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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000, OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM TO
.
Commission File Number: 0-25160
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ALABAMA NATIONAL BANCORPORATION
(Exact name of registrant as specified in its charter)
Delaware 63-1114426
(State of incorporation (I.R.S. Employer
or organization) Identification No.)
1927 First Avenue North, Birmingham, AL 35203-4009
(Address of principal executive offices) (Zip Code)
(205) 583-3600
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of voting stock held by non-affiliates of the
registrant at March 12, 2001 was $237,022,296.
As of March 12, 2001 the registrant had outstanding 11,793,160 shares of its
common stock.
DOCUMENTS INCORPORATED BY REFERENCE IN THIS FORM 10-K:
(i) The definitive Proxy Statement for the 2001 Annual Meeting of Alabama
National BanCorporation's Stockholders is incorporated by reference into
Part III of this report.
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TABLE OF CONTENTS
Item No. Page No.
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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS................... 2
PART I
1. Business.................................................. 3
Executive Officers........................................ 10
2. Properties................................................ 11
3. Legal Proceedings......................................... 11
4. Submission of Matters to a Vote of Security Holders....... 11
PART II
5. Market for Registrant's Common Equity and Related 12
Stockholder Matters......................................
6. Selected Financial Data................................... 13
7. Management's Discussion and Analysis of Financial 14
Condition and Results of Operations......................
7A. Quantitative and Qualitative Disclosures about Market 43
Risk.....................................................
8. Financial Statements and Supplementary Data............... 44
9. Changes in and Disagreements with Accountants on 45
Accounting and Financial Disclosure......................
PART III
10. Directors and Executive Officers of the Registrant........ 45*
11. Compensation of Executive Officers and Directors.......... 45*
12. Security Ownership of Certain Beneficial Owners and 45*
Management...............................................
13. Certain Relationships and Related Transactions............ 45*
PART IV
14. Exhibits, Financial Statement Schedules and Reports on 46
Form 8-K.................................................
SIGNATURES.......................................................... 47
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* Portions of the Proxy Statement for the Registrant's Annual Meeting of
Stockholders to be held on May 3, 2001 are incorporated by reference in Part
III of this Form 10-K.
1
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K, other periodic reports filed by Alabama
National BanCorporation (the "Company" or "Alabama National") under the
Securities Exchange Act of 1934, as amended, and any other written or oral
statements made by or on behalf of Alabama National may include "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995 which reflect Alabama National's current views with respect
to future events and financial performance. Such forward looking statements
are based on general assumptions and are subject to various risks,
uncertainties, and other factors that may cause actual results to differ
materially from the views, beliefs and projections expressed in such
statements. These risks, uncertainties and other factors include, but are not
limited to:
(1) Possible changes in economic and business conditions that may affect
the prevailing interest rates, the prevailing rates of inflation, or the
amount of growth, stagnation, or recession in the global, U.S., and
southeastern U.S. economies, the value of investments, collectibility of
loans and the profitability of business entities;
(2) Possible changes in monetary and fiscal policies, laws and
regulations, and other activities of governments, agencies and similar
organizations;
(3) The effects of easing of restrictions on participants in the
financial services industry, such as banks, securities brokers and dealers,
investment companies and finance companies, and changes evolving from the
enactment of the Gramm-Leach-Bliley Act of 1999, and attendant changes in
patterns and effects of competition in the financial services industry;
(4) The cost and other effects of legal and administrative cases and
proceedings, claims, settlements and judgments; and
(5) The ability of Alabama National to achieve the expected operating
results related to the acquired operations of recently-completed and future
acquisitions (if any), which depends on a variety of factors, including (i)
the ability of Alabama National to achieve the anticipated cost savings and
revenue enhancements with respect to the acquired operations, (ii) the
assimilation of the acquired operations to Alabama National's corporate
culture, including the ability to instill Alabama National's credit
practices and efficient approach to the acquired operations, (iii) the
continued growth of the markets in which Alabama National operates
consistent with recent historical experience, (iv) the absence of material
contingencies related to the acquired operations, including asset quality
and litigation contingencies, and (v) Alabama National's ability to expand
into new markets and to maintain profit margins in the face of pricing
pressures.
The words "believe," "expect," "anticipate," "project" and similar
expressions signify forward looking statements. Readers are cautioned not to
place undue reliance on any forward looking statements made by or on behalf of
Alabama National. Any such statement speaks only as of the date the statement
was made. Alabama National undertakes no obligation to update or revise any
forward looking statements.
2
PART I
ITEM 1. BUSINESS
Alabama National BanCorporation ("Alabama National" or "ANB") is a Delaware
bank holding company with its principal place of business in Birmingham,
Alabama, and its main office located at 1927 First Avenue North, Birmingham,
Alabama 35203 (Telephone Number: (205) 583-3600). Alabama National is
currently the parent of three national banks, National Bank of Commerce of
Birmingham ("NBC") (Birmingham, Alabama and the Birmingham metropolitan area),
Citizens & Peoples Bank, National Association (Escambia County, Florida), and
Community Bank of Naples, National Association (Naples, Florida); three state
member banks, Alabama Exchange Bank (Tuskegee, Alabama), Bank of Dadeville
(Dadeville, Alabama) and First Gulf Bank (Baldwin County, Alabama); and five
state nonmember banks, First American Bank (Decatur/Huntsville, Alabama),
Public Bank (St. Cloud, Florida), Georgia State Bank (Mableton, Georgia),
First Citizens Bank, (Talladega, Alabama) and, effective January 31, 2001,
Peoples State Bank of Groveland (Lake County, Florida) (collectively the
"Banks"). In addition, Alabama National is currently the ultimate parent of
one securities brokerage firm, NBC Securities, Inc. (Birmingham, Alabama); one
receivables factoring company, Corporate Billing, Inc. (Decatur, Alabama); and
one insurance agency, Rankin Insurance, Inc. (Decatur, Alabama).
Recent Developments
Peoples State Bank of Groveland Merger
Effective January 31, 2001, Peoples State Bank of Groveland ("Peoples State
Bank"), a Florida state bank headquartered in Groveland, Florida, with
approximately $123 million in total assets as of December 31, 2000, merged
with a newly formed subsidiary of Alabama National (the "Peoples State Bank
Merger"). The terms of the Peoples State Bank Merger are described in that
certain Agreement and Plan of Merger dated as of October 10, 2000 (the
"Peoples State Bank Merger Agreement"). Pursuant to the Peoples State Bank
Merger, (i) the stockholders of Peoples State Bank became stockholders of
Alabama National, and (ii) Alabama National became the parent stockholder of
Peoples State Bank. The Peoples State Bank Merger was accounted for as a
pooling of interests. Because the Peoples State Bank Merger was completed
after December 31, 2000, the financial information of Peoples State Bank is
not included in Alabama National's financial information for the period ending
December 31, 2000.
The Peoples State Bank Merger Agreement generally provided, among other
things, that each of the 631,464 outstanding shares of Peoples State Bank
common stock were converted into the right to receive 1.16396 shares of
Alabama National common stock, for a total of 735,000 shares of Alabama
National common stock (excluding fractional shares) issued to former Peoples
State Bank shareholders.
Subsidiary Banks
Alabama National operates through eleven subsidiary Banks which have a total
of 52 banking offices and one insurance office (where no banking is conducted)
in the states of Alabama, Georgia and Florida. The Banks focus on traditional
consumer, residential mortgage, commercial and real estate construction
lending, and equipment leasing to customers in their market areas. The Banks
also offer a variety of deposit programs to individuals and small businesses
and other organizations at interest rates generally consistent with local
market conditions. NBC offers trust services, investment services and
securities brokerage services. In addition, the Banks offer individual
retirement and KEOGH accounts, safe deposit and night depository facilities
and additional services such as the sale of traveler's checks, money orders
and cashier's checks.
Lending Activities
General
Through the Banks, Alabama National offers a range of lending services,
including real estate, consumer and commercial loans, to individuals and small
businesses and other organizations that are located in or conduct a
substantial portion of their business in the Banks' market areas. Alabama
National's total loans, net of unearned
3
interest, at December 31, 2000, were approximately $1.61 billion, or
approximately 79.4% of total earning assets. The interest rates charged on
loans vary with the degree of risk, maturity and amount of the loan and are
further subject to competitive pressures, money market rates, availability of
funds and government regulations. Alabama National has no "foreign loans" or
loans for "highly leveraged transactions," as such terms are defined by
applicable banking regulations.
Loan Portfolio
Real Estate Loans. Loans secured by real estate are the primary component of
Alabama National's loan portfolio, constituting approximately $1.1 billion, or
68.2% of total loans, net of unearned interest, at December 31, 2000. The
Banks often take real estate as an additional source of collateral to secure
commercial and industrial loans. Such loans are classified as real estate
loans rather than commercial and industrial loans if the real estate
collateral is considered significant as a secondary source of repayment for
the loan. The Banks' real estate loan portfolio is comprised of commercial and
residential mortgages. Residential mortgages held in the Banks' loan
portfolio, both fixed and variable, are made based upon amortization schedules
of up to 30 years but generally have maturity dates of five years or less. The
Banks' commercial mortgages accrue at either variable or fixed rates. The
variable rates approximate current market rates. Construction loans are made
on a variable rate basis. Origination fees are normally charged for most loans
secured by real estate. The Banks' primary type of residential mortgage loan
is the single-family first mortgage, typically structured with fixed or
adjustable interest rates, based on market conditions. These loans usually
have terms of five years, with payments through the date of maturity generally
based on a 15 or 30 year amortization schedule.
The Banks originate residential loans for sale into the secondary market.
Such loans are made in accordance with underwriting standards set by the
purchaser of the loan, normally as to loan-to-value ratio, interest rate and
documentation. Such loans are generally made under a commitment to purchase
from a loan purchaser. The Banks generally collect from the borrower or
purchaser a combination of the origination fee, discount points and/or service
release fee. During 2000, the Banks sold approximately $230 million in loans
to such purchasers.
The Banks' nonresidential mortgage loans include commercial, industrial and
unimproved real estate loans. The Banks generally require nonresidential
mortgage loans to have an 80% loan-to-value ratio and usually underwrite their
commercial loans on the basis of the borrower's cash flow and ability to
service the debt from earnings, rather than on the basis of the value of the
collateral. Terms on construction loans are usually less than twelve months,
and the Banks typically require real estate mortgages and personal guarantees
supported by financial statements and a review of the guarantor's personal
finances.
Consumer Loans. Consumer lending includes installment lending to individuals
in the Banks' market areas and generally consists of loans to purchase
automobiles and other consumer durable goods. Consumer loans constituted $76.0
million, or 4.7% of Alabama National's loan portfolio at December 31, 2000.
Consumer loans are underwritten based on the borrower's income, current debt
level, past credit history and collateral. Consumer rates are both variable
and fixed, with terms negotiable. Terms generally range from one to five years
depending on the nature and condition of the collateral. Periodic
amortization, generally monthly, is typically required.
