53.12



64.42BALANCE SHEET SUMMARYAt year-endLoans net of unearned income

$
32,801,337






$
29,339,364


$
27,350,918


$
25,124,493


$
24,616,435Assets


49,548,371







45,615,516



40,571,272



38,600,414



38,935,978Deposits


34,232,779







30,440,353



27,315,624



26,167,017



26,623,304Shareholders equity


3,568,841







3,229,669



3,115,997



2,955,099



2,813,407Average balancesLoans net of unearned income


31,241,987







28,511,159



25,921,769



24,763,798



25,879,910Assets


48,010,625







42,730,516



38,564,568



38,238,393



41,860,171Deposits


32,014,976







28,582,616



25,943,534



25,916,181



27,323,133Shareholders equity


3,351,754







3,117,362



3,030,901



2,889,248



2,844,987SELECTED RATIOSAverage equity to average assets


6.98
%






7.30
%


7.86
%


7.56
%


6.80
%Allowance for loan and lease losses to loans net of unearned income


1.12







1.31



1.40



1.45



1.55COMMON STOCK DATACash dividends declared

$
0.97






$
0.93


$
0.89


$
0.85


$
0.81Book value


10.02







9.18



8.82



8.14



7.53Tangible book value


9.17







8.32



7.96



7.29



6.61Market value at year-end


25.90







24.50



19.20



18.90



15.25Market price range:High


27.00







24.62



23.00



20.15



19.88Low


21.91







19.05



18.21



15.13



11.88Total trading volume(1)


229,380







251,403



254,700



178,939



236,154Dividend yield at year-end


3.86%







3.92
%


4.79
%


4.66
%


5.51
%Dividend payout ratio


54.80







51.96



52.35



58.22



94.19Shareholders of record at year-end


26,549







27,250



33,689



34,798



35,746Weighted-average common shares outstanding  basic(1)


352,684







350,237



358,176



367,404



382,031Weighted-average common shares outstanding  diluted(1)


357,952







354,308



362,329



370,948



384,677  (1)
In thousands *
Refer to Table 1 for a GAAP Basis to Non-GAAP Basis Reconciliation **
The efficiency ratio is presented on a fully taxable-equivalent (FTE) basis. The computation of the FTE adjustment is based on the statutory federal income tax rate of 35%, adjusted
for applicable state income taxes net of the related federal tax benefit.




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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



EARNINGS OUTLOOK AmSouth expects diluted earnings per share for 2006 to be in a range of $2.11 to $2.17, including the impact of the adoption of Statement of Financial
Accounting Standards No. 123 (revised 2004), Share-Based Payment (Statement 123R), effective January 1, 2006. This statement includes, among other things, stock option expensing and is estimated to reduce earnings between 2 and
3 cents per share. This earnings forecast generally assumes a stable economy, moderately rising interest rates and flat equity markets, as
well as these additional factors:  

Higher net interest income reflecting a relatively stable net interest margin; solid loan growth with disciplined pricing, coupled with continued strong low-cost deposit growth  

A continuation of strong credit quality  

Steady growth in total noninterest revenues from current levels  

Modest noninterest expense growth in the low to mid-single digits Also key to achieving AmSouths earnings target in 2006 is the successful execution of the initiatives in the strategic plan as described earlier. See the Forward-Looking Statements section on page 72 for a discussion of
other factors that could affect AmSouths earnings outlook. CRITICAL ACCOUNTING ESTIMATES The preparation of AmSouths financial statements requires Management to make subjective and sometimes complex judgments associated with estimates
for which the impact is inherently uncertain. These estimates are important and necessary to ensure compliance with GAAP. In Managements opinion, some areas of financial disclosure involve estimates that are more significant than others in
terms of their importance to AmSouths results. These areas include the accounting for:  

Allowance for loan and lease losses  

Pensions  

Income taxes These areas include estimates that are
considered critical due to either the subjectivity involved in the estimate and/or the potential impact that changes in the estimates can have on the reported financial results.


Allowance for Loan and Lease Losses  The allowance
for loan and lease losses is recorded as a contra-asset to loans in the consolidated balance sheets. Determining the appropriate level of the allowance for loan and lease losses is one of the most critical and complex accounting estimates for any
financial institution. Accounting guidance requires AmSouth to make a number of estimates related to the level of credit losses inherent in the portfolio at year-end. A full discussion of these estimates can be found within the Risk
Management section of this report. The allowance is sensitive to both internally assigned risk ratings (see Credit Risk
Management Process and Loan Quality, page 59) and assumptions about loss severity. Management reviews scenarios with reasonably different assumptions concerning variables which could result in increases or decreases in probable inherent credit
losses that may materially impact AmSouths estimate of the allowance and results of operations. Managements estimate of the
allowance for the commercial portfolio could be affected by risk rating upgrades or downgrades as a result of fluctuations in the general economy, developments within a particular industry, or changes in an individual credit due to factors
particular to that credit such as competition, management or business performance. A reasonably possible scenario would be an estimated 10 percent migration of lower risk-related pass credits to criticized status, which could increase the inherent
losses by $46.2 million. A 10 percent reduction in the level of criticized credits is also possible, which would result in an estimated $6.1 million decrease in inherent loss. For the consumer portfolio, where individual products are reviewed on a group basis or in loan pools (e.g., residential first mortgage pool), losses can
be affected by such things as collateral value, loss severity, the economy and other uncontrollable factors. The consumer portfolio is largely comprised of loans that are secured by primary residences, such as residential mortgage and home equity
lines and loans, which represent 79.9 percent of total consumer loans. A 10 basis point increase or decrease in the estimated loss rates on the residential mortgage and home equity line and loan portfolios would change the inherent losses by $13.9
million. The remaining consumer portfolio inherent loss analysis includes reasonably possible scenarios with estimated loss rates increasing or decreasing by 25 basis points, which would increase or decrease the related inherent losses by $8.7
million, respectively.




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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



Additionally, the estimate of the allowance for loan and lease losses for the entire portfolio may change due to modifications in the mix and level of loan
balances outstanding and general economic conditions, as evidenced by changes in interest rates, unemployment rates, bankruptcy filings, used car prices, real estate values and the effects of natural disasters, such as hurricanes. While no one
factor is dominant, each has the ability to result in actual loan or lease losses that differ from originally estimated amounts. The
information presented above demonstrates the sensitivity of the allowance to key assumptions. This sensitivity analysis does not reflect an expected outcome. Pensions  Accounting for pensions is an area that requires Management to make various assumptions to appropriately value any pension asset or liability reflected in the consolidated balance sheet as
other assets or other liabilities. These assumptions include the discount rate, the expected long-term rate of return on plan assets and the rate of compensation increase (i.e., the expected weighted-average annual increase
in compensation for participants until their expected retirement dates). Changes in these assumptions could impact earnings and would be reflected in noninterest expense as salaries and employee benefits in the consolidated statement of
earnings. For example, a lower estimated discount rate could negatively impact earnings as would a lower expected long-term rate of return on plan assets or a higher rate of compensation increase. AmSouth has a formal process in place to select the
assumptions to be used each year to calculate the amounts to be recorded related to its pension obligations. The basis for AmSouths selection of the discount rate, expected long-term rate of return on plan assets, and rate of annual
compensation increase is discussed below. For the discount rate, AmSouth estimates the rate at which its pension liabilities could be
effectively settled. Prior to September 30, 2005, the Companys measurement date, AmSouth used the Moodys Aa Corporate Bond Rate as the high-quality fixed income investment basis for establishing the discount rate. To ensure that
this basis was appropriate, AmSouth regularly monitored the duration of its benefit liabilities versus the duration of the bonds in the Moodys Aa portfolio. For 2004, the duration of the


benefit liabilities in AmSouths pension plan was approximately 16 years, while the duration of bonds in the Moodys Aa portfolio was approximately
13 years. Therefore, the use of the Moodys Aa Corporate Bond Rate as a basis for the selection of the discount rate was reasonable. Under this methodology, AmSouth selected a discount rate of 5.85 percent for the September 30, 2004
measurement date (which was the basis for the pension expense during 2005), a decrease of 15 basis points compared to the prior year. This decrease reflected the lower interest rate environment during the period. Even though the Moodys Aa Corporate Bond Rate provided a reasonable basis for the selection of the discount rate, AmSouth decided to use a
different methodology for the September 30, 2005 measurement date to provide a better matching of the duration of its benefit liabilities. AmSouth used a yield curve that was developed based on pricing and yield information for a pool of
high-quality (Aa or higher) noncallable corporate bonds. AmSouths expected cash flows related to pension benefits were then matched to the appropriate rates and discounted back to the measurement date. Since the longest maturity in the bond
universe is 30 years, any expected cash flows beyond 30 years were discounted assuming the 30-year rate remains constant beyond 30 years. Using this yield curve, a single equivalent discount rate of 5.75 percent was determined, which was the basis
for the discount rate used in the calculation of AmSouths pension obligations at September 30, 2005. In determining the
appropriate long-term rate of return on plan assets, AmSouth reviewed a range of best estimates based upon the anticipated long-term returns and long-term volatility for asset categories based on the target asset allocation of the plan. Based on
this information, AmSouth selected an expected long-term rate of return on plan assets of 8.50 percent for 2005, which was unchanged from 2004. AmSouth reviews long-term inflation rates and makes estimates of long-term merit increases to determine the rate of compensation increase to utilize. AmSouth modified the rate of compensation increase used to determine its pension cost to
5.00 percent for 2005 from 4.13 percent used in 2004. This change reflects Managements expectations for long-term merit and special increases.




33



---

AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



To illustrate the sensitivity
of earnings to changes in AmSouths pension plan assumptions, a 25 basis point increase or decrease in the plan discount rate used by AmSouth would have resulted in a $4.2 million increase or a $4.4 million decrease, respectively, in 2005
pre-tax earnings. In addition, pre-tax earnings would have increased or decreased by approximately $1.9 million as a result of a 25 basis point increase or decrease in the rate of return on plan assets assumption, respectively. Pre-tax earnings
would have increased approximately $800 thousand or decreased by approximately $900 thousand associated with a 25 basis point decrease or increase in the assumption for the rate of increase in compensation, respectively. Additional information regarding pension and other postretirement plans can be found in Note 16 to the Consolidated Financial Statements. Income Taxes  The calculation of AmSouths income tax provision is complex and requires the use of estimates and judgments in its
determination. AmSouths estimated tax expense is reported in the consolidated statement of earnings as income taxes. Accrued taxes represent the net estimated amount payable to or receivable from taxing jurisdictions, either
currently or in the future, and are reported as a component of accrued expenses and other liabilities in the consolidated balance sheets. From time to time, AmSouth engages in business transactions that may have an effect on its tax liabilities. Management believes that its subsidiaries will generate sufficient operating earnings to realize deferred tax
assets. AmSouth has obtained the opinion of advisors, when available, that the tax aspects of business transactions should prevail and has assessed the relative merits and risks of the appropriate tax treatment of business transactions taking into
account statutory, judicial and regulatory guidance in the context of its tax position. However, changes to AmSouths estimated accrued taxes can occur periodically due to changes in tax rates, implementation of new business strategies,
resolution of issues with taxing authorities regarding previously taken tax positions, and newly enacted statutory, judicial and regulatory guidance. These changes, when they occur, may affect accrued taxes and can be material to AmSouths
operating results for any particular reporting period. The potential impact to AmSouths operating results for any of these changes cannot be reasonably estimated.


EARNINGS PERFORMANCE NET INTEREST INCOME AND MARGIN Net interest income is AmSouths principal source of revenue and is one of the most important elements of AmSouths ability to meet its overall performance goals. Net interest income is the interest earned on investment
securities, loans (including yield-related loan fees) and other interest-earning assets minus the interest paid for deposits and borrowings. The net interest margin is net interest income expressed as a percentage of average earning assets for the
period being measured. The net interest margin is presented on a fully taxable-equivalent basis to consistently reflect income from taxable and tax-exempt loans and securities. Net interest income was $1.525 billion in 2005, compared to $1.476 billion in 2004, an increase of 3.3 percent. The increase was primarily due to growth
in loans funded by a strong increase in low-cost deposits, partially offset by a decline in the net interest margin. The net interest margin for 2005 decreased 9 basis points to 3.38 percent from 3.47 percent in 2004. The decrease was due to a
decline in the net interest spread, a result of higher funding costs driven by Federal Reserve rate increases, which were only partially offset by the increased yield on the interest-earning asset base. Also contributing to the narrower spread,
pressures on pricing for loans and deposits were greater during the year. In general, banks benefit more from a steeper shape to the yield
curve. Throughout 2005, the yield curve continued to flatten as short-term rates rose at a faster pace than long-term rates. The effects of the interest rate environment were seen most significantly in funding costs, reflecting higher rates paid on
both new deposits and the existing funding base. While much of AmSouths funding is in the form of attractive low-cost deposits, such as money market deposits, the rates paid on these funds tend to correlate to Federal Reserve actions and
market competition. Mitigating the steadily rising rates, noninterest-bearing deposits showed strong growth of 15 percent during the year. The net interest margin expanded during the last quarter of 2005, reflecting this growth, as well as the
effect of deposit pricing decisions made in the third quarter. AmSouth is essentially neutral in terms of interest rate risk and has a well-established process in place to manage the timing and magnitude of loan and deposit pricing changes in
response to the movement of rates in the overall market, as well as the interest rate policies of the Federal Reserve.




34



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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



Interest Earning Assets  Average earning assets, consisting primarily of loans and investment securities, grew $2.5 billion in 2005 compared to
2004, reflecting growth in commercial loans, including loans to small businesses, commercial real estate loans and, within the consumer category, growth in residential first mortgage loans. The generation of new customer relationships in Commercial
Banking was a key driver of commercial loan growth. Specifically, sales calling activity was intensified with a particular focus on businesses having annual sales ranging from $10 million to $100 million (the commercial middle market
line of business). This activity resulted in steady growth in commercial loans, with the added benefit of increased deposits and fee revenue. Commercial real estate lending showed particularly strong growth, increasing 22 percent on average over the
prior year. General economic growth and an increase in new commercial real estate projects in AmSouths markets, combined with sustained calling activity, drove this growth. The growth in residential first mortgages reflects high consumer demand for variable-rate mortgage products, an overall favorable rate environment for
residential borrowers, AmSouths decision to place greater sales emphasis on mortgage lending, and Managements decision to retain a greater proportion of adjustable-rate residential mortgages on the balance sheet. Although production of
home equity lines remained high, net balance sheet growth slowed during 2005 as borrowers paid off these products at a rapid


rate. Rates on equity lines are tied to the Prime rate, which increased in step with overall increases in short-term rates. As these rates rose during 2005,
many borrowers elected to pay off their balances, favoring instead to lock into long-term, fixed-rate financing, which became an increasingly attractive option since rates on these products remained low. Earning assets were also impacted by net
sales of equity and student loans in 2005 totaling $495 million and the strategic sale of AmSouths $550 million credit card portfolio during the fourth quarter of 2004. For 2005, average loans comprised 73.1 percent of total average earning assets, an increase of 1.7 percent from the 2004 level. See further discussion of
loans in the Consolidated Balance Sheet Analysis section of this report. Investment securities declined steadily throughout
2005, reflecting AmSouths decision to use the majority of securities cash flows to fund loan growth instead of reinvesting in securities at the unattractive market rates that were available during the year. For the year, average securities
decreased $157.3 million or 1.3 percent and represented 26.1 percent of average earning assets in 2005, down from 27.9 percent in 2004. In future periods, investment securities as a percentage of earning assets are expected to stabilize or decline.
See additional discussion of the composition of the securities growth within the Consolidated Balance Sheet Analysis  Investment Securities section of Managements Discussion and Analysis.




TABLE 2  COMPOSITION OF INTEREST-EARNING
ASSETS2005


2004


2003(Dollars in thousands)

AverageBalance

Percentof Total


AverageBalance

Percentof Total


AverageBalance

Percentof TotalLoans net of unearned income

$
33,836,996

73.1
%

$
31,241,987

71.4
%

$
28,511,159

73.7
%Available-for-sale securities


6,120,309

13.2



6,450,678

14.7



5,402,077

14.0Held-to-maturity securities


5,952,749

12.9



5,779,715

13.2



4,496,978

11.6Other interest-earning assets


398,970

0.8



294,919

0.7



274,700

0.7$
46,309,024

100.0
%

$
43,767,299

100.0
%

$
38,684,914

100.0
%




35



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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



TABLE 3  YIELDS EARNED ON AVERAGE INTEREST-EARNING ASSETS
AND RATES PAID ON AVERAGE INTEREST-BEARING LIABILITIES2005(Taxable equivalent basis  dollars in thousands)

AverageBalance


Revenue/Expense

Yield/RateASSETSInterest-earning assets:Loans net of unearned income(1)(2)

$
33,836,996


$
1,917,040

5.67
%Available-for-sale securities, amortized cost:Taxable


6,174,114



290,486

4.70Tax-free


37,350



3,066

8.21Market valuation on available-for-sale securities


(91,155
)


-0-Total available-for-sale securities(3)(4)


6,120,309



293,552

4.80Held-to-maturity securities:Taxable


5,604,346



269,241

4.80Tax-free


348,403



25,789

7.40Total held-to-maturity securities


5,952,749



295,030

4.96Total investment securities(4)


12,073,058



588,582

4.88Trading securities


28,715



1,010

3.52Federal funds sold and securities purchased under agreements to resell


18,115



586

3.24Loans held for sale


309,632



16,083

5.19Other interest-earning assets


42,508



1,164

2.74Total interest-earning assets(4)


46,309,024



2,524,465

5.45Cash and other assets


4,803,264Allowance for loan and lease losses


(372,231
)$
50,740,057LIABILITIES AND SHAREHOLDERS EQUITYInterest-bearing liabilities:Interest-bearing checking

$
6,904,308



87,229

1.26Money market and savings deposits


9,786,690



152,699

1.56Time deposits(5)


9,496,964



301,651

3.18Foreign deposits


1,540,847



37,738

2.45Federal funds purchased and securities sold under agreements to repurchase


3,206,113



88,284

2.75Other borrowed funds


401,305



14,181

3.53Long-term Federal Home Loan Bank advances


3,183,068



136,646

4.29Subordinated debt(5)


1,436,909



66,637

4.64Senior notes(5)


99,941



3,425

3.43Other long-term debt


1,899,026



67,340

3.55Total interest-bearing liabilities


37,955,171



955,830

2.52Net interest spread(4)








2.93
%Noninterest-bearing demand deposits


7,550,762Other liabilities


1,684,077Shareholders equity


3,550,047$
50,740,057Net interest income/margin on a taxable equivalent basis(4)






1,568,635

3.38
%Taxable equivalent adjustment:(6)Loans






25,269Available-for-sale securities






2,155Held-to-maturity securities






15,932Trading securities






5Total taxable equivalent adjustment






43,361Net interest income





$
1,525,274Notes: (1)Loans net of unearned income includes nonaccrual loans for all periods presented. (2)Interest income includes loan fees of
$12,706,000, $29,795,000 and $44,695,000 for the years ended December 31, 2005, 2004 and 2003, respectively. (3)Certain noninterest-earning, marketable equity securities are not
included in available-for-sale securities. (4)The yield calculation for available-for-sale securities, total investment securities, total interest-earning assets, net
interest spread, and net interest margin excludes the market valuation adjustment on available-for-sale securities. (5)Statement 133 valuation adjustments related to time deposits,
subordinated debt and senior notes are included in other liabilities. (6)The computation of the taxable equivalent adjustment is based on the statutory federal income tax rate of 35%, adjusted
for applicable state income taxes net of the related federal tax benefit.




36



---

AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



2004


2003(Taxable equivalent basis  dollars in thousands)

AverageBalance

Revenue/Expense

Yield/Rate


AverageBalance


Revenue/Expense

Yield/RateASSETSInterest-earning assets:Loans net of unearned income(1)(2)

$31,241,987

$
1,590,835

5.09
%

$
28,511,159


$
1,578,497

5.54
%Available-for-sale securities, amortized cost:Taxable

6,437,800


320,366

4.98



5,259,531



311,247

5.92Tax-free

47,270


3,855

8.16



55,797



4,368

7.83Market valuation on available-for-sale securities

(34,392)


-0-





86,749



-0-Total available-for-sale securities(3)(4)

6,450,678


324,221

5.00



5,402,077



315,615

5.94Held-to-maturity securities:Taxable

5,442,618


253,891

4.66



4,169,281



205,922

4.94Tax-free

337,097


24,999

7.42



327,697



24,087

7.35Total held-to-maturity securities

5,779,715


278,890

4.83



4,496,978



230,009

5.11Total investment securities(4)

12,230,393


603,111

4.92



9,899,055



545,624

5.56Trading securities

4,690


232

4.95



12,165



139

1.14Federal funds sold and securities purchased under agreements to resell

43,281


529

1.22



141,938



1,657

1.17Loans held for sale

216,355


13,277

6.14



74,234



4,525

6.10Other interest-earning assets

30,593


247

0.81



46,363



388

0.84Total interest-earning assets(4)

43,767,299


2,208,231

5.04



38,684,914



2,130,830

5.52Cash and other assets

4,624,251








4,432,508Allowance for loan and lease losses

(380,925)








(386,906
)$48,010,625







$
42,730,516LIABILITIES AND SHAREHOLDERS EQUITYInterest-bearing liabilities:Interest-bearing checking

$6,710,178


38,592

0.58


$
5,755,018



29,086

0.51Money market and savings deposits

7,927,030


46,979

0.59



7,576,751



46,310

0.61Time deposits(5)

9,315,285


243,223

2.61



8,910,764



267,781

3.01Foreign deposits

1,500,545


16,611

1.11



854,067



7,606

0.89Federal funds purchased and securities sold under agreements to repurchase

2,989,428


41,782

1.40



2,153,606



20,554

0.95Other borrowed funds

342,452


10,062

2.94



139,534



4,177

2.99Long-term Federal Home Loan Bank advances

5,578,765


233,993

4.19



5,756,904



253,148

4.40Subordinated debt(5)

1,229,343


37,941

3.09



1,221,902



39,242

3.21Senior notes(5)

99,869


2,505

2.51



99,798



2,088

2.09Other long-term debt

798,714


17,948

2.25



76,698



1,824

2.38Total interest-bearing liabilities

36,491,609


689,636

1.89



32,545,042



671,816

2.06Net interest spread(4)






3.15
%








3.46
%Noninterest-bearing demand deposits

6,561,938








5,486,016Other liabilities

1,605,324








1,582,096Shareholders equity

3,351,754








3,117,362$48,010,625







$
42,730,516Net interest income/margin on a taxable equivalent basis(4)




1,518,595

3.47
%






1,459,014

3.78
%Taxable equivalent adjustment:(6)Loans




24,658









26,295Available-for-sale securities




2,529









3,277Held-to-maturity securities




15,383









14,807Trading securities




-0-









-0-Total taxable equivalent adjustment




42,570









44,379Net interest income



$
1,476,025








$
1,414,635Notes: (1)Loans net of unearned income includes nonaccrual loans for all periods presented. (2)Interest income includes loan fees of
$12,706,000, $29,795,000 and $44,695,000 for the years ended December 31, 2005, 2004 and 2003, respectively. (3)Certain noninterest-earning, marketable equity securities are not
included in available-for-sale securities. (4)The yield calculation for available-for-sale securities, total investment securities, total interest-earning assets, net
interest spread, and net interest margin excludes the market valuation adjustment on available-for-sale securities. (5)Statement 133 valuation adjustments related to time deposits,
subordinated debt and senior notes are included in other liabilities. (6)The computation of the taxable equivalent adjustment is based on the statutory federal income tax rate of 35%, adjusted
for applicable state income taxes net of the related federal tax benefit.




37



---

AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



LOGO LOGO


Funding Sources  Earning asset growth in 2005 was funded by a $3.3 billion expansion in average deposits in 2005 over 2004. Substantially all of this increase was from low-cost categories, which were $3.0
billion higher compared with 2004. Low-cost deposits include noninterest-bearing and interest-bearing checking, money market and savings deposits. The increase in these deposits was primarily attributable to additional money market deposits garnered
through a competitively priced product offering made to new customers who were required to maintain certain minimum balance levels. Noninterest-bearing deposits also added significantly to total low-cost deposits, increasing 15 percent over the
previous year. AmSouths branch network provided the platform to implement promotional campaigns and incentive programs, which placed added sales emphasis on low-cost deposit categories and ultimately also aided in the growth of new households.
Low-cost deposit volumes were also favorably impacted late in the year from deposit inflows related to Hurricane Katrina. Time deposits
grew just slightly during the year, increasing $181.7 million or 2.0 percent, led by an increase of $341.5 million in non-core time deposits, mainly national market certificates of deposits (CDs), offset by a decline in consumer time deposits of
$159.8 million. AmSouth also took advantage of the liquidity provided through strong low-cost deposit growth to forego the replacement of higher-cost time deposits and pay down certain long-term debt. In particular, average long-term FHLB advances
declined $2.4 billion during the year, primarily due to prepayments. PROVISION FOR LOAN AND LEASE LOSSES The provision for loan and lease losses is the charge to earnings necessary to maintain the allowance for loan and lease losses at an adequate level to
absorb losses inherent in the loan and lease portfolio. Confirmed losses on loans and leases are charged against the allowance for loan and lease losses. In 2005, AmSouth recorded a provision for loan and lease losses totaling $94.0 million, compared to $127.8 million in 2004. The decrease in the provision in 2005 versus 2004 reflects the decline in the ratio of net
charge-offs to total loans from 0.37 percent in 2004 to 0.27 percent in 2005. Contributing to the decrease in the provision were the sale of the credit card portfolio in 2004 and lower overall losses in the consumer portfolio. Partially offsetting
this decrease, a provision of $15 million for the estimated losses from Hurricane Katrina was recorded in 2005.




38



---

AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



TABLE 4  VOLUME
AND YIELD/RATE VARIANCES  2005 Compared to 2004 Change Due to


2004 Compared to 2003 Change Due to(Taxable equivalent basis - in thousands)

Volume


Yield/ Rate


Net


Volume


Yield/ Rate


NetINTEREST EARNED ON:Loans net of unearned income

$
138,454


$
187,751


$
326,205


$
144,587


$
(132,249
)

$
12,338Available-for-sale securities:Taxable


(12,815
)


(17,065
)


(29,880
)


63,241



(54,122
)


9,119Tax-free


(814
)


25



(789
)


(690
)


177



(513
)Total available-for-sale securities


(13,629
)


(17,040
)


(30,669
)


62,551



(53,945
)


8,606Held-to-maturity securities:Taxable


7,657



7,693



15,350



59,936



(11,967
)


47,969Tax-free


837



(47
)


790



696



216



912Total held-to-maturity securities


8,494



7,646



16,140



60,632



(11,751
)


48,881Total investment securities


(5,135
)


(9,394
)


(14,529
)


123,183



(65,696
)


57,487Trading securities


863



(85
)


778



(130
)


223



93Federal funds sold and securities purchased under agreements to resell


(440
)


497



57



(1,202
)


74



(1,128
)Loans held for sale


5,076



(2,270
)


2,806



8,721



31



8,752Other interest-earning assets


129



788



917



(128
)


(13
)


(141
)Total interest-earning assets


138,947



177,287



316,234



275,031



(197,630
)


77,401INTEREST PAID ON:Interest-bearing checking


1,148



47,489



48,637



5,191



4,315



9,506Money market and savings deposits


13,281



92,439



105,720



2,102



(1,433
)


669Time deposits


4,829



53,599



58,428



5,880



(30,438
)


(24,558
)Foreign deposits


458



20,669



21,127



6,817



2,188



9,005Federal funds purchased and securities sold under agreements to repurchase


3,233



43,269



46,502



9,663



11,565



21,228Other borrowed funds


1,890



2,229



4,119



5,963



(78
)


5,885Long-term Federal Home Loan Bank advances


(102,723
)


5,376



(97,347
)


(7,688
)


(11,467
)


(19,155
)Subordinated debt


7,216



21,480



28,696



238



(1,539
)


(1,301
)Senior notes


2



918



920



1



416



417Other long-term debt


34,793



14,599



49,392



16,230



(106
)


16,124Total interest-bearing liabilities


(35,873
)


302,067



266,194



44,397



(26,577
)


17,820Net interest income on a taxable equivalent basis

$
174,820


$
(124,780
)


50,040


$
230,634


$
(171,053
)


59,581Change in taxable equivalent adjustment










(791
)










1,809Net interest income









$
49,249










$
61,390Notes: 1.      The change in interest not due solely to volume or yield/rate has been allocated to the
volume column and yield/rate column in proportion to the relationship of the absolute dollar amounts of the change in each. 2.      The computation of the taxable equivalent adjustment is based on the statutory federal income tax rate of 35%, adjusted for applicable state income taxes net of the related federal tax
benefit. 3.      Certain noninterest-earning marketable equity securities are not
included in available-for-sale securities. 4.      Statement 133 valuation
adjustments related to time deposits, subordinated debt, and senior notes are included in other liabilities.




39



---

AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



Credit quality showed further improvement during 2005 as evidenced by the reduction in net charge-offs. The improvement in credit performance reflects
improved economic conditions and the benefit of tighter underwriting of home equity and indirect loans. While Managements outlook on credit quality for 2006 is predicated on a stable economy and a rising interest rate environment, there were
emerging risks during the year, including higher energy prices and economic disruption in the areas impacted by Hurricane Katrina in the third quarter of 2005, that potentially adversely impacted some borrowers. The Company has provided for these
risks, including a specific provision for Hurricane Katrina related credit losses, and believes that these amounts will be adequate. Table
19 provides a detail of net charge-offs by loan category for 2005 and 2004 and Table 20 provides a five-year comparison of charge-off and recovery information by loan category. As indicated in these tables, net charge-offs decreased by $25.1 million
in 2005 compared to 2004. This decrease was primarily due to the sale of the credit card portfolio in 2004 and lower losses in the consumer indirect automobile and home equity lending portfolios. Commercial lending losses increased $16.0 million to
$49.0 million in 2005. This increase was driven by an $18 million charge-off related to a single large commercial credit. As a result, the ratio of commercial net charge-offs to total commercial loans increased from 0.37 percent in 2004 to 0.49
percent for 2005. Consumer net charge-offs as a percentage of average consumer loans fell from 0.49 percent in 2004 to 0.22 percent in
2005. A lower net charge-off rate, in combination with a reduction in the size of the portfolio, resulted in a decrease of $41.4 million in consumer net charge-offs. The lower level of consumer net charge-offs reflects the sale of the Companys
credit card portfolio, a stronger economy, enhanced collection procedures and the benefit of stricter underwriting requirements implemented in recent years. Again reflective of a stronger economy and higher credit standards, dealer indirect net
charge-offs as a percent of average dealer indirect loans fell from 0.57 percent in 2004 to 0.30 percent in 2005. Also within the consumer
category, equity line and loan net charge-offs as a percentage of average outstanding balances also decreased, from 0.32 percent to 0.18 percent, reflecting lower net charge-offs of $10.4 million. Higher credit


standards for home equity lending were adopted several years ago. Loans underwritten against these more stringent standards are becoming an increasingly
larger portion of total equity line and equity loan volume, resulting in a generally lower risk portfolio. In addition, beginning in late 2003, AmSouth began purchasing insurance to protect against the credit risk for certain newly originated equity
loans and lines with loan-to-value ratios up to 100 percent. The insurance policy provides for the sale of the loan or line, at par, to the insurance company when the loan or line becomes 120 days delinquent. AmSouths policy is to charge down
equity loans and lines to net realizable value when they become 180 days delinquent. Therefore, there are no material losses on these loans and lines expected in the future. The insurance premiums are paid monthly based on a percentage of the
outstanding balances of the funded loans and lines. As of December 31, 2005, approximately $283.9 million of loans and lines were insured. Included in noninterest expense for the years ended December 31, 2005 and 2004 are $2.4 million and
$1.9 million, respectively, in related insurance premiums. Given the volume and premium levels to date, the impact of the use of this insurance on the provision and the allowance for loan and lease losses has not been material. The reduced risk
exposure is considered in the calculation of the allowance for loan and lease losses. See the Credit Risk Management Process and
Loan Quality section of this report for a further discussion of the factors used by Management to determine the appropriate level for the allowance for loan and lease losses. LOGO




40



---

AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



NONINTEREST REVENUES Noninterest revenues
represent fees and income derived from sources other than interest-earning assets, such as service charges on deposit accounts, trust, interchange and consumer investment services. Noninterest revenues represented 36.8 percent of total tax
equivalent net revenues in 2005 versus 40.5 percent in 2004. Each of the major categories of noninterest revenue from 2001 through 2005 is shown in Table 5. The noninterest revenue decline in 2005 was primarily due to the $166.1 million gain from the strategic sale of AmSouths credit card portfolio in late 2004. In 2005, the sale of the Companys mutual fund
management unit added $44.0 million to revenue. Excluding these transactions, noninterest revenue increased $5.1 million or 0.6 percent in 2005 versus 2004. Higher noninterest revenues from interchange, commercial credit fees and other noninterest
sources of income, such as gains from the prepayment of FHLB advances, were drivers of this increase. However, decreases in service charges, trust, portfolio and bankcard income were offsetting to these improvements. Service charges on deposit accounts represent revenues from maintenance fees, check charges, overdraft fees on consumer and small business deposit
accounts, and corporate analysis and treasury management fees on commercial deposit accounts. In 2005, service charge revenues declined 3.1 percent to $367.0 million, primarily the result of a $16.4 million decrease in commercial cash management
fees stemming from a 7.6 percent increase in the average level of commercial noninterest-bearing deposit balances during the year. These higher balances, which carry an earnings rate credited against fees, were increasingly being used to pay for
services in lieu of hard dollar charges. In addition, the decrease in commercial service charges reflects a shift in the mix of transactions being processed. Electronic transactions, which carry lower processing fees, are becoming a larger
percentage of all transactions processed. These trends in commercial service charges are expected to stabilize in 2006. Partially offsetting the lower commercial fees, overdraft fees on consumer and small business accounts increased $11.1 million in
2005 as compared to the previous year, driven by an increase in the volume of overdrafts as well as certain rate increases. Trust
income represents fees derived from trust services, institutional investment services and natural resources management and are generally based on a percentage of the market value of assets under management. In general, market conditions for
trust businesses remained challenging in 2005 and


were comparable to conditions that existed in the previous year. Trust income was $113.2 million in 2005, a decrease of $4.8 million or 4.1 percent compared
with 2004. This decrease is largely attributable to the 2005 third quarter sale of AmSouths mutual fund management unit to Pioneer Investment Management, Inc. (Pioneer). As a result of this transaction, fourth quarter revenues were lower than
in previous quarters by approximately $6.0 million. Future quarters are expected to be impacted by approximately the same amount. Details of this transaction are discussed below. Discretionary trust assets under management at the end of 2005 were $14.8 billion, as compared to $15.9 billion at the end of 2004. Total trust assets
under management were $27.3 billion at the end of 2005 versus $26.7 billion at the end of 2004. Managed assets in 2005 were reduced by approximately $1.0 billion, related to the assets sold in the Pioneer transaction. Interchange income represents fees derived from electronic transactions, such as debit cards and automated teller machines (ATM). In 2005,
interchange income increased 18 percent, or $13.8 million, to $91.5 million, due primarily to increases in the number of Check Cards outstanding and an overall increase in the usage of existing cards, both of which contributed to increased
transaction volumes. Transaction volumes were higher by 176 million in 2005, a 14 percent increase over 2004. AmSouth now has 1.7 million Check Cards and more than 1,200 ATMs generating interchange fees. Consumer investment services income is derived from annuity sales, mutual fund sales, brokerage fees and the sale of other investment products. In
2005, consumer investment services income decreased $1.6 million to $75.9 million. Although equity markets performed better in 2005 and rates did rise throughout the year, overall low interest rates and a flattening of the yield curve continued to
put pressure on fixed annuity sales and fixed income sales. Shortfalls in these two areas were partially offset by increased sales of variable annuity products. An increase in commercial credit fee income of $4.8 million or 11 percent, compared to 2004, was driven by higher demand from commercial customers for interest rate swaps to lock in their long-term financing
costs. As referenced earlier, AmSouth sold its mutual fund management unit to Pioneer in the third quarter of 2005. The Companys
core expertise is providing asset management, trust services, and financial planning, and it plans to continue to deliver these and other wealth management services to individual and institutional clients. However,