Commercial and Financial Loans. The Banks make loans for commercial purposes
in various lines of business. These loans are typically made on terms up to
five years at fixed or variable rates. The loans are secured by various types
of collateral including accounts receivable, inventory or, in the case of
equipment loans, the financed equipment. The Banks attempt to reduce their
credit risk on commercial loans by underwriting the loan based on the
borrower's cash flow and its ability to service the debt from earnings, and by
limiting the loan to value ratio. Historically, the Banks have typically
loaned up to 80% on loans secured by accounts receivable, up to 65% on loans
secured by inventory, and up to 80% on loans secured by equipment. The Banks
also make some unsecured commercial loans and offer equipment leasing.
Commercial and financial loans constituted $259.8 million, or 16.1% of Alabama
National's loan portfolio at December 31, 2000. Interest rates are negotiable
based upon the borrower's financial condition, credit history, management
stability and collateral.
4
Credit Procedures and Review
Loan Approval. Certain credit risks are inherent in making loans. These
include prepayment risks, risks resulting from uncertainties in the future
value of collateral, risks resulting from changes in economic and industry
conditions and risks inherent in dealing with individual borrowers. In
particular, longer maturities increase the risk that economic conditions will
change and adversely affect collectibility.
Alabama National attempts to minimize loan losses through various means and
uses standardized underwriting criteria. Alabama National has established a
standardized loan policy for all of the Banks that may be modified based on
local market conditions. In particular, on larger credits, Alabama National
generally relies on the cash flow of a debtor as the source of repayment and
secondarily on the value of the underlying collateral. In addition, Alabama
National attempts to utilize shorter loan terms in order to reduce the risk of
a decline in the value of such collateral.
Alabama National addresses repayment risks by adhering to internal credit
policies and procedures which all of the Banks have adopted. These policies
and procedures include officer and customer lending limits, a multi-layered
loan approval process for larger loans, documentation examination and follow-
up procedures for any exceptions to credit policies. The point in each Bank's
loan approval process at which a loan is approved depends on the size of the
borrower's credit relationship with such Bank. Each of the lending officers at
each of the Banks has the authority to approve loans up to an approved loan
authority amount as approved by each Bank's Board of Directors. Loans in
excess of the highest loan authority amount at each Bank must be approved by
the Alabama National Executive Vice President in charge of credit
administration. In addition, loans in excess of a particular loan officer's
approval authority must be approved by a more senior officer at the particular
Bank, the loan committee at such Bank, or both.
Loan Review. Alabama National maintains a continuous loan review system for
each of NBC and First American Bank and a scheduled review system for the
other Banks. Under this system, each loan officer is directly responsible for
monitoring the risk in his portfolio and is required to maintain risk ratings
for each credit assigned. The risk rating system incorporates the basic
regulatory rating system as set forth in the applicable regulatory asset
quality examination procedures.
Alabama National's Loan Review Department ("LRD"), which is wholly
independent of the lending function, serves as a validation of each loan
officer's risk monitoring and rating system. LRD's primary function is to
provide the Board of Directors of each Bank with a thorough understanding of
the credit quality of such Bank's loan portfolio. Other review requirements
are in place to provide management with early warning systems for problem
credits as well as compliance with stated lending policies. LRD's findings are
reported, along with an asset quality review, to the Alabama National Board of
Directors at each bi-monthly meeting.
Deposits
The principal sources of funds for the Banks are core deposits, consisting
of demand deposits, interest-bearing transaction accounts, money market
accounts, savings deposits and certificates of deposit. Transaction accounts
include checking and negotiable order of withdrawal (NOW) accounts which
customers use for cash management and which provide the Banks with a source of
fee income and cross-marketing opportunities, as well as a low-cost source of
funds. Time and savings accounts also provide a relatively stable and low-cost
source of funding. The largest source of funds for the Banks are certificates
of deposit. Certificates of deposit in excess of $100,000 are held primarily
by customers in the Banks' market areas.
Deposit rates are reviewed weekly by senior management of each of the Banks.
Management believes that the rates the Banks offer are competitive with those
offered by other institutions in the Banks' market areas. Alabama National
focuses on customer service to attract and retain deposits.
Investment Services
NBC operates an investment department devoted primarily to handling
correspondent banks' investment needs. Services provided by the investment
department include the sale of securities, asset/liability consulting,
safekeeping and bond accounting.
5
Securities Brokerage Division
NBC also has a wholly owned subsidiary, NBC Securities, Inc. ("NBC
Securities"), that is licensed as a broker-dealer. Started in 1995, NBC
Securities provides investment services to individuals and institutions. These
services include the sale of stocks, bonds, mutual funds, annuities, margin
loans, other insurance products and financial planning. NBC Securities has
investment advisers in Birmingham, Decatur and Gulf Shores, Alabama; Naples
and Pensacola, Florida; and Mableton, Georgia.
Trust Division
NBC operates a trust division that manages the assets of both corporate and
individual customers located primarily in the Birmingham, Alabama market. The
division's corporate trust services include managing and servicing retirement
plan accounts such as pension, profit sharing and 401(k) plans.
Mortgage Lending Division
NBC's mortgage lending division makes home loans to individuals throughout
the State of Alabama. The majority of these loans are sold to corporate
investors, who also service the loans.
Insurance Services Division
Alabama National's First American Bank subsidiary purchased an existing
insurance company, Rankin Insurance, Inc., in 1999. Rankin Insurance is a full
service independent property and casualty insurance agency located in Decatur,
Alabama.
Competition
The Banks encounter strong competition in making loans, acquiring deposits
and attracting customers for investment and trust services. Competition among
financial institutions is based upon interest rates offered on deposit
accounts, interest rates charged on loans, other credit and service charges
relating to loans, the quality and scope of the services rendered, the
convenience of banking facilities and, in the case of loans to commercial
borrowers, relative lending limits. The Banks compete with other commercial
banks, savings and loan associations, credit unions, finance companies, mutual
funds, insurance companies, brokerage and investment banking companies, and
other financial intermediaries operating in the markets served by the Banks.
Many of these competitors, some of which are affiliated with large bank
holding companies, have substantially greater resources and lending limits,
and may offer certain services that the Banks do not currently provide. In
addition, many of Alabama National's non-bank competitors are not subject to
the same extensive federal regulations that govern bank or thrift holding
companies and federally insured banks or thrifts.
The Gramm-Leach-Bliley Act, effective March 11, 2000, permits bank holding
companies to become financial holding companies and thereby affiliate with
securities firms and insurance companies and engage in other activities that
are financial in nature. See "Supervision and Regulation." Under the Act,
securities firms and insurance companies that elect to become financial
holding companies may acquire banks and other financial institutions. The
Gramm-Leach-Bliley Act, which represents the most sweeping reform of financial
services regulation in over sixty years, may significantly change the
competitive environment in which Alabama National and the Banks conduct
business. At this time, however, it is not possible to predict the full effect
that the Act will have on Alabama National. One consequence may be increased
competition from large financial services companies that will be permitted to
provide many types of financial services, including bank products, to their
customers.
The financial services industry is also likely to become more competitive as
further technological advances enable more companies to provide financial
services. These technological advances may diminish the importance of
depository institutions and other financial intermediaries in the transfer of
funds between parties.
6
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"IBBEA") authorized bank holding companies to acquire banks and other bank
holding companies without geographic limitations beginning September 30, 1995.
In addition, beginning on June 1, 1997, the IBBEA authorized interstate
mergers and consolidations of existing banks, provided that neither bank's
home state had opted out of interstate branching by May 31, 1997. The States
of Alabama, Georgia and Florida have opted in to interstate branching.
Interstate branching provides that once a bank has established branches in a
state through an interstate merger, the bank may establish and acquire
additional branches at any location in the state where any bank involved in
the interstate merger could have established or acquired branches under
applicable federal or state law.
Size gives the larger banks certain advantages in competing for business
from large corporations. These advantages include higher lending limits and
the ability to offer services in other areas of Alabama and the southeast
region. Some of Alabama National's competitors still maintain substantially
greater resources and lending limits than Alabama National. As a result,
Alabama National has not generally attempted to compete for the banking
relationships of large corporations, and generally concentrates its efforts on
small to medium-sized businesses and individuals to which Alabama National
believes it can compete effectively by offering quality, personal service.
However, management believes it may be able to compete more effectively for
the business of some large corporations, given its current growth pattern.
Management believes that the Banks' commitment to their respective primary
market areas, as well as their commitment to quality and personalized banking
services, are factors that contribute to the Banks' competitiveness.
Management believes that Alabama National's decentralized community banking
strategy positions the Banks to compete successfully in their market areas.
Market Areas and Growth Strategy
Through NBC, Alabama National serves the metropolitan Birmingham market,
which includes portions of Jefferson, Shelby and St. Clair Counties. Alabama
National's First American Bank subsidiary serves Morgan, Limestone and Madison
Counties in north Alabama. First American's largest market presence is in
Decatur, Alabama, which has demonstrated a growing economic base in recent
years. First American also acquired two branches in Huntsville, Alabama from
another bank holding company during 2000. Through First Gulf Bank, Alabama
National serves Baldwin County, Alabama. Located between Mobile, Alabama and
Pensacola, Florida, Baldwin County has a broad base of economic activity in
the retail and service, agriculture, seafood, tourism and manufacturing
industries. Baldwin County includes the popular tourism and retirement resort
communities of Gulf Shores and Fairhope. Shelby, Baldwin and St. Clair
Counties have been named in statistical surveys as three of the fastest
growing counties in Alabama. In 1997, Alabama National expanded outside of
Alabama with the opening of Citizens & Peoples Bank, N.A. in Escambia County,
Florida. In 1998, Alabama National further expanded its presence in markets
outside of Alabama with two acquisitions in Florida and one in Georgia. Public
Bank is located in the fast-growing greater Orlando area, with offices in
Altamonte Springs, Kissimmee and St. Cloud, Florida. Community Bank of Naples,
N.A., located in Collier County, Florida, and Georgia State Bank, located in
Cobb County and Paulding County, Georgia, are located in markets that are
among the fastest growing in their respective states. Effective January 31,
2001, Alabama National expanded its presence in the greater-Orlando area with
the acquisition of Peoples State Bank of Groveland ("Peoples State Bank").
Peoples State Bank serves customers in the communities of Groveland, Leesburg,
and Clermont, Florida. The other Banks, First Citizens, Alabama Exchange Bank
and Bank of Dadeville, are located in non-metropolitan areas. Each of these
three Banks, while experiencing minimal growth due to market growth that has
not been significant, typically operates at a high level of profitability. As
a result, these Banks tend to produce capital for growth in many of the high
growth markets served by the other Banks. Alabama National's strategy is to
focus on growth in profitability for these non-metropolitan banks, since
market growth has not been as significant.
Due to continuing consolidation within the banking industry, as well as in
the Southeastern United States, Alabama National may in the future seek to
combine with other banks or thrifts (or their holding companies) that may be
of smaller, equal or greater size than Alabama National. Alabama National
currently intends to concentrate on acquisitions of additional banks or
thrifts (or their holding companies) which operate in attractive
7
market areas in Alabama, Florida and Georgia. In addition to price and terms,
the factors considered by Alabama National in determining the desirability of
a business acquisition or combination are financial condition, asset quality,
earnings potential, quality of management, market area and competitive
environment.
In addition to expansion through combinations with other banks or thrifts,
Alabama National intends to continue to expand where possible through growth
of its existing banks in their respective market areas. During 1998, NBC
formed a commercial leasing division which currently focuses on machinery and
equipment leases to business customers. Also, Alabama National is exploring
expansion into lines of business closely related to banking and will pursue
such expansion if it believes such lines could be profitable without causing
undue risk to Alabama National. During 1999, First American Bank acquired
Rankin Insurance, Inc., a full service independent property and casualty
insurance agency located in Decatur, Alabama. While Alabama National plans to
continue its growth as described above, there is no assurance that its efforts
will be successful.
Employees
As of December 31, 2000, Alabama National and the Banks together had
approximately 835 full-time equivalent employees. None of these employees is a
party to a collective bargaining agreement. Alabama National considers its
relations with its employees to be good.
Supervision and Regulation
Alabama National and the Banks are subject to state and federal banking laws
and regulations which impose specific requirements and restrictions on, and
provide for general regulatory oversight with respect to, virtually all
aspects of operations. These laws and regulations are generally intended to
protect depositors, not stockholders. To the extent that the following summary
describes statutory or regulatory provisions, it is qualified in its entirety
by reference to the particular statutory and regulatory provisions. Any change
in applicable laws or regulations may have a material effect on the business
and prospects of Alabama National.
Beginning with the enactment of the Financial Institutions Reform, Recovery
and Enforcement Act of 1989 ("FIRREA") and following in December 1991 with the
Federal Deposit Insurance Corporation Act ("FDICIA"), numerous additional
regulatory requirements have been placed on the banking industry in the past
ten years, and additional changes have been proposed. The operations of
Alabama National and the Banks may be affected by legislative changes and the
policies of various regulatory authorities. Alabama National is unable to
predict the nature or the extent of the effect on its business and earnings
that fiscal or monetary policies, economic control, or new federal or state
legislation may have in the future.
As a bank holding company, Alabama National is subject to the regulation and
supervision of the Federal Reserve. The Banks are subject to supervision and
regulation by applicable state and federal banking agencies, including the
Federal Reserve, the Office of the Comptroller of the Currency (the "OCC") and
the Federal Deposit Insurance Corporation (the "FDIC"). The Banks are also
subject to various requirements and restrictions under federal and state law,
including requirements to maintain allowances against deposits, restrictions
on the types and amounts of loans that may be granted and the interest that
may be charged thereon, and limitations on the types of investments that may
be made and the types of services that may be offered. Various consumer laws
and regulations also affect the operations of the Banks. In addition to the
impact of regulation, commercial banks are affected significantly by the
actions of the Federal Reserve as it attempts to control the money supply and
credit availability in order to influence the economy.
Pursuant to the IBBEA, bank holding companies from any state may now acquire
banks located in any other state, subject to certain conditions, including
concentration limits. As of June 1, 1997, a bank may establish branches across
state lines by merging with a bank in another state (unless applicable state
law prohibits such interstate mergers), provided certain conditions are met. A
bank may also establish a de novo branch in a state in which the bank does not
maintain a branch if that state expressly permits such interstate de novo
branching and certain other conditions are met.
8
There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by federal law and
regulatory policy that are designed to reduce potential loss exposure to the
depositors of such depository institutions and to the FDIC insurance fund in
the event the depository institution becomes in danger of default or is in
default. For example, under a policy of the Federal Reserve with respect to
bank holding company operations, a bank holding company is required to serve
as a source of financial strength to its subsidiary depository institutions
and commit resources to support such institutions in circumstances where it
might not do so absent such policy. In addition, the "cross-guarantee"
provisions of federal law require insured depository institutions under common
control to reimburse the FDIC for any loss suffered or reasonably anticipated
as a result of the default of a commonly controlled insured depository
institution or for any assistance provided by the FDIC to a commonly
controlled insured depository institution in danger of default.
The federal banking agencies have broad powers under current federal law to
take prompt corrective action to resolve problems of insured depository
institutions. The extent of these powers depends upon whether the institutions
in question are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized" as such terms are defined under regulations issued by each
of the federal banking agencies. In general, the agencies measure capital
adequacy within a framework that makes capital requirements sensitive to the
risk profiles of individual banking companies. The guidelines define capital
as either Tier 1 (primarily common shareholders' equity) or Tier 2 (certain
debt instruments and a portion of the allowance for loan losses). Alabama
National and the Banks are subject to a minimum Tier 1 capital ratio (Tier 1
capital to risk-weighted assets) of 4%, a total capital ratio (Tier 1 plus
Tier 2 to risk-weighted assets) of 8% and a Tier 1 leverage ratio (Tier 1 to
average quarterly assets) of 3%. To be considered a "well capitalized"
institution, the Tier 1 capital ratio, the total capital ratio, and the Tier 1
leverage ratio must equal or exceed 6%, 10% and 5%, respectively.
The Banks are subject to the provisions of Section 23A of the Federal
Reserve Act, which place limits on the amount of loans or extensions of credit
to, investments in or certain other transactions with affiliates, and on the
amount of advances to third parties collateralized by the securities or
obligations of affiliates. In general, the Banks' "affiliates" are Alabama
National and Alabama National's non-bank subsidiaries.
The Banks are also subject to the provisions of Section 23B of the Federal
Reserve Act that, among other things, prohibit a bank from engaging in certain
transactions with affiliates unless the transactions are on terms
substantially the same, or at least as favorable to the bank, as those
prevailing at the time for comparable transactions with non-affiliated
companies.
The Banks are also subject to certain restrictions on extensions of credit
to executive officers, directors, certain principal stockholders and their
related interests. Such extensions of credit (i) must be made on substantially
the same terms, including interest rates and collateral, as those prevailing
at the time for comparable transactions with third parties and (ii) must not
involve more than the normal risk of repayment or present other unfavorable
features.
The Community Reinvestment Act ("CRA") requires that, in connection with
examinations of financial institutions within their respective jurisdictions,
the Federal Reserve, the FDIC or the OCC shall evaluate the record of the
financial institutions in meeting the credit needs of their local communities,
including low and moderate income neighborhoods, consistent with the safe and
sound operation of those institutions. The CRA does not establish specific
lending requirements or programs for financial institutions nor does it limit
an institution's discretion to develop the types of products and services that
it believes are best suited to its particular community, consistent with the
CRA. These factors are considered in evaluating mergers, acquisitions and
applications to open a branch or facility. The CRA also requires all
institutions to make public disclosure of their CRA ratings. Each of the Banks
received outstanding or satisfactory ratings in its most recent evaluation.
There are various legal and regulatory limits on the extent to which the
Banks may pay dividends or otherwise supply funds to Alabama National. In
addition, federal and state regulatory agencies also have the authority to
prevent a bank or bank holding company from paying a dividend or engaging in
any other activity that, in the opinion of the agency, would constitute an
unsafe or unsound practice.
9
FDIC regulations require that management report on its responsibility for
preparing its institution's financial statements and for establishing and
maintaining an internal control structure and procedures for financial
reporting and compliance with designated laws and regulations concerning
safety and soundness.
The Gramm-Leach-Bliley Act, effective March 11, 2000, permits bank holding
companies to become financial holding companies and thereby affiliate with
securities firms and insurance companies and engage in other activities that
are financial in nature. A bank holding company may become a financial holding
company by filing a declaration if each of its subsidiary banks is well
capitalized under the FDICIA prompt corrective action provisions, is well
managed, and has at least a satisfactory rating under the CRA. No regulatory
approval will be required for a financial holding company to acquire a
company, other than a bank or savings association, engaged in activities that
are financial in nature or incidental to activities that are financial in
nature, as determined by the Federal Reserve.
The Gramm-Leach-Bliley Act broadly defines "financial in nature" to include
securities underwriting, dealing and market making; sponsoring mutual funds
and investment companies; insurance underwriting and agency; merchant banking;
and activities that the Federal Reserve has determined to be closely related
to banking. The Act also permits the Federal Reserve, in consultation with the
Department of Treasury, to determine that other activities are "financial in
nature" and therefore permissible for financial holding companies. A national
bank also may engage, subject to limitations on investment, in activities that
are financial in nature (other than insurance underwriting, insurance company
portfolio investment, merchant banking, real estate development and real
estate investment) through a financial subsidiary of the bank, if the bank is
well capitalized, well managed and has at least a satisfactory CRA rating.
Subsidiary banks of a financial holding company or national banks with
financial subsidiaries must continue to be well capitalized and well managed
in order to continue to engage in activities that are financial in nature
without regulatory actions or restrictions, which could include divestiture of
the financial subsidiary or subsidiaries. In addition, a financial holding
company or a bank may not acquire a company that is engaged in activities that
are financial in nature unless each of the subsidiary banks of the financial
holding company or the bank at issue has a CRA rating of satisfactory or
better.
The Act preserves the role of the Federal Reserve as the umbrella supervisor
for holding companies while at the same time incorporating a system of
functional regulation designed to take advantage of the strengths of the
various federal and state regulators. In particular, the Act replaces the
broad exemption from Securities and Exchange Commission regulation that banks
previously enjoyed with more limited exemptions, and it reaffirms that states
are the regulators for the insurance activities of all persons, including
federally-chartered banks.
The Gramm-Leach-Bliley Act also establishes a minimum federal standard of
financial privacy. In general, the applicable regulations issued by the
various federal regulatory agencies prohibit affected financial institutions
(including banks, insurance agencies and broker/dealers) from sharing
information about their customers with non-affiliated third parties unless (1)
the financial institution has first provided a privacy notice to the customer;
(2) the financial institution has given the customer an opportunity to opt out
of the disclosure; and (3) the customer has not opted out after being given a
reasonable opportunity to do so. Compliance with the notice and other
requirements under the regulations is required by July 1, 2001.
NBC Securities is a broker-dealer registered with the Securities and
Exchange Commission and is a member of the National Association of Securities
Dealers, Inc.
Executive Officers of the Registrant
The Executive Officers of Alabama National serve at the pleasure of the
Board of Directors. Set forth below are the current Executive Officers of
Alabama National and a brief explanation of their principal employment during
the last five (5) years.
John H. Holcomb, III--Age 49--Chairman and Chief Executive Officer. Mr.