41



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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



increased regulatory burden and expense made it difficult for small mutual fund families to compete effectively in the marketplace, prompting the sale. In
this transaction, AmSouth received cash of $65.0 million, from which a $44.0 million gain, net of deal costs of approximately $6.0 million, was recorded in noninterest revenue. Earnings recognition of the remaining $15.0 million of proceeds is
dependent on the level of assets retained in the Pioneer Funds over the next four years, and has therefore been deferred. AmSouth also
realized a gain on the sale of its credit card portfolio in the amount of $166.1 million in the fourth quarter of 2004. The gain was the result of selling $550 million of credit card loans to MBNA Corporation. Mortgage income decreased $4.5 million to $16.7 million in 2005 versus 2004. The decrease was primarily associated with a decrease in fixed-rate
mortgage originations in 2005. Historically, AmSouth has elected to sell the majority of its fixed-rate production into the secondary market, resulting in gains on these sales. AmSouth has experienced a shift in customer preference toward
variable-rate products. As such, more 2005 originations were made at adjustable rates, and the Company made a business decision to retain a large portion of them on the balance sheet. As a result, AmSouth recognized $16.2 million in income related
to the sale of mortgage loans and mortgage servicing rights in 2005, as compared to $19.7 million in 2004. The lower gains were somewhat offset through increased net interest income from the loan volume retained on the balance sheet. AmSouths mortgage production increased $227.9 million or 5.8 percent in 2005 from 2004. AmSouths increase in mortgage production was driven
by the increased demand for variable-rate loans and greater overall focus on its mortgage lending business, including increases in loan originating officers and further development of secondary distribution channels, such as AmSouths
Loan-By-Phone program. Industry projections anticipate that mortgage markets will contract in 2006. AmSouth expects to counter this contraction through additional increases in mortgage loan officers. AmSouths strategy to generate income by
selling a portion of mortgage originations is expected to continue in 2006, depending on the volume of fixed-rate and adjustable-rate production, the Companys balance sheet capacity for retaining the loans in the loan portfolio, and the market
conditions for selling such loans. Other noninterest revenues increased $9.0 million in 2005 to $159.4 million compared with 2004.
The increase was principally the result of gains related to various loan sales


and prepayments of FHLB borrowings, offset by lower portfolio, bankcard and bank owned life insurance income. Portfolio income is derived from the sale of securities in the available-for-sale portfolio. Revenue from this activity was down significantly in 2005 to
$5.4 million, a decrease of $23.7 million from the 2004 level of $29.1 million. The lower level of gains in 2005 was expected because, as rates continued to rise and prepayments slowed materially, opportunities to realize securities gains lessened. Bankcard income decreased by $7.8 million due largely to the 2004 sale of the credit card portfolio. Earnings from the Companys
investment in bank owned life insurance were lower by $5.1 million in 2005. Other noninterest revenues also included $6.8 million of gains
realized from sales of fixed-rate home equity loans, which were sold from portfolios containing higher-risk vintages of loans, and gains of $3.3 million from sales of student loans. AmSouth also recognized gains of $17.7 million from the prepayments
of approximately $1.6 billion of FHLB advances that were subject to being called in the near future. The Company recorded a $3.7 million benefit from derivative transactions related to market valuation adjustments after the termination of a hedge,
realized $4.0 million of gains on sales of affordable housing investments and realized a $6.0 million gain from the sale of four branches in a non-metropolitan area of middle Tennessee. Finally, a $3.0 million gain was realized from the sale of a
small equity interest in an ATM network. NONINTEREST EXPENSES Noninterest expenses primarily represent the operating expenses of AmSouth. Each of the major categories of noninterest expense from 2001 through 2005 is
shown in Table 5. During 2005, noninterest expense was $1.3 billion, decreasing $165.0 million compared to 2004. This decrease is
primarily related to costs associated with the settlement agreements and FHLB debt prepayment fees totaling $183.6 million, which were recorded in 2004. Excluding these items, noninterest expense increased $18.6 million or 1.5 percent. Salaries and employee benefits expense was $699.7 million, up 3.8 percent in 2005, reflecting higher costs related to pension benefits, an
increase in production-based incentive payments and general merit increases. Partially offsetting increases in personnel costs was a net decrease in the number of employees, down 2.5 percent from December 31, 2004 to December 31, 2005.




42



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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



On December 29, 2005, AmSouth accelerated vesting of all 15.7 million outstanding unvested stock options previously awarded to employees and
directors. Absent the acceleration, 15 percent of options would have vested by June 30, 2006, 32 percent by June 30, 2007, and the remaining 53 percent through December 12, 2008. The Company has placed a restriction on executive
management and directors that would prevent the sale of any stock obtained through exercise of an accelerated option prior to the date the option would have otherwise vested under the terms of the original option agreement. The purpose of the
acceleration was to eliminate future non-cash compensation expense with respect to these options that the Company would otherwise be required to recognize in future earnings through the adoption of Statement 123R, which was effective January 1,
2006. The acceleration will allow the Company to avoid non-cash


compensation expense of approximately $16 million in 2006 and $5 million in 2007, which would have been recognized in those periods related to the adoption
of Statement 123R if the vesting of stock options had not been accelerated. As a result of this acceleration, the Company recorded a $1.7 million charge to employee benefits expense during 2005. Partly as a result of compensation expense recognition associated with the granting of stock options under Statement 123R, the Company is reviewing alternative forms of
long-term compensation. Other forms of long-term compensation that could be utilized in future periods include cash, restricted stock and stock appreciation rights. The Company does not expect to significantly change the overall total long-term
compensation value granted. In addition, any change in the mix of long-term compensation elements is not expected to have a material effect on earnings per share.




TABLE 5  NONINTEREST REVENUES AND
NONINTEREST EXPENSES  Years Ended December 31(In thousands)

2005

2004

2003

2002

2001NONINTEREST REVENUES:Service charges on deposit accounts

$
367,048

$
378,655

$
337,945

$
289,226

$
258,089Trust income


113,156


117,973


103,657


105,428


112,078Interchange income


91,450


77,642


67,404


63,429


56,581Consumer investment services income


75,887


77,445


69,410


77,793


95,387Commercial credit fee income


47,497


42,648


45,332


42,094


40,470Net gain on sale of assets


44,007


166,103


-0-


-0-


-0-Mortgage income


16,701


21,192


51,181


24,148


32,627Other noninterest revenues


159,434


150,484


180,849


137,243


152,990$
915,180

$
1,032,142

$
855,778

$
739,361

$
748,222NONINTEREST EXPENSES:Salaries and employee benefits

$
699,692

$
674,374

$
638,843

$
584,264

$
566,288Net occupancy expense


151,668


147,225


133,479


118,548


113,174Equipment expense


126,786


125,039


116,703


118,729


122,621Professional fees


41,368


41,732


32,579


31,051


28,433Postage and supplies


40,241


45,191


47,050


49,091


49,472Marketing


35,246


38,392


36,504


35,609


34,812Communications


24,338


24,151


28,218


28,438


40,484Settlement agreements and related professional fees


-0-


53,972


-0-


-0-


-0-FHLB prepayment cost


-0-


129,648


-0-


-0-


-0-Other noninterest expenses


172,584


177,214


172,201


160,892


201,948$
1,291,923

$
1,456,938

$
1,205,577

$
1,126,622

$
1,157,232




43



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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



Net occupancy expense increased $4.4 million, to $151.7 million in 2005, reflecting higher depreciation and continued investment in new branches
throughout 2004. Other categories of noninterest expense decreased in 2005, including lower marketing, postage and supplies, and
charitable contribution costs. Partially offsetting decreases in these categories of noninterest expense was an increase in consulting and other compliance costs, mainly within professional fees. The efficiency ratio for 2005 was 52.01 percent. For 2004, excluding the settlement cost described above, the efficiency ratio was 55.00 percent. (See
Table 1, GAAP to Non-GAAP Reconciliation on page 28.) LOGO INCOME TAXES AmSouths income tax expense was $328.9 million in 2005 and $300.0 million in 2004. Income tax expense for each year fluctuates based on pre-tax income. The effective tax rate for 2005 was 31.2 percent compared
to 32.5 percent in 2004. The 2004 effective tax rate was higher due to the payment of the settlement charges described earlier, which were paid in 2004 but were not tax-deductible. Details of the deferred tax assets and liabilities are included in
Note 18 to the Consolidated Financial Statements. CONSOLIDATED BALANCE SHEET ANALYSIS At December 31, 2005, AmSouth reported total assets of $52.6 billion compared to $49.5 billion at the end of 2004. Loans and deposits were the
primary drivers of the Companys growth. Loan expansion reflected new business generation resulting from increased business development


efforts and an improving economy. This asset growth was funded by solid growth in deposits, particularly in the low-cost categories. INTEREST-EARNING ASSETS The primary types of interest-earning assets are loans and investment securities. The proportion of interest-earning assets to total assets measures the effectiveness of Managements efforts to invest available funds into the most
profitable interest-earning vehicles. Interest-earning assets represented 91.3 percent and 91.7 percent of total assets at year-end 2005 and 2004, respectively. The categories which comprise interest-earning assets are shown in Table 2. INVESTMENT SECURITIES The size and composition of AmSouths securities portfolio, detailed in Table 6, are largely dependent on liquidity needs, as well as the interest rate risk position of the Company. AmSouth uses a portion of this portfolio primarily to
manage liquidity and interest rate risk and to take advantage of market conditions that offer yield enhancement opportunities. The total
securities portfolio, including trading securities, decreased $812.7 million for the year ended December 31, 2005, driven by decreases in the available-for-sale (AFS) and held-to-maturity (HTM) portfolios of $332.7 million and $508.5 million,
respectively. The decrease in AmSouths AFS portfolio was the result of maturities, prepayments and, to a lesser extent, sales of securities. The decrease in AmSouths HTM portfolio reflects maturities and prepayments of securities. The
decrease in the size of the securities portfolio was due to AmSouths strategic decision to use the majority of securities cash flows to fund loan production rather than reinvest these proceeds back into the securities market. The narrowing of
investment spreads resulting from the changes in the interest rate environment, which made additional securities investments relatively unattractive, prompted this decision. Investment securities as a percent of total earning assets were 24.2
percent and 27.5 percent, respectively, at the end of 2005 and 2004. Portfolio Composition  The majority of AmSouths
AFS and HTM securities portfolios consist of mortgage-backed securities and collateralized mortgage obligations, which provide a source of interest income and monthly cash flow and serve as collateral in connection with pledging requirements. A
collateralized mortgage obligation is a debt security that is secured by a pool of mortgages or mortgage-




44



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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



backed securities. At December 31, 2005, AmSouth had approximately $10.7 billion or 91.8 percent of the portfolio in mortgage-backed securities and
collateralized mortgage obligations. At the end of 2004, mortgage-backed securities and collateralized mortgage obligations represented $11.6 billion, or 92.9 percent of the total portfolio. AmSouths mortgage-backed securities portfolio is
comprised


principally of securities that are guaranteed by the federal-sponsored agencies. Collateralized mortgage obligations are held to allow AmSouth to better
manage duration and cash flows. The overwhelming majority of these securities have short to intermediate average lives and are conservatively structured to provide reasonably predictable cash flows and to limit prepayment risk.




TABLE 6  SECURITIES(In millions)

2005

2004

2003TRADING SECURITIES

$
30

$
2

$
3AVAILABLE-FOR-SALE SECURITIES:U.S. Treasury securities


177


78


151Federal agency securities


5


5


96State, county and municipal securities


39


49


56Mortgage-backed securities, collateralized mortgage obligations and other pass-thru securities


5,464


5,843


6,357Equity securities


305


341


417Other debt securities


-0-


7


495,990


6,323


7,126HELD-TO-MATURITY SECURITIES:U.S. Treasury securities


8


10


10Federal agency securities


46


43


54State, county and municipal securities


351


348


304Mortgage-backed securities, collateralized mortgage obligations and other pass-thru securities


5,270


5,784


4,556Other debt securities


4


3


45,679


6,188


4,928$
11,699

$
12,513

$
12,057




Maturity Analysis  The average life of the AFS portfolio at
December 31, 2005 was 4.7 years with duration of approximately 3.9 years. These metrics are relatively unchanged from the average life of 4.6 years and duration of approximately 3.9 years for the AFS portfolio at December 31, 2004. The
average life of the HTM portfolio at December 31, 2005 was 4.6 years with duration of approximately 3.8 years compared to an average life of 3.9 years and duration of 3.3 years at the end of 2004. See Table 7 for additional information
concerning the composition of the AFS and HTM securities portfolios as well as contractual maturities and weighted-average yield information.


Portfolio Quality  AmSouths policy requires all securities purchased for the
securities portfolio to be rated investment grade or better, except state, county and local municipal obligations, which are typically insured. Securities backed by the U.S. Government and its agencies, both on a direct and indirect basis,
represented approximately 84 percent and 82 percent of the investment portfolio at December 31, 2005 and 2004, respectively. State, county and local municipal securities represented just 3 percent of total securities at year-end 2005 and 2004.
Approximately 97 percent of these were rated single A or higher by the rating agencies or were escrowed in U.S. Treasury obligations.




45



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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



TABLE 7  AVAILABLE-FOR-SALE SECURITIES AND HELD-TO-MATURITY SECURITIES RELATIVE CONTRACTUAL MATURITIES AND WEIGHTED-AVERAGE YIELDSDue Within One Year


Due After One ButWithin Five Years


Due After Five ButWithin Ten Years


Due After Ten Years(Taxable equivalent basis  dollars in millions)

Amount

Yield


Amount

Yield


Amount

Yield


Amount

YieldAVAILABLE-FOR-SALE SECURITIES:U.S. Treasury securities

$
2

4.10
%

$
2

3.25
%

$
177

2.66
%

$
-0-


%Federal agency securities


1

2.19



1

4.59



1

5.58



3

5.19State, county and municipal obligations


7

8.52



15

7.26



12

6.55



4

6.36Mortgage-backed securities, collateralized mortgage obligations and other pass thru-securities


-0-





21

7.43



349

4.56



5,246

4.51$
10

7.17
%

$
39

7.12
%

$
539

3.98
%

$
5,253

4.51
%HELD-TO-MATURITY SECURITIES:U.S. Treasury securities

$
4

3.54
%

$
4

3.87
%

$
-0-


%

$
-0-


%Federal agency securities


2

2.85



28

5.08



11

4.86



5

5.81State, county and municipal obligations


7

7.57



56

6.22



151

6.24



137

5.54Mortgage-backed securities, collateralized mortgage obligations and other pass thru-securities


16

6.55



-0-





407

3.93



4,847

4.84Other debt securities


-0-





3

6.84



1

6.70



-0-

$
29

6.21
%

$
91

5.78
%

$
570

4.56
%

$
4,989

4.86
%Notes: 1.      The weighted-average yields were computed by dividing the taxable equivalent interest
income by the amortized cost of the appropriate securities. The computation of the taxable equivalent adjustment is based on the statutory federal income tax rate of 35%, adjusted for applicable state income taxes net of the related federal tax
benefit. 2.      Mortgage-backed securities have stated long-term final maturities.
According to mortgage industry standards, the estimated weighted-average remaining life of these securities held in AmSouths available-for-sale portfolio and held-to-maturity portfolio is approximately 4.7 years and 4.6 years,
respectively. 3.      Federal Reserve Bank stock, Federal Home Loan Bank stock, and
equity stock of other corporations held by AmSouth are not included in the above table.




46



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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



LOGO LOGO


LOANS  OVERVIEW Major categories of loans and leases from 2001 to 2005 are summarized in Table 8 in this section.
Loans net of unearned income is the single largest component of interest-earning assets at AmSouth and produces the highest level of revenues. The loan portfolio includes three main components: commercial loans, which includes loans to small businesses, commercial real estate loans and consumer loans. The consumer loan category is comprised mainly of
residential first mortgage loans, home equity lines and loans and dealer indirect loans. Total loans and leases increased $3.1 billion during 2005 to $35.9 billion. The growth reflected increases across the commercial and commercial real estate
categories, as well as residential first mortgages within the consumer category, partially offset by decreases in other consumer loans, mainly dealer indirect balances. Efforts associated with AmSouths strategic initiative to grow Commercial Banking with improved credit quality were the primary driver of commercial and commercial real estate loan growth. Key areas of expansion
included AmSouths commercial middle market and small business areas, as well as commercial real estate. The middle market area posted strong new business generation resulting from its sales prospect calling program, which is one element of the
new relationship campaign that began in 2004. Within commercial loans, loans to small businesses increased due to particular focus on customers in the $5 million to $10 million sales segment. Commercial real estate loans were higher, driven
primarily by middle market real estate growth, affordable housing lending, and new or expanded loan production offices. Within consumer
loans, production was strong in both residential first mortgage and equity lending. While this translated to solid balance sheet growth for residential first mortgage balances, increasing short-term interest rates were a catalyst to high equity line
payoffs and had a restricting effect on outstanding balances. Net equity loan sales also impacted volumes.




47



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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



TABLE 8  MAJOR LOAN CATEGORIES(In millions)

2005

2004

2003

2002

2001COMMERCIAL:Commercial and industrial

$
6,174

$
5,740

$
5,264

$
5,151

$
5,272Commercial loans secured by real estate


2,700


2,245


2,026


1,726


1,682Commercial leases


2,371


2,179


1,962


1,781


1,619Total commercial


11,245


10,164


9,252


8,658


8,573COMMERCIAL REAL ESTATE:Commercial real estate mortgages


3,203


2,868


2,359


2,305


2,137Real estate construction


4,085


3,008


2,328


2,088


2,365Total commercial real estate


7,288


5,876


4,687


4,393


4,502CONSUMER:Residential first mortgages


6,016


5,082


3,646


2,794


1,666Equity loans and lines


7,859


7,757


7,005


6,360


5,404Dealer indirect


3,047


3,312


3,610


3,731


3,382Revolving credit


24


27


551


541


520Other consumer


419


583


588


874


1,077Total consumer


17,365


16,761


15,400


14,300


12,049Total loans net of unearned income

$
35,898

$
32,801

$
29,339

$
27,351

$
25,124




Commercial Loans  Commercial and industrial loans represent loans to
commercial customers for use in normal business operations to finance working capital needs, equipment purchases or other expansion projects. Commercial loans secured by real estate are business loans collateralized by owner-occupied real estate,
where the source of repayment is the operating cash flow from the business. In total, commercial loans increased 11 percent during the
year, to $11.2 billion as of December 31, 2005. Growth was driven primarily by new customer acquisitions and, to a lesser extent, increasing line utilization as a result of growth in the economy as a whole. The increase has been broad-based
across all of AmSouths markets and


geographies. Within the commercial category, commercial and industrial loans were up $433.3 million or 7.5 percent in 2005, reflecting growth in commercial
middle market lending, while commercial loans secured by real estate increased $455.3 million or 20 percent due to increased construction activity and further penetration into AmSouths Florida markets. Included within the commercial category,
loans to small businesses grew significantly, increasing 15 percent versus 2004. Commercial Real Estate Loans  Commercial
real estate loans are composed of two primary categories: commercial real estate mortgages and real estate construction loans. Commercial real estate loans are loans to companies or




48



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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



developers used for the purchase or construction of a commercial property for which repayment will be generated by cash flows related to the operation, sale
or refinance of the property. As of December 31, 2005, commercial real estate loans totaled $7.3 billion, an increase of $1.4 billion over the prior year. This increase was driven by record loan closings during the year of $7.4 billion, up 31
percent over 2004, and reflects greater construction project financing opportunities, somewhat offset by a higher level of refinance activity resulting from borrowers decisions to lock in permanent fixed-rate financing during a period of
increasing short-term interest rates. The majority of AmSouths real estate portfolio is made up of loans to finance residential
construction within AmSouths markets; loans for construction projects that have been presold, preleased or otherwise have secured permanent financing; and loans to real estate companies that have significant equity invested in each project and
offer substantive and meaningful guarantees. Consumer Loans  The major categories of consumer loans include residential first
mortgages, home equity loans and lines of credit, and dealer indirect loans. Loan production was very strong in the two largest components, residential first mortgages and equity loans and lines. However, balance sheet growth of home equity lines,
which are at variable rates, was muted by unusually high payoff levels brought on by an increasing short-term rate environment, including the Prime rate to which the rate on these loans is indexed. In addition, home equity lending growth was
impacted by the sale of $455 million of fixed-rate loans, which were from older portfolio vintages containing higher loss content, and a $270 million purchase of high quality floating-rate equity lines. The sale of the Companys $550 million
credit card portfolio in the fourth quarter of 2004 also decreased average outstanding consumer loan totals in 2005. Residential first
mortgages held in the portfolio increased by $934.4 million or 18 percent in 2005 as consumers took advantage of a favorable rate environment, including attractive


variable-rate alternatives for the purchase of new homes. First mortgage originations continued to be strong at $4.2 billion during the year. Despite upward
movements in short-term rates, consumer preference continued toward adjustable-rate mortgages for much of 2005, enabling AmSouth to retain a greater portion of mortgage originations on the balance sheet, since adjustable rates complement
AmSouths overall interest rate risk management strategies. AmSouth generally sells fixed-rate mortgage products into the secondary mortgage market. Demand for home equity loans and lines of credit was strong in all AmSouth markets, with new line production of $4.6 billion in 2005 compared with $4.2 billion in 2004. However, growth in outstanding home equity
lending balances slowed during 2005, increasing 1.3 percent over 2004 as compared to an 11 percent growth rate in the previous year. The lower overall growth rate is directly related to increases in short-term rates, namely the Prime rate, with
respect to home equity lines. Since the rate on the majority of these lines is tied to Prime, which increased in step with Federal Reserve rate increases in 2005, many customers experienced increases in their payments caused by higher interest
rates. This triggered many borrowers to pay down their home equity lines with AmSouth, favoring long-term fixed-rate refinancing with AmSouth or other financial institutions. The credit quality of home equity originations during 2005 remained high,
as reflected by an average credit score of 749 for new home equity line originations. AmSouth remains focused on its Consumer Banking strategic initiative and the initiatives emphasis on originating home equity loans and lines of credit
through the branches. The Company expects that these products will continue to be a substantial element of the overall consumer lending business. Dealer indirect loans consist primarily of loans made to individuals to finance the purchase of new and used automobiles. Dealer indirect loans decreased $265.0 million or 8.0 percent in 2005 compared with 2004 due mainly to continued
financing competition from automobile manufacturers.




49



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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



TABLE 9  SELECTED LOAN MATURITIESDue in OneYear or Less

Due After One But Within Five Years

Due After Five Years

GrandTotal(In millions)

Total

FixedRate

VariableRate

Total

FixedRate

VariableRate

TotalCommercial and industrial

$
2,588

$
621

$
2,181

$
2,802

$
207

$
577

$
784

$
6,174Commercial loans secured by real estate


227


774


557


1,331


889


253


1,142


2,700Commercial leases


17


246


-0-


246


2,108


-0-


2,108


2,371Commercial real estate mortgages


1,169


384


1,443


1,827


108


99


207


3,203Real estate construction


1,581


101


1,425


1,526


174


804


978


4,085$
5,582

$
2,126

$
5,606

$
7,732

$
3,486

$
1,733

$
5,219

$
18,533




DEPOSITS Deposits are AmSouths primary source of funding and their cost is the largest category of interest expense. The composition of AmSouths
deposits can be found in Table 10. The majority of growth in the Companys deposit base occurred in low-cost deposits. Low-cost deposits include noninterest-bearing demand, interest-bearing checking, money market, and savings deposits. The
increase in deposits during 2005 reflected AmSouths continuing emphasis on deposit growth within its strategic initiatives. Both commercial customer additions and an increase in


new retail checking accounts fueled a solid year of deposit growth. These additions resulted from extensive advertising and sales campaigns that featured
competitively priced products that encouraged deposit growth. Deposits from recent branch expansions and related household additions also had a positive impact during 2005. As of the end of the year, AmSouth had 679 branches in its network, 221 of
which were in fast growing markets in Florida. Through this network and other distribution channels, AmSouth currently serves 1.8 million households.




TABLE 10  AVERAGE DEPOSITSDecember 31(In millions)

2005

2004

2003Noninterest-bearing demand

$
7,551

$
6,562

$
5,486Interest-bearing checking


6,904


6,710


5,755Money market and savings


9,787


7,927


7,577Time


9,497


9,315


8,911Foreign


1,541


1,501


854$
35,280

$
32,015

$
28,583




50



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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



Low-cost Deposits  The $3.0 billion increase in average low-cost deposits in 2005 represented an increase of 14 percent over 2004 and was driven
primarily by higher money market deposits. A new product offering, which featured competitive rates to customers who opened new checking accounts and maintained a certain level of deposits, was a catalyst to the higher money market balances. This
product added deposit volumes and generated new customer relationships. Another significant component of low-cost funding is noninterest-bearing demand deposits, which also increased substantially, growing by $988.8 million or 15 percent over 2004.
These deposits were generated across all lines of business and geographies. As the year progressed, customer preference shifted somewhat from money market deposits to time deposits,


reflecting greater competition for money market funds and overall increases in CD rates. Time Deposits  Although demand for time deposits did increase later in the year, average growth in time deposits was moderate during 2005,
reflecting general customer preference and Company strategies to more cost-effectively provide funding, mainly through higher levels of money market funds as previously discussed. During the year, non-core time deposits grew by $341.5 million,
largely reflecting the issuance of national market CDs, the majority of which mature in one year or less. This increase was partially offset by consumer time deposits, which were down $159.8 million, reflecting the expected runoff of higher-cost
consumer CDs due to competitive market pricing pressures.




TABLE 11  MATURITY OF DOMESTIC TIME DEPOSITS OF $100,000 OR MORE(In millions)Three months or less

$
1,544Over three months through six months


1,055Over six months through twelve months


1,265Over twelve months


1,089$
4,953




OTHER INTEREST-BEARING LIABILITIES Other interest-bearing liabilities include all interest-bearing liabilities except deposits. Included in this category are short-term borrowings such as
federal funds purchased, securities sold under agreements to repurchase (repurchase agreements) and Treasury, Tax and Loan notes. Also included is longer-term debt, such as FHLB advances, subordinated debt and various long-term notes. Federal Funds Purchased and Repurchase Agreements Average federal funds purchased and repurchase agreements were $3.2 billion in 2005, a 7.2
percent increase from $3.0 billion in 2004. At December 31, 2005, 2004 and 2003, federal funds purchased and repurchase agreements totaled $4.4 billion, $2.3 billion and $2.0 billion, respectively, with weighted-average end of period interest
rates of 3.72 percent, 2.02 percent and 0.81 percent, respectively. The


maximum amount outstanding at any given month-end during each of the last three years was $4.4 billion, $4.0 billion and $2.8 billion, respectively. The
average daily balance and average interest rates for each year are presented in Table 2. Long-term Debt  Long-term debt
consists of long-term FHLB advances, subordinated notes and debentures, various long-term notes payable, and long-term securities sold under agreements to repurchase. Average long-term debt decreased $1.1 billion to $6.6 billion during 2005. On an
ending basis, long-term debt outstanding decreased $1.3 billion to $6.0 billion as of December 31, 2005. This decrease is largely attributable to the prepayment of FHLB advances. On several occasions during 2005, the Company elected to prepay
FHLB advances, the majority of which were subject to being called in the near term. These prepayments totaled $1.6 billion in 2005 and generated $17.7 million of pre-tax gains.




51



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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



In addition to these prepayments, $775 million
of FHLB advances were called during 2005. In late 2004, AmSouth prepaid $1.25 billion of FHLB advances, recording a pre-tax loss of $129.6 million, and replaced them with a variety of lower cost instruments. Other changes in long-term debt include the issuance of $1.2 billion of long-term securities sold under agreements to repurchase; the maturity of $50
million of 6.625 percent subordinated notes; and the issuance of $350 million of 5.20 percent subordinated notes, which mature in April 2015. Also during 2005, long-term bank notes issued under AmSouths Bank Notes program decreased $300
million on a net basis from 2004. See Note 10 to the Consolidated Financial Statements for additional information. SHAREHOLDERS EQUITY The management of capital in a regulated banking environment requires a balance between optimizing
leverage and return on equity, while maintaining sufficient capital levels and related ratios to ensure a strong capital position and satisfy regulatory requirements. AmSouths goal is to generate attractive returns on equity for the
Companys shareholders, while maintaining regulatory capital ratios that meet the requirements for a well-capitalized company. At least annually, Management reevaluates the capital policy and presents its findings to the Board of Directors to
ensure that the policy continues to support corporate objectives and is consistent with the regulatory environment and changes in market conditions. Refer to Table 12 and Notes 11 and 12 to the Consolidated Financial Statements for additional
information.


Shareholders equity increased $65.7 million from year-end 2004 to $3.6 billion at December 31, 2005. Refer to the Statement of Shareholders Equity for an analysis of all equity balances. Average
diluted common shares outstanding decreased by 2.4 million shares in 2004, to 355.6 million average diluted common shares outstanding in 2005. Driving this decrease were repurchases of the Companys shares throughout 2005. During the
year, AmSouth repurchased 13.7 million common shares at a cost of $358.9 million, the majority of which was in connection with a previously announced buyback program. As of December 31, 2005, AmSouth had 8.9 million shares of stock
remaining from its current repurchase plan, which was approved by the Board of Directors in April 2003. AmSouth declared $355.4 million,
or $1.01 per share, in dividends to common shareholders in 2005 compared with $344.3 million, or $0.97 per share, in 2004. This represented a dividend payout ratio on earnings of 48.8 percent in 2005 and 54.8 percent in 2004. As a regulated financial services company, AmSouth is governed by certain regulatory capital requirements. AmSouths tier 1 capital ratio decreased
24 basis points from December 31, 2004, to 7.81 percent at December 31, 2005, driven primarily by the share repurchases discussed above. The minimum tier 1 capital ratio is 4 percent. At December 31, 2005, AmSouth was classified as
well-capitalized for regulatory purposes, the highest classification. AmSouths total capital and leverage ratios were 11.40 percent and 6.74 percent, respectively, at December 31, 2005, and 10.93 percent and 6.73 percent, respectively, at
December 31, 2004.




52



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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



TABLE 12  CAPITAL RATIOSDecember 31(Dollars in thousands)

2005


2004RISK-BASED CAPITAL:Shareholders equity

$
3,634,577


$
3,568,841Less unrealized (losses) on available-for-sale securities


(102,960
)


(30,223
)Less accumulated net (losses) on cash flow hedges


(25,279
)


(25,048
)Less intangible assets


296,582



300,174Tier 1 capital


3,466,234



3,323,938Adjusted allowance for loan and lease losses*


369,144



369,770Qualifying other long-term debt


1,225,000



819,852Other


848



444Tier 2 capital


1,594,992



1,190,066Total capital

$
5,061,226


$
4,514,004Risk-adjusted assets

$
44,384,919


$
41,315,742CAPITAL RATIOS:Tier 1 capital to total risk-adjusted assets


7.81
%


8.05
%Total capital to total risk-adjusted assets


11.40



10.93Leverage


6.74



6.73Ending equity to assets


6.91



7.20Ending tangible equity to tangible assets


6.38



6.64  *
Includes $2,449 and $2,996 in 2005 and 2004, respectively, associated with reserves recorded in other liabilities for off-balance sheet credit exposures.




RISK MANAGEMENT Identifying, quantifying and managing risk are key elements in AmSouths ability to maintain safety and soundness while maximizing profitability. Management believes that AmSouths primary risk exposures are interest rate risk and
liquidity, credit, operational, reputation, legal and regulatory risks. Interest rate risk is the risk to net interest income due to the impact of movements in interest rates. Liquidity risk relates to AmSouths ability to fund present and
future obligations. Credit risk represents the possibility that borrowers may not be able to repay loans. Operational risk is the risk of loss resulting from inadequate or failed internal processes, people or systems, or from external events.
Reputation risk is the risk of negative publicity that causes a decline in AmSouths customer base or investor confidence. Legal and regulatory risks represent the risk of legal proceedings against AmSouth or the risks associated with
regulatory and government reviews or investigations that arise in the course of AmSouths business.


Ultimate responsibility for ensuring that an enterprise-wide risk management program is in place
belongs to AmSouths Board of Directors. The Boards oversight role includes establishing a capable senior management team, setting the banks risk appetite and policies, and ensuring that Management follows the policies set by the
Board. In 2005, the Board created a Risk Committee to oversee the risk management process and focus on the Companys major risks, including emerging risks. The Risk Committee receives information on each of AmSouths key risks from the
Companys risk management group and others. The Chief Risk Officer, who reports to the Chief Executive Officer, is responsible for
the Risk Management function, which assesses how AmSouths business units are identifying, managing and mitigating their risks. Risk Management performs independent risk assessments and determines both the quantity of inherent risk and the
quality of risk management. These risk assessments are communicated to Management and to the Risk Committee of the Board.