Holcomb has served as Chairman and Chief Executive Officer of Alabama National
since 1996. Mr. Holcomb has been Chief Executive Officer of NBC since 1990.
10
Victor E. Nichol, Jr.--Age 54--Vice Chairman. Mr. Nichol has served as Vice
Chairman of Alabama National since December 2000. Prior to such time, Mr.
Nichol served as President and Chief Operating Officer of Alabama National
beginning in 1996. Mr. Nichol has been Executive Vice President of NBC since
1994.
Dan M. David--Age 55--Vice Chairman. Mr. David has served as Vice Chairman
of Alabama National since November 30, 1997 when First American Bancorp merged
with and into Alabama National. Mr. David serves as Chairman of First American
Bank, a position he has held since 1995. Mr. David served as Chairman and
Chief Executive Officer of First American Bank from 1995 through 1997.
John R. Bragg--Age 39--Executive Vice President. Mr. Bragg has served as
Executive Vice President of Alabama National since April 1998 and Executive
Vice President of NBC since 1997. Mr. Bragg served as Senior Vice President of
NBC from 1992 until 1997.
Richard Murray, IV--Age 38--President and Chief Operating Officer. Mr.
Murray has served as President and Chief Operating Officer of Alabama National
since December 2000. Prior to such time, Mr. Murray served as Executive Vice
President of Alabama National beginning April 1998 and Executive Vice
President of NBC beginning 1997. Mr. Murray served as Senior Vice President of
NBC from 1990 until 1997.
William G. Sanders, Jr.--Age 37--President and Chief Operating Officer of
NBC. Mr. Sanders has served as President and Chief Operating Officer of NBC
since December 2000. Prior to such time, Mr. Sanders served as Executive Vice
President of Alabama National beginning April 1998 and Executive Vice
President of NBC beginning 1997. Mr. Sanders served as Senior Vice President
of NBC from 1993 until 1997.
William E. Matthews, V--Age 36--Executive Vice President and Chief Financial
Officer. Mr. Matthews has served as Executive Vice President and Chief
Financial Officer of Alabama National and NBC since April 1998. Prior to that
date, Mr. Matthews served as Senior Vice President of NBC beginning in 1996.
Shelly S. Williams--Age 38--Senior Vice President and Controller. Ms.
Williams has served as Senior Vice President and Controller of Alabama
National and NBC since 2000. Prior to such time, Ms. Williams served as Vice
President and Controller of NBC from 1997 through 2000, and as Assistant Vice
President and Assistant Controller of NBC from 1996 to 1997.
ITEM 2. PROPERTIES
Alabama National, through the Banks, currently operates 52 banking offices
and one insurance office. Of these offices, Alabama National, through the
Banks, owns 42 banking offices without encumbrance and leases an additional 10
banking offices and its one insurance office. Alabama National, through NBC,
leases its principal administrative offices, which are located at 1927 First
Avenue North, Birmingham, Alabama. See Notes 6 and 9 to the Consolidated
Financial Statements of Alabama National and Subsidiaries included in this
Annual Report on Form 10-K for additional information regarding Alabama
National's premises and equipment.
ITEM 3. LEGAL PROCEEDINGS
Alabama National, in the normal course of business, is subject to various
pending and threatened litigation. Although it is not possible to determine at
this point in time, based on consultation with legal counsel, management does
not anticipate that the ultimate liability, if any, resulting from such
litigation will have a material effect on Alabama National's financial
condition and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 12, 2001 Alabama National had 1,198 stockholders of record
(including shares held in "street" names by nominees who are record holders)
and 11,793,160 shares of Alabama National Common Stock outstanding. Alabama
National Common Stock is traded in the over-the-counter market and prices are
quoted on the NASDAQ/NMS under the symbol "ALAB."
The reported sales price range for Alabama National Common Stock and the
dividends declared during each calendar quarter of 1999 and 2000 are shown
below:
Dividends
High Low Declared
------- --- ---------
1999
First Quarter.................................... $26 29/32 21 3/4 $.18
Second Quarter................................... 25 3/8 22 1/2 .18
Third Quarter.................................... 27 1/2 22 5/8 .18
Fourth Quarter................................... 24 5/8 17 3/4 .18
2000
First Quarter.................................... 21 3/4 14 1/8 .21
Second Quarter................................... 20 1/2 17 1/8 .21
Third Quarter.................................... 24 3/4 17 1/8 .21
Fourth Quarter................................... 23 5/8 18 3/4 .21
As a bank holding company, Alabama National, except under extraordinary
circumstances, will not generate earnings of its own, but will rely solely on
dividends paid to it by the Banks as the source of income to meet its expenses
and pay dividends. Under normal circumstances, Alabama Nationals' ability to
pay dividends will depend entirely on the ability of the Banks to pay
dividends to Alabama National. The Banks are subject to state and federal
banking regulations, and the payment of dividends by the Banks is governed by
such regulations.
The last reported sales price of Alabama National Common Stock as reported
on the NASDAQ/NMS on March 12, 2001 was $28.00. The prices shown do not
reflect retail mark-ups and mark-downs. All share prices have been rounded to
the nearest 1/64 of one dollar. The market makers for Alabama National Common
Stock as of December 31, 2000, were Raymond James & Associates, Inc., Legg
Mason Wood Walker Inc., The Robinson Humphrey Company, LLC, ABN AMRO
Securities (USA), Inc., Speer, Leeds & Kellogg, Mayer & Schweitzer, Inc.,
Keefe, Bruyette & Woods, Inc., Trident Securities, Inc., First Tennessee
Securities Corporation, Schwab Capital Markets and Sherwood Securities Corp.
12
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
(Amounts in thousands, except ratios and per share data)
Year Ended December 31,
----------------------------------------------------------
2000 1999 1998(1) 1997(1) 1996(1)
---------- ---------- ---------- ---------- ----------
Income Statement Data:
Interest income......... $ 161,404 $ 125,668 $ 115,704 $ 104,508 $ 93,178
Interest expense........ 86,438 59,283 56,555 48,379 42,174
---------- ---------- ---------- ---------- ----------
Net interest income..... 74,966 66,385 59,149 56,129 51,004
Provision for loan
losses................. 2,003 1,954 1,796 3,421 1,035
---------- ---------- ---------- ---------- ----------
Net interest income
after provision for
loan losses............ 72,963 64,431 57,353 52,708 49,969
Net securities gains
(losses)............... 1 190 174 (2) (84)
Noninterest income...... 32,679 30,367 29,176 20,296 19,214
Noninterest expense..... 70,374 62,455 61,154 52,788 50,175
---------- ---------- ---------- ---------- ----------
Income before income
taxes.................. 35,269 32,533 25,549 20,214 18,924
Provision for income
taxes.................. 10,851 10,237 8,154 6,086 5,279
---------- ---------- ---------- ---------- ----------
Income before minority
interest in earnings of
consolidated
subsidiary............. 24,418 22,296 17,395 14,128 13,645
Minority interest in
earnings of
consolidated
subsidiary............. 26 25 23 12 14
---------- ---------- ---------- ---------- ----------
Net income.............. $ 24,392 $ 22,271 $ 17,372 $ 14,116 $ 13,631
========== ========== ========== ========== ==========
Balance Sheet Data:
Total assets............ $2,235,698 $1,921,884 $1,672,049 $1,495,814 $1,260,635
Earning assets.......... 2,026,028 1,716,935 1,493,122 1,313,097 1,149,038
Securities.............. 375,312 345,123 324,213 265,102 224,939
Loans held for sale .... 5,226 8,615 19,047 5,291 4,339
Loans, net of unearned
income................. 1,609,465 1,320,160 1,087,027 961,079 863,968
Allowance for loan
losses................. 20,867 18,068 16,540 14,844 12,633
Deposits................ 1,703,949 1,442,155 1,275,175 1,125,479 988,876
Short-term debt......... 83,439 18,389 21,700 29,087 42,205
Long-term debt.......... 83,926 124,005 32,328 16,587 12,939
Stockholders' equity.... 162,464 138,255 130,993 116,888 105,204
Weighted Average Shares
Outstanding--
Diluted(2)............. 11,238 11,273 11,173 10,999 10,490
Per Common Share Data:
Net income--diluted .... $ 2.17 $ 1.98 $ 1.55 $ 1.28 $ 1.30
Book value (period
end)................... 14.70 12.49 11.94 11.02 10.43
Tangible book value
(period end) .......... 13.40 11.52 11.19 10.20 9.66
Dividends declared ..... 0.84 0.72 0.60 0.46 0.28
Performance Ratios:
Return on average assets
....................... 1.18% 1.26% 1.10% 1.05% 1.17%
Return on average equity
....................... 16.47 16.28 13.81 12.73 14.22
Net interest margin(3).. 3.98 4.18 4.24 4.62 4.75
Net interest margin
(taxable
equivalent)(3)......... 4.03 4.25 4.31 4.71 4.83
Asset Quality Ratios:
Allowance for loan
losses to period end
loans(4)............... 1.30% 1.37% 1.52% 1.54% 1.46%
Allowance for loan
losses to period end
nonperforming
loans(5)............... 647.84 435.79 340.61 281.14 377.22
Net charge-offs to
average loans(4) ...... 0.04 0.04 0.01 0.13 0.00
Nonperforming assets to
period end loans and
foreclosed
property(4)(5)......... 0.29 0.37 0.56 0.73 0.48
Capital and Liquidity
Ratios:
Average equity to
average assets......... 7.15% 7.77% 7.95% 8.27% 8.21%
Leverage (4.00% required
minimum)(6)............ 6.80 7.18 7.41 7.75 8.64
Risk-based capital
Tier 1 (4.00% required
minimum)(6)........... 8.82 9.38 10.03 9.89 10.91
Total (8.00% required
minimum)(6)........... 10.04 10.62 11.28 11.14 12.16
Average loans to average
deposits............... 93.88 88.96 83.02 85.44 84.08
13
- --------
(1) On December 31, 1998, Community Bank of Naples, N.A. ("Naples") merged
with and into a subsidiary of Alabama National (the "Naples Merger").
Pursuant to the terms of the Naples Merger, each share of Naples common
stock was converted into 0.53271 shares of Alabama National's common
stock. On October 2, 1998, Community Financial Corporation ("CFC") merged
with and into Alabama National (the "CFC Merger"). Pursuant to the terms
of the CFC Merger, each share of CFC common stock was converted into
0.351807 shares of Alabama National's common stock. On May 29, 1998,
Public Bank Corporation ("PBC") merged with and into Alabama National (the
"PBC Merger"). Pursuant to the terms of the PBC Merger, each share of PBC
common stock was converted into 0.2353134 shares of Alabama National's
common stock. On November 30, 1997, First American Bancorp ("FAB") merged
with and into Alabama National (the "FAB Merger"). Pursuant to the terms
of the FAB Merger, each share of FAB common stock was converted into
0.7199 shares of Alabama National's common stock. On September 30, 1996,
FIRSTBANC Holding Company, Inc. ("FIRSTBANC") was merged with and into
Alabama National, with each share of common stock of FIRSTBANC being
converted into 7.12917 shares of Alabama National's common stock. Each of
the aforementioned mergers was accounted for as pooling of interests. The
historical Five-Year Summary of Selected Financial Data for all periods
have been restated to include the results of operations of Naples, CFC,
PBC, FAB, and FIRSTBANC from the earliest period presented, except for
dividends per common share. (See Note 2 to Alabama National's consolidated
financial statements included in this Annual Report).