53



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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



External factors beyond Managements control may from time to time result in losses despite risk management efforts. Management follows a formal policy
to evaluate and document the key risks facing each line of business, how those risks can be controlled or mitigated, and how Management monitors the controls to ensure that they are effective. AmSouths Internal Audit Division performs ongoing,
independent reviews of the risk management process and assures the adequacy of documentation. The results of these reviews are reported regularly to the Audit Committee of the Board of Directors. Some of the more significant processes used to manage and control interest rate, liquidity and credit risks are described in the remainder of
Managements Discussion and Analysis. INTEREST RATE RISK AmSouth maintains a formal asset and liability management process to quantify, monitor and control interest rate risk and to assist Management in
minimizing the impact of changes in the level and direction of interest rates on net interest income. This is accomplished through the development and implementation of lending, funding, pricing and hedging strategies designed to achieve net
interest income performance goals, while minimizing the potential variation of net interest income under different interest rate scenarios. Interest rate risk arises primarily as a result of AmSouths core business activities of extending loans and accepting deposits, and the associated balance sheet management required to closely match maturities and repricing frequencies
of loans and investments to funding sources. AmSouth follows an extensive process to actively manage its exposure to interest rate risk. The principal objective of asset and liability management is to maximize net interest income while operating
within acceptable limits established for interest rate risk and maintaining adequate levels of liquidity and capital. The Risk Committee
of the Board of Directors, based upon recommendations from Management, approves policies and risk limits for the management of interest rate risk and monitors compliance with these policies. No single measurement system satisfies all management
objectives. A combination of techniques is used to manage interest rate risk including simulation analysis, asset and liability repricing schedules and economic value of equity. An Asset and Liability


Committee, consisting of key members of Management, and the Risk Committee of the Board of Directors regularly review the results of these interest rate risk
analyses. AmSouth regularly evaluates net interest income under various balance sheet and interest rate scenarios, using income simulation
analysis as its principal risk management tool. Management evaluates base net interest income under what is believed to be the most likely twelve-month asset/ liability mix growth scenario and expected interest rate environment. This
base case is then evaluated against various interest rate scenarios. Assumptions for asset prepayment levels, yield curves and asset and liability replacement rates are adjusted to be consistent with each interest rate scenario.
Worst-case scenarios are also tested to better understand the full range of net interest income exposure. Key assumptions in
the model include the magnitude and timing of Federal Reserve rate changes and the associated impact on market rates; 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 balances and rate sensitivities; customer preferences; and Managements financial and capital plans. These assumptions are inherently uncertain, and as
a result, the model cannot precisely estimate net interest income or precisely predict the impact of higher or lower interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude and frequency of
interest rate changes and changes in market conditions, customer behavior and Managements strategies, among other factors. Currently, AmSouth is essentially neutral in terms of interest rate sensitivity, meaning that parallel shifts in the yield curve do not have a significant impact on net interest income over a twelve-month forecast horizon compared to the
base case. Table 13 illustrates the impact of a gradual 100 basis point increase or decrease in interest rates from the then-current rates on net interest income. This modeling assumes a simultaneous proportional shift in the yield curve. The
changes shown indicate a level of interest rate risk that is well within AmSouths policy guidelines. Current policy states that net interest income 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.




54



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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS





TABLE 13  INTEREST RATE SENSITIVITY(Dollars in thousands)Changes in Interest Rates

Increase (Decrease) in Net Interest Income2005+ 100 basis points

$
4,400


0.27
%- 100 basis points


(15,000
)

(0.94
)2004+ 100 basis points

$
4,600


0.31
%- 100 basis points


(11,400
)

(0.77
)




AmSouth uses derivatives as a cost-effective and capital-efficient way to mitigate
interest rate risk associated with assets and liabilities on the balance sheet and anticipated transactions, such as future issuances of debt. The primary derivative instruments used by AmSouth to manage interest rate risk are interest rate swaps.
An interest rate swap is an agreement between two parties to exchange one interest stream, such as floating rate, for another, such as fixed rate, based on a contractual amount, known as notional amount. AmSouth uses interest rate swaps
to mitigate its exposure to interest rate risk on certain loans, deposits, borrowed funds and long-term debt. AmSouth also uses derivatives to mitigate interest rate risk related


to mortgage loans to customers who have entered into interest rate locks prior to closing (the mortgage pipeline). The decision to use these instruments
rather than securities, debt or other alternatives depends on many factors including the mix and cost of funding sources, liquidity, capital requirements and interest rate sensitivity implications. See Note 1 and Note 19 to the Consolidated
Financial Statements for more information on derivatives. Table 14 summarizes the activity, by notional amount, of derivative financial
instruments utilized in the asset and liability management process at AmSouth during 2003, 2004 and 2005.




TABLE 14  INTEREST RATE SWAP ACTIVITY(In millions)

Receive Fixed Rate Swaps


Pay Fixed Rate Swaps


TotalBalance at January 1, 2003

$
1,090


$
-0-


$
1,090Additions


1,833



750



2,583Maturities


(290
)


-0-



(290
)Balance at December 31, 2003


2,633



750



3,383Additions


-0-



1,500



1,500Maturities


(300
)


-0-



(300
)Terminations


-0-



(600
)


(600
)Balance at December 31, 2004


2,333



1,650



3,983Additions


-0-



650



650Maturities


(150
)


(300
)


(450
)Terminations


-0-



(450
)


(450
)Balance at December 31, 2005

$
2,183


$
1,550


$
3,733




55



---

AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



Table 15 summarizes the expected maturities of AmSouths swap positions used in the asset and liability management process at December 31, 2005 and
the weighted-average interest rates exchanged on swaps. Both the timing of the maturities and the variable interest payments and receipts


vary as certain interest rates change. The maturities and interest rates exchanged are calculated assuming that interest rates remain unchanged from average
December 2005 rates. The information presented could change as future interest rates increase or decrease.




TABLE 15  MATURITIES AND INTEREST RATES EXCHANGED ON SWAPSMature During


Total(Dollars in millions)

2006


2007


2008


2009


2010

ThereafterRECEIVE FIXED SWAPS:Notional amount

$
33


$
-0-


$
1,475


$
175


$
-0-

$
500


$
2,183Receive fixed rate


2.79
%






3.15
%


6.22
%





4.16
%


3.62
%Pay LIBOR rate


4.49
%






4.28
%


4.29
%





4.05
%


4.23
%PAY FIXED SWAPS:Notional amount

$
50


$
1,500


$
-0-


$
-0-


$
-0-

$
-0-


$
1,550Pay fixed rate


2.51
%


3.60
%

















3.56
%Receive variable rate


4.25
%


4.29
%

















4.29
%




AmSouth manages the credit risk of these instruments in much the same way as it
manages credit risk of the loan portfolios, by establishing credit limits for each counter-party and through collateral agreements for dealer transactions. For non-dealer transactions, the need for collateral is evaluated on an individual
transaction basis and is primarily dependent on the financial strength of the counterparty. Credit risk is also reduced significantly by entering into legally enforceable master netting agreements. When there is more than one transaction with a
counterparty and there is a legally enforceable master netting agreement in place, the exposure represents the net of the receivable and payable positions with that counterparty. The Credit Risk Management Process and Loan Quality
section in Managements Discussion and Analysis contains more information on the management of credit risk. AmSouth is also subject
to changing prepayment speeds on mortgage-related assets under different interest rate environments. Prepayment risk is a significant risk to earnings and specifically to net interest income (see discussion in section entitled Net Interest
Income in Managements Discussion and Analysis).


For example, mortgage loans and other financial assets may be prepaid by a debtor, so that the debtor may refinance its obligations at lower rates. As loans
and other financial assets prepay in a falling rate environment, AmSouth must reinvest these funds in lower yielding assets. Prepayments of assets carrying higher rates reduce AmSouths interest income and overall asset yields. Conversely, in a
rising rate environment, these assets will prepay at a slower rate resulting in opportunity cost by not having the cash flow to reinvest at higher rates. AmSouths greatest exposure to prepayment risks primarily rests in the Companys
investment portfolio and mortgage loan portfolio. Tools to hedge prepayment risk are limited and generally involve complex derivatives
that AmSouth has chosen not to utilize. AmSouth does, however, actively monitor prepayment exposure as part of the Companys overall net interest income forecasting and interest rate risk management. Prepayment speeds were lower in 2005, with
cash flows from mortgage-related assets returning to more normal levels following the rapid prepayment speeds in 2004 and 2003.




56



---

AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



LIQUIDITY AND OFF-BALANCE SHEET ARRANGEMENTS 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 and 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 asset/liability composition or anticipated cash flow changes. Management also compares AmSouths liquidity position to established
corporate liquidity policies on a monthly basis. At December 31, 2005, AmSouth was within all of the Companys established liquidity policies. AmSouth has various financial obligations that require future cash payments. The amount and timing of payments required under debt obligations, noncancelable operating leases and time deposit obligations are outlined
in Table 16. AmSouth also has off-balance sheet commercial commitments to customers that may impact liquidity. These include commitments to extend credit, standby letters of credit and commercial letters of credit. Since many of these commitments
expire without being drawn upon, the total amount of commercial commitments does not necessarily represent the future cash flow requirements of AmSouth. Table 16 summarizes AmSouths commercial commitments at December 31, 2005, and the
timing of the expiration of these commitments. Maintaining adequate credit ratings on AmSouths debt issues is an important factor
for liquidity, because credit ratings affect the ability of AmSouth to attract funds from various sources on a cost-effective basis. Table 17 summarizes AmSouths credit ratings at December 31, 2005. For AmSouth Bank, the primary sources of liquidity on the asset side of the balance sheet are maturities and cash flows from both loans and investments
as well as the ability to securitize, pledge or sell certain loans and investments. Liquidity on the liability side is generated primarily through growth in deposits and the ability to obtain economical wholesale funding in national and regional
markets through a variety of sources. AmSouths most commonly used sources of wholesale funding are (1) federal funds (i.e., the excess reserves of other financial institutions); (2) repurchase agreements, whereby U.S. Government and
government-sponsored


agency securities are pledged as collateral for short-term borrowings; and (3) pledges of acceptable assets as collateral for public deposits and
certain tax collection monies. In addition to these sources, AmSouth can access other wholesale funding sources, such as foreign deposits
and certificates of deposit. AmSouth Bank also has the ability to borrow from the FHLB, the products of which are competitively priced and are a reliable source of funds. While some FHLB advances are callable, they are convertible by AmSouth if
called. The convertible feature provides that after a specified date in the future, the advances will remain at a fixed rate, or AmSouth will have the option to pay off the advance or convert from a fixed-rate to a variable-rate based on LIBOR.
There is no adverse impact on liquidity if the advances, at AmSouths choice, remain outstanding. It is more likely that these advances would be called and therefore converted to a variable rate in a higher interest rate environment. Also,
AmSouth Bank maintains a bank note issuance program with a borrowing capacity of $3.0 billion; $0.7 billion was outstanding under the note issuance program at December 31, 2005. As an additional source of liquidity, AmSouth periodically sells commercial loans to qualifying special purpose entities known as conduits in
securitization transactions. The conduits are financed by the issuance of securities to asset-backed commercial paper issuers. The transactions are accounted for as sales and allow AmSouth to utilize its asset capacity and capital for higher
yielding interest-earning assets, while continuing to manage customer relationships. At December 31, 2005, the outstanding balance of commercial loans sold to conduits was $478.0 million. While no longer utilized as a source of funding,
AmSouth, in prior years, also sold residential mortgage loans to third-party conduits. The remaining outstanding balance at December 31, 2005 associated with these transactions was $452.0 million. While the conduit transactions have been a source of funding, these off-balance sheet arrangements have the potential to require AmSouth to provide
funding to the conduits in the event of a liquidity shortage. 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
December 31, 2005, AmSouth had $72.6 million of letters of credit supporting the conduit sales. This credit risk is reviewed quarterly and an immaterial reserve for loss exposure is maintained in other liabilities on the balance sheet.




57



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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



AmSouth also provides liquidity lines of credit to support the issuance of commercial paper 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 AmSouth (as the provider of the credit support), which could prevent the
asset-backed commercial paper issuers from being able to issue commercial paper. At December 31, 2005, AmSouth had liquidity lines of credit supporting these transactions of $930 million. 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 sufficient sources of liquidity are
available to meet demand. The main source of funding for the parent company to meet liquidity requirements is provided through regular
dividends from its subsidiary, AmSouth Bank. In 2005, AmSouth Bank paid the parent company a total of $450.0 million in dividends. During 2006, AmSouth Bank can pay dividends to the parent company of up to $479.4 million, plus 2006 net income,
without prior regulatory approval.




TABLE 16  CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTSPayments Due By Period(In thousands)

Less than 1 year

1-3 years

4-5 years

After 5 years

TotalBorrowings(1)

$
5,365,863

$
1,690,745

$
1,427,739

$
2,424,599

$
10,908,946Time deposits(2)


7,367,011


1,524,982


1,002,668


34,111


9,928,772Foreign deposits


1,373,557


-0-


-0-


-0-


1,373,557Operating leases


39,826


72,248


60,965


196,412


369,451Purchase obligations(3)


13,723


14,828


8,000


-0-


36,551Total contractual cash obligations

$
14,159,980

$
3,302,803

$
2,499,372

$
2,655,122

$
22,617,277Amount of Commitment Expiration Per Period(In thousands)

Less than 1 year

1-3 years

4-5 years

After 5 years

TotalCommitments to extend credit(4)

$
11,242,993

$
4,446,049

$
1,683,774

$
130,269

$
17,503,085Standby letters of credit


1,761,915


1,098,903


287,197


61,129


3,209,144Commercial letters of credit


48,597


-0-


294


-0-


48,891Commitments to fund affordable housing


38,691


3,066


-0-


-0-


41,757Total commercial commitments

$
13,092,196

$
5,548,018

$
1,971,265

$
191,398

$
20,802,877Notes: (1)      All maturities are based on contractual maturities. Excludes $8.4 million of FAS 133 valuation adjustments. (2)      Excludes $287,000 of FAS 133 valuation adjustments. (3)      Purchase obligations represent obligations under agreements to purchase goods or services
that are enforceable and legally binding on AmSouth and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. The
majority of AmSouths purchase obligations are comprised of commitments related to construction in process and maintenance agreements. The amount includes contracts greater than $1,000,000. (4)      Excludes $3.5 billion of loan commitments under equity lines and $804.0 million under
revolving lines of credit, which do not have scheduled expiration dates.




58



---

AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



TABLE 17  CREDIT RATINGSMoodys

Standard &Poors

FitchAMSOUTH BANCORPORATION6.125% Subordinated Notes Due 2009

A3

BBB+

BBB+6.75% Subordinated Debentures Due 2025

A3

BBB+

BBB+7.25% Senior Notes Due 2006

A2

A-

A-Commercial paper

P-1

A-2

F1AMSOUTH BANK4.85% Subordinated Notes Due 2013

A2

A-

BBB+5.20% Subordinated Notes Due 2015

A2

A-

BBB+6.45% Subordinated Notes Due 2018

A2

A-

BBB+Short-term counterparty

P-1

A-1

F1Long-term counterparty

A1

A

AFinancial strength rating

B-



Table reflects ratings as of December 31, 2005.




CREDIT RISK MANAGEMENT PROCESS AND LOAN QUALITY AmSouth manages and controls risk in the loan portfolio through adherence to consistent underwriting and account administration standards established by
Senior Management, combined with a commitment to producing quality assets. AmSouth has written credit policies which establish underwriting standards, exposure limits and other limits or standards as deemed necessary and prudent. Also included in
the policy are various approval levels, ranging from the department level to those which are more centralized, primarily based on size and type of loan. AmSouth maintains a diversified portfolio intended to spread risk and reduce exposure to
economic downturns, which may occur in different segments of the economy or in particular industries. Commercial and industrial loans are
categorized by the type of collateral. Commercial loans secured by real estate are typically owner-occupied properties where the borrower is a primary tenant, such as factory or warehouse loans. Commercial real estate mortgages and real estate
construction loans are generally nonowner-occupied properties where the primary source of repayment is anticipated to come from the proceeds from the sale of or rental income generated by the property, which generally has inherently more risk than
owner-occupied lending.


Each commercial and commercial real estate loan recorded at AmSouth is assigned a risk rating on a 13-point numerical scale by a loan officer using established credit policy guidelines. Consumer loan portfolios are
assigned risk grades based on a six-point scale that considers the type of loan and its credit score. All risk ratings are subject to review by an independent Credit Review Department. In addition, regular reports are made to Senior Management, the
Board of Directors and the Risk Committee of the Board regarding the credit quality of the loan portfolio as well as trends in the portfolio. The credit function includes designated credit officers, some of whom are industry specialists and all of whom are organizationally independent of the production areas. Credit officers oversee the loan approval process, ensure adherence to
credit policies and monitor efforts to reduce nonperforming and classified assets. Additionally, a centralized Special Assets Department handles resolution and disposition of certain problem loans. Risk in the consumer loan portfolio is further
managed through the utilization of both standard and customized credit scoring and in-depth analysis of portfolio components. In addition, the consumer collection function is centralized and automated to ensure timely collection of accounts and
efficient management of the




59



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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



risk associated with delinquent accounts. The collection process related to residential mortgage loans is provided by a third-party vendor. A portfolio risk
management unit within the credit function uses quantitative tools that enhance the risk assessment process and help manage the risk of loss in the different portfolios as well as the volatility of that risk under different economic scenarios. Finally, AmSouths independent Credit Review Department performs ongoing independent reviews of the risk management process, adequacy
of loan documentation, appropriateness of the risk ratings and the level of allowance for loan and lease losses. The results of its examinations are reported quarterly to the Risk Committee of the Board of Directors. Nonperforming Assets  Management closely monitors loans and other assets that are classified as nonperforming assets. Nonperforming assets
include nonaccrual loans (i.e., loans that are still reflected in the loan portfolio but for which no interest income is being accrued; interest income on these loans is recorded on a cash basis), restructured loans, foreclosed properties and
repossessions. Commercial loans are generally placed on nonaccrual status if full collection of principal and interest becomes unlikely (even if all payments are current), or if the loan is delinquent in principal or interest payments for 90 days or
more, unless the loan is well-secured and in the process of collection. Current policy requires that consumer loans which are not well-secured will be written down to estimated fair value no later than the 180th day of delinquency. Residential
mortgage loans are placed on nonaccrual status after a write-down has occurred. All other consumer loans are charged-off in a timely fashion according to regulatory guidelines and, therefore, do not need to be placed on nonaccrual status based
solely on number of days past due. The Special Assets Department manages the collection of nonperforming commercial loans and all foreclosed properties. The Consumer Collections Department manages the collection of nonperforming consumer loans. AmSouth operates in a geographic region of the United States that is susceptible to natural disasters such as hurricanes, which have been
intensely active in 2005 and 2004. Due to the considerable damage that can result from a hurricane, the Company, in its normal course of business, will


generally grant 60-day payment deferrals to customers in affected areas. If further relief is required, AmSouth handles this on a case-by-case basis based on
the merits of the situation. The timing and extent of disruption related to the hurricanes in 2004 was such that past due or nonperforming loans as of year-end were not materially affected. However, Hurricane Katrina in August 2005 was particularly
devastating and posed unique circumstances specifically related to the flooding in the New Orleans area. Significantly more hurricane-related payment deferrals were granted in 2005 compared to 2004, predominantly in consumer loans. Specific to Hurricane Katrina, AmSouth granted automatic payment deferrals to residential mortgage customers in the affected areas through
December 31, 2005. Had these deferrals not been granted, an additional $55 million of loans in this category would have been past due 90 days or more at December 31, 2005. Due to the sheer volume of loans affected, the Company is taking
considerable effort to contact customers and work through revised payment terms, which may include further payment extensions. AmSouth expects to have more extensive knowledge of the credit quality of these loans toward the end of the first quarter
of 2006. As discussed further in the Allowance for Loan and Lease Losses section of this report, AmSouth continues to believe that the $15.0 million reserved for estimated losses associated with Hurricane Katrina is adequate. The graph entitled Asset Quality Trends and Table 18 provide trend information and detailed components of non-performing assets for each of the last
five years. For all periods presented in Table 18, AmSouth did not have any nonperforming assets considered to be restructured loans. Table 19 represents nonperforming loans as a percentage of ending loans and net charge-offs as a percentage of
average net loans by category for December 31, 2005 and 2004. As outlined in Table 19, the ratio of nonperforming loans to total
loans in 2005 was relatively stable at 0.29 percent compared to 0.27 percent in 2004. The low overall level reflects the continuation of favorable economic conditions in 2005 and efforts by AmSouth in recent years to strengthen credit quality.
Within nonperforming loans, significant changes include a $25.3 million increase in nonperforming commercial




60



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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



leases and a $13.1 million decrease in nonperforming residential first mortgages. The increase in nonperforming leases is attributable to AmSouths
exposure to two commercial airline carriers experiencing well-publicized financial difficulties. The residential first mortgage decrease resulted from a policy change with respect to these loans. As described above, the current process of
writing-down to estimated value advances the loss recognition and reduces the balance placed on nonaccrual status. This policy change took place during 2005, and therefore the level of nonaccrual residential first mortgages is lower in 2005 when
compared to 2004.


At December 31, 2005 and 2004, AmSouth had approximately $18.7 million and $28.9 million, respectively, of potential problem commercial loans which were not included in the nonaccrual loans or in the accruing
loans 90 days past due categories at year-end, but for which Management had concerns as to the ability of such borrowers to comply with their present loan repayment terms. Of the $28.9 million in 2004, only $4.6 million remained categorized as
potential problem loans at December 31, 2005. The remaining 2004 balance either migrated to nonperforming status or was no longer considered a potential problem loan.




TABLE 18  NONPERFORMING ASSETS(Dollars in thousands)

2005


2004


2003


2002


2001Nonaccrual loans

$
102,981


$
88,488


$
110,153


$
158,829


$
159,274Foreclosed properties


17,667



19,609



32,616



33,828



27,443Repossessions


2,274



2,498



4,986



4,346



4,365Total nonperforming assets*

$
122,922


$
110,595


$
147,755


$
197,003


$
191,082Nonperforming assets* to loans net of unearned income, foreclosed properties and repossessions


0.34
%


0.34
%


0.50
%


0.72
%


0.76
%Accruing loans 90 days past due

$
54,005


$
51,117


$
67,460


$
91,045


$
116,576  *
Exclusive of accruing loans 90 days past due




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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



TABLE 19  NONPERFORMING LOANS AND NET CHARGE-OFFS/(RECOVERIES)Nonperforming Loans*


Net Charge-Offs/(Recoveries)(Dollars in thousands)

December 31,2005

% ofEndingLoans**perCategory


December 31,2004

% ofEndingLoans**perCategory


December 31,2005

% ofAverageLoans**perCategory


December 31,2004


% ofAverageLoans**perCategoryCOMMERCIAL:Commercial and industrial

$
39,542

0.64
%

$
37,581

0.65
%

$
48,973

0.82
%

$
32,972


0.60
%Commercial loans secured by real estate


17,838

0.63



18,617

0.83



1,498

0.06



1,221


0.06Commercial leases


27,374

1.15



2,048

0.09



1,027

0.05



1,518


0.08Total commercial


84,754

0.74



58,246

0.57



51,498

0.49



35,711


0.37COMMERCIAL REAL ESTATE:Commercial real estate mortgages


4,498

0.15



3,074

0.11



699

0.02



(267
)

(0.01
)Real estate construction


2,946

0.07



1,286

0.04



1,339

0.04



1,792


0.07Total commercial real estate


7,444

0.10



4,360

0.07



2,038

0.03



1,525


0.03CONSUMER:Residential first mortgages


8,817

0.15



21,899

0.43



2,609

0.05



2,884


0.07Equity loans and lines


1,965

0.03



3,946

0.05



13,352

0.18



23,784


0.32Dealer indirect


1





13





9,328

0.30



20,306


0.57Revolving credit


-0-





-0-





366

1.52



18,493


3.99Other consumer


-0-





24





12,113

2.55



13,739


2.28Total consumer


10,783

0.06



25,882

0.15



37,768

0.22



79,206


0.49$
102,981

0.29
%

$
88,488

0.27
%

$
91,304

0.27
%

$
116,442


0.37
%  *
Exclusive of accruing loans 90 days past due **
Net of unearned income




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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



LOGO Allowance for Loan and Lease Losses  A detailed schedule of the allowance for loan and lease
losses (the allowance) is included in Table 20. The allowance as a percent of total loans decreased from 1.12 percent at December 31, 2004 to 1.02 percent at December 31, 2005. This reduction reflects improved general economic conditions,
lower inherent loss content in the portfolio driven by stricter underwriting standards on the consumer portfolios implemented several years ago, and a shift in the mix of the portfolio to products/customers with lower charge-off characteristics. The
improvement in credit quality is reflected in the net charge-off ratio, which decreased from 0.37 percent in 2004 to 0.27 percent in 2005. The portfolio shift is the result of continued growth in consumer loans secured by residential first
mortgages, which increased to 17 percent from 15 percent of total loans at December 31, 2005 and 2004, respectively. These loans historically have lower net charge-offs and, accordingly, require lower levels of allowance compared to other loan
types. The allowance is determined based on components in accordance with Statement of Financial Accounting Standards No. 114,
Accounting by Creditors for Impairment of a Loan (Statement 114) for individually impaired loans and Statement of Financial Accounting Standards No. 5, Accounting for Contingencies (Statement 5) for pools of loans and
for individual or pools of leases. The allowance is established by a provision charged to earnings based on estimated inherent losses. Loan losses are charged against


the allowance when uncollectibility of all or part of the loan balance is confirmed. Any subsequent recovery is credited to the allowance. The allowance is maintained at a level considered to be adequate to absorb estimated credit losses for specifically identified loans, as well as
estimated credit losses inherent in the remainder of the loan portfolio at the balance sheet date. Actual losses can vary from Managements estimates. A formal review of the allowance is prepared quarterly to assess the risk in the portfolio
and determine the adequacy of the allowance. The allowance contains a specific component for impaired commercial and commercial real estate loans and a general component for loan pools. The specific component of the allowance includes the calculations for individual impaired loans as required under Statement 114. In this process,
specific allowances are established for all nonaccruing commercial loans greater than $2.5 million based on a thorough analysis of the most probable sources of repayment, including discounted cash flow analysis, liquidation of collateral or the
market value of the loan itself. As of December 31, 2005 and 2004, the specific allowance related to Statement 114 prescribed calculations totaled $2.9 million and $5.4 million, respectively. The general component of the allowance for loan pools is determined under Statement 5 by applying loan loss factors to groups of loans within the
portfolio that have similar characteristics. As of December 31, 2005 and 2004, the general allowance totaled $363.8 million and $361.4 million, respectively. The general allowance includes factors based on historical loss rates and trends in
quarterly annualized charge-off rates, which are adjusted for current information on the credit performance of each pool of loans. Homogenous consumer pools include residential first mortgages, home equity lines and loans, indirect automobile loans,
direct consumer loans and revolving credit. Commercial and commercial real estate loans not reviewed for specific allowances are included in the general allowance analysis. Every commercial and commercial real estate loan is assigned an allocation
percentage which, when multiplied by the dollar value of loans in that risk category, results in the amount of general allowance allocated to these loans. Each of the allowance factors are reviewed quarterly. In 2005, an allowance pool of $15.0
million was established for consumer and commercial exposures in the geographic areas affected by Hurricane Katrina. Additionally, a significant allocation was made for commercial lease exposure to the two commercial airline carriers previously
mentioned.




63



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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



The general allowance analysis
also includes an estimate for inherent losses related to specific economic stresses, variability in economic conditions and geopolitical risks, and the overall imprecision in the allowance estimation process. For example, certain economic risks will
negatively affect financial performance, although the recent nature of the risk would not be expected to be reflected in the financial statements that borrowers have made available to the Company. Included in the risks that, in Managements
judgment, increased inherent losses at year-end 2005 were higher energy prices and emerging risks related to Hurricane Katrina, including economic disruption in the region that potentially adversely impacted some borrowers. The Company expects that
the previously mentioned amount specific to credit losses related to Hurricane Katrina will be adequate. The review of the impact of
general economic conditions and other risk factors on the losses inherent in the portfolio is based on the effect of marketplace conditions and/or events that could affect loan repayment. This element inherently involves a higher degree of
uncertainty, as it requires Management to estimate the impact that economic trends or other unique market and/or portfolio issues may have on estimated losses. For example, in assessing economic risks in the marketplace, Management might consider
local unemployment trends, population shifts within the region, real estate absorption rates and expansion or contraction plans for major employers. Consideration of other risk factors typically includes such issues as recent loss experience in
specific portfolio segments, trends in loan quality, changes in account acquisition strategy or market focus, concentrations of credit, and credit review reports together with any administrative risk factors. The Chief Credit Officer reviews these
conditions quarterly with Executive Management. To the extent that any of these conditions is evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, Managements estimate of the effect of such
condition may be reflected as a specific allowance applicable to such credit or portfolio segment. Where any of these conditions is not evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date,
Managements evaluation of the inherent loss related to such condition is reflected in the general allowance.


Concentrations of credit may affect inherent losses in the loan portfolio and the level of the
allowance. Concentrations typically involve large exposures to a single borrower or affiliated group of borrowers, an aggregate of exposures to borrowers in the same industry or supported by the same type of collateral, or concentrations by
geographic area. AmSouths credit portfolio is generally well-diversified between commercial and consumer loans and across industries within the commercial loan category. In the commercial portfolio, house limits have been established to control concentrations to single borrowers. Exposures greater than $25 million are
actively monitored by Senior Management to ensure they present minimal credit risk to the Company. Total commercial loans are diversified by industry with no concentration greater than 5 percent of the total loan portfolio. The largest
concentrations are in the healthcare sector at 3.6 percent of the total loan portfolio, the transportation sector at 2.9 percent, the retail sector at 2.8 percent and the education and government sectors representing 2.7 percent. The vast majority
of the healthcare exposure is to hospitals and physician practices. The majority of balances in the education and government and transportation sectors represent commercial leases to AA and better investment grade entities. The commercial real
estate component of the portfolio remains diversified by property type and geography and makes up 20 percent of the total portfolio at December 31, 2005, compared to 18 percent at December 31, 2004. AmSouths Credit Administration Department prepares a comprehensive analysis of the allowance on a quarterly basis. The review is presented to and
approved by Senior Management and subsequently reviewed and approved by the Risk Committee of the Board of Directors. Management
continuously monitors qualitative and quantitative trends in the loan portfolio, including charge-offs, credit concentrations, and the level of past due, criticized and nonperforming loans. The distribution of the allowance as described above does
not diminish the fact that the entire allowance is available to absorb credit losses in the loan portfolio. The principal focus is on the adequacy of the total allowance.




64



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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



TABLE 20  ALLOWANCE FOR LOAN AND LEASE LOSSES(Dollars in thousands)

2005


2004


2003


2002


2001Balance at January 1

$
366,774


$
384,124


$
381,579


$
363,607


$
380,434LOANS CHARGED-OFF:Commercial and industrial


(53,953
)


(44,848
)


(57,017
)


(66,406
)


(100,133
)Commercial loans secured by real estate


(1,840
)


(1,607
)


(1,726
)


(1,137
)


(6,668
)Commercial leases


(1,027
)


(2,260
)


(2,311
)


(11,315
)


(4,475
)Total commercial


(56,820
)


(48,715
)


(61,054
)


(78,858
)


(111,276
)Commercial real estate mortgages


(760
)


(679
)


(2,823
)


(883
)


(1,323
)Commercial real estate construction


(1,725
)


(1,961
)


(1,287
)


(3,105
)


(832
)Total commercial real estate


(2,485
)


(2,640
)


(4,110
)


(3,988
)


(2,155
)Residential first mortgages


(2,675
)


(3,072
)


(2,518
)


(2,989
)


(2,341
)Equity loans and lines


(17,065
)


(27,839
)


(39,717
)


(31,918
)


(18,157
)Dealer indirect


(25,256
)


(40,462
)


(63,259
)


(72,578
)


(68,210
)Revolving credit


(3,023
)


(21,517
)


(26,205
)


(26,093
)


(24,727
)Other consumer


(20,765
)


(22,445
)


(23,195
)


(21,501
)


(23,020
)Total charge-offs


(128,089
)


(166,690
)


(220,058
)


(237,925
)


(249,886
)RECOVERIES OF LOANS PREVIOUSLY CHARGED-OFF:Commercial and industrial


4,980



11,876



10,283



6,202



5,094Commercial loans secured by real estate


342



386



388



679



1,800Commercial leases


-0-



742



493



-0-



-0-Total commercial


5,322



13,004



11,164



6,881



6,894Commercial real estate mortgages


61



946



370



206



311Commercial real estate construction


386



169



54



97



508Total commercial real estate


447



1,115



424



303



819Residential first mortgages


66



188



43



333



273Equity loans and lines


3,713



4,055



2,792



2,360



2,046Dealer indirect


15,928



20,156



22,417



22,377



23,891Revolving credit


2,657



3,024



2,863



2,537



3,383Other consumer


8,652



8,706



9,200



7,556



8,653Total recoveries


36,785



50,248



48,903



42,347



45,959Net charge-offs


(91,304
)


(116,442
)


(171,155
)


(195,578
)


(203,927
)Addition to allowance charged to expense


93,950



127,750



173,700



213,550



187,100Reduction of allowance related to sold loans


(2,725
)


(28,658
)


-0-



-0-



-0-Balance at December 31

$
366,695


$
366,774


$
384,124


$
381,579


$
363,607Loans net of unearned income, outstanding at end of period

$
35,897,939


$
32,801,337


$
29,339,364


$
27,350,918


$
25,124,493Average loans net of unearned income, outstanding for the period

$
33,836,996


$
31,241,987


$
28,511,159


$
25,921,769


$
24,763,798RATIOS:Allowance at end of period to loans net of unearned income


1.02
%


1.12
%


1.31
%


1.40
%


1.45
%Allowance at end of period to nonperforming loans*


356.08



414.49



348.72



240.25



228.29Net charge-offs to average loans net of unearned income


0.27



0.37



0.60



0.75



0.82Allowance as a percentage of net charge-offs


401.62



314.98



224.43



195.10



178.30  *
Exclusive of accruing loans 90 days past due




65



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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



Loan Loss Allowance
Allocation  The allowance allocated to commercial loans increased by 4.9 percent in 2005, primarily due to exposure to two commercial airlines experiencing financial difficulties. The allowance allocated to commercial real estate loans
decreased slightly, reflecting a shift in mix within the portfolio.


In the consumer loan portfolio, the allowance allocated to residential mortgages increased, reflecting the impact of Hurricane Katrina. The allocated
allowance for home equity loans and lines decreased, primarily due to lower allocation rates resulting from improved credit performance. The allocation rate on dealer indirect loans also was reduced in 2005 due to improving credit performance.




TABLE 21  ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSESDecember 31, 2005


December 31, 2004(Dollars in thousands)

AllowanceAllocation

Percentage ofLoans in EachCategory toTotal Loans


AllowanceAllocation

Percentage ofLoans in EachCategory toTotal LoansCOMMERCIAL:Commercial and industrial

$
109,236

17.2
%

$
119,979

17.5
%Commercial loans secured by real estate


24,968

7.5



23,009

6.9Commercial leasing


36,147

6.6



19,377

6.6Total commercial


170,351

31.3



162,365

31.0COMMERCIAL REAL ESTATE:Commercial real estate mortgages


32,285

8.9



40,113

8.7Commercial real estate construction


53,787

11.4



49,295

9.2Total commercial real estate


86,072

20.3



89,408

17.9CONSUMER:Residential first mortgages


16,833

16.7



10,843

15.5Equity loans and lines


42,168

21.9



43,950

23.6Dealer indirect


36,912

8.5



43,919

10.1Revolving credit


1,538

0.1



3,323

0.1Other consumer


12,821

1.2



12,966

1.8Total consumer


110,272

48.4



115,001

51.1$
366,695

100.0
%

$
366,774

100.0
%




66



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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



In prior years, there was an
unallocated component within the general allowance that included an estimate for inherent losses related to specific economic stresses, variability in economic conditions and geopolitical risks, and the overall imprecision in the allowance
estimation process. The unallocated component has been allocated to the various loan categories in 2005 and for all prior periods presented.