(2) The weighted average common share and common equivalent shares outstanding
are those of Naples, CFC, PBC, FAB, and FIRSTBANC converted into Alabama
National common stock and common stock equivalents at the applicable
exchange ratios.
(3) Net interest income divided by average earning assets.
(4) Does not include loans held for sale.
(5) Nonperforming loans and nonperforming assets includes loans past due 90
days or more that are still accruing interest. It is Alabama National's
policy to place all loans on nonaccrual status when over ninety days past
due.
(6) Based upon fully phased-in requirements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Basis of Presentation
The following is a discussion and analysis of the consolidated financial
condition of Alabama National and results of operations as of the dates and
for the periods indicated. All significant intercompany accounts and
transactions have been eliminated. The accounting and reporting policies of
Alabama National conform with generally accepted accounting principles and
with general financial service industry practices.
The historical consolidated financial statements of Alabama National and the
"FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA" derived from the historical
consolidated financial statements of Alabama National are set forth elsewhere
herein. This discussion should be read in conjunction with those consolidated
financial statements and selected consolidated financial data and the other
financial information included in this Annual Report.
14
Selected Bank Financial Data
Alabama National's success is dependent upon the financial performance of
its subsidiary banks (the "Banks"). Alabama National, with input from the
management of each Bank, establishes operating goals for each Bank. The
following tables summarize selected financial information for 2000 and 1999
for each of the Banks.
SELECTED BANK FINANCIAL DATA
(Amounts in thousands, except ratios)
(Unaudited)
December 31, 2000
------------------------------------------------------------------------------------------------------
National Alabama Citizens & First First First Georgia Community
Bank of Exchange Bank of Peoples American Citizens Gulf Public State Bank of
Commerce Bank Dadeville Bank, N.A. Bank Bank Bank Bank Bank Naples, N.A.
-------- -------- --------- ---------- -------- -------- -------- ------- -------- ------------
Summary of Operations:
Interest income....... $ 71,622 $ 5,593 $ 5,639 $ 3,400 $ 31,322 $ 6,907 $ 11,706 $ 6,192 $ 13,252 $ 8,777
Interest expense...... 42,725 1,936 2,706 2,211 15,802 3,467 5,788 2,634 6,407 4,180
Net interest income... 28,897 3,657 2,933 1,189 15,520 3,440 5,918 3,558 6,845 4,597
Provision for loan
losses............... 425 160 35 110 618 -- 95 178 20 362
Securities gains
(losses)............. -- -- -- -- -- -- -- -- -- --
Noninterest income.... 19,159 680 597 355 6,142 760 1,711 1,127 1,715 749
Noninterest expense... 32,775 1,992 1,596 1,291 13,545 1,963 4,568 2,642 4,963 2,367
Net income............ 10,441 1,438 1,321 107 5,223 1,703 1,950 1,165 2,357 1,690
Balance Sheet
Highlights:
At Period-End:
Total assets........ $952,623 $73,719 $71,472 $53,122 $443,982 $92,666 $165,784 $89,664 $179,860 $130,883
Securities.......... 130,204 19,526 14,752 12,407 54,353 36,825 18,075 13,260 51,455 24,375
Loans, net of unearned
income.............. 710,094 40,223 47,637 33,563 338,270 44,934 130,516 62,659 110,624 94,174
Allowance for loan
losses............. 9,010 593 556 467 4,799 588 1,519 719 1,313 1,303
Deposits............ 642,227 61,617 56,021 48,862 368,989 78,996 142,667 77,466 137,315 93,593
Short-term debt..... 16,900 5,000 5,000 -- 5,000 4,000 5,000 5,000 5,000 6,000
Long-term debt...... 45,176 -- 3,700 -- 18,050 2,000 5,000 -- 10,000 --
Stockholders'
equity............. 74,343 6,303 5,590 4,062 41,184 6,885 11,362 6,546 13,020 8,821
Performance Ratios:
Return on average
assets............... 1.12% 1.92% 1.81% 0.23% 1.42% 1.83% 1.31% 1.45% 1.38% 1.42%
Return on average
equity............... 15.50 23.59 24.33 2.92 15.76 26.41 19.27 19.63 20.56 22.02
Net interest margin... 3.35 5.36 4.38 2.83 4.67 4.02 4.37 4.88 4.47 4.49
Capital and Liquidity
Ratios:
Average equity to
average assets....... 7.25 8.13 7.45 7.72 9.02 6.92 6.78 7.41 6.73 6.46
Leverage (4.00%
required minimum).... 7.78 7.45 7.89 8.09 7.89 7.39 7.00 7.57 7.16 6.96
Risk-based capital....
Tier 1 (4.00%
required minimum).. 9.79 13.08 11.73 11.42 9.52 13.56 8.88 9.68 10.93 10.16
Total (8.00%
required minimum).. 10.97 14.33 12.87 12.67 10.77 14.74 10.07 10.73 12.02 11.41
Average loans to
average deposits..... 112.63 65.68 78.30 68.54 93.36 55.38 91.92 80.23 70.88 88.49
15
SELECTED BANK FINANCIAL DATA (continued)
(Amounts in thousands, except ratios)
(Unaudited)
December 31, 1999
------------------------------------------------------------------------------------------------------
National Alabama Citizens & First First First Georgia Community
Bank of Exchange Bank of Peoples American Citizens Gulf Public State Bank of
Commerce Bank Dadeville Bank, N.A. Bank Bank Bank Bank Bank Naples, N.A.
-------- -------- --------- ---------- -------- -------- -------- ------- -------- ------------
Summary of Operations:
Interest income....... $ 55,306 $ 4,813 $ 5,039 $ 2,772 $ 22,386 $ 6,389 $ 9,058 $ 4,475 $ 10,823 $ 6,014
Interest expense...... 28,747 1,590 2,155 1,776 9,781 2,891 3,780 1,500 4,760 2,801
Net interest income... 26,559 3,223 2,884 996 12,605 3,498 5,278 2,975 6,063 3,213
Provision for loan
losses............... 25 150 117 166 680 27 353 65 15 356
Securities gains...... -- -- -- 6 -- 7 6 -- 23 --
Noninterest income.... 18,674 683 644 298 4,518 806 1,624 1,082 1,660 590
Noninterest expense... 30,287 1,895 1,615 1,100 10,418 2,052 4,080 2,332 4,507 1,739
Net income............ 10,269 1,249 1,267 40 4,232 1,634 1,636 1,021 2,103 1,061
Balance Sheet
Highlights:
At Period-End:
Total assets........ $893,076 $72,162 $70,702 $44,857 $301,440 $92,442 $131,229 $71,444 $160,135 $106,619
Securities.......... 120,638 21,310 16,382 13,892 41,489 39,354 11,988 14,499 40,468 25,006
Loans, net of
unearned income.... 639,859 41,643 42,636 24,932 226,161 43,489 103,577 45,218 90,039 69,069
Allowance for loan
losses............. 8,517 623 500 359 3,318 580 1,448 547 1,213 963
Deposits............ 583,739 60,794 55,914 36,697 240,606 78,967 109,328 60,563 136,702 84,790
Short-term debt..... 6,199 -- -- -- -- -- 2,000 -- -- --
Long-term debt...... 56,000 5,000 8,700 -- 23,039 6,000 10,000 5,000 5,000 5,000
Stockholders'
equity............. 61,855 5,780 5,196 3,598 27,667 6,198 9,088 5,597 10,693 6,703
Performance Ratios:
Return on average
assets............... 1.29% 1.84% 1.86% 0.09% 1.50% 1.83% 1.33% 1.63% 1.46% 1.16%
Return on average
equity............... 17.25 19.90 21.26 1.03 16.46 20.66 19.35 18.22 19.88 16.39
Net interest margin... 3.64 5.28 4.64 2.65 4.94 4.29 4.74 5.30 4.65 4.17
Capital and Liquidiy
Ratios:
Average equity to
average assets....... 7.45 9.26 8.77 9.26 9.09 8.87 6.86 8.97 7.33 7.09
Leverage (4.00%
required minimum).... 7.26 7.81 8.25 9.37 8.43 7.16 7.19 8.75 7.37 7.29
Risk-based capital....
Tier 1 (4.00%
required minimum).. 8.84 12.18 12.60 13.58 10.51 13.87 9.30 12.66 11.65 10.73
Total (8.00%
required minimum).. 10.01 13.43 13.72 14.77 11.76 15.08 10.55 13.82 12.85 11.98
Average loans to
average deposits..... 108.95 62.85 77.01 56.75 90.97 54.38 90.51 67.04 67.92 70.52
16
Results of Operations
Year ended December 31, 2000, compared with year ended December 31, 1999
Alabama National's net income increased by $2.1 million, or 9.5%, to $24.4
million in the year ended December 31, 2000, from $22.3 million for the year
ended December 31, 1999. Return on average assets during 2000 was 1.18%,
compared with 1.26% during 1999, and return on average equity was 16.47%
during 2000, compared with 16.28% during 1999.
Net interest income increased $8.6 million, or 12.9%, to $75.0 million in
2000 from $66.4 million in 1999, as interest income increased by $35.7 million
and interest expense increased $27.2 million. The increase in net interest
income is primarily attributable to a $284.6 million increase in average loans
to $1.5 billion during 2000, from $1.2 billion in 1999, as a result of
management emphasis on loan growth. In general, loans are Alabama National's
highest yielding earning asset. The increased interest expense is primarily
attributable to an increase in average time deposits of $195.1 million to
$807.3 million in 2000, from $612.3 million in 1999 and an increase in the
interest rate paid on time deposits of 77 basis points, to 6.01% in 2000, from
5.24% in 1999. Also, average long-term and short-term debt increased a
combined $70.5 million to $154.5 million during 2000, from $84.0 million in
1999. The increases in the above liability categories are due to Alabama
National's need to fund loan growth. These funding sources generally bear
higher interest rates than interest-bearing transaction accounts, resulting in
higher interest expense.
Alabama National's net interest spread and net interest margin were 3.43%
and 3.98%, respectively, in 2000, each decreasing by 20 basis points from
1999. These decreases resulted because the rate paid on interest-bearing
liabilities increased more rapidly than the yield earned on average loans due
to a shift in Alabama National's funding mix. During 2000, loans grew more
rapidly than lower cost deposits, causing Alabama National to rely upon more
costly funding sources such as Federal Home Loan Bank Advances and brokered
certificate of deposits.
Alabama National recorded a provision for loan losses of $2.0 million during
each of 2000 and 1999. Management believes that both loan loss experience and
asset quality indicate that the allowance for loan losses is maintained at an
adequate level. Alabama National's allowance for loan losses as a percentage
of period-end loans (excluding loans held for sale) was 1.30% at December 31,
2000, compared with 1.37% at December 31, 1999. The allowance for loan losses
as a percentage of period-end nonperforming assets was 446.74% at December 31,
2000, compared with 373.85% at December 31, 1999. Alabama National experienced
net charge-offs of $604,000 in 2000, equating to a ratio of net charge-offs to
average loans of 0.04% compared with net charge-offs of $426,000 in 1999,
equating to a ratio of net charge-offs to average loans of 0.04%. See
"Provision and Allowance for Loan Losses."
Noninterest income, including net securities gains and losses, increased
$2.1 million, or 6.9%, to $32.7 million in 2000, compared with $30.6 million
in 1999. Alabama National experienced revenue decreases in its investment
services and mortgage lending divisions of $1.2 million, or 11.5%, to $9.4
million in 2000 from $10.6 million in 1999. The securities brokerage division
experienced a revenue increase of $1.7 million, or 46.0%, to $5.4 million in
2000, from $3.7 million in 1999. The commissions generated by the insurance
division totaled $2.1 million in 2000 compared to $1.1 million in 1999. The
1999 commission revenue only includes seven months of activity as the division
was acquired in May 1999. Fees generated by the trust division increased by
$89,000 in 2000, or 4.1%, to $2.3 million. Service charges on deposit accounts
increased by $256,000, or 3.4%, to $7.7 million in 2000 from $7.5 million in
1999. Earnings on bank owned life insurance totaled $2.0 million in 2000
compared with $1.5 million in 1999. The increase reflects earnings on a larger
bank owned life insurance asset base due to reinvestment of policy earnings
and additional investments in bank owned life insurance policies during 2000.
Noninterest income for 1999 includes a gain of $819,000 from the curtailment
of Alabama National's defined benefit pension plan, a gain of $249,000 from
non-recurring sales of assets and a securities gain of $190,000. Excluding
these non-recurring items, Alabama National's noninterest income increased
$3.4 million, or 11.6%, in 2000 versus 1999. Noninterest expense increased
$7.9 million, or 12.7%, to $70.4 million in 2000, compared with $62.5 million
during 1999. See "Noninterest Income and Expense."
17
Income before the provision for income taxes increased $2.7 million, or
8.4%, to $35.3 million in 2000, from $32.5 million in 1999. Net income totaled
$24.4 million in 2000, an increase of $2.1 million, or 9.5%, compared to $22.3
million during 1999.
Year ended December 31, 1999, compared with year ended December 31, 1998
Alabama National's net income increased by $4.9 million, or 28.2%, to $22.3
million in the year ended December 31, 1999, from $17.4 million in the year
ended December 31, 1998. Return on average assets during 1999 was 1.26%,
compared with 1.10% during 1998, and return on average equity was 16.28%
during 1999, compared with 13.81% during 1998.
Net interest income increased $7.3 million, or 12.2%, to $66.4 million in
1999 from $59.1 million in 1998, as interest income increased by $10.0 million
and interest expense increased $2.7 million. The increase in net interest
income is primarily attributable to a $193.3 million increase in average loans
to $1.2 billion during 1999, from $1.0 billion in 1998, as a result of
management emphasis on loan growth. In general, loans are Alabama National's
highest yielding earning asset. The increased interest expense is primarily
attributable to an increase in average time deposits of $71.1 million to
$612.3 million in 1999, from $541.1 million in 1998 and an increase in average
long-term debt to $58.4 million in 1999, from $30.5 million in 1998, an
increase of $27.9 million. The increases are due to Alabama National's need to
fund loan growth and these funding sources generally bear higher interest
rates than interest-bearing transaction accounts.
Alabama National's net interest spread and net interest margin were 3.63%
and 4.18%, respectively, in 1999, decreasing by 4 and 6 basis points,
respectively, from 1998. These slight decreases reflect declining yields on
average loans that exceeded the decline in cost of interest-bearing
liabilities, attributable to increased competition from banks and other
financial institutions.
Alabama National recorded a provision for loan losses of $2.0 million during
1999 compared with $1.8 million one year ago. Management believes that both
loan loss experience and asset quality indicate that the allowance for loan
losses is maintained at an adequate level. Alabama National's allowance for
loan losses as a percentage of period-end loans (excluding loans held for
sale) was 1.37% at December 31, 1999, compared with 1.52% at December 31,
1998, and the allowance for loan losses as a percentage of period-end
nonperforming assets was 373.85% at December 31, 1999, compared with 271.6% at
December 31, 1998. Alabama National experienced net charge-offs of $426,000 in
1999 equating to a ratio of net charge-offs to average loans of 0.04% compared
with net charge-offs of $100,000 in 1998 equating to a ratio of net charge-
offs to average loans of 0.01%. See "Provision and Allowance for Loan Losses."
Noninterest income, including net securities gains and losses, increased
$1.2 million, or 4.1%, to $30.6 million in 1999, compared with $29.4 million
in 1998. Alabama National experienced revenue decreases in its investment
services and mortgage lending divisions of $2.9 million, or 21.5%, to $10.6
million in 1999 from $13.5 million in 1998. During 1999, the securities
brokerage division experienced an increase in revenue of $1.4 million, or
60.7%, to $3.7 million. Service charges on deposit accounts increased by
$220,000, or 3.0%, to $7.5 million in 1999 from $7.3 million in 1998. Earnings
on bank owned life insurance policies totaled $1.5 million in 1999 compared
with $1.2 million, representing an increase of 28.9%. Alabama National's newly
acquired insurance division recorded revenue of $1.1 million during 1999.
During 1999, Alabama National also recognized a gain of $819,000 on the
curtailment of its defined benefit pension plan. Non-recurring sales of assets
resulted in gains of $249,000 in 1999 compared to $247,000 in 1998.
Noninterest expense increased $1.3 million, or 2.1%, to $62.5 million during
1999, compared with $61.2 million during 1998. See "Noninterest Income and
Expense."
Income before the provision for income taxes increased $7.0 million, or
27.3%, to $32.5 million in 1999, from $25.5 million in 1998. Net income
increased $4.9 million during 1999.
18
Net Interest Income
The largest component of Alabama National's net income is its net interest
income--the difference between the income earned on assets and interest paid
on deposits and borrowed funds used to support its assets. Net interest income
is determined by the yield earned on Alabama National's earning assets and
rates paid on its interest-bearing liabilities, the relative amounts of
earning assets and interest-bearing liabilities and the maturity and repricing
characteristics of its earning assets and interest-bearing liabilities. Net
interest income divided by average earning assets represents the Alabama
National's net interest margin.
Average Balances, Income, Expenses and Rates
The following table depicts, on a taxable equivalent basis for the periods
indicated, certain information related to Alabama National's average balance
sheet and its average yields on assets and average costs of liabilities. Such
yields or costs are derived by dividing income or expense by the average daily
balances of the associated assets or liabilities.
19
AVERAGE BALANCES, INCOME AND EXPENSES AND RATES
(Amounts in thousands, except yields and rates)
Year ended December 31,
----------------------------------------------------------------------------------
2000 1999 1998
--------------------------- --------------------------- --------------------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
---------- -------- ------ ---------- -------- ------ ---------- ------- ------
ASSETS:
-------
Earning assets:
Loans(1)(3)............ $1,485,628 $134,974 9.09% $1,201,041 $102,549 8.54% $1,007,695 $92,343 9.16%
Securities:
Taxable................ 324,319 22,306 6.88 297,843 18,834 6.32 273,782 17,213 6.29
Tax exempt............. 29,911 2,245 7.51 33,173 2,458 7.41 33,182 2,510 7.56
Cash balances in other
banks................. 3,781 214 5.66 1,830 110 6.01 2,019 106 5.25
Funds sold............. 39,613 2,522 6.37 46,647 2,406 5.16 75,039 4,256 5.67
Trading account
securities............ 1,795 124 6.91 6,669 356 5.34 4,352 264 6.07
---------- -------- ---------- -------- ---------- -------
Total earning
assets(2)........... 1,885,047 162,385 8.61 1,587,203 126,713 7.98 1,396,069 116,692 8.36
---------- -------- ---------- -------- ---------- -------
Cash and due from
banks.................. 69,992 65,474 56,529
Premises and equipment.. 46,955 42,041 37,404
Other assets............ 89,568 84,244 108,715
Allowance for loan
losses................. (19,577) (17,323) (15,608)
---------- ---------- ----------
Total assets......... $2,071,985 $1,761,639 $1,583,109
========== ========== ==========
LIABILITIES:
------------
Interest-bearing
liabilities:
Interest-bearing
transaction accounts.. $ 250,594 8,270 3.30 $ 197,811 4,860 2.46 $ 167,034 4,271 2.56
Savings and money
market deposits....... 301,003 10,814 3.59 321,791 10,668 3.32 313,254 11,678 3.73
Time deposits.......... 807,324 48,510 6.01 612,263 32,061 5.24 541,142 30,466 5.63
Funds purchased........ 153,950 9,226 5.99 146,111 7,258 4.97 127,856 6,807 5.32
Other short-term
borrowings............ 57,354 4,024 7.02 25,539 1,407 5.51 26,323 1,613 6.13
Long-term debt......... 97,162 5,594 5.76 58,445 3,029 5.18 30,548 1,720 5.63
---------- -------- ---------- -------- ---------- -------
Total interest-
bearing
liabilities......... 1,667,387 86,438 5.18 1,361,960 59,283 4.35 1,206,157 56,555 4.69
---------- -------- ---------- -------- ---------- -------
Demand deposits........ 223,620 218,263 192,427
Accrued interest and
other liabilities..... 32,886 44,609 58,696
Stockholders' equity... 148,092 136,807 125,829
---------- ---------- ----------
Total liabilities and
stockholders' equity... $2,071,985 $1,761,639 $1,583,109
========== ========== ==========
Net interest spread..... 3.43% 3.63% 3.67%
==== ==== ====
Net interest
income/margin on a
taxable equivalent
basis.................. 75,947 4.03% 67,430 4.25% 60,137 4.31%
==== ==== ====
Tax equivalent
adjustment(2).......... 981 1,045 988
-------- -------- -------
Net interest
income/margin.......... $ 74,966 3.98% $ 66,385 4.18% $59,149 4.24%
======== ==== ======== ==== ======= ====
- --------
(1) Average loans include nonaccrual loans. All loans and deposits are
domestic.