The portion associated with specific economic stresses and conditions has been allocated to the
appropriate loan categories pertaining to those affected industries. The remaining portion has been allocated to the various loan categories on a pro rata basis.




December 31, 2003


December 31, 2002


December 31, 2001(Dollars in thousands)

AllowanceAllocation

Percentage ofLoans in EachCategory toTotal Loans


AllowanceAllocation

Percentage ofLoans in EachCategory toTotal Loans


AllowanceAllocation

Percentage ofLoans in EachCategory toTotal LoansCOMMERCIAL:Commercial and industrial

$109,866

17.9
%

$
124,591

18.8
%

$
133,695

21.0
%Commercial loans secured by real estate

34,298

6.9



29,791

6.3



29,688

6.7Commercial leasing

19,627

6.7



15,631

6.5



14,639

6.4Total commercial

163,791

31.5



170,013

31.6



178,022

34.1COMMERCIAL REAL ESTATE:Commercial real estate mortgages

28,233

8.1



28,820

8.4



26,612

8.5Commercial real estate construction

41,028

7.9



37,717

7.7



40,644

9.4Total commercial real estate

69,261

16.0



66,537

16.1



67,256

17.9CONSUMER:Residential first mortgages

4,018

12.4



3,066

10.2



1,812

6.6Equity loans and lines

48,220

23.9



34,252

23.3



22,017

21.5Dealer indirect

53,707

12.3



59,363

13.6



49,686

13.5Revolving credit

34,558

1.9



31,730

2.0



28,335

2.1Other consumer

10,569

2.0



16,618

3.2



16,479

4.3Total consumer

151,072

52.5



145,029

52.3



118,329

48.0$384,124

100.0
%

$
381,579

100.0
%

$
363,607

100.0
%




67



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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



FINANCIAL DISCLOSURE AND INTERNAL CONTROLS AmSouth has always maintained internal controls over financial reporting, including those controls relating to the preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the
United States. As a bank holding company, AmSouth is subject to the internal control reporting and attestation requirements of the Federal Deposit Insurance Corporation Improvement Act and, therefore, is very familiar with the process of maintaining
and evaluating internal controls over financial reporting. AmSouths process starts with understanding the risks facing each of the Companys functions and areas; how those risks are controlled or mitigated; and how Management monitors
those controls to ensure that they are in place and effective. These risks, control procedures and monitoring tools are documented in a standard format. This format not only documents the internal control structures over all significant accounts,
but also places responsibility on Management for establishing feedback mechanisms to ensure that controls are effective. These monitoring procedures also form part of Managements testing of internal controls. At least annually, each area updates this internal control documentation. If changes are necessary, updates are made more frequently. Senior Management
of the areas then prepares a standardized form documenting their review. For each area of responsibility, the forms outline the key risks and controls, any items of particular concern (such as data processing conversions, changes in legal or
regulatory requirements, personnel changes, etc.), and an assessment of the inherent risk, control strength and net exposure, as well as whether that net exposure is decreasing, stable or increasing. The form also documents their final conclusion as
to the adequacy of their internal controls. The Company also has established processes to ensure appropriate disclosure controls and
procedures are maintained. These controls and procedures as defined by the SEC are generally designed to ensure that financial and nonfinancial information required to be disclosed in reports filed with the SEC is reported within the time periods
specified in the SECs rules and forms, and that such information is communicated to Management, including the Chief Executive


Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosure. AmSouths Disclosure Review Committee, which includes representatives from the legal, investor relations, risk management, accounting and audit
departments, meets quarterly to review recent internal and external events to determine whether all appropriate disclosures have been made. In addition, the CEO and CFO meet quarterly with the SEC Filings Review Committee, which includes senior
representatives from the treasury, accounting, legal, risk management, audit, credit administration and investor relations departments, as well as from the core business segments. The SEC Filings Review Committee reviews Form 10-K and Form 10-Q
filings and evaluates the adequacy and accuracy of the disclosures. As part of the disclosure process, each of the Committee members meets with his or her senior staff and accounting representatives in the finance division to review internal
controls over financial reporting, including the disclosure process. Accounting representatives in the finance division also conduct further review with independent auditors and counsel, as appropriate. Financial results and other financial
information also are reviewed with the Audit Committee of the Board of Directors on a quarterly basis. As required by applicable
regulatory pronouncements, the CEO and the CFO review and make various certifications regarding the accuracy of AmSouths periodic public reports filed with the SEC, as well as the effectiveness of disclosure controls and procedures and
internal control over financial reporting. With the assistance of these committees, AmSouth will continue to assess and monitor disclosure controls and procedures and internal controls over financial reporting and will make refinements as necessary. AmSouths common stock is listed on the New York Stock Exchange (NYSE) and, therefore, AmSouth is required to comply with NYSE
corporate governance listing standards. During 2005, AmSouth submitted to the NYSE the CEO Certification required under Section 303A of the NYSE corporate governance listing standards. In addition, the CEO and CFO Certifications that are
required under section 302 of the Sarbanes-Oxley Act of 2002 are filed as Exhibits 31.1 and 31.2, respectively, to AmSouths annual report on Form 10-K for the year ended December 31, 2005.




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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



LINE OF BUSINESS RESULTS AmSouth
segregates financial information used to assess performance and allocate resources based on three reportable segments. The three reportable segments include:  

Consumer Banking  

Commercial Banking  

Wealth Management The financial performance for each
segment is determined based on the Companys management accounting process, which assigns balance sheet and income statement items to each segment based on managerial responsibility. Segments are also defined by customer base and product type.
Performance of the operating segments reflects the management process and structure of AmSouth and is not necessarily comparable with similar information for any other financial institution. Selected financial information and a description of the
methodologies used to measure the financial performance of the business segments are presented in Note 22 to the Consolidated Financial Statements. Consumer Banking delivers a full range of financial services to individuals and small businesses through the retail branch and ATM networks, Telephone Banking and the Internet. Services include loan and deposit products designed to
meet the personal finance needs of consumers and the financial needs of small businesses and their owners. The increase in net income in the Consumer Banking segment in 2005 reflected the continued success of AmSouths strategic initiatives to
grow the Consumer and Business Banking businesses. In 2005, the Consumer Banking segment produced net income totaling $477.6 million compared to $459.2 million in 2004. The increase over 2004 was the result of higher noninterest revenue, lower
funding costs and a decrease in the provision for loan and lease losses and noninterest expenses. The increase in non-interest revenue was a result of growth in revenues from service charges on deposits and interchange income. The decrease in the
provision for loan and lease losses reflects AmSouths continued efforts in improving loan quality as evidenced by lower net charge-offs and also reflects the sale of the $550 million credit card portfolio in 2004. Commercial Banking provides commercial and commercial real estate lending, leasing, international, capital markets,


and corporate cash management services to large and middle market commercial customers. In 2005, Commercial Banking contributed $222.4 million of net income
versus $226.1 million in 2004. The lower level of income in 2005 was primarily associated with a higher level of provision for loan and lease losses, reflecting an $18 million charge-off of a single credit, and noninterest expenses. Net interest
income increased due to growth in loans and commercial deposits in 2005. Wealth Management provides financial and estate planning,
investment management services, trust services, annuity and mutual fund product distribution through the branches, discount brokerage services, and loans and other banking products to Private Client Services (PCS) customers. This area contributed
net income of $107.3 million in 2005 compared to $94.0 million in 2004 through net interest income associated with growth in loans and deposits to PCS customers as well as fee-based income from other Wealth Management customers. Revenues and
expenses associated with PCS customers loans and deposit balances for segment reporting purposes are included in the Wealth Management results because the Wealth Management group is principally responsible for maintaining relationships with
these customers. However, revenues associated with these loans and deposits are also included in either Commercial or Consumer Bankings results based on the loan or deposit type. These shared revenues and expenses are reversed within
Treasury & Other to eliminate double counting. Treasury & Other represents balance sheet management activities,
corporate overhead, unallocated revenues such as bank owned life insurance, and other gains, losses or special charges that cannot be allocated to a particular segment. Treasury & Other does not represent a banking line of business, but
encompasses all other activities supporting the business segments. This area reflected a net loss of $81.7 million in 2005 compared to a net loss of $155.8 million in 2004. The smaller loss as compared to 2004 was a result of lower noninterest
expenses, due to FHLB debt restructuring costs of $129.6 million and $54.0 million of settlement agreements expenses, both in 2004. The decrease in noninterest revenues reflects the 2004 gain of $166.1 million on the sale of credit card loans,
partially offset by the 2005 gain of $44.0 million on the sale of the mutual fund management unit.




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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



TABLE 22  QUARTERLY RESULTS OF OPERATIONS

Selected quarterly results of operations for the four quarters are as follows:



2005

2004(In thousands, except per share data)

FourthQuarter

ThirdQuarter

SecondQuarter

FirstQuarter

FourthQuarter

ThirdQuarter

SecondQuarter

FirstQuarterInterest income

$
670,904

$
626,514

$
602,512

$
581,174

$
566,108

$
550,273

$
524,644

$
524,636Interest expense


278,754


251,781


223,869


201,426


186,896


174,367


163,234


165,139Net interest income


392,150


374,733


378,643


379,748


379,212


375,906


361,410


359,497Provision for loan and lease losses


20,850


34,800


17,700


20,600


44,250


28,800


26,600


28,100Net gains on sales of available-for-sale securities


652


221


2,771


1,128


5,088


5,329


7,709


8,494Income before income taxes


267,685


262,677


269,152


255,067


254,835


197,799


241,292


229,553Net income


182,133


180,328


184,599


178,645


176,857


119,579


166,963


160,099Earnings per common share


0.52


0.52


0.52


0.50


0.50


0.34


0.47


0.46Diluted earnings per common share


0.52


0.51


0.52


0.50


0.49


0.33


0.47


0.45Cash dividends declared per common share


0.26


0.25


0.25


0.25


0.25


0.24


0.24


0.24Market price range:High


27.35


28.29


27.12


26.23


27.00


26.67


25.69


26.15Low


23.85


24.16


24.79


24.45


24.25


23.80


21.91


23.01 Note: Quarterly amounts may not add to year-to-date amounts due to rounding.




COMPARISON OF 2004 WITH 2003 Net income in 2004 was
$623.5 million, or $1.74 per diluted share, a decrease from 2003 diluted earnings per share of $1.77. ROE was 18.6 percent for 2004 as compared to 20.1 percent for 2003, while ROA was 1.30 percent for 2004, down from the 2003 level of 1.47 percent.
The efficiency ratio was 57.1 percent in 2004, up from the 2003 level of 52.1 percent. Excluding the impact of the settlement agreements
and related professional fees as previously described, 2004 net income was $675.9 million or $1.89 per diluted share, resulting in a return on equity of 20.2 percent and return on assets of 1.41 percent. The efficiency ratio was 55.0 percent on the
same basis. (See GAAP to Non-GAAP Reconciliation in Table 1.) Earnings in 2004 were driven primarily by higher noninterest revenues, which
were $1.032 billion in 2004 versus $855.8 million in 2003, a 21 percent increase, and a decrease in the provision for loan and lease losses of $46.0 million. Offsetting to these increases were costs associated with the prepayment of FHLB debt. The
largest contributors to the


increase in noninterest revenues were service charges, trust income, and a gain on the sale of AmSouths credit card portfolio. These increases were
offset to some extent by a decrease in mortgage income and significantly lower portfolio income. The increase in service charge revenue
was $40.7 million or 12 percent, driven primarily by increases in overdraft fees on consumer and small business accounts resulting from a higher volume of overdrafts. Corporate analysis fees, which are the second largest component of service charge
income, were essentially unchanged as compared to 2003, resulting from lower overall transaction volume and higher earnings credit rates. Trust revenues were higher by $14.3 million or 14 percent compared to 2003, primarily due to improved sales, as
well as fee increases. AmSouth realized a gain on the sale of its credit card portfolio in the amount of $166.1 million in 2004. The gain was the result of selling $550 million of credit card loans to MBNA Corporation. The decision to sell this
portfolio was made because this product line had become dominated by larger financial institutions offering a wider array of credit card products and because AmSouth lacked sufficient scale to compete effectively.




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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



Mortgage income was $21.2 million in 2004 as compared to $51.2 million in 2003. This decrease was primarily associated with a decrease in fixed-rate mortgage
originations in 2004. Historically, AmSouth had elected to sell a majority of its fixed-rate production into the secondary market, resulting in gains on these sales. However, in 2004 a shift in customer preference toward variable-rate products
enabled the Company to retain more of these loans on its balance sheet, thus reducing sales and related gain income. Gains on the sale of portfolio securities were $29.1 million in 2004, a $18.2 million decrease as compared to the 2003 level
resulting from rising interest rates during the year, which reduced opportunities to sell securities at a gain. Noninterest expenses in
2004 were $1.5 billion, an increase of $251.4 million compared to 2003. The majority of this increase is associated with FHLB debt prepayment cost and settlement agreements and related fees. Much of the remaining increase reflects investments by
AmSouth in revenue growth initiatives. The FHLB prepayment cost was $129.6 million and resulted from a business decision to prepay $1.25 billion of long duration, high-cost FHLB borrowings to lower funding costs going forward. The cost of the
settlement agreements and fees totaled $54.0 million. See Regulatory Agreements and Related Settlements on page 28 for a detailed description. The largest component of noninterest expense is salaries and employee benefits, where costs
were higher by 5.6 percent, ending the year at $674.4 million. The 2004 interest rate environment was challenging for AmSouth. During the
period from June 30, 2004 through December 31, 2004, the Federal Reserve raised interest rates five times, the yield curve flattened and market spreads tightened. Pressured spreads between yields on earning assets and rates paid on funding
sources resulted in a net interest margin that declined from 3.78 percent in 2003 to 3.47 percent in 2004. However, net interest income increased 4.3 percent during the year to $1.476 billion in 2004 from $1.415 billion in 2003, largely the result
of robust loan growth funded by a solid increase in low-cost deposits. Earnings increased in all three of AmSouths reportable
segments in 2004. Consumer Banking earnings increased $31.3 million due to higher noninterest revenue, including service charges and interchange income, and a decrease in the provision for loan and lease losses. Commercial Banking earnings were
higher by $27.2 million, or 14 percent, largely resulting from higher net interest income and noninterest revenue and a lower provision for loan and lease losses reflecting improving commercial loan credit quality. Wealth


Managements earnings increased by $29.4 million in 2004 resulting from an increase in net interest income associated with growth in loans and deposits
of PCS customers in addition to higher levels of noninterest revenue associated with trust services. At December 31, 2004, total
assets were $49.5 billion compared to $45.6 billion at the end of 2003. Loans and deposits were the primary drivers of the Companys growth. During 2004, average earning assets increased $5.1 billion to $43.8 billion, a 13 percent growth rate.
Average investment securities contributed $2.3 billion of this increase while loans added $2.7 billion. Average interest-bearing liabilities increased $3.9 billion or 12 percent during 2004. Average deposits contributed $3.4 billion of this
increase. Comparing 2004 to 2003 on an ending basis within the investment portfolio, AFS securities decreased $803.3 million due to
maturities, prepayments and sales of securities, while HTM securities increased by $1.3 billion, reflecting purchases of shorter duration and well-structured mortgage-backed securities and collateralized mortgage obligations. Within the loan
portfolio, ending commercial loans increased $911.5 million or 9.9 percent during 2004 to $10.2 billion, driven largely by new customer acquisitions. As a result of increased demand for construction project financing, commercial real estate loans
were higher by $1.2 billion or 25 percent over 2003. Finally, demand for consumer loans, specifically residential first mortgage loans and equity loans and lines, was higher, reflecting the favorable interest rate environment for these loans. These
consumer loan categories increased by $1.4 billion or 39 percent and $751.7 million or 11 percent, respectively, versus 2003. While most
deposit categories grew in 2004, low-cost categories, which were $2.4 billion higher compared with 2003, accounted for the majority of deposit growth. The increase in low-cost deposits was primarily related to AmSouths branch expansion
program, as well as a low interest rate environment and capital markets volatility which reduced the attractiveness of other investment alternatives. Nonperforming assets declined $37.2 million or 25 percent in 2004 from 2003. Nonperforming assets as a percentage of loans plus foreclosed properties and repossessions was 0.34 percent as of December 31, 2004, as
compared to 0.50 percent at year-end 2003. Nonperforming metrics improved in 2004 due primarily to an improving economy in 2004, a shift in the portfolio toward loans secured by residential mortgages which have lower risk characteristics, and
efforts to strengthen overall credit quality.




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AmSouth Bancorporation and Subsidiaries

MANAGEMENTS DISCUSSION AND ANALYSIS



Net charge-offs decreased $54.7 million or 32 percent from 2003, due to a decrease in commercial net charge-offs of $13.8 million and within consumer loans,
lower equity loan and line losses of $13.1 million and reduced credit card losses of $4.8 million. The decrease in credit card losses was the result of the sale of the credit card portfolio. The provision for loan and lease losses declined $46.0
million or 26 percent in 2004 from 2003. In 2004, AmSouths provision for loan and lease losses totaled $127.8 million, compared to $173.7 million in 2003. The decrease in the provision in 2004 reflected improving credit quality trends during
2004 as evidenced by the lower level of loans charged-off and a decline in the ratio of net charge-offs to total loans from 0.60 percent in 2003 to 0.37 percent in 2004. The allowance for loan and lease losses declined from 2003, reflecting reduced
risk in the commercial loan portfolio as a result of tightened underwriting standards and the increase of lower risk, real estate-secured consumer loans in the portfolio. Stockholders equity increased 11 percent from 2003 to $3.6 billion at December 31, 2004. AmSouth paid $344.3 million in dividends to common stockholders in 2004 and $324.5 million in 2003. During early
2004, AmSouth repurchased approximately 2.1 million shares of its common stock at a cost of $51.0 million. This level of shares repurchased was down from the 8.0 million shares repurchased in 2003. AmSouths tier 1 capital and total capital ratios were 8.05 percent and 10.93 percent, respectively, at December 31, 2004, and 7.71 percent and
11.22 percent, respectively, at December 31, 2003. The leverage ratio at December 31, 2004, was 6.73 percent and at December 31, 2003, it was 6.66 percent. FORWARD-LOOKING STATEMENTS Statements made in this document which 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. Such factors include, but are not limited to:
specific factors mentioned in the text of this document; the execution of AmSouths strategic initiatives; legislation and regulation; 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; prepayment speeds within the loan and investment security portfolios; deposit flows; the cost of funds; cost of federal deposit insurance premiums; demand for loan
products; demand for financial services; competition, including a continued consolidation in the financial services industry; 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 consumer spending and saving habits; technological changes; adverse changes in the financial performance and/or condition of AmSouths
borrowers, which could impact the repayment of such borrowers loans; changes in accounting and tax principles, policies or guidelines and in tax laws; other economic, competitive, governmental, and regulatory factors affecting AmSouths
operations, products, services and prices; the effects of weather and natural disasters such as hurricanes; unexpected judicial actions and developments; results of investigations, examinations, and reviews of regulatory and law enforcement
authorities; the outcome of litigation, which is inherently uncertain and depends on the findings of judges and juries; the impact on AmSouths businesses, as well as the risks set forth above, of various domestic or international military or
terrorist activities or conflicts; and AmSouths success in managing the risks involved in the foregoing. Readers should also refer
to the factors discussed in Managements Discussion and Analysis including, but not limited to, the factors discussed in Earnings Outlook on page 32 and to the factors discussed in Item 1.A. of Part I (Risk Factors)
of AmSouths Annual Report on Form 10-K for the year ended December 31, 2005. 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.




72



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MANAGEMENTS REPORT

Management maintains and depends upon AmSouths accounting systems and related systems of internal control. The system of internal accounting controls is designed to provide reasonable assurance that assets are
safeguarded and transactions are properly recorded and executed. The design, monitoring and revision of the system of internal controls involves, among other things, Managements judgments with respect to the relative cost and expected benefits
of specific control measures. The effectiveness of the system of internal control over financial reporting is supported by the selection, retention and training of qualified personnel and an organizational structure that provides an appropriate
division of responsibility and formalized procedures. The system of internal accounting controls is periodically reviewed and modified in response to changing conditions. An internal audit staff regularly monitors the adequacy and effectiveness of
internal accounting controls.

In addition to the system of internal control over financial reporting, Management maintains corporate
policy guidelines that help monitor proper business conduct, possible conflicts of interest, compliance with laws and regulations and confidentiality of proprietary and customer information. The guidelines are documented in the AmSouth Code of
Conduct and are reviewed on a periodic basis with members of Management.

Because of its inherent limitations, a system of internal control
over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time. AmSouths
system of internal control over financial reporting contains self-monitoring mechanisms, and actions are taken to correct deficiencies as they are identified.

The Audit Committee of the Board of Directors, consisting solely of outside directors, appoints the independent auditors and receives and reviews the reports submitted by them. The Audit Committee meets several times
during the year with Management, the internal auditors and the independent auditors to discuss audit activities, internal controls and financial reporting matters. The internal auditors and the independent auditors have full and free access to the
Audit Committee.

MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining an adequate system of internal control over financial reporting of AmSouth. Management
conducted an evaluation of the effectiveness of the system of internal control over financial reporting based on the framework inInternal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on this evaluation, Management concluded that AmSouths system of internal control over financial reporting was effective as of December 31, 2005. Managements assessment of the effectiveness of the
Companys internal control over financial reporting has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report, which is included herein.



73



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Board of Directors

AmSouth Bancorporation

We have audited Managements assessment, included in the accompanying
Managements Report on Internal Control Over Financial Reporting, that AmSouth Bancorporation and subsidiaries (AmSouth) maintained effective internal control over financial reporting as of December 31, 2005, based on criteria
established in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). AmSouths management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on Managements assessment and an opinion on the effectiveness of the
Companys internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating Managements assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Companys assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our
opinion, Managements assessment that AmSouth maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, AmSouth
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of December 31, 2005 and 2004, and the related consolidated statements of
earnings, shareholders equity, and cash flows for each of the three years in the period ended December 31, 2005 of AmSouth and our report dated March 3, 2006, expressed an unqualified opinion thereon.

LOGO

Birmingham, Alabama

March 3, 2006



74



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors

AmSouth Bancorporation

We have audited the accompanying consolidated balance sheets of AmSouth Bancorporation and subsidiaries
(AmSouth) as of December 31, 2005 and 2004, and the related consolidated statements of earnings, shareholders equity, and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are
the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of AmSouth Bancorporation and subsidiaries at December 31, 2005 and 2004,
and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of AmSouth
Bancorporation and subsidiaries internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated March 3, 2006, expressed an unqualified opinion thereon.

LOGO

Birmingham, Alabama

March 3, 2006



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AmSouth Bancorporation and Subsidiaries

CONSOLIDATED BALANCE SHEETS



|                                                                                      |  |             |            |   |      |   |            |  
|------------------------------------------------------------------------------------- |  | ----------- | ---------- | - | ---- | - | ---------- | -
|                                                                                      |  | December 31 |           
|(Dollars in thousands)                                                                |  | 2005        |            |   | 2004 |  
|ASSETS                                                                                |  |             |            |   |      |   |            |  
|Cash and due from banks                                                               |  | $           | 1,307,043  |   |      | $ | 966,993    |  
|Trading securities                                                                    |  |             | 30,419     |   |      |   | 1,883      |  
|Available-for-sale securities                                                         |  |             | 5,989,989  |   |      |   | 6,322,665  |  
|Held-to-maturity securities (market value of $5,576,243 and $6,199,451, respectively) |  |             | 5,679,494  |   |      |   | 6,188,010  |  
|Loans held for sale                                                                   |  |             | 406,553    |   |      |   | 103,273    |  
|Loans                                                                                 |  |             | 36,620,195 |   |      |   | 33,512,398 |  
|Less: Allowance for loan and lease losses                                             |  |             | 366,695    |   |      |   | 366,774    |  
|Unearned income                                                                       |  |             | 722,256    |   |      |   | 711,061    |  
|                                                                                      |  |             |            |   |      |   |            |  
|Net loans                                                                             |  |             | 35,531,244 |   |      |   | 32,434,563 |  
|Other interest-earning assets                                                         |  |             | 68,000     |   |      |   | 36,149     |  
|Premises and equipment, net                                                           |  |             | 1,200,114  |   |      |   | 1,060,574  |  
|Cash surrender value  bank owned life insurance                                      |  |             | 1,156,265  |   |      |   | 1,111,934  |  
|Accrued interest receivable and other assets                                          |  |             | 1,237,989  |   |      |   | 1,322,327  |  
|                                                                                      |  |             |            |   |      |   |            |  
|                                                                                      |  | $           | 52,607,110 |   |      | $ | 49,548,371 |  
|                                                                                      |  |             |            |   |      |   |            |  
|                                                                                      |  |            
|LIABILITIES AND SHAREHOLDERS EQUITY                                                  |  |             |            |   |      |   |            |  
|Deposits and interest-bearing liabilities:                                            |  |             |            |   |      |   |            |  
|Deposits:                                                                             |  |             |            |   |      |   |            |  
|Noninterest-bearing demand                                                            |  | $           | 8,233,137  |   |      | $ | 7,182,806  |  
|Interest-bearing demand                                                               |  |             | 7,299,655  |   |      |   | 7,115,545  |  
|Money market and savings                                                              |  |             | 9,513,548  |   |      |   | 8,810,972  |  
|Time                                                                                  |  |             | 9,928,485  |   |      |   | 9,476,075  |  
|Foreign                                                                               |  |             | 1,373,557  |   |      |   | 1,647,381  |  
|                                                                                      |  |             |            |   |      |   |            |  
|Total deposits                                                                        |  |             | 36,348,382 |   |      |   | 34,232,779 |  
|Federal funds purchased and securities sold under agreements to repurchase            |  |             | 4,404,262  |   |      |   | 2,291,988  |  
|Other borrowed funds                                                                  |  |             | 511,625    |   |      |   | 429,098    |  
|Long-term Federal Home Loan Bank advances                                             |  |             | 1,958,730  |   |      |   | 4,371,745  |  
|Other long-term debt                                                                  |  |             | 4,025,941  |   |      |   | 2,899,773  |  
|                                                                                      |  |             |            |   |      |   |            |  
|Total deposits and interest-bearing liabilities                                       |  |             | 47,248,940 |   |      |   | 44,225,383 |  
|Accrued expenses and other liabilities                                                |  |             | 1,723,593  |   |      |   | 1,754,147  |  
|                                                                                      |  |             |            |   |      |   |            |  
|Total liabilities                                                                     |  |             | 48,972,533 |   |      |   | 45,979,530 |  
|                                                                                      |  |             |            |   |      |   |            |  
|Shareholders equity:                                                                 |  |             |            |   |      |   |            |  
|Preferred stock  no par value:                                                       |  |             |            |   |      |   |            |  
|Authorized  2,000,000 shares; Issued and outstanding  none                          |  |             | -0-        |   |      |   | -0-        |  
|Common stock  par value $1 a share:                                                  |  |             |            |   |      |   |            |  
|Authorized  750,000,000 shares                                                       |  |             |            |   |      |   |            |  
|Issued  416,706,000 and 416,748,000 shares, respectively                             |  |             | 416,706    |   |      |   | 416,748    |  
|Additional paid-in capital                                                            |  |             | 738,011    |   |      |   | 726,411    |  
|Retained earnings                                                                     |  |             | 3,844,183  |   |      |   | 3,492,873  |  
|Cost of common stock in treasury  68,634,000 and 60,438,000 shares, respectively     |  |             | (1,208,874 | ) |      |   | (986,510   | )
|Deferred compensation on restricted stock                                             |  |             | (14,083    | ) |      |   | (12,947    | )
|Accumulated other comprehensive loss, net                                             |  |             | (141,366   | ) |      |   | (67,734    | )
|                                                                                      |  |             |            |   |      |   |            |  
|Total shareholders equity                                                            |  |             | 3,634,577  |   |      |   | 3,568,841  |  
|                                                                                      |  |             |            |   |      |   |            |  
|                                                                                      |  | $           | 52,607,110 |   |      | $ | 49,548,371 |  
|                                                                                      |  |             |            |   |      |   |            |  

See Notes to Consolidated Financial Statements.



76



---

AmSouth Bancorporation and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS



|                                                                           |  |                         |           |      |   |           |  |   |          
|-------------------------------------------------------------------------- |  | ----------------------- | --------- | ---- | - | --------- |  | - | ---------
|                                                                           |  | Years Ended December 31
|(In thousands, except per share data)                                      |  | 2005                    |           | 2004 |   | 2003     
|INTEREST INCOME                                                            |  |                         |           |      |   |           |  |   |          
|Loans                                                                      |  | $                       | 1,891,771 |      | $ | 1,566,177 |  | $ | 1,552,202
|Available-for-sale securities                                              |  |                         | 291,397   |      |   | 321,692   |  |   | 312,338  
|Held-to-maturity securities                                                |  |                         | 279,098   |      |   | 263,507   |  |   | 215,202  
|Trading securities                                                         |  |                         | 1,005     |      |   | 232       |  |   | 139      
|Loans held for sale                                                        |  |                         | 16,083    |      |   | 13,277    |  |   | 4,525    
|Other interest-earning assets                                              |  |                         | 1,750     |      |   | 776       |  |   | 2,045    
|                                                                           |  |                         |           |      |   |           |  |   |          
|Total interest income                                                      |  |                         | 2,481,104 |      |   | 2,165,661 |  |   | 2,086,451
|                                                                           |  |                         |           |      |   |           |  |   |          
|                                                                           |  |                         |          
|INTEREST EXPENSE                                                           |  |                         |           |      |   |           |  |   |          
|Interest-bearing demand                                                    |  |                         | 87,229    |      |   | 38,592    |  |   | 29,086   
|Money market and savings deposits                                          |  |                         | 152,699   |      |   | 46,979    |  |   | 46,310   
|Time deposits                                                              |  |                         | 301,651   |      |   | 243,223   |  |   | 267,781  
|Foreign deposits                                                           |  |                         | 37,738    |      |   | 16,611    |  |   | 7,606    
|Federal funds purchased and securities sold under agreements to repurchase |  |                         | 88,284    |      |   | 41,782    |  |   | 20,554   
|Other borrowed funds                                                       |  |                         | 14,181    |      |   | 10,062    |  |   | 4,177    
|Long-term Federal Home Loan Bank advances                                  |  |                         | 136,646   |      |   | 233,993   |  |   | 253,148  
|Other long-term debt                                                       |  |                         | 137,402   |      |   | 58,394    |  |   | 43,154   
|                                                                           |  |                         |           |      |   |           |  |   |          
|Total interest expense                                                     |  |                         | 955,830   |      |   | 689,636   |  |   | 671,816  
|                                                                           |  |                         |           |      |   |           |  |   |          
|Net Interest Income                                                        |  |                         | 1,525,274 |      |   | 1,476,025 |  |   | 1,414,635
|Provision for loan and lease losses                                        |  |                         | 93,950    |      |   | 127,750   |  |   | 173,700  
|                                                                           |  |                         |           |      |   |           |  |   |          
|Net Interest Income After Provision for Loan and Lease Losses              |  |                         | 1,431,324 |      |   | 1,348,275 |  |   | 1,240,935
|                                                                           |  |                         |           |      |   |           |  |   |          
|                                                                           |  |                         |          
|NONINTEREST REVENUES                                                       |  |                         |           |      |   |           |  |   |          
|Service charges on deposit accounts                                        |  |                         | 367,048   |      |   | 378,655   |  |   | 337,945  
|Trust income                                                               |  |                         | 113,156   |      |   | 117,973   |  |   | 103,657  
|Consumer investment services income                                        |  |                         | 75,887    |      |   | 77,445    |  |   | 69,410   
|Other noninterest revenues                                                 |  |                         | 359,089   |      |   | 458,069   |  |   | 344,766  
|                                                                           |  |                         |           |      |   |           |  |   |          
|Total noninterest revenues                                                 |  |                         | 915,180   |      |   | 1,032,142 |  |   | 855,778  
|                                                                           |  |                         |           |      |   |           |  |   |          
|                                                                           |  |                         |          
|NONINTEREST EXPENSES                                                       |  |                         |           |      |   |           |  |   |          
|Salaries and employee benefits                                             |  |                         | 699,692   |      |   | 674,374   |  |   | 638,843  
|Net occupancy expense                                                      |  |                         | 151,668   |      |   | 147,225   |  |   | 133,479  
|Equipment expense                                                          |  |                         | 126,786   |      |   | 125,039   |  |   | 116,703  
|Other noninterest expenses                                                 |  |                         | 313,777   |      |   | 510,300   |  |   | 316,552  
|                                                                           |  |                         |           |      |   |           |  |   |          
|Total noninterest expenses                                                 |  |                         | 1,291,923 |      |   | 1,456,938 |  |   | 1,205,577
|                                                                           |  |                         |           |      |   |           |  |   |          
|Income Before Income Taxes                                                 |  |                         | 1,054,581 |      |   | 923,479   |  |   | 891,136  
|Income taxes                                                               |  |                         | 328,876   |      |   | 299,981   |  |   | 265,015  
|                                                                           |  |                         |           |      |   |           |  |   |          
|Net Income                                                                 |  | $                       | 725,705   |      | $ | 623,498   |  | $ | 626,121  
|                                                                           |  |                         |           |      |   |           |  |   |          
|Weighted-average common shares outstanding  basic                         |  |                         | 350,702   |      |   | 352,684   |  |   | 350,237  
|Earnings per common share                                                  |  | $                       | 2.07      |      | $ | 1.77      |  | $ | 1.79     
|Weighted-average common shares outstanding  diluted                       |  |                         | 355,554   |      |   | 357,952   |  |   | 354,308  
|Earnings per common share  diluted                                        |  | $                       | 2.04      |      | $ | 1.74      |  | $ | 1.77     

See Notes to Consolidated Financial Statements.