(2) Tax equivalent adjustments are based on the assumed rate of 34%, and do
not give effect to the disallowance for Federal income tax purposes of
interest expense related to certain tax-exempt assets.
(3) Fees in the amount of $3,247,000, $3,002,000, and $3,273,000 are included
in interest and fees on loans for 2000, 1999, and 1998, respectively.
20
During 2000, Alabama National experienced an increase in net interest income
of $8.6 million, or 12.9%, to $75.0 million, compared with $66.4 million in
1999. Net interest income increased despite a decrease in the net interest
spread of 20 basis points to 3.43% in 2000 from 3.63% in 1999, and a decrease
in the net interest margin of 20 basis points to 3.98% in 2000, compared with
4.18% in 1999. Because the relative yield on loans exceeds that of all other
earnings assets, the primary reason for the increased net interest income was
a 23.7% increase in average loan volume. The decline in net interest spread
and net interest margin resulted because the rate paid on interest-bearing
liabilities increased more rapidly than the yield earned on average loans, due
to Alabama National's reliance on more costly funding sources. Alabama
National's average liabilities in 2000 included more interest bearing
liabilities than in 1999. During 2000, net average earning assets increased by
$297.8 million, or 18.8%, to $1.89 billion from $1.59 billion in 1999. The
major components of this increase included average loans, which increased
$284.6 million, or 23.7%, to $1.49 billion in 2000 from $1.20 billion in 1999,
and securities, which increased $23.2 million, or 7.0%, to $354.2 million in
2000 from $331.0 million in 1999.
Analysis of Changes in Net Interest Income
The following table sets forth, on a taxable equivalent basis, the effect
which varying levels of earning assets and interest-bearing liabilities and
the applicable rates had on changes in net interest income for 2000 and 1999.
For purposes of this table, changes which are not solely attributable to
volume or rate are allocated to volume and rate on a pro rata basis.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
(Amounts in thousands)
December 31,
--------------------------------------------------------
2000 Compared to 1999 1999 Compared to 1998
Variance Due to Variance Due to
--------------------------- ---------------------------
Volume Yield/Rate Total Volume Yield/Rate Total
------- ---------- ------- ------- ---------- -------
Earning assets:
Loans................... $25,495 $ 6,930 $32,425 $16,782 $(6,576) $10,206
Securities:
Taxable............... 1,739 1,733 3,472 1,538 83 1,621
Tax exempt............ (246) 33 (213) (1) (51) (52)
Cash balances in other
banks.................. 111 (7) 104 (10) 14 4
Funds sold.............. (396) 512 116 (1,494) (356) (1,850)
Trading account
securities............. (315) 83 (232) 127 (35) 92
------- ------- ------- ------- ------- -------
Total interest
income.............. 26,388 9,284 35,672 16,942 (6,921) 10,021
Interest-bearing
liabilities:
Interest-bearing
transaction accounts... 1,496 1,914 3,410 762 (173) 589
Savings and money market
deposits............... (705) 851 146 309 (1,319) (1,010)
Time deposits........... 11,257 5,192 16,449 3,808 (2,213) 1,595
Funds purchased......... 408 1,560 1,968 921 (470) 451
Other short-term
borrowings............. 2,145 472 2,617 (47) (159) (206)
Long-term debt.......... 2,194 371 2,565 1,456 (147) 1,309
------- ------- ------- ------- ------- -------
Total interest
expense............. 16,795 10,360 27,155 7,209 (4,481) 2,728
------- ------- ------- ------- ------- -------
Net interest income
on a taxable
equivalent basis.... $ 9,593 $(1,076) 8,517 $ 9,733 $(2,440) 7,293
======= ======= ======= =======
Taxable equivalent
adjustment............. 64 (57)
------- -------
Net interest income..... $ 8,581 $ 7,236
======= =======
21
Interest Sensitivity and Market Risk
Interest Sensitivity
Alabama National monitors and manages the pricing and maturity of its assets
and liabilities in order to diminish the potential adverse impact that changes
in interest rates could have on net interest income. The principal monitoring
technique employed by Alabama National is simulation analysis, which technique
is augmented by "gap" analysis.
In simulation analysis, Alabama National reviews each individual asset and
liability category and their projected behavior in various different interest
rate environments. These projected behaviors are based upon management's past
experiences and upon current competitive environments, including the various
environments in the different markets in which Alabama National competes.
Using this projected behavior and differing rate scenarios as inputs, the
simulation analysis generates as output a projection of net interest income.
Alabama National also periodically verifies the validity of this approach by
comparing actual results with those that were projected in previous models.
See "--Market Risk."
Another technique used by Alabama National in interest rate management is
the measurement of the interest sensitivity "gap," which is the positive or
negative dollar difference between assets and liabilities that are subject to
interest rate repricing within a given period of time. Interest rate
sensitivity can be managed by repricing assets and liabilities, selling
securities available for sale, replacing an asset or liability at maturity or
by adjusting the interest rate during the life of an asset or liability.
Alabama National evaluates interest sensitivity risk and then formulates
guidelines regarding asset generation and repricing, and sources and prices of
off-balance sheet commitments in order to decrease interest sensitivity risk.
Alabama National uses computer simulations to measure the net income effect of
various interest rate scenarios. The modeling reflects interest rate changes
and the related impact on net income over specified periods of time.
22
The following table illustrates Alabama National's interest rate sensitivity
at December 31, 2000, assuming the relevant assets and liabilities are
collected and paid, respectively, based upon historical experience rather than
their stated maturities.
INTEREST SENSITIVITY ANALYSIS
(Amounts in thousands, except ratios)
December 31, 2000
-------------------------------------------------------------------
After One After Three
Within Through Through Greater
One Three Twelve Within One Than One
Month Months Months Year Year Total
-------- --------- ----------- ---------- -------- ----------
ASSETS:
-------
Earning assets:
Loans(1).............. $605,320 $128,988 $ 247,982 $ 982,290 $629,180 $1,611,470
Securities(2)......... 20,289 18,524 53,276 92,089 272,965 365,054
Trading securities.... 577 -- -- 577 -- 577
Interest-bearing
deposits in other
banks................ 7,630 -- -- 7,630 -- 7,630
Funds sold............ 27,818 -- -- 27,818 -- 27,818
-------- -------- --------- ---------- -------- ----------
Total interest-
earning assets..... $661,634 $147,512 $ 301,258 $1,110,404 $902,145 $2,012,549
LIABILITIES:
------------
Interest-bearing
liabilities:
Interest-bearing
deposits:
Demand deposits..... $ 81,404 $ -- $ 10,770 $ 92,174 $193,301 $ 285,475
Savings and money
market deposits.... 83,156 -- 3,718 86,874 203,476 290,350
Time deposits(3).... 124,493 150,431 520,806 795,730 105,501 901,231
Funds purchased....... 143,663 10,121 11,333 165,117 -- 165,117
Short-term
borrowings(4)........ 75,439 6,000 2,000 83,439 -- 83,439
Long-term debt........ 35,001 3,703 25,064 63,768 20,158 83,926
-------- -------- --------- ---------- -------- ----------
Total interest-
bearing
liabilities........ $543,156 $170,255 $ 573,691 $1,287,102 $522,436 $1,809,538
-------- -------- --------- ---------- -------- ----------
Period gap.............. $118,478 $(22,743) $(272,433) $ (176,698) $379,709
======== ======== ========= ========== ========
Cumulative gap.......... $118,478 $ 95,735 $(176,698) $ (176,698) $203,011 $ 203,011
======== ======== ========= ========== ======== ==========
Ratio of cumulative gap
to total earning
assets................. 5.89% 4.76% (8.78)% (8.78)% 10.09%
- --------
(1) Excludes nonaccrual loans of $3,221,000.
(2) Excludes investment equity securities with a market value of $10,258,000.
(3) Excludes matured certificates which have not been redeemed by the
customer and on which no interest is accruing.
(4) Includes treasury, tax and loan account of $900,000.
Alabama National generally benefits from increasing market rates of interest
when it has an asset-sensitive gap and generally benefits from decreasing
market interest rates when it is liability sensitive. Alabama National is
liability sensitive throughout one year after three months. The analysis
presents only a static view of the timing and repricing opportunities, without
taking into consideration that changes in interest rates do not affect all
assets and liabilities equally. For example, rates paid on a substantial
portion of core deposits may change contractually within a relatively short
time frame, but those are viewed by management as significantly less interest
sensitive than market-based rates such as those paid on non-core deposits. For
this and other reasons, management relies more upon the simulation analysis
(as noted above) in managing interest rate risk. Accordingly, management
believes that a liability-sensitive gap position is not as indicative of
Alabama National's true interest sensitivity
23
as it would be for an organization which depends to a greater extent on
purchased funds to support earning assets. Net interest income may be impacted
by other significant factors in a given interest rate environment, including
changes in the volume and mix of earning assets and interest-bearing
liabilities.
Market Risk
Alabama National's earnings are dependent on its net interest income which
is the difference between interest income earned on all earning assets,
primarily loans and securities, and interest paid on all interest bearing
liabilities, primarily deposits. Market risk is the risk of loss from adverse
changes in market prices and rates. Alabama National's market risk arises
primarily from inherent interest rate risk in its lending, investing and
deposit gathering activities. Alabama National seeks to reduce its exposure to
market risk through actively monitoring and managing its interest rate risk.
Management relies upon static "gap" analysis to determine the degree of
mismatch in the maturity and repricing distribution of interest earning assets
and interest bearing liabilities which quantifies, to a large extent, the
degree of market risk inherent in Alabama National's balance sheet. Gap
analysis is further augmented by simulation analysis to evaluate the impact of
varying levels of prevailing interest rates and the sensitivity of specific
earning assets and interest bearing liabilities to changes in those prevailing
rates. Simulation analysis consists of evaluating the impact on net interest
income given changes from 200 basis points below to 200 basis points above the
current prevailing rates. Management makes certain assumptions as to the
effect varying levels of interest rates have on certain earning assets and
interest bearing liabilities, which assumptions consider both historical
experience and consensus estimates of outside sources.
With respect to the primary earning assets, loans and securities, certain
features of individual types of loans and specific securities introduce
uncertainty as to their expected performance at varying levels of interest
rates. In some cases, imbedded options exist whereby the borrower may elect to
repay the obligation at any time. These imbedded prepayment options make
anticipating the performance of those instruments difficult given changes in
prevailing rates. At December 31, 2000, mortgage backed securities with a
carrying value totaling $219.9 million, or 9.8% of total assets and
essentially every underlying loan, net of unearned income, (totaling
$1.61 billion, or 72.0% of total assets), carry such imbedded options.
Management believes that assumptions used in its simulation analysis about the
performance of financial instruments with such imbedded options are
appropriate. However, the actual performance of these financial instruments
may differ from management's estimates due to several factors, including the
diversity and sophistication of the customer base, the general level of
prevailing interest rates and the relationship to their historical levels, and
general economic conditions. The difference between those assumptions and
actual results, if significant, could cause the actual results to differ from
those indicated by the simulation analysis.