77



---

AmSouth Bancorporation and Subsidiaries

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY



|                                                                            |  |              |   |  |                          |         |                  |  |   |               |  |   |                                        |   |  |                                            |            |   |       |   |         |   |  |   |          |   |  |   |           |  
|--------------------------------------------------------------------------- |  | ------------ | - |  | ------------------------ | ------- | ---------------- |  | - | ------------- |  | - | -------------------------------------- | - |  | ------------------------------------------ | ---------- | - | ----- | - | ------- | - |  | - | -------- | - |  | - | --------- | -
|                                                                            |  | Common Stock |   |  | AdditionalPaid-inCapital |         | RetainedEarnings |  |   | TreasuryStock |  |   | DeferredCompensationon RestrictedStock |   |  | AccumulatedOtherComprehensiveIncome (Loss) |            |   | Total |  
|(In thousands)                                                              |  | Shares       |   |  | Amount                   |         |                  |  |   |               |  |  
|BALANCE AT JANUARY 1, 2003                                                  |  | 353,424      |   |  | $                        | 416,909 |                  |  | $ | 706,081       |  | $ | 2,951,430                              |   |  | $                                          | (1,045,428 | ) |       | $ | (15,954 | ) |  | $ | 102,959  |   |  | $ | 3,115,997 |  
|Comprehensive income:                                                       |  |              |   |  |                          |         |                  |  |   |               |  |   |                                        |   |  |                                            |            |   |       |   |         |   |  |   |          |   |  |   |           |  
|Net income                                                                  |  | -0-          |   |  |                          | -0-     |                  |  |   | -0-           |  |   | 626,121                                |   |  |                                            | -0-        |   |       |   | -0-     |   |  |   | -0-      |   |  |   | 626,121   |  
|Other comprehensive income, net of tax:                                     |  |              |   |  |                          |         |                  |  |   |               |  |   |                                        |   |  |                                            |            |   |       |   |         |   |  |   |          |   |  |   |           |  
|Net change in unrealized gains and losses on available-for-sale securities* |  | -0-          |   |  |                          | -0-     |                  |  |   | -0-           |  |   | -0-                                    |   |  |                                            | -0-        |   |       |   | -0-     |   |  |   | (103,168 | ) |  |   | (103,168  | )
|Net change in unrealized gains and losses on derivative instruments*        |  | -0-          |   |  |                          | -0-     |                  |  |   | -0-           |  |   | -0-                                    |   |  |                                            | -0-        |   |       |   | -0-     |   |  |   | (31,500  | ) |  |   | (31,500   | )
|Additional minimum pension liability adjustment*                            |  | -0-          |   |  |                          | -0-     |                  |  |   | -0-           |  |   | -0-                                    |   |  |                                            | -0-        |   |       |   | -0-     |   |  |   | (8,551   | ) |  |   | (8,551    | )
|                                                                            |  |              |   |  |                          |         |                  |  |   |               |  |   |                                        |   |  |                                            |            |   |       |   |         |   |  |   |          |   |  |   |           |  
|Comprehensive income                                                        |  |              |   |  |                          |         |                  |  |   |               |  |   |                                        |   |  |                                            |            |   |       |   |         |   |  |   |          |   |  |   | 482,902   |  
|Cash dividends declared ($0.93 per share)                                   |  | -0-          |   |  |                          | -0-     |                  |  |   | -0-           |  |   | (324,456                               | ) |  |                                            | -0-        |   |       |   | -0-     |   |  |   | -0-      |   |  |   | (324,456  | )
|Common stock transactions:                                                  |  |              |   |  |                          |         |                  |  |   |               |  |   |                                        |   |  |                                            |            |   |       |   |         |   |  |   |          |   |  |   |           |  
|Employee stock plans                                                        |  | 5,956        |   |  |                          | (31     | )                |  |   | 9,568         |  |   | (24,535                                | ) |  |                                            | 122,094    |   |       |   | 1,453   |   |  |   | -0-      |   |  |   | 108,549   |  
|Dividend reinvestment                                                       |  | 474          |   |  |                          | -0-     |                  |  |   | 14            |  |   | (27                                    | ) |  |                                            | 9,782      |   |       |   | -0-     |   |  |   | -0-      |   |  |   | 9,769     |  
|Purchase of common stock                                                    |  | (7,963       | ) |  |                          | -0-     |                  |  |   | -0-           |  |   | -0-                                    |   |  |                                            | (163,092   | ) |       |   | -0-     |   |  |   | -0-      |   |  |   | (163,092  | )
|                                                                            |  |              |   |  |                          |         |                  |  |   |               |  |   |                                        |   |  |                                            |            |   |       |   |         |   |  |   |          |   |  |   |           |  
|BALANCE AT DECEMBER 31, 2003                                                |  | 351,891      |   |  |                          | 416,878 |                  |  |   | 715,663       |  |   | 3,228,533                              |   |  |                                            | (1,076,644 | ) |       |   | (14,501 | ) |  |   | (40,260  | ) |  |   | 3,229,669 |  
|Comprehensive income:                                                       |  |              |   |  |                          |         |                  |  |   |               |  |   |                                        |   |  |                                            |            |   |       |   |         |   |  |   |          |   |  |   |           |  
|Net income                                                                  |  | -0-          |   |  |                          | -0-     |                  |  |   | -0-           |  |   | 623,498                                |   |  |                                            | -0-        |   |       |   | -0-     |   |  |   | -0-      |   |  |   | 623,498   |  
|Other comprehensive income, net of tax:                                     |  |              |   |  |                          |         |                  |  |   |               |  |   |                                        |   |  |                                            |            |   |       |   |         |   |  |   |          |   |  |   |           |  
|Net change in unrealized gains and losses on available-for-sale securities* |  | -0-          |   |  |                          | -0-     |                  |  |   | -0-           |  |   | -0-                                    |   |  |                                            | -0-        |   |       |   | -0-     |   |  |   | (20,508  | ) |  |   | (20,508   | )
|Net change in unrealized gains and losses on derivative instruments*        |  | -0-          |   |  |                          | -0-     |                  |  |   | -0-           |  |   | -0-                                    |   |  |                                            | -0-        |   |       |   | -0-     |   |  |   | (3,055   | ) |  |   | (3,055    | )
|Additional minimum pension liability adjustment*                            |  | -0-          |   |  |                          | -0-     |                  |  |   | -0-           |  |   | -0-                                    |   |  |                                            | -0-        |   |       |   | -0-     |   |  |   | (3,911   | ) |  |   | (3,911    | )
|                                                                            |  |              |   |  |                          |         |                  |  |   |               |  |   |                                        |   |  |                                            |            |   |       |   |         |   |  |   |          |   |  |   |           |  
|Comprehensive income                                                        |  |              |   |  |                          |         |                  |  |   |               |  |   |                                        |   |  |                                            |            |   |       |   |         |   |  |   |          |   |  |   | 596,024   |  
|Cash dividends declared ($0.97 per share)                                   |  | -0-          |   |  |                          | -0-     |                  |  |   | -0-           |  |   | (344,283                               | ) |  |                                            | -0-        |   |       |   | -0-     |   |  |   | -0-      |   |  |   | (344,283  | )
|Common stock transactions:                                                  |  |              |   |  |                          |         |                  |  |   |               |  |   |                                        |   |  |                                            |            |   |       |   |         |   |  |   |          |   |  |   |           |  
|Employee stock plans                                                        |  | 6,060        |   |  |                          | (130    | )                |  |   | 9,034         |  |   | (12,576                                | ) |  |                                            | 130,809    |   |       |   | 1,554   |   |  |   | -0-      |   |  |   | 128,691   |  
|Direct stock purchase and dividend reinvestment                             |  | 493          |   |  |                          | -0-     |                  |  |   | 1,714         |  |   | (2,299                                 | ) |  |                                            | 10,324     |   |       |   | -0-     |   |  |   | -0-      |   |  |   | 9,739     |  
|Purchase of common stock                                                    |  | (2,134       | ) |  |                          | -0-     |                  |  |   | -0-           |  |   | -0-                                    |   |  |                                            | (50,999    | ) |       |   | -0-     |   |  |   | -0-      |   |  |   | (50,999   | )
|                                                                            |  |              |   |  |                          |         |                  |  |   |               |  |   |                                        |   |  |                                            |            |   |       |   |         |   |  |   |          |   |  |   |           |  
|BALANCE AT DECEMBER 31, 2004                                                |  | 356,310      |   |  |                          | 416,748 |                  |  |   | 726,411       |  |   | 3,492,873                              |   |  |                                            | (986,510   | ) |       |   | (12,947 | ) |  |   | (67,734  | ) |  |   | 3,568,841 |  
|Comprehensive income:                                                       |  |              |   |  |                          |         |                  |  |   |               |  |   |                                        |   |  |                                            |            |   |       |   |         |   |  |   |          |   |  |   |           |  
|Net income                                                                  |  | -0-          |   |  |                          | -0-     |                  |  |   | -0-           |  |   | 725,705                                |   |  |                                            | -0-        |   |       |   | -0-     |   |  |   | -0-      |   |  |   | 725,705   |  
|Other comprehensive income, net of tax:                                     |  |              |   |  |                          |         |                  |  |   |               |  |   |                                        |   |  |                                            |            |   |       |   |         |   |  |   |          |   |  |   |           |  
|Net change in unrealized gains and losses on available-for-sale securities* |  | -0-          |   |  |                          | -0-     |                  |  |   | -0-           |  |   | -0-                                    |   |  |                                            | -0-        |   |       |   | -0-     |   |  |   | (72,737  | ) |  |   | (72,737   | )
|Net change in unrealized gains and losses on derivative instruments*        |  | -0-          |   |  |                          | -0-     |                  |  |   | -0-           |  |   | -0-                                    |   |  |                                            | -0-        |   |       |   | -0-     |   |  |   | (231     | ) |  |   | (231      | )
|Additional minimum pension liability adjustment*                            |  | -0-          |   |  |                          | -0-     |                  |  |   | -0-           |  |   | -0-                                    |   |  |                                            | -0-        |   |       |   | -0-     |   |  |   | (664     | ) |  |   | (664      | )
|                                                                            |  |              |   |  |                          |         |                  |  |   |               |  |   |                                        |   |  |                                            |            |   |       |   |         |   |  |   |          |   |  |   |           |  
|Comprehensive income                                                        |  |              |   |  |                          |         |                  |  |   |               |  |   |                                        |   |  |                                            |            |   |       |   |         |   |  |   |          |   |  |   | 652,073   |  
|Cash dividends declared ($1.01 per share)                                   |  | -0-          |   |  |                          | -0-     |                  |  |   | -0-           |  |   | (355,415                               | ) |  |                                            | -0-        |   |       |   | -0-     |   |  |   | -0-      |   |  |   | (355,415  | )
|Common stock transactions:                                                  |  |              |   |  |                          |         |                  |  |   |               |  |   |                                        |   |  |                                            |            |   |       |   |         |   |  |   |          |   |  |   |           |  
|Employee stock plans                                                        |  | 5,044        |   |  |                          | (42     | )                |  |   | 10,778        |  |   | (18,935                                | ) |  |                                            | 126,195    |   |       |   | (1,136  | ) |  |   | -0-      |   |  |   | 116,860   |  
|Direct stock purchase and dividend reinvestment                             |  | 431          |   |  |                          | -0-     |                  |  |   | 822           |  |   | (45                                    | ) |  |                                            | 10,338     |   |       |   | -0-     |   |  |   | -0-      |   |  |   | 11,115    |  
|Purchase of common stock                                                    |  | (13,713      | ) |  |                          | -0-     |                  |  |   | -0-           |  |   | -0-                                    |   |  |                                            | (358,897   | ) |       |   | -0-     |   |  |   | -0-      |   |  |   | (358,897  | )
|                                                                            |  |              |   |  |                          |         |                  |  |   |               |  |   |                                        |   |  |                                            |            |   |       |   |         |   |  |   |          |   |  |   |           |  
|BALANCE AT DECEMBER 31, 2005                                                |  | 348,072      |   |  | $                        | 416,706 |                  |  | $ | 738,011       |  | $ | 3,844,183                              |   |  | $                                          | (1,208,874 | ) |       | $ | (14,083 | ) |  | $ | (141,366 | ) |  | $ | 3,634,577 |  
|                                                                            |  |              |   |  |                          |         |                  |  |   |               |  |   |                                        |   |  |                                            |            |   |       |   |         |   |  |   |          |   |  |   |           |  

---

|* | See disclosure of reclassification adjustment amount and tax effect, as applicable, in Notes to Consolidated Financial Statements.
|- | ----------------------------------------------------------------------------------------------------------------------------------

See Notes to Consolidated Financial Statements.



78



---

AmSouth Bancorporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                                        |  |                         |            |   |      |   |            |      |  |   |            |  
|------------------------------------------------------------------------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                                        |  | Years Ended December 31 |           
|(In thousands)                                                                                          |  | 2005                    |            |   | 2004 |   |            | 2003 | 
|OPERATING ACTIVITIES                                                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|Net income                                                                                              |  | $                       | 725,705    |   |      | $ | 623,498    |      |  | $ | 626,121    |  
|Adjustments to reconcile net income to net cash provided by operating activities:                       |  |                         |            |   |      |   |            |      |  |   |            |  
|Provision for loan and lease losses                                                                     |  |                         | 93,950     |   |      |   | 127,750    |      |  |   | 173,700    |  
|Provision for deferred income taxes                                                                     |  |                         | 151,939    |   |      |   | 203,002    |      |  |   | 243,754    |  
|Depreciation and amortization of premises and equipment                                                 |  |                         | 114,256    |   |      |   | 111,367    |      |  |   | 99,132     |  
|Amortization of premiums and discounts on held-to-maturity securities and available-for-sale securities |  |                         | 22,941     |   |      |   | 39,530     |      |  |   | 51,646     |  
|Amortization of intangible assets                                                                       |  |                         | 2,582      |   |      |   | 4,169      |      |  |   | 4,793      |  
|Originations and purchases of loans held for sale                                                       |  |                         | (1,927,606 | ) |      |   | (1,206,257 | )    |  |   | (1,063,442 | )
|Proceeds from sales of loans held for sale                                                              |  |                         | 1,843,382  |   |      |   | 1,214,929  |      |  |   | 997,017    |  
|Net gains on sales of available-for-sale securities                                                     |  |                         | (4,772     | ) |      |   | (26,620    | )    |  |   | (44,862    | )
|Net gains on sales of loans held for sale                                                               |  |                         | (12,302    | ) |      |   | (9,644     | )    |  |   | (15,659    | )
|Net gains on sales of loans                                                                             |  |                         | (11,768    | ) |      |   | (177,811   | )    |  |   | (17,473    | )
|Net gain on sale of mutual fund management unit                                                         |  |                         | (44,007    | ) |      |   | -0-        |      |  |   | -0-        |  
|Net premium paid on purchase of loans                                                                   |  |                         | 8,062      |   |      |   | -0-        |      |  |   | -0-        |  
|Net (increase) decrease in trading securities                                                           |  |                         | (28,536    | ) |      |   | 629        |      |  |   | 45,239     |  
|Net increase in accrued interest receivable, bank owned life insurance and other assets                 |  |                         | (713       | ) |      |   | (106,450   | )    |  |   | (112,014   | )
|Net increase (decrease) in accrued expenses and other liabilities                                       |  |                         | (57,591    | ) |      |   | (91,764    | )    |  |   | 24,392     |  
|Prepayment (gain) cost on Federal Home Loan Bank advances                                               |  |                         | (17 ,670   | ) |      |   | 129,648    |      |  |   | -0-        |  
|Other operating activities, net                                                                         |  |                         | 146,075    |   |      |   | 125,905    |      |  |   | 105,349    |  
|                                                                                                        |  |                         |            |   |      |   |            |      |  |   |            |  
|Net cash provided by operating activities                                                               |  |                         | 1,003,927  |   |      |   | 961,881    |      |  |   | 1,117,693  |  
|                                                                                                        |  |                         |            |   |      |   |            |      |  |   |            |  
|INVESTING ACTIVITIES                                                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|Proceeds from maturities and prepayments of available-for-sale securities                               |  |                         | 946,104    |   |      |   | 1,136,578  |      |  |   | 2,466,765  |  
|Proceeds from sales of available-for-sale securities                                                    |  |                         | 720,448    |   |      |   | 2,509,855  |      |  |   | 2,412,554  |  
|Purchases of available-for-sale securities                                                              |  |                         | (1,502,835 | ) |      |   | (2,858,463 | )    |  |   | (7,067,052 | )
|Proceeds from maturities, prepayments and calls of held-to-maturity securities                          |  |                         | 1,150,056  |   |      |   | 1,618,230  |      |  |   | 2,754,976  |  
|Purchases of held-to-maturity securities                                                                |  |                         | (668,456   | ) |      |   | (2,992,725 | )    |  |   | (3,056,675 | )
|Net (increase) decrease in other interest-earning assets                                                |  |                         | (31,851    | ) |      |   | 4,069      |      |  |   | 49,612     |  
|Net increase in loans, excluding purchases and sales of loans                                           |  |                         | (4,217,232 | ) |      |   | (4,814,245 | )    |  |   | (3,719,501 | )
|Purchases of loans                                                                                      |  |                         | (270,389   | ) |      |   | (143,946   | )    |  |   | -0-        |  
|Proceeds from sales of loans                                                                            |  |                         | 915,189    |   |      |   | 1,393,789  |      |  |   | 1,017,915  |  
|Net purchases of premises and equipment                                                                 |  |                         | (253,796   | ) |      |   | (207,249   | )    |  |   | (230,939   | )
|Net cash received from sale of mutual fund management unit                                              |  |                         | 65,000     |   |      |   | -0-        |      |  |   | -0-        |  
|                                                                                                        |  |                         |            |   |      |   |            |      |  |   |            |  
|Net cash used in investing activities                                                                   |  |                         | (3,147,762 | ) |      |   | (4,354,107 | )    |  |   | (5,372,345 | )
|                                                                                                        |  |                         |            |   |      |   |            |      |  |   |            |  
|FINANCING ACTIVITIES                                                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|Net increase in deposits                                                                                |  |                         | 2,115,694  |   |      |   | 3,792,903  |      |  |   | 3,126,376  |  
|Net increase in federal funds purchased and securities sold under agreements to repurchase              |  |                         | 2,112,274  |   |      |   | 265,735    |      |  |   | 256,706    |  
|Net increase in other borrowed funds                                                                    |  |                         | 82,527     |   |      |   | 85,896     |      |  |   | 192,184    |  
|Proceeds from issuance of long-term Federal Home Loan Bank advances and other long-term debt            |  |                         | 1,682,323  |   |      |   | 1,151,587  |      |  |   | 3,546,515  |  
|Payments for maturing Federal Home Loan Bank advances and other long-term debt                          |  |                         | (1,310,424 | ) |      |   | (467,014   | )    |  |   | (2,553,323 | )
|Payments for prepayment of Federal Home Loan Bank advances                                              |  |                         | (1,607,330 | ) |      |   | (1,379,648 | )    |  |   | -0-        |  
|Cash dividends paid                                                                                     |  |                         | (353,995   | ) |      |   | (337,334   | )    |  |   | (323,748   | )
|Proceeds from employee stock plans, direct stock purchase and dividend reinvestment .                   |  |                         | 121,713    |   |      |   | 134,107    |      |  |   | 115,035    |  
|Purchase of common stock                                                                                |  |                         | (358,897   | ) |      |   | (50,999    | )    |  |   | (163,092   | )
|                                                                                                        |  |                         |            |   |      |   |            |      |  |   |            |  
|Net cash provided by financing activities                                                               |  |                         | 2,483,885  |   |      |   | 3,195,233  |      |  |   | 4,196,653  |  
|                                                                                                        |  |                         |            |   |      |   |            |      |  |   |            |  
|Increase (decrease) in cash and cash equivalents                                                        |  |                         | 340,050    |   |      |   | (196,993   | )    |  |   | (57,999    | )
|Cash and cash equivalents at beginning of period                                                        |  |                         | 966,993    |   |      |   | 1,163,986  |      |  |   | 1,221,985  |  
|                                                                                                        |  |                         |            |   |      |   |            |      |  |   |            |  
|Cash and cash equivalents at end of period                                                              |  | $                       | 1,307,043  |   |      | $ | 966,993    |      |  | $ | 1,163,986  |  
|                                                                                                        |  |                         |            |   |      |   |            |      |  |   |            |  

See Notes to Consolidated Financial Statements.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AmSouth Bancorporation (AmSouth or the Company), through its banking subsidiary, provides a broad array of financial products and services through banking offices located in six Southeastern states with leading market
positions in Florida, Tennessee, Alabama and Mississippi. In addition, AmSouth provides select financial services outside of its banking markets through its other subsidiaries. AmSouths principal activities include Consumer Banking, Commercial
Banking and Wealth Management. The accounting policies of AmSouth and the methods of applying those policies that materially affect the accompanying consolidated financial statements are presented below and conform to generally accepted accounting
principles in the United States and general practices within the financial services industry. BASIS OF PRESENTATION AND VARIABLE INTEREST ENTITIES The consolidated financial statements include the accounts of AmSouth, its subsidiaries, all of which are wholly owned, and certain
variable interest entities (VIE) as described below. All significant intercompany balances and transactions have been eliminated. Certain amounts in the prior years financial statements have been reclassified to conform to the 2005
presentation. These reclassifications are immaterial and had no effect on net income, total assets or shareholders equity. AmSouth
considers a voting rights entity to be a subsidiary and consolidates it if AmSouth has a controlling financial interest in the entity. VIEs are consolidated if AmSouth is exposed to the majority of the VIEs expected losses and/or residual
returns (i.e., AmSouth is considered to be the primary beneficiary). Unconsolidated investments in voting rights entities or VIEs in which AmSouth has significant influence over operating and financing decisions (usually defined as a voting or
economic interest of 20% to 50%) are accounted for using the equity method. Unconsolidated investments in voting rights entities or VIEs in which AmSouth has a voting or economic interest of less than 20% are generally carried at cost. AmSouth has limited partnership investments in affordable housing projects, for which it provides funding as a limited partner and receives tax
credits related to its investments in the projects based on its partnership


share. At December 31, 2005 and 2004, AmSouth had recorded investments in other assets on its balance sheets of approximately $152.9 million and $161.3
million, respectively, that were associated with limited partnership investments in affordable housing projects. AmSouth currently adjusts the carrying value of these investments using the equity method for any losses incurred by the limited
partnerships through earnings. AmSouth has determined that these structures meet the definition of VIEs. AmSouth has determined that consolidation of direct limited partnership investments in affordable housing projects is not required. However, in
some cases AmSouth is the sole limited partner in a fund that invests in affordable housing projects, and in these cases consolidation is required. These funds are not required to consolidate the underlying affordable housing projects in which they
invest, and as such there is no financial statement impact associated with their consolidation by AmSouth. At December 31, 2005 and 2004, AmSouths maximum exposure to loss associated with these limited partnerships was limited to the
Companys recorded investment. AmSouth, as a commercial real estate lender, periodically lends money for the construction or
acquisition of commercial real estate. At December 31, 2005 and 2004, AmSouth had approximately $7.3 billion and $5.9 billion, respectively, of commercial real estate loans outstanding and approximately $4.7 billion and $3.6 billion,
respectively, in unused commercial real estate commitments to lend money. AmSouth has determined that some of the entities to which it lends for commercial real estate purposes meet the definition of VIEs. AmSouth has reviewed these structures and
determined that any that meet the definition of a VIE are not required to be consolidated. AmSouths maximum exposure to loss associated with these commercial real estate transactions is no greater than the outstanding balance in commercial
real estate lending and any outstanding commitments to lend money associated with these transactions at December 31, 2005 and 2004. USE OF ESTIMATES The preparation of the consolidated financial statements in conformity with accounting
principles generally accepted in the United States requires Management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those
estimates.




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AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



CASH AND CASH FLOWS

Cash and due from banks and time deposits in other banks are considered cash and cash equivalents. The following table summarizes supplemental cash flow
information for the years ended December 31:



(In thousands)

2005

2004

2003Cash paid during the period for:Interest

$
923,241

$
691,432

$
673,179Income taxes


245,212


197,431


62,519Transfers from loans to foreclosed properties


35,655


39,144


56,809Transfers from foreclosed properties to loans


414


852


652Transfers from loans (student loans) to loans held for sale


207,521


-0-


-0-Transfers from loans to securities


-0-


-0-


405,021Transfers from loans to other assets


-0-


1,015


-0-




Transfers from loans to available-for-sale and held-to-maturity securities were made
in connection with guaranteed mortgage loan securitizations in which AmSouth retained the securities in its investment portfolio. Transfers from loans to other assets were associated with mortgage servicing rights created as a result of guaranteed
mortgage loan securitizations. SECURITIES Securities are classified as held-to-maturity, trading or available-for-sale. AmSouth defines held-to-maturity securities as debt securities which Management has the positive intent and ability to hold to maturity.
Held-to-maturity securities are stated at cost, adjusted for amortization of premiums and accretion of discounts on the constant effective yield method. Trading securities are carried at market value. Market adjustments and realized gains or losses
on the sale of trading securities are reported as other noninterest revenues. Available-for-sale securities are defined as equity securities and debt securities not classified as trading securities or held-to-maturity securities. Available-for-sale
securities are carried at fair value. Unrealized holding gains or losses, net of deferred taxes, on available-for-sale securities are excluded from earnings and reported in accumulated other comprehensive income within shareholders equity.
AmSouth determines the appropriate classification of debt securities at the time of purchase.


The market values of securities are generally based on quoted market prices. If quoted market prices are not available, pricing is determined using
pricing models, discounted cash flow analysis, or quoted prices of similar instruments. Gains and losses from sales of available-for-sale securities are computed using the specific identification method. The Company reviews its securities portfolio on a quarterly basis to determine if there are any conditions that indicate that a security has
other-than-temporary impairment. Factors considered in this determination include the length of time that the security has been in a loss position, the ability and intent to hold the security until such time as the value recovers or the security
matures, and the credit quality of the issuer. When a security has impairment that is considered to be other-than-temporary, the security is written down to fair value and a loss is recorded in earnings. LOANS HELD FOR SALE Loans
held for sale consist of residential mortgage loans and student loans held for sale. Loans held for sale are carried at the lower of aggregate cost or market value. Market adjustments and realized gains and losses are classified as other noninterest
revenues.




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE Securities purchased under agreements to resell and securities sold under agreements to repurchase are generally treated as collateralized financing
transactions and are recorded at the amount at which the securities were acquired or sold plus accrued interest. It is AmSouths policy to take possession of securities purchased under resale agreements. The market value of the collateral is
monitored and additional collateral obtained when deemed appropriate. Securities sold under repurchase agreements are delivered to either broker-dealers or to custodian accounts. The broker-dealers may sell, loan or otherwise dispose of such
securities to other parties in the normal course of their operations, but have agreed to resell to AmSouth identical securities at the maturity of the agreements. LOANS AND LEASES Loans are carried at the principal amount outstanding, net of unearned income, including net deferred loan fees
and costs. AmSouth defers nonrefundable loan origination and commitment fees and the direct costs of originating or acquiring loans. The net deferred amount is amortized over the estimated lives of the related loans as an adjustment to the yield.
Interest income on commercial and commercial real estate loans is accrued daily based upon the outstanding principal amounts except for those classified as nonaccrual loans. Interest income on certain consumer loans is accrued monthly based upon the
outstanding principal amounts except for those classified as nonaccrual loans. AmSouth also engages in both direct and leveraged lease
financing. The net investment in direct financing leases is the sum of all minimum lease payments and estimated residual values, less unearned income. Unearned income is added to interest income over the term of the leases to produce a level yield.
The investment in leveraged leases is the sum of all lease payments (less nonrecourse debt payments), plus estimated residual values, less unearned income. Income from leveraged leases is recognized over the term of the leases based on the
unrecovered equity investment. Commercial loans, including commercial leases, and commercial real estate loans are generally placed on
nonaccrual status if full collection of principal and interest becomes unlikely (even if all payments are current), or if the loan is delinquent in principal or interest payments for 90 days or more, unless the loan is well-secured and in the
process of collection. Consumer loans which are not well-secured are


written down to estimated value no later than the 180th day of delinquency unless a deferral is granted. AmSouth may grant payment deferrals on a
case-by-case basis, or, in a situation such as a hurricane, AmSouth may grant blanket deferrals based on geographic information. Residential mortgage loans are placed on nonaccrual status after a write-down has occurred. All other consumer loans are
charged-off in a timely fashion according to regulatory guidelines and, therefore, are not placed on nonaccrual status based solely on number of days past due. Interest collections on nonaccrual loans for which the ultimate collectibility of
principal is uncertain are applied as principal reductions. Otherwise, such collections are credited to income when received. AmSouth determines past due or delinquency status of a loan based on contractual payment terms, except where deferrals have
been granted as mentioned above. ALLOWANCE FOR LOAN AND LEASE LOSSES The allowance for loan and lease losses (the allowance) is determined based on various components in accordance with Statement of Financial Accounting Standards No. 114, Accounting by Creditors for
Impairment of a Loan (Statement 114) for individually impaired loans and Statement of Financial Accounting Standards No. 5, Accounting for Contingencies (Statement 5) for pools of loans and for individual or pools of leases.
The allowance is established by a provision charged to earnings based on estimated inherent losses. Loan losses are charged against the allowance when uncollectibility of all or part of the loan balance is confirmed. Any subsequent recoveries are
credited to the allowance. The allowance is maintained at a level which is considered to be adequate to absorb estimated credit losses for
specifically identified loans, as well as estimated credit losses inherent in the remainder of the loan portfolio at the balance sheet date. Actual losses can vary from Managements estimates. A formal review of the allowance is performed
quarterly to assess the risk in the portfolio and to determine the adequacy of the allowance. In determining the appropriate level for the allowance, Management ensures that the overall allowance appropriately reflects the current macroeconomic
conditions, industry exposure, and a margin for the imprecision inherent in most estimates of expected credit losses. Management assesses the adequacy of the allowance quarterly. The assessment considers actual performance of each of its portfolios,
current underwriting standards and other factors which might impact the estimated inherent losses. Allocation rates may be increased or decreased based on the quarterly assessment.




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Impaired loans over $2.5 million are specifically reviewed. Impairment of a loan is measured by comparing the recorded investment in the loan with the
present value of expected future cash flows discounted at the loans effective interest rate, the loans observable market price, or the fair value of the collateral if the loan is collateral-dependent. A valuation allowance is provided to
the extent that the measure of the impaired loan is less than the recorded investment. A loan is not considered impaired during a period of delay in payment if the ultimate collectibility of all amounts due is expected. Leases are excluded from the
definition of an impaired loan under Statement 114. However, leases over $2.5 million that are impaired are evaluated in the same manner as impaired loans. Larger groups of homogenous loans such as consumer installment and residential real estate
mortgage loans are collectively evaluated for impairment. Impaired loans are, therefore, primarily commercial and commercial real estate loans. Payments received on impaired loans or leases for which the ultimate collectibility of principal is
uncertain are generally applied first as principal reductions. Impaired loans or leases and other nonaccrual loans are returned to accrual status if the loan or lease is brought contractually current as to both principal and interest, the future
payments are reasonably expected to continue, and the repayment ability can be reasonably demonstrated. Commercial loans, including
commercial leases, and commercial real estate loans are placed on nonaccrual status and generally charged-off when payments or liquidation of collateral is not expected to be sufficient to repay principal due, with the charge-off occurring when
available information reasonably confirms that the loan is uncollectible and the loss is reasonably quantifiable. Consumer loans secured by residential real estate are generally charged-off to the extent principal and interest due exceed 90% of the
current appraised value of the collateral and the loan becomes 180 days past due. All other consumer loans are subject to mandatory charge-off at a specified delinquency date and are usually not classified as nonperforming prior to being
charged-off. Closed-end consumer loans, which include automobile, student and other installment loans, are generally


charged-off in full no later than when the loan becomes 120 days past due. Unsecured revolving credit loans are generally charged-off in full no later than
when the loan becomes 180 days past due. FORECLOSED PROPERTIES AND REPOSSESSIONS Foreclosed properties are comprised principally of commercial and residential real estate properties obtained in partial or total satisfaction of
nonperforming loans. Repossessions are comprised of non-real estate properties, including automobiles, obtained in partial or total satisfaction of loans. Foreclosed properties and repossessions are recorded at their estimated fair value less
anticipated selling costs based upon the propertys or items appraised value at the date of transfer. Any differences between the fair value of the property and the carrying value of the loan are charged to the allowance. Subsequent
changes in values are reported as adjustments to the carrying amount, not to exceed the initial carrying value of the assets at the time of transfer. Gains or losses not previously recognized resulting from the sale of foreclosed properties or other
repossessed items are recognized on the date of sale. At December 31, 2005 and 2004, AmSouth had $17,667,000 and $19,609,000 of foreclosed properties, respectively, and $2,274,000 and $2,498,000 of other repossessed items, respectively. PREMISES AND EQUIPMENT AND LEASED ASSETS Premises and equipment are stated at cost, less accumulated depreciation and amortization, as applicable. The provisions for depreciation and amortization are computed generally by the straight-line method over the estimated useful lives of
the assets or terms of the leases, as applicable. The annual provisions for depreciation and amortization have been computed principally using estimated lives of five to forty years for premises and three to twelve years for furniture and equipment. AmSouth enters into lease transactions for the right to use assets. These leases vary in term and, from time to time, include incentives
and/or rent escalations. Examples of incentives include periods of free rent and leasehold improvement incentives. AmSouth generally recognizes incentives and escalations on a straight-line basis over the lease term as a reduction of or
increase to rent expense, as applicable.




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AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



INTANGIBLE ASSETS Intangible assets, primarily goodwill, are included in other assets. Goodwill and certain other intangible assets are tested at least annually for
impairment. AmSouth has determined that its reporting units for purposes of this testing are its reportable segments: Consumer Banking, Commercial Banking and Wealth Management. AmSouth allocated goodwill to each reporting unit based on locations
and revenue contributions of past acquisitions. The first step in this testing requires that the fair value of each reporting unit be
determined. If the carrying amount of any reporting unit exceeds its fair value, goodwill impairment may be indicated, and a second step of impairment testing is required. If such were the case, AmSouth would assume that the purchase price of the
reporting unit is equal to its fair value as determined in the first step and then allocate that purchase price to the fair value of the units assets (excluding goodwill) and liabilities. Any excess of the assumed purchase price over the fair
value of the reporting units assets and liabilities represents the implied fair value of goodwill. An impairment loss would be recognized, as a charge to earnings, to the extent that the carrying amount of the reporting units goodwill
exceeds the implied fair value of goodwill. AmSouth uses the capital asset pricing model to determine the fair value of its reporting
units and then compares the computed fair value of each reporting unit with its carrying amount. If the fair value of a particular reporting unit exceeds its carrying amount, no impairment is indicated and no further testing is required. AmSouth
performs the annual goodwill impairment test as of October 1. Other identified intangible assets that have finite lives are amortized
over their estimated useful lives and are also subject to impairment testing if events or changes in circumstances warrant such an evaluation. Other identified intangibles, primarily core deposit intangibles, are amortized over a period no greater
than fifteen years.


INTEREST RATE CONTRACTS AND OTHER DERIVATIVE FINANCIAL INSTRUMENTS AmSouth has, from time to time, utilized various derivative
instruments such as interest rate swaps and forward contracts to protect against the risk of adverse price or interest rate movements on the value of certain assets and liabilities and on future cash flows. AmSouth carries all derivative instruments at fair value as either assets or liabilities in the consolidated balance sheets. For derivative instruments
not designated as hedging instruments, the derivative is recorded as a freestanding asset or liability with the change in value being recognized in current earnings during the period of change. To be eligible for hedge accounting treatment, AmSouth
must specifically designate a derivative as a hedging instrument and identify the exact risk being hedged. The derivative instrument then must meet explicit effectiveness requirements to qualify for hedge accounting. During 2005 and 2004, AmSouth
had interest rate swaps designated as fair value and cash flow hedges. 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 to be fair value hedges. Changes in the fair value of the derivative instrument
are recorded in noninterest revenues and are offset by the changes in the fair value of the risk being hedged related to the hedged asset or liability. The corresponding adjustment to the hedged asset or liability is included in the basis of the
hedged item, while the corresponding change in the fair value of the derivative instrument is recorded as an adjustment to other assets or other liabilities, as applicable. 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 to be cash flow hedges. For derivative instruments that are designated and qualify as cash flow hedges, the fair value of the derivative instrument is recorded in the consolidated balance sheets as either a freestanding
asset or liability. The effective portion of the change in fair value of the derivative instrument is recorded 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 noninterest revenue during the period of
change.




84



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AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



AmSouth, at the inception of
any hedging relationship 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. Hedge accounting must be discontinued prospectively when: (1) it is determined that the derivative is no longer effective in offsetting
changes in the fair value or cash flows of a hedged item; (2) the derivative expires or is sold, terminated or exercised; (3) the hedged firm commitment no longer meets the definition of a firm commitment; (4) it is probable that the
forecasted transaction will not occur by the end of the specified time period; or (5) Management determines that the fair value or cash flow hedge designation is no longer appropriate. When it is determined that the derivative no longer qualifies as an effective fair value or cash flow hedge or Management removes the hedge designation,
the derivative will continue to be recorded in the consolidated balance sheets at its fair value, with changes in fair value recognized currently in noninterest revenue. The asset or liability under a discontinued fair value hedge will no longer be
adjusted for changes in fair value and the existing basis adjustment is amortized to net interest income. The component of accumulated other comprehensive income related to a discontinued cash flow hedge is amortized to net interest income over the
original term of the hedge contract. When hedge accounting is discontinued because the hedged item no longer meets the definition of a
firm commitment, or because it is probable that the forecasted transaction will not occur by the end of the specified time period, the derivative will continue to be recorded in the consolidated balance sheets at its fair value, with changes in fair
value recognized currently in noninterest revenue. Any asset or liability that was recorded pursuant to recognition of the firm commitment is removed from the consolidated balance sheets and recognized currently in noninterest revenue. Gains and
losses that were accumulated in other comprehensive income pursuant to the hedge of a forecasted transaction are recognized immediately in noninterest revenue.


AmSouth also enters into interest rate lock commitments, which
are commitments to originate loans whereby the interest rate on the loan is determined prior to funding and the customers have locked into that interest rate. Accordingly, such commitments are recorded at fair value, excluding value related to
servicing, with changes in fair value recorded in noninterest income. Fair value is based on fees currently charged to enter into similar agreements and, for fixed-rate commitments, also considers the difference between current levels of interest
rates and the committed rates. AmSouth also has corresponding forward sales commitments related to these interest rate lock commitments, which are recorded at fair value with changes in fair value recorded in noninterest income. AmSouth enters into various derivative agreements with customers desiring protection from possible adverse future fluctuations in interest rates or
foreign currency exchange rates. As an intermediary, AmSouth generally maintains a portfolio of matched offsetting derivative agreements. These contracts do not qualify for hedge accounting and are marked to fair value through earnings and included
in other assets and other liabilities. INCOME TAXES The consolidated financial statements have been prepared on the accrual basis. When income and expenses are recognized in different periods for financial
reporting purposes and for purposes of computing income taxes currently payable, deferred taxes are provided on such temporary differences. Deferred tax assets and liabilities are recorded for the expected future tax consequences of events that have
been recognized in the consolidated financial statements or tax returns. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected
to be realized or settled. TREASURY STOCK The purchase of AmSouth common stock is recorded at cost. At the date of the retirement or subsequent reissuance, treasury stock is reduced by the cost of such stock with differences recorded in additional paid-in
capital or retained earnings, as applicable.




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AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



STOCK-BASED COMPENSATION AmSouth has elected to
follow APB Opinion No. 25, Accounting for Stock Issued to Employees (Opinion 25) and related interpretations in accounting for its employee stock options. 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 exercise price. 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 (the measurement date). AmSouth recognizes compensation expense related to the issuance of restricted stock as prescribed by Opinion 25. Compensation expense is
recognized ratably over the service period and the life of the grant, which is typically one to four years for restricted stock grants with service-based vesting terms. AmSouth 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 cost for those plans using the intrinsic value-based method of accounting prescribed
by Opinion 25. AmSouth recognizes expense related to stock option grants in its pro forma disclosures according to the accelerated expense attribution model under Financial Accounting Standards Board (FASB) Interpretation


No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option Award Plans. While all options granted in 2005 had an exercise price equal to the market value of the underlying common stock on the date of grant, approximately $1.7
million of option-based employee compensation cost is reflected in reported net income in 2005 due to the modification to immediately accelerate vesting of all unvested, outstanding grants at December 29, 2005. The purpose of the modification
was to prevent future expense recognition related to these grants when the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (Statement 123R) on January 1, 2006 (see further
discussion of Statement 123R on page 88). No option-based employee compensation cost is reflected in reported net income in 2004 and 2003, as all options granted had an exercise price equal to the market value of the underlying common stock on the
date of grant. Compensation expense related to restricted stock is reflected in the table below. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options vesting period. The fair
value for these options was estimated at the date of grant using a Black-Scholes option pricing model. See Note 15 for a further description of the assumptions used for preparing the pro forma disclosures as prescribed by Statement 123.
AmSouths pro forma information for the years ended December 31 follows:




(In thousands, except per share data)

2005


2004


2003NET INCOME:As reported

$
725,705


$
623,498


$
626,121Add: Stock-based compensation expense included in reported net income, net of tax


3,628



2,538



1,889Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax
effects


(39,931
)


(33,082
)


(26,998
)Pro forma

$
689,402


$
592,954


$
601,012EARNINGS PER COMMON SHARE:As reported

$
2.07


$
1.77


$
1.79Pro forma


1.97



1.68



1.72DILUTED EARNINGS PER COMMON SHARE:As reported

$
2.04


$
1.74


$
1.77Pro forma


1.94



1.66



1.70




86



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



EARNINGS PER COMMON SHARE Earnings per common
share is obtained by dividing net income available to common stockholders by the weighted-average outstanding shares of common stock. The diluted calculation of earnings per common share is obtained by dividing net income by the weighted-average
outstanding shares of common stock adjusted for effects of stock options and restricted stock. Certain members of Management and directors have rights to be issued AmSouth common stock in the future pursuant to deferred compensation plans. These
shares are considered outstanding for purposes of calculating basic and diluted earnings per share. See Note 14 for the reconciliation of the numerators and denominators of the earnings per share and diluted earnings per share computations and Note
16 for a description of the deferred compensation plans. REVENUE RECOGNITION The largest source of revenue for AmSouth is interest revenue. Interest revenue is recognized on an accrual basis driven by nondiscretionary formulas
based on written contracts, such as loan agreements or securities contracts. Loan origination fees are amortized into interest income over the term of the loan. Other credit-related fees, including letter of credit fees, are recognized in
noninterest income when earned. AmSouth recognizes commission revenue and brokerage, exchange and clearance fees on a trade date basis. Other types of noninterest revenues such as service charges on deposits and trust revenues are accrued and
recognized into income as services are provided and the amount of fees earned are reasonably determinable. ACCOUNTING FOR TRANSFERS AND SERVICING OF
FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES AmSouth may periodically sell receivables, such as commercial loans, residential
mortgage loans and dealer loans, in securitizations and to third-party conduits. When AmSouth sells these receivables, it may retain a continuing interest in these receivables in the form of interest-only strips, one or more subordinated tranches,
servicing rights, or cash reserve accounts. The previous carrying amount of the assets sold is allocated between the retained interests and the assets sold based on their relative fair values at the date of transfer. Any gain or loss on the sale of
the receivables depends in part on the previous carrying amount of the


financial assets involved in the transfer, allocated between the assets sold and the retained interests based on their relative fair value at the date of
transfer. To obtain fair values, quoted market prices are used, if available. However, quotes are generally not available for retained interests, so AmSouth generally estimates fair value based on the present value of expected future cash flows
using Managements best estimates of the key assumptions  expected credit losses, prepayment speeds, weighted-average life, and discount rates commensurate with the risks involved. In calculating prepayment rates, AmSouth utilizes a
variety of prepayment models depending on the loan type and specific transaction requirements. The models used by AmSouth include the constant prepayment rate model (CPR), the absolute prepayment speed model (ABS) and the Bond Market Trade
Associations Mortgaged Asset-Backed Securities Divisions prepayment model (PSA). Servicing assets are recorded in other assets and their amortization is determined in proportion to, and over the period of, the estimated net servicing
income. Amortization is recorded in either mortgage income for mortgage servicing assets or in other noninterest income for servicing assets associated with non-mortgage loans. On a quarterly basis, AmSouth ensures that any retained interests are valued appropriately in the consolidated financial statements. Management reviews
the historical performance of each retained interest and the assumptions used to project future cash flows. Assumptions are revised if past performance and future expectations dictate. The present value of cash flows is then recalculated based on
the revised assumptions. RECENT ACCOUNTING PRONOUNCEMENTS AND ACCOUNTING CHANGES In December 2005, the FASB issued FASB Staff Position (FSP) SOP 94-6-1, Terms of Loan Products That May Give Rise to a Concentration of Credit
Risk (FSP 94-6-1). This FSP provides guidance in determining whether certain terms of loan products present a concentration of credit risk, as defined in Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments and reinforces the disclosure requirements associated with loan products that give rise to such concentrations. FSP 94-6-1 is effective immediately. See Note 4 for the related disclosures.




87



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



FUTURE APPLICATION OF ACCOUNTING STANDARDS In
December 2004, the FASB issued Statement 123R, which requires companies to recognize in their financial statements the cost resulting from all share-based payment transactions using a fair value-based measurement model. Share-based payment
transactions include transactions in which the entity issues stock, share options or other equity instruments in exchange for goods or services. A fair value-based measurement model requires the fair value of share-based payments issued to
nonemployees to be recorded at the fair value of the goods or services received. For payments to employees, Statement 123R requires that share-based payments be recorded at their fair value and be classified as either a liability or equity. Entities
are required to estimate the fair value of share-based payments to employees using a mathematical model that reflects the most accurate valuation given the information available and incorporates various factors, including exercise price of the
option, expected volatility of the entitys stock, expected term of the award, performance/service/market conditions, expected dividends, the risk-free rate, and grant date share price. Payments classified as liabilities are required to be
remeasured at the end of each reporting period. The fair value of awards classified as equity is required to be recognized over the requisite service period or the period during which the employee is expected to provide service to earn the award.
Statement 123R replaces Statement 123 and supersedes Opinion No. 25. Statement 123R will become effective for AmSouth in reporting periods beginning after January 1, 2006, requiring all share-based payments granted or modified subsequent
to the implementation date to be accounted for under Statement 123R. The impact of adoption of Statement 123R on AmSouths results of operations in future periods cannot be fully predicted at this time. The ultimate impact will be affected by
the levels of share-based


payments in the future, as well as the effect of the accelerated vesting of all unvested options outstanding prior to the adoption of Statement 123R (as
discussed in Notes 1 and 15). However, the ultimate impact in future years will likely be less than the pro forma impact that is currently disclosed in Note 1. The Company has elected the modified prospective transition method for implementation. In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections
 a replacement of APB Opinion No. 20 and FASB Statement No. 3 (Statement 154). Statement 154 changes the requirements for the accounting for and reporting of a change in accounting principle. It also applies to changes required
by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. Statement 154 is
effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not expect the adoption of Statement 154 to have a material effect on the consolidated financial statements. In November 2005, the FASB issued FSP FAS 115-1 and FAS 124-1, The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments (FSP 115-1). This FSP outlines guidance for determining when an investment is considered impaired, when such impairment is considered other than temporary and the measurement of any resulting impairment loss. FSP 115-1 also
provides certain disclosure requirements for securities and their fair values, which are included in Notes 2 and 3. The FSP is effective for reporting periods beginning after December 15, 2005. The Company does not expect the adoption of this
FSP to have a material impact on the consolidated financial statements.




88



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 2  AVAILABLE-FOR-SALE SECURITIES

The amortized costs of available-for-sale securities and the amounts at which they are carried (approximate fair market values) at December 31 are
summarized as follows:



2005

2004(In thousands)

AmortizedCost

GrossUnrealizedGains

GrossUnrealizedLosses

CarryingAmount

AmortizedCost

GrossUnrealizedGains

GrossUnrealizedLosses

CarryingAmountU.S. Treasury securities

$
181,132

$
2

$
4,616

$
176,518

$
80,489

$
35

$
3,013

$
77,511Federal agency securities


5,589


-0-


67


5,522


4,659


-0-


42


4,617State, county and municipal securities


37,796


859


8


38,647


47,369


1,880


53


49,196Mortgage-backed securities, collateralized mortgage obligations and other pass-thru securities


5,615,916


5,892


157,290


5,464,518


5,879,561


21,995


58,808


5,842,748Equity securities


302,899


2,990


1,105


304,784


340,471


2,128


1,141


341,458Other debt securities


-0-


-0-


-0-


-0-


4,793


2,342


-0-


7,135$
6,143,332

$
9,743

$
163,086

$
5,989,989

$
6,357,342

$
28,380

$
63,057

$
6,322,665


The amortized cost and
carrying amount of available-for-sale securities by maturity at December 31, 2005 are as follows:



(In thousands)

AmortizedCost

CarryingAmountDue within 1 year

$
10,073

$
10,101Due after 1 year through 5 years


17,521


17,842Due after 5 years through 10 years


189,805


185,633Due after 10 years


7,118


7,111Mortgage-backed securities, collateralized mortgage obligations and other pass-thru securities


5,615,916


5,464,518Equity securities


302,899


304,784$
6,143,332

$
5,989,989




89



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



In 2005, 2004 and 2003, AmSouth realized gross gains of $4,872,000, $29,977,000 and $45,475,000, respectively, and gross losses of $100,000, $3,357,000 and
$613,000, respectively, on sales of available-for-sale securities. Included in interest income on available-for-sale securities for 2005, 2004 and 2003 was $2,079,000, $2,575,000 and $2,919,000, respectively, of interest income from tax-free state,
county and municipal securities. Equity securities included $171.2 million and $278.8 million of amortized cost related to Federal Reserve Bank stock and Federal Home Loan Bank stock as of December 31, 2005 and 2004, respectively, whose
amortized cost approximated carrying amount. Available-for-sale securities with a carrying amount of $5,381,539,000 and $3,946,028,000 at
December 31, 2005 and 2004, respectively, were pledged to secure short-term and long-term borrowings, public deposits, trust deposits, securities sold under repurchase agreements, and for other purposes as required or permitted by law. Provided below is a summary of available-for-sale securities which were in an unrealized loss position at December 31,


2005 and 2004, which was comprised of 206 and 80 securities, respectively, in a continuous loss position for twelve months or more and consisted primarily of
mortgage-backed securities. AmSouth evaluates each available-for-sale security in a loss position for other-than-temporary impairment, considering such factors as the length of time and the extent to which the market value has been below cost, the
credit standing of the issuer, and AmSouths ability and intent to hold the security until its market value recovers. AmSouth recognized an immaterial amount of other-than-temporary impairment related to certain equity securities classified as
available-for-sale in 2005. The remaining other-than-temporary impairment on equity securities was deemed immaterial for evaluation. AmSouth has not recognized any other-than-temporary impairment related to other categories of available-for-sale
securities. Further, AmSouth believes the deterioration in value on securities other than equities is attributable to changes in market interest rates and not credit quality of the issuer.




2005

2004Less than 12 Months

12 Months or More

Less than 12 Months

12 Months or More(In thousands)

CarryingAmount

UnrealizedLosses

CarryingAmount

UnrealizedLosses

CarryingAmount

UnrealizedLosses

CarryingAmount

UnrealizedLossesU.S. Treasury securities

$
102,431

$
900

$
72,836

$
3,716

$
25,533

$
797

$
49,066

$
2,216Federal agency securities


4,627


53


895


14


4,617


42


-0-


-0-State, county and municipal securities


2,667


8


-0-


-0-


-0-


-0-


2,344


53Mortgage-backed securities, collateralized mortgage obligations and other pass-thru securities


1,960,935


38,713


3,135,758


118,577


2,636,038


22,372


1,521,243


36,443Equity securities


21,974


842


1,546


263


22,991


1,134


-0-


-0-$
2,092,634

$
40,516

$
3,211,035

$
122,570

$
2,689,179

$
24,345

$
1,572,653

$
38,712




90



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 3  HELD-TO-MATURITY SECURITIES

The amounts at which held-to-maturity securities are carried and their approximate fair market values at December 31 are summarized as follows:



2005

2004(In thousands)

CarryingAmount

GrossUnrealizedGains

GrossUnrealizedLosses

ApproximateMarketValue

CarryingAmount

GrossUnrealizedGains

GrossUnrealizedLosses

ApproximateMarketValueU.S. Treasury securities

$
8,188

$
26

$
122

$
8,092

$
10,003

$
122

$
39

$
10,086Federal agency securities


45,807


531


452


45,886


42,913


830


63


43,680State, county and municipal securities


351,221


17,420


455


368,186


347,709


25,604


259


373,054Mortgage-backed securities, collateralized mortgage obligations and other pass-thru securities


5,270,530


7,808


128,115


5,150,223


5,783,713


30,534


45,465


5,768,782Other debt securities


3,748


110


2


3,856


3,672


177


-0-


3,849$
5,679,494

$
25,895

$
129,146

$
5,576,243

$
6,188,010

$
57,267

$
45,826

$
6,199,451


The carrying amount
and approximate fair market value of held-to-maturity securities by maturity at December 31, 2005 are as follows:



(In thousands)

CarryingAmount

ApproximateMarketValueDue within 1 year

$
12,733

$
12,889Due after 1 year through 5 years


91,290


95,167Due after 5 years through 10 years


163,355


170,909Due after 10 years


141,586


147,055Mortgage-backed securities, collateralized mortgage obligations and other pass-thru securities


5,270,530


5,150,223$
5,679,494

$
5,576,243




91



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



There were no sales of held-to-maturity securities during 2005, 2004 or 2003. Included in interest income on held-to-maturity securities for 2005, 2004 and
2003 was $16,910,000, $16,397,000 and $15,903,000, respectively, of interest income from tax-free state, county and municipal securities. Held-to-maturity securities with a carrying amount of $5,222,464,000 and $5,530,475,000 at December 31, 2005 and 2004, respectively, were pledged to secure short-term and long-term borrowings, public deposits, trust deposits,
securities sold under repurchase agreements, and for other purposes as required or permitted by law. Provided below is a summary of
held-to-maturity securities which were in an unrealized loss position at December 31,


2005 and 2004, which was comprised of 172 and 75 securities, respectively, in a continuous loss position for twelve months or more and consisted primarily of
mortgage-backed securities. AmSouth evaluates each held-to-maturity security in a loss position for other-than-temporary impairment, considering such factors as the length of time and the extent to which the market value has been below cost, the
credit standing of the issuer, and AmSouths ability and intent to hold the security until its market value recovers. AmSouth has not recognized any other-than-temporary impairment related to held-to-maturity securities. Further, AmSouth
believes the deterioration in value is attributable to changes in market interest rates and not credit quality of the issuer.




2005

2004Less than 12 Months

12 Months or More

Less than 12 Months

12 Months or More(In thousands)

Fair Value

UnrealizedLosses

Fair Value

UnrealizedLosses

Fair Value

UnrealizedLosses

Fair Value

UnrealizedLossesU.S. Treasury securities

$
3,408

$
55

$
2,512

$
67

$
1,998

$
20

$
2,216

$
19Federal agency securities


17,002


450


773


2


4,443


63


-0-


-0-State, county and municipal securities


29,989


165


12,754


290


13,429


259


-0-


-0-Mortgage-backed securities, collateralized mortgage obligations and other pass-thru securities


2,302,142


48,974


2,375,682


79,141


2,713,280


23,986


998,315


21,479Other debt securities


98


2


-0-


-0-


-0-


-0-


-0-


-0-$
2,352,639

$
49,646

$
2,391,721

$
79,500

$
2,733,150

$
24,328

$
1,000,531

$
21,498




92



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 4  LOANS

The major categories
of loans net of unearned income at December 31 are summarized as follows:



2005


2004(Dollars in thousands)

Amount

Percent


Amount

PercentCOMMERCIAL:Commercial and industrial

$
6,173,403

17.2
%

$
5,740,153

17.5
%Commercial loans secured by real estate


2,700,353

7.5



2,245,052

6.9Commercial leases


2,370,986

6.6



2,179,074

6.6Total commercial


11,244,742

31.3



10,164,279

31.0COMMERCIAL REAL ESTATE:Commercial real estate mortgages


3,203,030

8.9



2,867,968

8.7Real estate construction


4,085,369

11.4



3,008,313

9.2Total commercial real estate


7,288,399

20.3



5,876,281

17.9CONSUMER:Residential first mortgages


6,016,157

16.7



5,081,775

15.5Equity loans and lines


7,859,133

21.9



7,756,745

23.6Dealer indirect


3,047,117

8.5



3,312,120

10.1Revolving credit


23,563

0.1



27,230

0.1Other consumer


418,828

1.2



582,907

1.8Total consumer


17,364,798

48.4



16,760,777

51.1$
35,897,939

100.0
%

$
32,801,337

100.0
%




Included in loans net of unearned income at December 31, 2005 and 2004 were
$157,212,000 and $170,271,000, respectively, of net deferred loan costs. Included in commercial leases were $2,224,030,000 and
$2,163,562,000 of rentals receivable on leveraged leases and $421,401,000 and $420,829,000 of estimated residuals on leveraged leases, net of $726,196,000 and $763,709,000 of unearned income on leveraged leases at December 31, 2005 and 2004,
respectively. Pre-tax income from leveraged leases for the years ending December 31, 2005, 2004 and 2003 was $77,762,000, $81,627,000 and $75,486,000, respectively. The tax effect of this income was an expense of $16,028,000, $17,083,000 and
$13,989,000 for the years ending December 31, 2005, 2004 and 2003, respectively. AmSouth transferred the responsibility for the management of certain operations


associated with lease assets located outside of the United States to a foreign subsidiary, thereby lowering the effective tax rate on certain existing
leveraged lease investments. AmSouth intends to permanently reinvest earnings of this foreign subsidiary and, therefore, deferred taxes of $106.9 million, $93.3 million and $79.2 million had not been provided as of December 31, 2005, 2004 and
2003, respectively. Refer to Note 18 for further discussion on income taxes. In the normal course of AmSouths lending practices,
loans are advanced to customers that, by the nature of certain aspects or terms of the loan, may be considered higher-risk loans. These loans have contractual features that may increase the exposure of AmSouth to risk of nonpayment or loss
recognition and could present a concentration of credit risk. Examples of these features include




93



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



interest-only payment terms or high loan-to-value ratios. AmSouth has determined that the mortgage and home equity loan products with interest-only
provisions could present a concentration of credit risk. At December 31, 2005, AmSouth had approximately $4 billion in residential first mortgage loans and approximately $6 billion in equity loans and lines outstanding that were eligible for
interest-only payment provisions. AmSouth mitigates these risks through its normal lending practices by reviewing borrower/guarantor financial strength and requiring sufficient collateral to mitigate any financial loss upon default of the borrower.
Further, loan products with interest-only provisions are only offered to customers with higher credit scores, which generally include Private Client customers, and are generally offered in situations where the collateral value is substantial
relative to the loan value. At December 31, 2005 and 2004, AmSouth had no loans outstanding with terms that permit, at the borrowers option, principal payment deferral, payments smaller than interest accrual (negative amortization) or
option adjustable-rate mortgages. At December 31, 2005 and 2004, nonaccrual loans totaled $102,981,000 and $88,488,000, respectively.
The amount of interest income actually recognized on these loans during 2005, 2004 and 2003 was approximately $1,481,000, $1,760,000 and $1,647,000, respectively. The additional amount of interest income that would have been recorded during 2005,
2004 and 2003 if these loans had been current in accordance with their original terms was approximately $6,113,000, $6,045,000 and $5,849,000, respectively. At December 31, 2005 and 2004, AmSouth had loans past due 90 days or more and still
accruing of approximately $54,005,000 and $51,117,000, respectively.


At December 31, 2005 and 2004, AmSouths recorded investment in impaired loans, which includes all commercial and commercial real estate loans
on nonaccrual status, was $64,824,000 and $60,558,000, respectively. There was approximately $2,932,000 and $5,390,000 at December 31, 2005 and 2004, respectively, in the allowance for loan and lease losses allocated to $10,454,000 and
$21,696,000, respectively, of specifically reviewed impaired loans. No specific allowance was required for $54,370,000 and $38,862,000 of impaired loans at December 31, 2005 and 2004, respectively. Even though these impaired loans do not have a
specific allowance, estimated inherent losses on these loans are still reflected in the allowance for loan and lease losses. The average recorded investment in impaired loans for the years ended December 31, 2005, 2004 and 2003 was
approximately $62,015,000, $69,730,000 and $98,643,000, respectively. No material amount of interest income was recognized on impaired loans for the years ended December 31, 2005, 2004 and 2003. At December 31, 2005, AmSouth had $11.8 billion of loans pledged to secure borrowings from the Federal Home Loan Bank. The loans pledged included
residential first mortgage loans and equity loans and lines. Certain executive officers and directors of AmSouth and their associates were
loan customers of AmSouth during 2005 and 2004. Such loans are made in the ordinary course of business at normal credit terms, including interest rates and collateral, and do not represent more than a normal risk of collection. Total loans to these
persons at December 31, 2005 and 2004, amounted to approximately $38,909,000 and $27,373,000, respectively.




94



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 5  ALLOWANCE FOR LOAN AND LEASE LOSSES

A summary of changes in the allowance for loan and lease losses is shown below:



(In thousands)

2005


2004


2003Balance at January 1

$
366,774


$
384,124


$
381,579Loans charged-off


(128,089
)


(166,690
)


(220,058
)Recoveries of loans previously charged-off


36,785



50,248



48,903Net charge-offs


(91,304
)


(116,442
)


(171,155
)Addition to allowance charged to expense


93,950



127,750



173,700Reduction of allowance related to sold loans


(2,725
)


(28,658
)


-0-Balance at December 31

$
366,695


$
366,774


$
384,124


NOTE 6  PREMISES AND
EQUIPMENT, NET

Premises and equipment at December 31 are summarized as follows:



(In thousands)

2005

2004Land

$
255,356

$
211,877Buildings


735,738


634,976Furniture, fixtures and equipment


629,191


625,974Software


202,304


187,911Leasehold improvements


187,014


177,796Construction in progress


146,138


129,4332,155,741


1,967,967Less: Accumulated depreciation and amortization


955,627


907,393$
1,200,114

$
1,060,574




95



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 7  GOODWILL AND OTHER INTANGIBLE
ASSETS As of December 31, 2005 and 2004, AmSouth had goodwill assets of $288.4 million included in other assets. The balance of
goodwill by reportable segment for December 31, 2005 and 2004 is listed below (in millions):  Consumer Banking

$
217.7Commercial Banking


46.8Wealth Management


23.9$
288.4
 Goodwill and certain
other intangible assets are tested at least annually for impairment. As of October 1, 2005, 2004 and 2003, it was determined that no impairment existed. AmSouth has finite-lived intangible assets capitalized in other assets on its balance sheets in the form of core deposit intangibles. These intangible assets continue to be amortized over their estimated remaining
useful lives, which approximate one year. At December 31, 2005 and 2004, the gross carrying amount of core deposit intangibles was $26.7 million and $32.9 million, with accumulated amortization of $24.7 million and $28.3 million, respectively.
The aggregate amortization expense recorded on core deposit intangibles during 2005, 2004 and 2003 was $2.6 million, $4.2 million and $4.8 million, respectively. The amortization expense on core deposit intangibles is anticipated to be approximately
$2.0 million for 2006, after which they will be fully amortized.


At December 31, 2005 and 2004, AmSouth also had a non-amortizing intangible asset of $6.1 million and $7.2 million, respectively, associated with a
minimum pension liability related to an unfunded pension obligation. See Note 16 for further information. See Note 20 for information
concerning mortgage servicing rights and related amortization. NOTE 8  DEPOSITS The aggregate amount of time deposits of $100,000 or more, including certificates of deposit of $100,000 or more, was $4,952,678,000 and $4,443,392,000 at
December 31, 2005 and 2004, respectively. At December 31, 2005, the aggregate maturities, in thousands, of time deposits are
summarized as follows:  2006

$
7,366,7242007


1,171,1722008


353,8102009


340,6692010


661,999Thereafter


34,111$
9,928,485




96



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 9  SHORT-TERM BORROWINGS

Short-term borrowings at December 31 are summarized as follows:



(In thousands)

2005

2004Federal funds purchased

$
2,948,259

$
1,208,673Securities sold under agreements to repurchase


1,456,003


1,083,315Total federal funds purchased and securities sold under agreements to repurchase


4,404,262


2,291,988Treasury, tax and loan notes


391,980


264,745Term federal funds purchased


75,000


115,958Commercial paper


-0-


1,597Other borrowings


44,645


46,798Total other borrowed funds


511,625


429,098Total short-term borrowings

$
4,915,887

$
2,721,086


The average rates paid
on federal funds purchased and securities sold under agreements to repurchase, including the effects of interest rate swaps, were 2.75%, 1.40% and 0.95% for the years ended December 31, 2005, 2004 and 2003, respectively. The average rates paid
on other borrowed funds were 3.53%, 2.94% and 2.99% for the years ended December 31, 2005, 2004 and 2003, respectively.

NOTE 10  LONG-TERM
DEBT

Long-term debt at December 31 is summarized as follows:



(In thousands)

2005


2004Long-term Federal Home Loan Bank advances

$
1,958,730


$
4,371,745OTHER LONG-TERM DEBT:4.85% Subordinated Notes Due April 2013 (Issued by AmSouth Bank)


497,292



496,9185.20% Subordinated Notes Due April 2015 (Issued by AmSouth Bank)


347,382



-0-6.45% Subordinated Notes Due February 2018 (Issued by AmSouth Bank)


301,036



301,5346.125% Subordinated Notes Due March 2009


174,859



174,8156.75% Subordinated Debentures Due November 2025


150,000



149,9857.25% Senior Notes Due May 2006


99,976



99,9056.625% Subordinated Notes Due December 2005


-0-



49,947Federal Funds Effective Rate floating-rate bank notes


150,000



-0-90-Day London Interbank Offered Rate (LIBOR) floating-rate bank notes


350,000



800,0002.82% fixed-rate bank notes


200,000



200,000Long-term securities sold under agreements to repurchase


1,752,880



601,000Other long-term notes payable


10,904



401Statement 133 valuation adjustments


(8,388
)


25,268Total other long-term debt


4,025,941



2,899,773Total long-term debt

$
5,984,671


$
7,271,518




97



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Long-term advances from the Federal Home Loan Bank (FHLB) had maturities ranging from 2007 to 2025 and had weighted-average interest rates of 5.13%, 3.79%
and 4.15% at December 31, 2005, 2004 and 2003, respectively. All of these advances had fixed rates. Of the balances outstanding at December 31, 2005, $1.9 billion were callable by the FHLB. If called, these FHLB advances are convertible by
AmSouth. The convertible feature provides that after a specified date in the future, the advances will remain at a fixed rate, or AmSouth will have the option to either pay off the advance or convert from a fixed rate to a variable rate based on a
LIBOR index. In 2005, AmSouth prepaid approximately $1.63 billion of FHLB advances and recognized gains of approximately $17.7 million. In 2004, AmSouth prepaid $1.25 billion in FHLB advances and incurred a prepayment cost of $129.6 million. Under
the Blanket Agreement for Advances and Security Agreement with the FHLB, residential first mortgage loans and equity lines and loans are pledged as collateral for the FHLB advances outstanding. See Note 4 for loans pledged to the FHLB at
December 31, 2005 and 2004. The 6.45% Subordinated Notes Due February 2018 were issued with embedded put and call options that could
require AmSouth Bank to repurchase the notes at face value on February 1, 2008. If AmSouth Bank does not repurchase


the debt, the interest rate on the notes will be reset on February 1, 2008, based on a set formula. The 6.125% Subordinated Notes Due March 2009 may be
redeemed by AmSouth prior to March 1, 2009, at the greater of 100% of the principal amount or an amount based on a preset formula. The 6.75% Subordinated Debentures Due November 2025 were redeemable on November 1, 2005, at the option of
the registered holders thereof; however, these Subordinated Debentures were not redeemed on this date and therefore are no longer redeemable prior to maturity. All other Subordinated Notes and the Senior Notes are not redeemable prior to maturity. At December 31, 2005 and 2004, long-term securities sold under agreements to repurchase consisted of agreements to repurchase $1.88
billion and $622.9 million of Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) securities. These securities have been delivered to the counterparty and are classified as available-for-sale and
held-to-maturity. At December 31, 2005 and 2004, these agreements had a weighted-average interest rate of 3.93% and 3.36%, respectively, and a carrying amount of $1.87 billion and $621.8 million, respectively. The aggregate stated maturities of long-term debt outstanding at December 31, 2005, are summarized as follows:




(In thousands)

FHLB Advances

Other Long-Term Debt2006

$
-0-

$
451,1942007


745


1,400,0002008


190,000


104,4852009


250,000


238,0112010


400,000


546,815Thereafter


1,117,985


1,285,436$
1,958,730

$
4,025,941




98



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



AmSouth uses interest rate
swaps to hedge the change in fair value of Subordinated Notes and the cash flows associated with other long-term debt as part of its interest rate management strategy. Interest rate swaps hedging the fair value of Subordinated Notes require AmSouth
to pay variable interest rates based on a LIBOR index. The weighted-average interest rates on other long-term debt including the effect of interest rate swaps were 4.00%, 2.74% and 3.09% during the years ending December 31, 2005, 2004 and 2003,
respectively. See Note 19 for further discussion of AmSouths use of interest rate swaps. At December 31, 2005 and 2004, unused
capacity under AmSouths shelf registration statement filed with the Securities and Exchange Commission totaled $325 million. This shelf registration can be utilized by AmSouth to issue senior or subordinated debt securities up to the available
capacity. NOTE 11  SHAREHOLDERS EQUITY AmSouth offers a Direct Stock Purchase and Dividend Reinvestment Plan, whereby investors can purchase shares of common stock directly from AmSouth and reinvest dividends to acquire shares of common stock. Shareholders
may invest additional cash up to $10,000 per transaction and $120,000 in any calendar year with no brokerage commissions or fees charged. AmSouth has a Stockholder Protection Rights Agreement, which attaches a Right to every common share outstanding. Each Right entitles its registered holder, upon occurrence of certain events, to purchase from AmSouth one one-thousandth of a
share of Series A Preferred Stock, without par value, for $88.89, subject to adjustment for certain events. The Rights will be exercisable only if a person or group acquires 15% or more of AmSouths common stock or commences a tender offer that
will result in such person or group owning 15% or more of AmSouths common stock. The Rights may be redeemed by action of the Board for $.0044 per Right. On September 19, 2001, AmSouths Board of Directors approved a plan to repurchase up to 25,000,000 shares of the Companys outstanding common stock over a two-year period. During 2003 and 2002, AmSouth
purchased 7,672,000 and 13,274,000 shares, respectively, at a cost of $156.9 million and $272.1 million, respectively, under this authorization. This authorization expired in the third quarter of 2003.


On
April 17, 2003, AmSouths Board of Directors approved a plan to repurchase up to 25,000,000 shares of the Companys outstanding common stock. The common shares may be repurchased in the open market or in privately negotiated
transactions. The reacquired common shares will be held as treasury shares and may be reissued for various corporate purposes, including employee benefit programs. During 2005, 2004 and 2003, AmSouth repurchased 13,713,000, 2,134,000 and 291,000
shares, respectively, at a cost of $358.9 million, $51.0 million and $6.2 million, respectively, which were primarily executed under this authorization. At December 31, 2005, there were 1,856,000 shares reserved for issuance under the Direct Stock Purchase and Dividend Reinvestment Plan, 52,513,000 shares reserved for issuance under stock compensation plans
(35,693,000 shares represent stock options outstanding), 931,000 shares reserved under the AmSouth deferred compensation plans, and 864,000 shares reserved for issuance under the employee stock purchase plan, for a total of 56,164,000 shares. In 2005, AmSouth increased its dividend per share to $1.01 per common share, compared to $0.97 in 2004 and $0.93 in 2003. NOTE 12  REGULATORY REQUIREMENTS AND RESTRICTIONS Capital is the primary tool used by regulators to monitor the financial health of insured banks and savings institutions. The Federal Reserve Board and the Federal Deposit Insurance Corporation have historically had similar capital adequacy
guidelines involving minimum leverage capital and risk-based capital requirements. Under the capital adequacy guidelines and the regulatory framework for prompt corrective action, AmSouth and its banking subsidiary must meet specific capital
guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings and other factors. Based on the risk-based capital rules and definitions prescribed by the banking regulators, should an institutions capital ratios decline below predetermined levels, it would
become subject to a series of increasingly restrictive regulatory actions. AmSouth and its subsidiary bank are required to have core capital (tier 1) of at least 4% of risk-weighted assets, total capital of 8% of risk-weighted assets




99



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



and a leverage ratio of 3% of adjusted quarterly average assets. Tier 1 capital consists principally of shareholders equity, excluding unrealized gains
and losses on available-for-sale securities and the effective portion of cash flow hedges, less goodwill and certain other intangibles. Total capital consists of tier 1 capital plus certain debt instruments and the allowance for credit losses,
subject to limitation. The leverage ratio reflects tier 1 capital divided by average assets for the quarter. Average assets used in the calculation exclude goodwill and certain other intangibles. The regulations also define


well-capitalized levels of tier 1 capital, total capital and leverage as ratios of 6%, 10% and 5%, respectively, for banking entities. AmSouths banking
subsidiary had tier 1 capital, total capital and leverage ratios above the well-capitalized levels at December 31, 2005 and 2004. Management believes that no changes in conditions or events have occurred since December 31, 2005, which
would result in changes that would cause AmSouth Bank to fall below the well-capitalized level. The actual capital ratios and amounts for
AmSouth and AmSouth Bank at December 31 are as follows:




2005


2004(Dollars in thousands)

Amount

Ratio


Amount

RatioTIER 1 CAPITAL:AmSouth

$
3,466,234

7.81
%

$
3,323,938

8.05
%AmSouth Bank


3,804,539

8.58



3,507,133

8.49TOTAL CAPITAL:AmSouth


5,061,226

11.40



4,514,004

10.93AmSouth Bank


5,144,545

11.60



4,557,365

11.04LEVERAGE:AmSouth


3,466,234

6.74



3,323,938

6.73AmSouth Bank


3,804,539

7.41



3,507,133

7.10




In October 2004, AmSouth entered into a deferred prosecution agreement with the U.S.
Attorney for the Southern District of Mississippi relating to deficiencies in AmSouth Banks reporting of suspicious activities under the Bank Secrecy Act. As of October 2005, AmSouth had fully complied with the requirements of the deferred
prosecution agreement and the agreement was dismissed. Also in October 2004, AmSouth entered into a cease and desist order with the Federal Reserve and the Alabama Department of Banking, as well as an order with the Financial Crimes Enforcement
Network, in connection with deficiencies in AmSouth Banks reporting of suspicious activities under the Bank Secrecy Act. AmSouths banking subsidiary is required to maintain reserve balances with the Federal Reserve Bank based on a percentage of deposits reduced by its cash on hand. The average amount of those reserves was approximately $12,815,000 and
$12,973,000 for the years ended December 31, 2005 and 2004, respectively. Certain restrictions exist regarding the ability of banking
subsidiaries to transfer funds to the parent Company as


loans, advances or dividends. The subsidiary bank can initiate dividend payments in 2006, without prior regulatory approval, of an amount equal to
approximately $479.4 million plus its net profits for 2006, as defined by statute. Substantially all of the parent Companys retained earnings at December 31, 2005 and 2004 represented undistributed earnings of its banking subsidiary. NOTE 13  COMPREHENSIVE INCOME Comprehensive income is the total of net income and all other non-owner changes in equity. Items that are to be recognized under accounting standards as components of comprehensive income are displayed in the consolidated statements of
shareholders equity. In the calculation of comprehensive income, certain reclassification adjustments are made to avoid
double-counting items that are displayed as part of net income for a period that also had been displayed as part of other comprehensive income in that period or earlier periods.




100



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The disclosure of the reclassification amount for the years ended December 31 is as follows:



2005(In thousands)

Before Tax


Tax Effect


Net of TaxNet income

$
1,054,581


$
(328,876
)

$
725,705Net unrealized holding gains and losses onavailable-for-sale securities arising during the period


(112,658
)


42,899



(69,759
)Less: reclassification adjustments for net securities gains realized in net income


4,772



(1,794
)


2,978Net change in unrealized gains and losses on available-for-sale securities


(117,430
)


44,693



(72,737
)Net unrealized holding gains and losses on derivatives arising during the period


(5,669
)


2,122



(3,547
)Less: reclassification adjustments for losses realized in net income


(5,314
)


1,998



(3,316
)Net change in unrealized gains and losses on derivative instruments


(355
)


124



(231
)Additional minimum pension liability adjustment


(538
)


(126
)


(664
)Comprehensive income

$
936,258


$
(284,185
)

$
652,0732004Before Tax


Tax Effect


Net of TaxNet income

$
923,479


$
(299,981
)

$
623,498Net unrealized holding gains and losses on available-for-sale securities arising during the period


(7,510
)


3,293



(4,217
)Less: reclassification adjustments for net securities gains realized in net income


26,620



(10,329
)


16,291Net change in unrealized gains and losses on available-for-sale securities


(34,130
)


13,622



(20,508
)Net unrealized holding gains and losses on derivatives arising during the period


8,244



(3,222
)


5,022Less: reclassification adjustments for gains realized in net income


12,944



(4,867
)


8,077Net change in unrealized gains and losses on derivative instruments


(4,700
)


1,645



(3,055
)Additional minimum pension liability adjustment


(6,268
)


2,357



(3,911
)Comprehensive income

$
878,381


$
(282,357
)

$
596,0242003Before Tax


Tax Effect


Net of TaxNet income

$
891,136


$
(265,015
)

$
626,121Net unrealized holding gains and losses on available-for-sale securities arising during the period


(129,813
)


54,639



(75,174
)Less: reclassification adjustments for net securities gains realized in net income


44,862



(16,868
)


27,994Net change in unrealized gains and losses on available-for-sale securities


(174,675
)


71,507



(103,168
)Net unrealized holding gains and losses on derivatives arising during the period


(25,970
)


8,504



(17,466
)Less: reclassification adjustments for gains realized in net income


22,491



(8,457
)


14,034Net change in unrealized gains and losses on derivative instruments


(48,461
)


16,961



(31,500
)Additional minimum pension liability adjustment


(13,704
)


5,153



(8,551
)Comprehensive income

$
654,296


$
(171,394
)

$
482,902




101



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 14  EARNINGS PER COMMON SHARE

The following table sets forth the computation of earnings per common share and diluted earnings per common share for the years ended December 31:



(Dollars in thousands)

2005

2004

2003EARNINGS PER COMMON SHARE COMPUTATION:Numerator:Net income

$
725,705

$
623,498

$
626,121Denominator:Weighted-average common shares outstanding


350,130


352,533


350,237Shares issuable under deferred compensation arrangements


572


151


-0-Weighted-average common shares outstanding  basic


350,702


352,684


350,237Earnings per common share

$
2.07

$
1.77

$
1.79DILUTED EARNINGS PER COMMON SHARE COMPUTATION:Numerator:Net income

$
725,705

$
623,498

$
626,121Denominator:Weighted-average common shares outstanding


350,130


352,533


350,237Shares issuable under deferred compensation arrangements


572


151


-0-Dilutive effect of stock options and restricted stock


4,852


5,268


4,071Weighted-average common shares outstanding  diluted


355,554


357,952


354,308Diluted earnings per common share

$
2.04

$
1.74

$
1.77




The effect from assumed exercise of 918,000, 960,000 and 2.8 million stock
options was not included in the above computation of diluted earnings per common share for 2005, 2004 and 2003, respectively, because such amounts would have had an antidilutive effect on earnings per share. NOTE 15  LONG-TERM INCENTIVE COMPENSATION PLANS AmSouth has long-term incentive compensation plans which permit the granting of incentive awards in the form of stock options, restricted stock awards and stock appreciation rights (at December 31, 2005, 2004 and 2003, there were no
stock appreciation


rights outstanding). 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 granted generally vest between one and three years from the date of the grant, which is determined on the grant date by the Human Resources Committee of the Board of Directors.
All of the options granted during 2005, 2004 and 2003 expire ten years from the date of grant. All other options granted generally expire no later than ten years from the date of the grant.




102



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Statement 123 requires pro forma information regarding net income and earnings per share (refer to
Note 1). This pro forma information has been determined as if AmSouth had accounted for its employee stock options under the fair value method of that statement. The fair value of these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average assumptions for the years ended December 31:



2005

2004

2003Risk-free rate

3.61%

3.92%

3.81%Dividend yield

3.95%

3.99%

4.49%Volatility factor

21.57%

30.88%

31.40%Expected life

4.2 years

7.0 years

7.0 yearsFair value

$3.60

$5.69

$4.49


The following table
summarizes AmSouths stock option activity and related information during 2003, 2004 and 2005:



Number of Options


Range ofExercise Prices

Weighted-AverageExercise PriceBalance at January 1, 2003

26,843,297


$
5.14 -32.92

$
18.43Options exercised

(5,161,082
)


5.14 - 22.55


15.48Options forfeited

(1,331,716
)


6.23 - 31.21


19.58Options granted

9,392,150



19.31 - 23.96


20.53Balance at December 31, 2003

29,742,649



6.34 - 32.92


19.56Options exercised

(5,052,627
)


6.34 - 24.69


17.69Options forfeited

(1,629,468
)


8.12 - 26.32


21.31Options granted

9,174,000



22.02 - 26.67


24.31Balance at December 31, 2004

32,234,554



7.75 - 32.92


21.09Options exercised

(3,763,449
)


7.75 - 26.32


19.53Options forfeited

(1,524,343
)


7.75 - 26.71


23.03Options granted

8,746,150



24.94 - 27.91


25.61Balance at December 31, 2005

35,692,912



10.80 - 32.92


22.28




Of the options outstanding at December 31, 2005, those options granted since January 1, 2003 had an original vesting period of three years from
the date of grant. However, on December 29, 2005, AmSouths Board of Directors approved a resolution that caused all unvested, outstanding options to immediately vest. Thus, all options outstanding at December 31, 2005 were
exercisable. At December 31, 2005, 2004 and 2003, exercisable options totaled 35,692,912, 16,309,744 and 15,456,677, respectively, and had weighted-average exercise prices per share of $22.28, $19.67 and $18.70, respectively.



103



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The following table presents the weighted-average remaining life as of December 31, 2005, for options outstanding within the stated exercise price
ranges.



Outstanding and ExercisableRange of Exercise Prices

Number ofOptions

Weighted-Average Exercise Price

Weighted-AverageRemaining Life$10.80 - $15.80

498,906

$
13.98

1.09 years16.06 -   19.88

4,935,209


16.90

4.87 years20.14 -   26.19

28,689,446


23.04

7.55 years26.26 -   32.92

1,569,351


27.99

5.59 years


AmSouth also has
issued common stock as restricted stock awards to key officers, with the restriction that they remain employed with AmSouth for periods of one to three years or longer. The following table summarizes AmSouths restricted stock grants and the
weighted-average fair values at grant date for the years ended December 31:



2005

2004

2003Restricted stock granted


327,437


193,426


102,438Weighted-average fair value of restricted stock granted during the year

$
25.61

$
24.89

$
20.83




NOTE 16  PENSION AND OTHER EMPLOYEE BENEFIT PLANS AmSouth sponsors the Retirement Plan, a noncontributory defined benefit pension plan (the pension plan), covering substantially all regular full-time
employees and part-time employees who regularly work one thousand hours or more each year. Benefits are generally based on years of service and the employees earnings during the five consecutive calendar years out of the last ten years of
employment that produce the highest average. Actuarially determined pension costs are charged to current operations using the projected unit credit method. AmSouths funding policy is to contribute an amount that meets the minimum funding
requirements set forth in the Employee Retirement Income Security Act of 1974, plus such additional allowable amounts as the Company determines to be appropriate. AmSouth also sponsors a nonqualified Supplemental Executive Retirement Plan (the SERP). The SERP provides benefits that would otherwise be denied to participants under the pension plan because of Internal Revenue Code
limitations on qualified plan benefits, as well as additional benefits that serve to attract and retain senior executives.


There are two types of retirement benefits in the SERP: a regular benefit and a targeted benefit. The annual average covered compensation for both benefits
is based on the highest three consecutive years of base salary, plus bonus, out of the last ten years worked. The amount of the regular SERP retirement benefit is determined by the length of the retirees credited service up to 35 years.
Participants vest in this benefit after five years of service or attainment of age 55. The regular SERP benefit is available to all eligible SERP participants. The targeted SERP retirement benefit is available only to a select group of senior
officers, including executive officers. The targeted SERP benefit provides a percentage of annual average covered compensation based on years of credited service ranging from 40% at 10 years up to a maximum of 65% at 35 years. Costs associated with
the SERP are charged to current operations based on actuarial calculations. In addition to pension benefits, AmSouth provides
postretirement medical plans to all current employees who retire between the ages of 55 and 65 with five calendar years of service and provides certain retired and grandfathered retired participants with postretirement healthcare benefits past age
65. Postretirement life insurance is also




104



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



provided to a grandfathered group of employees and retirees. Costs associated with these postretirement benefit plans are charged to current operations based
on actuarial calculations. On December 8, 2003, the President signed the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the Act) into law. The Act introduces a prescription drug benefit under Medicare (Medicare Part D) as
well as a federal subsidy to sponsors of retiree healthcare benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D.


The assumptions and measures contained in this note relating to the
postretirement benefit plans do not reflect any amount associated with the subsidy because AmSouth amended its postretirement medical plan and, beginning January 1, 2006, AmSouth will not provide any benefits that will qualify for this subsidy. AmSouth uses a September 30 measurement date for its plans. The following table summarizes the change in benefit obligation, plan
assets and the funded status of the pension and other postretirement plans at September 30, 2005 and 2004:




Retirement Plans


Other Postretirement Benefits(In thousands)

2005


2004


2005


2004CHANGE IN BENEFIT OBLIGATION:Benefit obligation at beginning of period

$
807,717


$
712,280


$
40,815


$
41,922Service cost


26,801



21,433



1,032



807Interest cost


46,280



42,057



2,281



2,324Amendments


-0-



4,922



(14,891
)


-0-Actuarial loss (gain)


43,626



59,683



(6,446
)


(592
)Benefits and expenses paid


(33,765
)


(32,658
)


(3,046
)


(3,646
)Benefit obligation at end of period

$
890,659


$
807,717


$
19,745


$
40,815CHANGE IN PLAN ASSETS:Fair value of plan assets at beginning of period

$
784,298


$
710,322


$
4,346


$
4,516Actual return on plan assets


104,406



80,717



76



55Employer contributions


690



25,917



-0-



-0-Benefits and expenses paid


(33,765
)


(32,658
)


(229
)


(225
)Fair value of plan assets at end of period


855,629



784,298



4,193



4,346Funded status


(35,030
)


(23,419
)


(15,552
)


(36,469
)Unrecognized actuarial loss


288,347



310,330



7,547



15,123Unamortized prior service cost (credit)


3,913



4,055



(19,416
)


(5,396
)Unrecognized net transition obligation


1,155



1,348



304



348Prepaid (accrued) benefit cost at September 30

$
258,385


$
292,314


$
(27,117
)

$
(26,394
)Employer contributions from October 1 to December 31


6,007



170



710



759Prepaid (accrued) benefit cost at December 31

$
264,392


$
292,484


$
(26,407
)

$
(25,635
)AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS:Prepaid benefit cost

$
304,542


$
323,005


$
-0-


$
181Accrued benefit liability


(66,807
)


(57,649
)


(26,407
)


(25,816
)Intangible asset


6,147



7,156



-0-



-0-Other comprehensive income


20,510



19,972



-0-



-0-Net amount recognized

$
264,392


$
292,484


$
(26,407
)

$
(25,635
)




105



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The accumulated benefit obligation for all defined benefit pension plans was $817,698,000 and
$747,878,000 as of September 30, 2005 and 2004, respectively.

Information for the SERP, which has an accumulated benefit obligation
in excess of plan assets, as of September 30:



SERP(In thousands)

2005

2004Projected benefit obligation

$
77,029

$
65,277Accumulated benefit obligation


66,807


57,649Fair value of plan assets


-0-


-0-


Net periodic benefit
cost (credit) includes the following components for the years ended December 31:



Retirement Plans


Other Postretirement Benefits(In thousands)

2005


2004


2003


2005


2004


2003Service cost

$
26,801


$
21,433


$
18,813


$
1,032


$
807


$
854Interest cost


46,280



42,057



40,118



2,281



2,324



2,513Expected return on plan assets


(65,853
)


(64,793
)


(61,346
)


(205
)


(213
)


(239
)Amortization of prior service cost (credit)


142



46



(300
)


(871
)


(870
)


(870
)Amortization of transitional obligation (asset)


193



192



192



44



43



43Recognized actuarial loss


27,056



16,113



1,633



980



1,030



1,038Net periodic benefit cost (credit)

$
34,619


$
15,048


$
(890
)

$
3,261


$
3,121


$
3,339


Assumptions used to
determine benefit obligations at September 30 (the measurement date):



Retirement Plans


Other Postretirement Benefits2005


2004


2005


2004Weighted-average discount rate

5.75
%

5.85
%

5.30
%

5.85
%Rate of annual compensation increase

5.00


5.00


N/A


N/A




106



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Assumptions used to determine net periodic benefit cost (credit) for the years ended
December 31:



Retirement Plans


Other Postretirement Benefits2005


2004


2003


2005


2004


2003Weighted-average discount rate

5.85
%

6.00
%

6.65
%

5.85
%

6.00
%

6.65
%Weighted-average expected long-term rate of return on plan assets

8.50


8.50


8.75


5.00


5.00


5.50Weighted-average rate of annual compensation increase

5.00


4.13


4.40


N/A


N/A


N/A


The overall long-term,
weighted-average expected rate of return on plan assets for determining net periodic benefit cost (credit) for 2005 was chosen by AmSouth from a range of best estimates based upon the anticipated long-term returns and long-term volatility for asset
categories based on the target asset allocation of the plans.

The following table summarizes the estimated benefits to be paid in the
following periods:



(In thousands)

Retirement Plans

Other Postretirement Benefits2006

$
34,365

$
2,0362007


36,100


1,9222008


39,257


1,8502009


41,356


1,8862010


44,033


1,9212011-2015


272,855


9,134


The expected benefits
above were estimated based on the same assumptions used to measure AmSouths benefit obligation at September 30, 2005, and include benefits attributable to estimated future employee service.



107



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



For measurement purposes, the increase in the per capita cost of covered healthcare benefits varies by medical benefit and date of retirement. For the
majority of participants, AmSouths subsidies for all medical benefits are capped at a level dollar amount. For a grandfathered group of retirees, the rates are graded, starting at 10.00% in 2005 and dropping to an ultimate rate of 5.00% in ten
years. Assumed healthcare cost trend rates have an insignificant effect on the costs and the liabilities reported for the healthcare plan.

A one-percentage point change in assumed healthcare cost trend rates would have the following effects:



(In thousands)

1-PercentagePoint Increase

1-PercentagePoint DecreaseEffect on total of service cost and interest cost components

$
20

$
(20
)Effect on postretirement benefit obligation


147


(143
)


AmSouths pension
plan weighted-average asset allocations at September 30, by asset category, are as follows:



2005


2004ASSET CATEGORY:Domestic equity securities

49
%

50
%International equity securities

17


14Debt securities

32


32Other

2


4100
%

100
%






The pension
plan is invested in a diversified manner to provide consistent returns. The targeted asset allocation for the pension plan is 65% in equities and 35% in bonds. The equity portion is targeted at 25% large cap domestic stocks, 15% small/mid cap
domestic stocks, 15% international stocks, 5% real estate investment trusts and 5% hedge funds. The equity portion of the pension plan is diversified among managers and styles. The pension plan has a portion of its investments in AmSouth common stock. The number of shares was 1,080,307, representing approximately 3% of plan
assets at September 30, 2005 and 2004. The market value of the common stock was $27,289,000 and $26,359,000, respectively,


as of September 30, 2005 and 2004. Dividends paid on the AmSouth common stock totaled $1,080,000, $1,026,000 and $983,000 during the plan years ended
September 30, 2005, 2004 and 2003, respectively. At September 30, 2005 and 2004, AmSouths other postretirement benefit
plans were invested 100% in fixed income securities. The primary objective of this strategy is preservation of principal to meet future insurance policy premiums. The target asset allocations are 90% to 100% fixed income with the remainder in cash. AmSouth expects to make contributions of approximately $1.0 million to the SERP and approximately $1.5 million to its other postretirement
benefit plans in 2006.




108



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



OTHER PLANS The AmSouth Thrift Plan (the thrift
plan) is a defined contribution plan that covers substantially all regular full-time employees and part-time employees who regularly work one thousand hours or more each year. The thrift plan utilizes a thrift formula and contains a cash or deferred
arrangement under Internal Revenue Code Section 401(k). AmSouth matches pre-tax contributions dollar for dollar on the first 4% of base pay that each employee contributes to the thrift plan. After-tax contributions to the thrift plan are
matched at 50 cents for every dollar contributed by an employee through the first 4% of base pay. Employees may make both pre-tax and after-tax contributions, but no matching contributions are made on any employee contributions above 4%, with
pre-tax contributions being matched first. Prior to January 1, 2005, company-matching contributions were dollar for dollar matching on the first 6% of base pay contributed to the thrift plan. All company-matching contributions are made in
AmSouth common stock and are allocated to the AmSouth common stock investment option. Participants are allowed to transfer company-matching contributions out of the AmSouth common stock investment option to other investment options at any time. The
cost of the thrift plan for the years ended December 31, 2005, 2004 and 2003 was $12.9 million, $17.9 million and $16.8 million, respectively. The thrift plan held 7,131,542 and 6,922,325 shares of AmSouth common stock at December 31, 2005
and 2004, respectively. For the years ended December 31, 2005, 2004 and 2003, the thrift plan received $7,006,000, $6,657,000 and $6,251,000, respectively, in dividends on AmSouth common stock. The AmSouth Bancorporation Employee Stock Purchase Plan (the employee stock purchase plan) allows all employees who work more than 20 hours per week to
purchase shares of AmSouth common stock. Under the employee stock purchase plan, an employee may invest up to $2,000 each calendar year in purchases of AmSouth common stock, and AmSouth will contribute a matching 25% toward the purchase.
Participants are immediately vested in the company match. Additional purchases of up to $8,000 may be made on an unmatched basis with no administrative or brokerage fees charged. The cost of the employee stock purchase plan for the years ended
December 31, 2005, 2004 and 2003


was $825,000, $842,000 and $660,000, respectively. Under the employee stock purchase plan, 171,583, 172,957 and 185,070 shares of AmSouth common stock were
purchased during 2005, 2004 and 2003, respectively, with weighted-average fair values of $24.17, $21.26 and $20.47, respectively. Refer to Note 11 for shares reserved for issuance under the employee stock purchase plan. AmSouth maintains a deferred compensation plan, which was amended and restated as of January 1, 2005. A select group of members of Management and
highly compensated employees are eligible to participate. Under the deferred compensation plan, a participant may elect to defer a portion (from 25% to 100%) of his or her annual bonus into a deferred account. The deferral election must specify a
payment date, which may not be sooner than the third anniversary of the first day of the plan year to which the deferral relates. Contributions to the deferred compensation plan are deemed to mirror the participants thrift plan elections and
distributions are made in cash. Prior to January 1, 2005, the cash amount of the bonus being deferred was exchanged for an equivalent number of deemed shares of AmSouth common stock based on the fair market value of such stock. That
number of shares of AmSouth common stock will be distributed to the participant on the selected payment date. The participant may elect to have all payments distributed in a lump sum or in installments, but must make such election in advance of the
deferral. AmSouth also has a deferred compensation plan for directors of AmSouth Bancorporation. Under the directors deferred compensation plan, a director may elect to defer all or a portion of his or her retainer fee and all of his or her
meeting fees. Amounts deferred are exchanged for an equivalent number of deemed shares of AmSouth common stock based on the fair market value of such stock. That number of shares will be distributed to the director on the payment date
selected by the director, which may be at retirement, termination of services as a director, or at an age specified by the director. Such elections must be made prior to deferral and are irrevocable. All deferred amounts for both deferred
compensation plans are fully vested and are not subject to forfeiture. The shares of AmSouth common stock held by the deferred compensation plans are considered outstanding for purposes of calculating basic and diluted earnings per share.




109



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



AmSouth maintains an executive incentive plan and a management incentive plan (the incentive plans), which are designed to align Executive Officer pay, as
well as the pay of certain members of Management, with the annual performance of AmSouth and the annual performance of the respective area of responsibility, as applicable. Traditionally, the two factors which have been used to measure
AmSouths performance for purposes of the incentive plans were growth in earnings per share and return on average equity. The Human Resources Committee of the Board of Directors may also evaluate performance for purposes of the incentive


plans by considering one or more factors (e.g., return on average assets, credit quality measures, efficiency ratio, loan growth, deposit growth, or
noninterest revenue growth). Payments under the incentive plans are based on a percentage of the employees base pay, multiplied by a factor based on the Companys results or the employees performance rating. The Human Resources
Committee may use its discretion to adjust payments downward from these amounts. The expense associated with the incentive plans was $18.2 million, $25.9 million and $25.1 million for the years ended December 31, 2005, 2004 and 2003,
respectively.




NOTE 17  OTHER NONINTEREST
REVENUES AND OTHER NONINTEREST EXPENSES

The components of other noninterest revenues and other noninterest expenses for the years ended
December 31 are as follows:



(In thousands)

2005

2004

2003OTHER NONINTEREST REVENUES:Interchange income

$
91,450

$
77,642

$
67,404Commercial credit fee income


47,497


42,648


45,332Bank owned life insurance policies


43,272


48,417


52,216Mortgage income


16,701


21,192


51,181Net gain on sale of assets


44,007


166,103


-0-Gains on sales of available-for-sale securities


4,772


26,620


44,862Other


111,390


75,447


83,771$
359,089

$
458,069

$
344,766OTHER NONINTEREST EXPENSES:Professional fees

$
41,368

$
41,732

$
32,579Postage and supplies


40,241


45,191


47,050Marketing


35,246


38,392


36,504Communications


24,338


24,151


28,218Settlement agreements and related professional fees


-0-


53,972


-0-FHLB prepayment cost


-0-


129,648


-0-Other


172,584


177,214


172,201$
313,777

$
510,300

$
316,552




110



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 18  INCOME TAXES

The provisions for income taxes charged to earnings are summarized for the years ended December 31 as follows:



(In thousands)

2005

2004

2003CURRENT TAX EXPENSE:Federal

$
168,609

$
94,028

$
18,855State


8,328


2,951


2,406176,937


96,979


21,261DEFERRED TAX EXPENSE:Federal


125,826


172,691


216,467State


26,113


30,311


27,287151,939


203,002


243,754$
328,876

$
299,981

$
265,015


The differences
between the actual income tax expense and the amount computed by applying the statutory federal income tax rate to income before income taxes for the years ended December 31 are as follows:



(In thousands)

2005


2004


2003Tax at statutory federal income tax rate

$
369,103


$
323,218


$
311,897State and local income taxes, net of federal benefits


22,387



21,620



19,300Tax exempt interest


(8,678
)


(8,302
)


(8,317
)Bank owned life insurance income


(18,367
)


(20,184
)


(21,552
)Penalty


-0-



17,500



-0-Lease residual option benefit


(13,627
)


(14,058
)


(15,005
)Tax credits


(17,983
)


(14,566
)


(8,254
)Other


(3,959
)


(5,247
)


(13,054
)$
328,876


$
299,981


$
265,015




111



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The significant temporary differences that created deferred tax assets and liabilities at
December 31 are as follows:



(In thousands)

2005


2004DEFERRED TAX ASSETS:Loan loss reserves

$
140,583


$
140,225Mortgage servicing rights


-0-



14,459State net operating loss carryforwards


15,695



18,785Statement 115 equity adjustment


58,020



13,324Statement 133 equity adjustment


13,612



13,488Other


35,102



27,874263,012



228,155DEFERRED TAX LIABILITIES:Leasing activities


(1,369,356
)


(1,237,824
)Depreciation


(28,761
)


(9,355
)Employee benefits


(55,786
)


(67,212
)Other


(33,269
)


(32,025
)(1,487,172
)


(1,346,416
)Net deferred tax liability

$
(1,224,160
)

$
(1,118,261
)




AmSouth has a deferred state tax asset of $15.7 million resulting from net operating
loss carryforwards. These carryforwards expire between 2006 and 2024. There was no valuation allowance recorded in 2005 because it is more likely than not that all deferred tax assets will be realized. AmSouths federal and state income tax returns are subject to review and examination by government authorities. In the normal course of these
examinations, AmSouth is subject to challenges from federal and state authorities regarding amounts of taxes due. These challenges may alter the timing or amount of taxable income or deductions, or the allocation of income among tax jurisdictions.
AmSouth is currently under examination by a number of states in which it does business. AmSouth is also under examination by the Internal Revenue Service (IRS) for the years ended December 31, 2000 through December 31, 2002. AmSouth is
currently at IRS Appeals on the issues raised in the IRS examination for the years ended December 31, 1998, September 30, 1999 and December 31, 1999 related to leveraged lease transactions.


AmSouth has
certain leasing transactions that are accounted for as leveraged leases under the guidance of Statement of Financial Accounting Standards No. 13, Accounting for Leases (Statement 13). Under Statement 13, the net investment recorded
for leveraged leases on the consolidated balance sheet represents the present value of the net cash flows from the leases, including tax-related cash flows. Total income is recognized proportionately over the term of a leveraged lease in each year
in which the net investment in the lease is positive. In connection with the IRS examination previously mentioned, the IRS issued Notices of Proposed Adjustments with respect to AmSouths tax treatment of certain leveraged lease transactions
that were entered into during the years under examination. Management believes that AmSouths treatment of these leveraged lease transactions was in compliance with existing tax case law, applicable statutes and regulations in effect at the
time these transactions were entered into and intends to vigorously defend its position.




112



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



If AmSouth were to settle with the IRS on these Notices of Proposed Adjustments, such a settlement would not have a material impact to the consolidated
financial statements based upon accounting guidance currently in effect. Under Statement 13, any changes in estimates or assumptions that do not affect total net income for a lease do not affect the timing of income recognition. However, the FASB
has recently issued two proposals that, if adopted as currently drafted, would change current accounting guidance. On July 14, 2005,
the FASB issued an Exposure Draft of a proposed Interpretation, Accounting for Uncertain Tax Positions  an interpretation of FASB Statement No. 109 (the Interpretation), proposing guidance on the recognition and
measurement of certain positions taken in tax return filings as well as the related accrual of interest and penalties and classification of liabilities resulting from these positions. On January 11, 2006, the FASB met to resume deliberations of
the pending Interpretation. The FASB is expected to release its final Interpretation in March or April of 2006. The new proposed effective date is expected to apply to the first fiscal year beginning after December 2006. Also on July 14, 2005, the FASB issued an Exposure Draft of a proposed Staff Position, Accounting for a Change or Projected Change in the
Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease. This Exposure Draft specifies that a change or projected change in the timing of cash flows related to a leveraged lease transaction will result in a recalculation
of the lease model and of the timing and/or amount of income recognized by a lessor for that lease by period. These changes include changes in cash flows related to the timing of deductions and assessments of additional taxes, interest, and/or
penalties as a


result of an actual or expected settlement with the IRS. Such changes in the expected timing of cash flows resulting from changes in the timing of tax
deductions do not result in a reduction of the total net income recognized over the life of the lease. Thus, any current reductions to income previously recognized from the lease would be recognized in future periods. However, a reduction in the
total income earned over the life of the lease does result if there are interest changes and/or penalties related to tax expense. On January 18, 2006, the FASB met to discuss several issues raised during the comment letter process. During the
meeting, the FASB decided the following: 1) an entity should apply the same policy for recognition of tax benefits in a leveraged lease as it uses for uncertain tax positions; 2) an entity will not be required to reassess leveraged lease accounting;
3) an entity must update all assumptions when recalculating a leveraged lease; and 4) an entity should not include interest and/or penalties in the recalculation of a leveraged lease. The FASB is still in deliberations on these proposals and the provisions and effective dates may be subject to change. AmSouth is currently reviewing the
potential impact of their adoption, and adoption under the guidance as currently proposed is expected to have a material impact to the consolidated financial statements at the effective date of adoption. Both proposals would require that any impact
to the consolidated financial statements upon adoption would be recognized as a cumulative effect of a change in accounting principle. As
a result of the resolution of certain other tax matters, AmSouth reduced its tax accrual by $3,000,000, $2,382,000 and $11,725,000 for the years ended December 31, 2005, 2004, and 2003, respectively.




113



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 19  DERIVATIVE FINANCIAL AGREEMENTS AmSouth uses derivative financial instruments to enable it to manage its exposure to changes in interest rates. AmSouth also enters into similar instruments to help customers manage their exposure to interest rate and foreign currency
fluctuations and to finance international activities. Interest rate swaps are agreements to exchange interest payments computed on
notional amounts. Swaps subject AmSouth to market risk associated with changes in interest rates, as well as the credit risk that another party will fail to perform. Forward contracts provide AmSouth and its customers a means of managing the risks of changing interest rates and foreign exchange rates. These contracts represent commitments either to purchase or sell securities,
loans, other money market instruments or foreign currency at a future date and at a specified price. AmSouth is subject to the market risk associated with changes in the value of the underlying financial instrument as well as the credit risk that
another party will fail to perform. The gross contract amount of forward contracts represents the extent of AmSouths involvement. However, those amounts significantly exceed the future cash requirements, as AmSouth intends to close out open
trading positions prior to settlement and thus is subject only to the change in value of the instruments. The gross amount of forward contracts represents AmSouths maximum exposure to credit risk. Market risk resulting from a position in a particular derivative financial instrument may be offset by other balance sheet transactions. AmSouth monitors
overall sensitivity to interest rate changes by analyzing the net effect of potential changes in interest rates on the market value of both derivative and other financial instruments and the related future cash flow streams. Certain derivative
contracts also present credit risk because the counterparty may not meet the terms of the contract. Credit risk, which excludes the effects of any collateral or netting arrangements, is measured as the cost to replace, at current market rates,
contracts in a profitable position. The amount of this exposure is represented by the gross unrealized gains on derivative and foreign exchange contracts. To mitigate credit risk, AmSouth deals exclusively


with counterparties that have high credit ratings. AmSouth also manages the credit risk of counterparty defaults in these transactions by limiting the total
amount of arrangements outstanding, both by individual counterparty and in the aggregate, and by monitoring the size and maturity structure of the derivative portfolio. AmSouth requires collateralization by a counterparty on credit exposure above a
specified credit limit. AmSouth also manages its exposure to credit risk by entering into master netting arrangements with interest rate swap and foreign exchange counterparties. These arrangements effectively reduce credit risk by permitting
settlement, on a net basis, of contracts entered into with the same counterparty. AmSouth has not experienced any material credit losses associated with derivative or foreign exchange contracts. As part of managing interest rate risk, AmSouth uses derivative instruments to mitigate the risk of interest rate movements affecting the value of
certain assets and liabilities or future cash flows. The nature and volume of derivative instruments used by AmSouth to manage interest rate risk related to loans, deposits, short-term debt, and long-term debt depend on the level and type of these
on-balance-sheet items and AmSouths risk management strategies given the current and anticipated interest rate environment. Note 1 to the Consolidated Financial Statements includes a summary of how derivative instruments used for interest rate
risk management are accounted for in the consolidated financial statements. HEDGING STRATEGIES AmSouth has entered into interest rate swap agreements for interest rate risk management purposes. The following table presents the notional amount, fair
value, pay structure, year-to-date ineffectiveness and weighted-average maturity related to the applicable type of hedge. There were no components of derivative instruments which were excluded from the assessment of hedge ineffectiveness during
2005, 2004 or 2003. AmSouths credit exposure related to interest rate swaps used for interest rate risk management purposes was $36.4 million and $43.3 million at December 31, 2005 and 2004, respectively. This amount represents the
mark-to-market on derivative instruments that are in an asset position.




114



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



2005(Dollars in thousands)

NotionalAmount

FairValue


PayStructure

IneffectivenessIncome/ (Expense)


Weighted-AverageMaturityFAIR VALUE HEDGES:Interest rate swaps hedging time deposits

$
33,000

$
(287
)

Variable

$
-0-



0.50
yrsInterest rate swaps hedging long-term debt


850,000


(9,586
)

Variable


-0-



5.35$
883,000

$
(9,873
)



$
-0-CASH FLOW HEDGES:Interest rate swaps hedging loans

$
1,300,000

$
(61,431
)

Variable

$
(4
)


2.44Interest rate swaps hedging long-term bank notes


350,000


4,764


Fixed


9



1.60Interest rate swaps hedging federal funds purchased


1,200,000


20,094


Fixed


(3
)


1.67$
2,850,000

$
(36,573
)



$
22004NotionalAmount

FairValue


PayStructure

IneffectivenessIncome/(Expense)


Weighted-AverageMaturityFAIR VALUE HEDGES:Interest rate swaps hedging time deposits

$
33,000

$
(196
)

Variable

$
-0-



1.50
yrsInterest rate swaps hedging long-term debt


900,000


20,228


Variable


33



6.04$
933,000

$
20,032




$
33CASH FLOW HEDGES:Interest rate swaps hedging loans

$
1,300,000

$
(41,697
)

Variable

$
17



3.45Interest rate swaps hedging long-term bank notes


200,000


1,222


Fixed


7



2.75Interest rate swaps hedging federal funds purchased


1,000,000


9,798


Fixed


(7
)


2.12Forward-starting interest rate swaps hedging the forecasted issuance of long-term debt


450,000


(5,575
)

Fixed


-0-



10.17$
2,950,000

$
(36,252
)



$
17




115



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



In 2003, AmSouth recognized $644,000 and $27,000 in expense related to the ineffective portion of its fair value hedges and cash flow hedges, respectively.
The $1.2 billion of interest rate swap agreements hedging the anticipated reissuance of federal funds purchased at December 31, 2005, referenced in the preceding table, effectively convert a portion of federal funds purchased to a fixed rate.
Approximately $50 million expires in 2006 and $1.15 billion expires in 2007. At December 31, 2005, all designated hedges qualified
for hedge accounting. At December 31, 2004, AmSouth had $100 million in notional value of swaps that no longer qualified for hedge accounting, which matured in 2005 and had previously been designated as fair value hedges of long-term debt.
During 2004, these hedging relationships were determined to no longer be highly effective, and AmSouth ceased hedge accounting on these swaps. During 2005, AmSouth terminated $450 million of forward-starting swaps that had been designated as hedging
the future issuance of subordinated debt. During 2004, AmSouth terminated $600 million of swaps that had been designated as hedging long-term floating-rate bank notes. The amounts related to the effective portion of these hedging relationships will
be amortized into net interest income over the remaining life of the hedged item. Ineffectiveness for both fair value and cash flow hedges is reported in other noninterest revenue. AmSouth designates forward contracts to hedge the fair value of specific pools of mortgage loans held for sale against changes in interest rates. In
addition to the forward contracts treated as hedges, AmSouths derivative portfolio also included forward contracts entered into to offset the impact of changes in interest rates on AmSouths mortgage pipeline designated for future sale,
also referred to as interest rate lock commitments. At December 31, 2005 and 2004, AmSouth had $236.2 million and $112.9 million, respectively, in open forward contracts. AmSouths mortgage banking interest rate lock commitments are also
derivatives. Accordingly, the change in the fair value of the forward contracts entered into to hedge the mortgage pipeline, while not qualifying as hedges, is somewhat offset by changes in the fair value of the mortgage pipeline. The mark-to-market
of the forward contracts, the interest rate lock commitments and mortgage loans held for sale, as well as the impact of hedge


ineffectiveness, was not material to AmSouth in 2005, 2004 or 2003. See Note 1 to the Consolidated Financial Statements for an additional discussion of
AmSouths accounting policy associated with these contracts. During 2006, AmSouth expects to reclassify out of other comprehensive
income and into earnings approximately $7.5 million in expense due to the receipt of variable interest on its hedged variable-rate loans and the payment of interest on its long-term bank notes, federal funds purchased and other long-term debt. CUSTOMER DERIVATIVES In addition to using derivative contracts as an interest rate risk management tool, AmSouth also enters into various derivative instruments to help its commercial customers manage their exposure to interest rate and foreign currency
fluctuations. To mitigate the interest rate risk associated with these customer contracts, AmSouth enters into offsetting derivative contract positions. AmSouth manages its credit risk or potential risk of default by its commercial customers through
credit limit approval and monitoring procedures. Both the derivative contracts entered into with its customers and the offsetting derivative positions are recorded at their estimated fair value. Market value changes on these derivative instruments
are recognized in noninterest revenue in the period of change. At December 31, 2005, AmSouth had $23.4 million recorded in other assets and $23.3 million recorded in other liabilities associated with $4.9 billion notional amount of open
interest rate contracts. At December 31, 2004, AmSouth had $50.3 million recorded in other assets and $50.0 million recorded in other liabilities associated with $4.5 billion notional amount of open interest rate contracts. At December 31,
2005, AmSouth also had $500,000 in recorded asset balances and $455,000 in recorded liability balances associated with $69 million notional amount of open foreign exchange contracts. At December 31, 2004, AmSouth had $166,000 in recorded asset
balances and $116,000 in recorded liability balances associated with $32 million in notional amount of open foreign exchange contracts. The asset balances, or unrealized gains, represent AmSouths credit exposure related to these interest rate
and foreign exchange contracts.




116



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 20  TRANSFERS AND SERVICING OF FINANCIAL ASSETS

During 2005, 2004 and 2003, AmSouth sold commercial loans to third-party, multi-issuer conduits. No gains or losses were recognized on commercial loans
sold to third-party conduits nor was any retained interest recorded, due to the relatively short life of the commercial loans sold into the conduits (average life less than 90 days). In years prior to 2002, AmSouth also sold residential mortgage
loans and dealer loans to third-party, multi-issuer conduits and sold dealer loans and residential mortgage loans in securitization transactions in which AmSouth retained servicing responsibilities. In addition, AmSouth has previously retained an
interest in excess interest spreads and, in some cases, subordinated interests. Refer to Note 23 for further discussion regarding commitments related to conduits.

The following table summarizes amounts recognized in the consolidated financial statements related to guaranteed mortgage loan securitization transactions to federal agencies for the years ended December 31:



(In thousands)

2005

2004(a)

2003Principal sold

$
1,003,746

$
1,228,132

$
1,775,834Net gains


6,157


10,732


28,341Servicing retained


-0-


1,015


-0-  (a)
During 2003, AmSouth sold $65,888,000 in residential mortgages, where AmSouth retained the servicing associated with these mortgages and received $66,941,000 in cash. Due to
recourse provisions of the sale, the transaction was accounted for as a secured borrowing in 2003. The recourse provision lapsed in 2004, at which time AmSouth recorded a gain of $1,138,000 and a servicing asset of $544,000 associated with the
transaction.


The following table summarizes the
key assumptions used in the calculation of retained servicing and the gain or loss on the guaranteed mortgage loan securitization transactions to federal agencies during the years ended December 31:



2005

2004

2003VALUATION ASSUMPTIONS AT THE TIME OF THE TRANSACTIONS:Discount rate

10.50%

9.50%

9.50%Prepayment rate

252 PSA

298 PSA

314 PSAWeighted-average life (years)

7.47

6.39

5.95Expected credit losses

0.35%

0.35%

0.35%


Proceeds from sales in
connection with guaranteed mortgage loan securitizations during 2005, 2004 and 2003 were $1.0 billion, $1.2 billion and $1.8 billion, respectively. All cash flows from servicing fees and retained interests in connection with guaranteed mortgage loan
securitizations and third-party conduits during 2005, 2004 and 2003 represented an immaterial amount. Capitalized mortgage servicing rights and other retained interests were insignificant at December 31, 2005, 2004 and 2003.



117



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AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The following table presents managed loan information for those loan categories in which there have
been loan sales or securitizations where AmSouth had a continuing retained interest at December 31, 2005. This information includes the total principal amount outstanding, the portion that has been derecognized and the portion that continues to
be recognized in the consolidated balance sheets as of December 31, 2005, along with quantitative information about delinquencies and net credit losses. In addition to the sales of loans discussed previously, the following table also includes
mortgage loans which were securitized through real estate mortgage investment conduits (REMICs) in 1998:



(Dollars in millions)

ResidentialFirstMortgages


Equity Loansand Lines


CommercialLoansOutstanding as of December 31, 2005:Loans held in portfolio

$
6,016.2


$
7,859.1


$
11,244.7Loans securitized/sold


452.0



-0-



478.0REMIC (bond portfolio)


27.6



20.1



-0-Total managed loans

$
6,495.8


$
7,879.2


$
11,722.7Total delinquencies as of December 31, 2005

$
195.3


$
85.3


$
128.0Delinquencies as a percent of ending managed loans


3.01
%


1.08
%


1.09
%Net credit losses during 2005

$
2.6


$
13.4


$
51.5Net credit losses as a percent of ending managed loans


0.04
%


0.17
%


0.44
%


NOTE 21  FAIR VALUE OF
FINANCIAL INSTRUMENTS

For purposes of this disclosure, the estimated fair value of financial instruments with immediate and
shorter-term maturities is assumed to be the same as the recorded book value. These instruments include the consolidated balance sheet lines captioned cash and due from banks, other interest-earning assets, federal funds purchased and securities
sold under agreements to repurchase, and other borrowed funds.

The carrying amount and estimated fair value of other financial instruments
at December 31 are summarized as follows:



2005

2004(In thousands)

CarryingAmount

EstimatedFair Value

CarryingAmount

EstimatedFair ValueFINANCIAL ASSETS:Net loans, excluding leases

$
33,526,953

$
34,977,500

$
30,622,263

$
31,682,908Derivative asset positions


26,522


26,522


61,968


61,968FINANCIAL LIABILITIES:Deposits


36,348,382


36,265,226


34,232,779


34,223,048Long-term FHLB advances


1,958,730


2,024,631


4,371,745


4,516,272Other long-term debt


4,025,941


4,049,539


2,899,773


2,893,636Derivative liability positions


74,331


74,331


75,635


75,635




118



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AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Fair value estimates are made at a specific point in time and are based on relevant market information that is continuously changing. Because no quoted
market prices exist for a significant portion of AmSouths financial instruments, fair values for such instruments are based on Managements assumptions with respect to future economic conditions, estimated discount rates, estimates of the
amount and timing of future cash flows, expected loss experience and other factors. These estimates are subjective in nature, involving uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in
the assumptions could significantly affect the estimates. Fair value estimates include certain financial instruments without attempting to
estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, AmSouth has a substantial trust department that contributes net fee income annually. The trust
department is not considered a financial instrument and, therefore, its value has not been incorporated into the fair value estimates. Other significant businesses or assets and liabilities that are not considered financial assets or liabilities
include the mortgage banking operation, brokerage network, premises and equipment and goodwill. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates
and have not been considered in the estimates. As a result, the fair value disclosures should not be considered an indication of the fair value of the Company taken as a whole. The following methods and assumptions were used by AmSouth in estimating the fair value of financial instruments: Loans  The fair value of the loan portfolio, net of leases, was estimated using discounted cash flow calculations, incorporating assumptions
relating to repricing rates and prepayment speeds, where applicable. Securities and Loans Held for Sale  Fair values for
securities and loans held for sale are based on quoted market prices, where available. Where quoted market prices are not available, fair values are based on quoted market prices


of similar instruments, adjusted for any significant differences between the quoted instruments and the instruments being valued. Available-for-sale
securities, trading securities and loans held for sale are carried at their estimated fair value. See Note 3 for estimated fair market value information related to held-to-maturity securities. Derivative Instruments  The fair value of derivatives utilized by AmSouth for interest rate risk management purposes is obtained from
AmSouths in-house pricing system and compared to dealer quotes for reasonableness. These values represent the estimated amount the Company would receive or pay to terminate the contracts or agreements, taking into account current interest
rates and, when appropriate, the current creditworthiness of the counterparties. The fair value of derivative contracts entered into for the benefit of corporate customers is based on counterparty quotes. Deposits  The fair values of indeterminate-maturity deposits, which include noninterest-bearing demand, interest-bearing demand, savings and
money market, and foreign deposits, are the amounts payable on demand (i.e., the carrying amounts). The fair value for time deposits is estimated using a discounted cash flow calculation, incorporating repricing rates where applicable. Long-term Borrowings  The fair values of long-term borrowings are estimated using discounted cash flow calculations. Unused Commitments to Extend Credit and Standby and Commercial Letters of Credit  The estimated fair value of unused commitments to extend
credit and standby and commercial letters of credit is approximated by the fees currently charged to enter into similar arrangements, considering the remaining terms of the agreements and any change in the credit quality of the counterparties since
the agreements were entered into. Thus, fair value approximates carrying value. This estimate of fair value does not take into account the significant value of the customer relationships, as AmSouth does not believe that it would be practicable to
estimate a representational fair value for these relationships. See Note 23 for further discussion of commitments to extend credit and standby and commercial letters of credit.




119



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 22  BUSINESS SEGMENT INFORMATION AmSouth has three reportable segments: Consumer Banking, Commercial Banking and Wealth Management. Each of these units provides unique products and services to a variety of customer groups and has its own management team. Consumer Banking
delivers a full range of financial services to individuals and small businesses, including loan products such as residential mortgages, equity lending, credit cards, and loans for automobile and other personal financing needs, and various products
designed to meet the credit needs of small businesses. Consumer Banking also offers various deposit products that meet customers savings and transaction needs. Commercial Banking meets the requirements of corporate and middle market customers
with a comprehensive array of credit, treasury management, international and capital markets services. Included among these are several specialty services such as real estate finance, asset-based lending and commercial leasing. Wealth Management is
comprised of trust, institutional, retirement, Private Client Services (PCS) and broker-dealer services. This area includes traditional trust services as well as a substantial selection of investment management services. Wealth Management also
includes commercial and consumer loan and deposit products associated with PCS customers. Treasury & Other includes balance sheet
management activities that include the investment portfolio, non-deposit funding and the impact of derivatives used in asset/liability management. Income from bank owned life insurance policies, gains and losses related to the ineffective portion of
derivative hedging instruments, net gains and losses on sales of fixed assets and other assets, taxable-equivalent adjustments associated with lease residual option benefits, the amortization of deposit intangibles, and corporate expenses such as
corporate overhead are included in Treasury & Other. Also included in Treasury & Other is the gain on the sale of AmSouths mutual fund management


unit in 2005, as well as expenses related to the settlement agreements and related professional fees, gains related to the sale of the credit card portfolio,
and expenses related to the prepayment of FHLB advances during 2004. In addition, Treasury & Other includes the reversal of revenues and expenses associated with PCS customers loan and deposit balances to eliminate any double counting
which occurs as a result of including these revenues and expenses in the Wealth Management segment as well as in either the Commercial or Consumer segments. AmSouth evaluates performance and allocates resources based on profit or loss from operations. The accounting policies of the reportable segments are the same as those described in Note 1, except that AmSouth uses
matched maturity transfer pricing to fairly and consistently assign funds costs to assets and earnings credits to liabilities with a corresponding offset in Treasury & Other. AmSouth allocates noninterest expenses to match revenues based on
various activity statistics. AmSouth is disclosing net interest income in lieu of interest income. Performance is assessed primarily on net interest income by the chief operating decision makers. Excluding the internal funding and the impact of
recording PCS customer revenues and expenses in Wealth Management, AmSouth does not have intracompany revenues or expenses. The provision for loan and lease losses for each segment reflects the net charge-offs in each segment. The difference between
net charge-offs and the provision is included in Treasury & Other. Additionally, segment income tax expense is calculated using the marginal tax rate. The difference between the marginal and effective tax rate is included in
Treasury & Other. Management reviews average assets, loans and deposits by segment. AmSouth operates primarily in the United
States; accordingly, geographic distribution of revenue and long-lived assets in other countries is not significant. Revenues from no individual customer exceeded 10% of consolidated total revenues. AmSouths segments are not necessarily
comparable with similar information for any other financial institution.




120



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The following table details AmSouths business segment results for the years ended
December 31:



(In thousands)

ConsumerBanking

CommercialBanking


WealthManagement


Treasury &Other


Total2005Net interest income before internal funding

$
804,028

$
600,394


$
185,965


$
(65,113
)

$
1,525,274Internal funding


296,743


(156,592
)


5,500



(145,651
)


-0-Net interest income (expense)


1,100,771


443,802



191,465



(210,764
)


1,525,274Noninterest revenues


482,151


137,654



194,157



101,218



915,180Total revenues


1,582,922


581,456



385,622



(109,546
)


2,440,454Provision for loan and lease losses


50,539


30,875



1,771



10,765



93,950Noninterest expenses


766,932


194,207



211,825



118,959



1,291,923Income (loss) before income taxes


765,451


356,374



172,026



(239,270
)


1,054,581Income taxes (benefits)


287,809


133,997



64,682



(157,612
)


328,876Segment net income (loss)

$
477,642

$
222,377


$
107,344


$
(81,658
)

$
725,705Revenues from external customers

$
1,286,179

$
738,048


$
169,582


$
246,645


$
2,440,454Ending assets


22,827,752


15,607,084



6,411,113



7,761,161



52,607,110Average assets


22,290,516


14,311,266



5,995,106



8,143,169



50,740,057Average loans


20,594,022


13,238,465



5,943,586



(5,939,077
)


33,836,996Average deposits


25,253,160


8,580,154



4,211,779



(2,765,522
)


35,279,5712004Net interest income before internal funding

$
809,092

$
471,637


$
164,285


$
31,011


$
1,476,025Internal funding


313,384


(44,236
)


(1,225
)


(267,923
)


-0-Net interest income (expense)


1,122,476


427,401



163,060



(236,912
)


1,476,025Noninterest revenues


474,596


139,192



201,412



216,942



1,032,142Total revenues


1,597,072


566,593



364,472



(19,970
)


2,508,167Provision for loan and lease losses


90,863


15,257



1,427



20,203



127,750Noninterest expenses


770,272


189,006



212,414



285,246



1,456,938Income (loss) before income taxes


735,937


362,330



150,631



(325,419
)


923,479Income taxes (benefits)


276,712


136,236



56,637



(169,604
)


299,981Segment net income (loss)

$
459,225

$
226,094


$
93,994


$
(155,815
)

$
623,498Revenues from external customers

$
1,283,688

$
610,829


$
188,962


$
424,688


$
2,508,167Ending assets


21,598,852


13,376,810



4,671,364



9,901,345



49,548,371Average assets


21,194,037


12,520,354



4,885,019



9,411,215



48,010,625Average loans


19,739,572


11,494,932



4,857,569



(4,850,086
)


31,241,987Average deposits


23,010,869


7,430,051



3,628,396



(2,054,340
)


32,014,9762003Net interest income before internal funding

$
791,932

$
458,809


$
146,510


$
17,384


$
1,414,635Internal funding


320,545


(60,493
)


(17,988
)


(242,064
)


-0-Net interest income (expense)


1,112,477


398,316



128,522



(224,680
)


1,414,635Noninterest revenues


448,654


126,241



177,728



103,155



855,778Total revenues


1,561,131


524,557



306,250



(121,525
)


2,270,413Provision for loan and lease losses


138,890


26,092



1,064



7,654



173,700Noninterest expenses


736,386


179,713



201,650



87,828



1,205,577Income (loss) before income taxes


685,855


318,752



103,536



(217,007
)


891,136Income taxes (benefits)


257,881


119,851



38,930



(151,647
)


265,015Segment net income (loss)

$
427,974

$
198,901


$
64,606


$
(65,360
)

$
626,121Revenues from external customers

$
1,240,586

$
585,050


$
167,761


$
277,016


$
2,270,413Ending assets


19,938,960


11,414,444



3,949,228



10,312,884



45,615,516Average assets


19,381,919


11,245,087



3,608,971



8,494,539



42,730,516Average loans


18,129,878


10,366,385



3,576,554



(3,561,658
)


28,511,159Average deposits


22,480,766


5,350,696



3,023,035



(2,271,881
)


28,582,616




121



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 23  COMMITMENTS, CONTINGENCIES AND GUARANTEES

AmSouth issues off-balance sheet financial instruments in connection with commercial and consumer lending activities. The credit risk associated with these instruments is essentially the same as that involved in
extending loans to customers and is subject to AmSouths credit policies. Collateral is obtained based on Managements assessment of the customer. Credit risk associated with these instruments is represented by the contractual amounts
indicated in the following table:



December 31(In thousands)

2005

2004Unused commitments to extend credit

$
21,761,490

$
19,284,111Standby letters of credit


3,209,144


3,301,812Commercial letters of credit


48,891


52,457




UNUSED COMMITMENTS TO EXTEND CREDIT Commitments to extend credit are legally binding agreements to lend to a customer, provided there is no violation of any condition established in the
contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee, which is recognized ratably over the life of the commitment. At December 31, 2005, AmSouth had outstanding
commitments to extend credit with maturities ranging from less than one year to thirty years. Since many commitments expire without being drawn upon, the total contractual amount of commitments does not necessarily represent future cash requirements
of AmSouth but does represent the maximum potential amount of future payments that could be required to be made and the maximum credit risk. STANDBY LETTERS OF CREDIT AmSouth, as part of its ongoing business operations, issues financial guarantees
in the form of financial and performance standby letters of credit. Standby letters of credit are contingent commitments issued by AmSouth generally to guarantee the performance of a customer to a third party, for which AmSouth receives a fee. A
financial standby letter of credit is a commitment by AmSouth to guarantee a customers repayment of an outstanding loan or debt instrument. In a performance standby letter of credit, AmSouth guarantees a customers performance under a
contractual nonfinancial obligation. AmSouth has recourse against the customer for any amount required to be paid to a third party under a standby letter of credit.


Revenues are recognized ratably over the life of the standby letter of credit. At December 31, 2005, AmSouth had standby letters of credit outstanding
with maturities ranging from less than one year to ten years. The contractual amount of standby letters of credit represents the maximum potential amount of future payments AmSouth could be required to make and represents AmSouths maximum
credit risk. At December 31, 2005 and 2004, AmSouth had $40.1 million and $44.0 million, respectively, of liabilities associated with standby letters of credit agreements. AmSouth holds collateral to support standby letters of credit when
deemed necessary. The fair value of cash collateral held at December 31, 2005 and 2004 was $56.3 and $63.2 million, respectively. COMMERCIAL LETTERS OF CREDIT Commercial letters of credit are issued to facilitate foreign or domestic
trade transactions, for which AmSouth receives a fee under the terms of a commercial letter of credit. As a general rule, drafts will be drawn when the goods underlying the transaction are in transit. Revenues are recognized at the time payments
under the commercial letters of credit are made. At December 31, 2005, AmSouth had commercial letters of credit outstanding with maturities ranging from less than one year to five years. The conditions requiring AmSouth to fund letters of
credit will likely occur. The contractual amount of commercial letters of credit represents the maximum potential amount of future payments AmSouth could be required to make and represents AmSouths maximum credit risk.




122



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



CONDUIT TRANSACTIONS AmSouth provides credit
enhancements associated with its conduit securitizations by providing standby letters of credit, for which liabilities of $2,347,000 and $2,792,000 were recorded at December 31, 2005 and 2004, respectively. At December 31, 2005 and 2004,
AmSouth had $72.6 million and $79.0 million, respectively, of letters of credit supporting its conduit transactions. AmSouth also provides liquidity lines of credit related to its conduit securitizations to support the issuance of commercial paper
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 AmSouth (as
the provider of the credit support), which could prevent the asset-backed commercial paper issuers from being able to issue commercial paper. At December 31, 2005 and 2004, AmSouth had liquidity lines of credit supporting these transactions of
$930 million and $1.2 billion, respectively. See further disclosure regarding conduits in Note 20. MARGIN GUARANTEES AmSouth Investment Services, Inc. (AIS), a subsidiary of AmSouth, guarantees the margin account balances issued by its brokerage clearing
agent on behalf of its customers. If a customer defaults on the margin account, AIS has guaranteed to the brokerage clearing agent to buy in the account so as to bring the account into compliance with applicable margin or maintenance requirements.
The margin account balance as of December 31, 2005 and 2004 was $31.2 million and $32.3 million, respectively. The total potential margin guarantee for AIS was $299.3 million and $301.5 million as of December 31, 2005 and 2004,
respectively, which is equal to 70% of customers account balances. In the event a customer defaults, AmSouth would have recourse against the customer. AmSouth has no liability recorded on its balance sheets related to this agreement. OTHER COMMITMENTS AND CONTINGENCIES Operating Leases  AmSouth and its subsidiaries lease land, premises and equipment under cancelable and non-cancelable leases, some of which contain renewal options under various terms. The leased
properties are used primarily for banking purposes. The total rental expense on operating leases for the years ended December 31,
2005, 2004 and 2003 was $66,826,000,


$65,782,000 and $63,186,000, respectively. Rental income received related to bank premises for 2005, 2004 and 2003 was $5,726,000, $6,050,000 and $8,370,000,
respectively. There were no material contingent rental expenses for 2005, 2004 or 2003. Future minimum payments, in thousands, by year and
in the aggregate, for noncancelable operating leases with initial or remaining terms of one year or more consisted of the following at December 31, 2005:  2006

$
39,8262007


37,4082008


34,8402009


34,2332010


26,732Thereafter


196,412$
369,451
 Legal 
Various legal proceedings are pending against AmSouth and its subsidiaries. Some of these proceedings, including class actions, seek relief or allege damages that are substantial. The actions arise in the ordinary course of AmSouths business
and include actions relating to its imposition of certain fees, lending, collections, loan servicing, deposit taking, investment, trust, and other activities. It may take a number of years to finally resolve some of these actions because of their
complexity as well as other reasons. Additionally, AmSouth and its subsidiaries, which are regulated by multiple federal and state authorities, are the subject of regularly scheduled and special examinations, reviews, investigations and enforcement
actions or proceedings. AmSouth may occasionally have disagreements with regulatory authorities and law enforcement agencies resulting from these examinations, reviews, investigations and enforcement actions. Enforcement and compliance-related
activity by government agencies has substantially increased. Although it is not possible to determine with certainty AmSouths potential exposure from these proceedings, which may take a number of years to fully and finally resolve due to their
complexity, based upon legal counsels opinion, Management considers that any liability resulting from the proceedings would not have a material impact on the financial condition or results of operations of AmSouth.




123



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 24  CONDENSED PARENT COMPANY INFORMATION



BALANCE SHEETSDecember 31(In thousands)

2005

2004ASSETSInvestment in subsidiaries

$
3,970,041

$
3,749,199Investment in Eurodollars


206,666


419,143Available-for-sale securities


7,593


9,339Other assets


28,314


35,583$
4,212,614

$
4,213,264LIABILITIES AND SHAREHOLDERS EQUITYCommercial paper

$
-0-

$
1,597Subordinated debt


324,859


374,747Other borrowed funds


128,984


130,388Accrued expenses and other liabilities


124,194


137,691Total liabilities


578,037


644,423Shareholders equity


3,634,577


3,568,841$
4,212,614

$
4,213,264




STATEMENTS OF EARNINGSYears Ended December 31(In thousands)

2005

2004

2003INCOMEDividends from bank subsidiary

$
450,000

$
444,000

$
629,000Interest and other


6,424


6,967


1,420456,424


450,967


630,420EXPENSESInterest


23,619


23,512


31,277Other


7,896


6,081


2,97031,515


29,593


34,247Income before income taxes and equity in undistributed earnings of subsidiaries


424,909


421,374


596,173Income tax credit


12,721


10,829


12,339Income before equity in earnings of subsidiaries


437,630


432,203


608,512Equity in undistributed subsidiaries annual earnings


288,075


191,295


17,609Net Income

$
725,705

$
623,498

$
626,121




124



---

AmSouth Bancorporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|---------------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|STATEMENTS OF CASH FLOWS                                                                 |  |                         |          |   |      |   |          |      |  |   |          |  
|                                                                                         | 
|                                                                                         |  | Years Ended December 31 |         
|(In thousands)                                                                           |  | 2005                    |          |   | 2004 |   |          | 2003 | 
|OPERATING ACTIVITIES                                                                     |  |                         |          |   |      |   |          |      |  |   |          |  
|Net income                                                                               |  | $                       | 725,705  |   |      | $ | 623,498  |      |  | $ | 626,121  |  
|Adjustments to reconcile net income to net cash provided by operating activities:        |  |                         |          |   |      |   |          |      |  |   |          |  
|Net (gains) losses on available-for-sale securities                                      |  |                         | (947     | ) |      |   | (4,098   | )    |  |   | 160      |  
|Other amortization and depreciation                                                      |  |                         | 325      |   |      |   | 443      |      |  |   | 609      |  
|Net decrease (increase) in other assets                                                  |  |                         | 5,334    |   |      |   | (20,179  | )    |  |   | (19,535  | )
|Net (decrease) increase in accrued expenses and other liabilities                        |  |                         | (13,129  | ) |      |   | 28,333   |      |  |   | 18,277   |  
|Equity in subsidiaries undistributed annual earnings                                    |  |                         | (288,075 | ) |      |   | (191,295 | )    |  |   | (17,609  | )
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash provided by operating activities                                                |  |                         | 429,213  |   |      |   | 436,702  |      |  |   | 608,023  |  
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|INVESTING ACTIVITIES                                                                     |  |                         |          |   |      |   |          |      |  |   |          |  
|Net decrease (increase) in available-for-sale securities                                 |  |                         | 2,702    |   |      |   | (5,280   | )    |  |   | -0-      |  
|Net decrease (increase) in Eurodollars                                                   |  |                         | 212,477  |   |      |   | (27,088  | )    |  |   | (184,969 | )
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash provided by (used in) investing activities                                      |  |                         | 215,179  |   |      |   | (32,368  | )    |  |   | (184,969 | )
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|FINANCING ACTIVITIES                                                                     |  |                         |          |   |      |   |          |      |  |   |          |  
|Net decrease in commercial paper                                                         |  |                         | (1,597   | ) |      |   | (2,368   | )    |  |   | (1,191   | )
|Payments for maturing subordinated debt                                                  |  |                         | (50,000  | ) |      |   | (150,000 | )    |  |   | (50,000  | )
|Net (decrease) increase in other borrowed funds                                          |  |                         | (1,475   | ) |      |   | 1,648    |      |  |   | 446      |  
|Cash dividends paid                                                                      |  |                         | (353,995 | ) |      |   | (337,334 | )    |  |   | (323,748 | )
|Proceeds from employee stock plans, direct stock purchase and dividend reinvestment plan |  |                         | 121,713  |   |      |   | 134,107  |      |  |   | 115,035  |  
|Purchases of common stock                                                                |  |                         | (358,897 | ) |      |   | (50,999  | )    |  |   | (163,092 | )
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash used in financing activities                                                    |  |                         | (644,251 | ) |      |   | (404,946 | )    |  |   | (422,550 | )
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|Increase (decrease) in cash                                                              |  |                         | 141      |   |      |   | (612     | )    |  |   | 504      |  
|Cash at beginning of year                                                                |  |                         | 401      |   |      |   | 1,013    |      |  |   | 509      |  
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash at end of year                                                                      |  | $                       | 542      |   |      | $ | 401      |      |  | $ | 1,013    |  
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  



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