Deposits totaled $1.70 billion, or 76.2% of total assets, at December 31,
2000. Since deposits are the primary funding source for earning assets, the
associated market risk is considered by management in its simulation analysis.
Generally, it is anticipated that deposits will be sufficient to support
funding requirements. However, the rates paid for deposits at varying levels
of prevailing interest rates have a significant impact on net interest income
and therefore, must be quantified by Alabama National in its simulation
analysis. Specifically, Alabama National's spread, the difference between the
rates earned on earning assets and rates paid on interest bearing liabilities,
is generally higher when prevailing rates are higher. As prevailing rates
reduce, the spread tends to compress, with severe compression at very low
prevailing interest rates. This characteristic is called "spread compression"
and adversely effects net interest income in the simulation analysis when
anticipated prevailing rates are reduced from current rates. Management relies
upon historical experience to estimate the degree of spread compression in its
simulation analysis. Management believes that such estimates of possible
spread compression are reasonable. However, if the degree of spread
compression varies from that expected, the actual results could differ from
those indicated by the simulation analysis.
24
The following table illustrates the results of simulation analysis used by
Alabama National to determine the extent to which market risk would affect net
interest margin for the next twelve months if prevailing interest rates
increased or decreased the specified amounts from current rates. Because of
the inherent use of estimates and assumptions in the simulation model used to
derive this information, the actual results of the future impact of market
risk on Alabama National's net interest margin, may differ from that found in
the table.
MARKET RISK
(Amounts in thousands)
Year ended December 31, 2000 Year ended December 31, 1999
Change in --------------------------------- ---------------------------------
Prevailing Net Interest Change from Net Interest Change from
Interest Rates Income Amount Income Amount Income Amount Income Amount
- -------------- --------------- -------------- --------------- --------------
+200 basis points....... $85,314 4.41% $74,125 1.49%
+100 basis points....... 83,862 2.63 73,490 0.62
0 basis points.......... 81,709 -- 73,037 --
- -100 basis points....... 79,131 (3.15) 71,591 (1.98)
- -200 basis points....... 77,348 (5.34) 69,424 (4.95)
Provision and Allowance for Loan Losses
Alabama National has policies and procedures for evaluating the overall
credit quality of its loan portfolio including timely identification of
potential problem credits. On a monthly basis, management reviews the
appropriate level for the allowance for loan losses. This review and analysis
is based on the results of the internal monitoring and reporting system,
analysis of economic conditions in its markets and a review of historical
statistical data, current trends regarding the volume and severity of past due
and problem loans and leases, the existence and effect of concentrations of
credit, and changes in national and local economic conditions for both Alabama
National and other financial institutions. Management also considers in its
evaluation of the adequacy of the allowance for loan losses the results of
regulatory examinations conducted for each Bank, including evaluation of
Alabama National's policies and procedures and findings from Alabama
National's independent loan review department.
The provision for loan losses increased by $49,000, or 2.5%, to $2.0 million
in 2000 from $1.95 million in 1999. The growth in loans exceeded the growth in
loan loss provision, primarily due to Alabama National's assessment of
allowance for loan losses adequacy, low charge-off experience and low
nonperforming asset levels. Management believes the allowance for loan losses,
at its current level, adequately covers Alabama National's exposure to loan
losses.
Management's periodic evaluation of the adequacy of the allowance for loan
losses is based on Alabama National's past loan loss experience, known and
inherent risks in the portfolio, adverse situations that may affect the
borrowers' ability to repay, estimated value of any underlying collateral, and
an analysis of current economic conditions. While management believes that it
has established the allowance in accordance with generally accepted accounting
principles and has taken into account the views of its regulators and the
current economic environment, there can be no assurance that in the future
Alabama National's regulators or its economic environment will not require
further increases in the allowance.
Additions to the allowance for loan losses, which are expensed as the
provision for loan losses on Alabama National's income statement, are made
periodically to maintain the allowance for loan losses at an appropriate level
as determined by management. Loan losses and recoveries are charged or
credited directly to the allowance for loan losses.
25
The following table presents the information associated with Alabama
National's allowance and provision for loan losses for the dates indicated.
ALLOWANCE FOR LOAN LOSSES
(Amounts in thousands, except percentages)
Year ended December 31,
------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- -------- --------
Total loans outstanding
at end of period, net
of unearned income(1).. $1,609,465 $1,320,160 $1,087,027 $961,079 $863,968
========== ========== ========== ======== ========
Average amount of loans
outstanding, net of
unearned income(1)..... $1,478,448 $1,190,111 $1,003,366 $900,644 $794,105
========== ========== ========== ======== ========
Allowance for loan
losses at beginning of
period................. $ 18,068 $ 16,540 $ 14,844 $ 12,633 $ 11,621
Charge-offs:
Commercial, financial
and agricultural..... 374 211 418 516 809
Real estate--
mortgage............. 137 392 200 531 160
Consumer.............. 850 674 1,246 1,880 1,027
---------- ---------- ---------- -------- --------
Total charge-offs... 1,361 1,277 1,864 2,927 1,996
---------- ---------- ---------- -------- --------
Recoveries:
Commercial, financial
and agricultural..... 161 188 1,012 1,068 1,525
Real estate--
mortgage............. 218 348 296 200 152
Consumer.............. 378 315 456 449 296
---------- ---------- ---------- -------- --------
Total recoveries.... 757 851 1,764 1,717 1,973
---------- ---------- ---------- -------- --------
Net charge-offs..... 604 426 100 1,210 23
Provision for loan
losses................. 2,003 1,954 1,796 3,421 1,035
Changes incidental to
acquisitions........... 1,400 -- -- -- --
---------- ---------- ---------- -------- --------
Allowance for loan
losses at period-end... $ 20,867 $ 18,068 $ 16,540 $ 14,844 $ 12,633
========== ========== ========== ======== ========
Allowance for loan
losses to period-end
loans(1)............... 1.30% 1.37% 1.52% 1.54% 1.46%
Net charge-offs to
average loans(1)....... 0.04 0.04 0.01 0.13 0.00
- --------
(1) Does not include loans held for sale.
Allocation of Allowance
There is no formal allocation of the allowance for loan losses by loan
category.
26
Nonperforming Assets
The following table presents Alabama National's nonperforming assets for the
dates indicated.
NONPERFORMING ASSET
(Amounts in thousands, except percentages)
At December 31,
-------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
Nonaccrual loans................. $ 3,221 $ 4,141 $ 4,357 $ 4,228 $ 2,735
Restructured loans............... -- 5 499 1,052 605
Loans past due 90 days or more
and still accruing.............. -- -- -- -- 9
------- ------- ------- ------- -------
Total nonperforming loans...... 3,221 4,146 4,856 5,280 3,349
Other real estate owned.......... 1,450 687 1,234 1,756 842
------- ------- ------- ------- -------
Total nonperforming assets..... $ 4,671 $ 4,833 $ 6,090 $ 7,036 $ 4,191
======= ======= ======= ======= =======
Allowance for loan losses to
period-end loans(1)............. 1.30% 1.37% 1.52% 1.54% 1.46%
Allowance for loan losses to
period-end nonperforming loans.. 647.84 435.79 340.61 281.14 377.22
Allowance for loan losses to
period-end nonperforming
assets.......................... 446.74 373.85 271.59 210.97 301.43
Net charge-offs to average loans
(1) ............................ 0.04 0.04 0.01 0.13 0.00
Nonperforming assets to period-
end loans and foreclosed
property(1)..................... 0.29 0.37 0.56 0.73 0.48
Nonperforming loans to period-end
loans(1)........................ 0.20 0.31 0.45 0.55 0.39
- --------
(1) Does not include loans held for sale.
Accrual of interest is discontinued on a loan when management believes,
after considering economic and business conditions and collection efforts,
that the borrower's financial condition is such that collection of interest is
doubtful. It is Alabama National's policy to place a delinquent loan on
nonaccrual status when it becomes 90 days or more past due. When a loan is
placed on nonaccrual status, all interest which is accrued on the loan is
reversed and deducted from earnings as a reduction of reported interest. No
additional interest is accrued on the loan balance until collection of both
principal and interest becomes reasonably certain. When a problem loan is
finally resolved, there may ultimately be an actual writedown or charge-off of
the principal balance of the loan which would necessitate additional charges
to the allowance for loan losses. During the years ending December 31, 2000,
1999 and 1998, approximately $451,000, $392,000, and $384,000, respectively,
in additional interest income would have been recognized in earnings if
Alabama National's nonaccrual loans had been current in accordance with their
original terms.
Total nonperforming assets decreased $162,000 to $4.7 million at December
3l, 2000, from $4.8 million at December 31, 1999. The allowance for loan
losses to period-end nonperforming assets was 446.74% at December 31, 2000,
compared with 373.85% at December 31, 1999. This ratio will generally
fluctuate from period to period depending upon nonperforming asset levels at
period end. Total nonperforming loans decreased $925,000 during 2000, to $3.2
million and other real estate owned increased $763,000, to $1.5 million at
December 31, 2000.
Potential Problem Loans
A potential problem loan is one that management has concerns as to the
borrower's future performance under terms of the loan contract. These loans
are current as to principal and interest, and accordingly, they are not
included in the nonperforming asset categories. Management monitors these
loans closely in order to ensure that Alabama National's interests are
protected. At December 31, 2000, Alabama National had certain loans considered
by management to be potential problem loans totaling $24.8 million as compared
with $21.2 million at December 31, 1999. Alabama National believes early
identification of potential problem loans is an important factor in its
ability to successfully collect such loans. As such, it encourages early
identification of potential problems loans both with its loan officers and
loan review staff. The level of potential problem loans is factored into the
determination of the adequacy of the allowance for loan losses.
27
Noninterest Income and Expense
Noninterest income
The Company relies on six distinct product lines for the production of
recurring noninterest income: traditional retail and commercial banking,
mortgage banking, trust services, investment services, securities brokerage
services and insurance services. Combined fees associated with these product
lines totaled $26.9 million in 2000, compared with $25.1 million in 1999, an
increase of $1.9 million, or 7.4%.
The following table sets forth, for the periods indicated, the principal
components of noninterest income.
NONINTEREST INCOME
(Amounts in thousands)
Year ended December 31,
------------------------
2000 1999 1998
------- ------- -------
Service charges on deposit accounts................... $ 7,735 $ 7,479 $ 7,259
Investment services income............................ 5,867 6,624 9,230
Securities brokerage income........................... 5,413 3,707 2,307
Trust fees............................................ 2,279 2,190 2,101
Origination and sale of mortgage loans................ 3,531 3,993 4,303
Gain (loss) on disposal of assets and deposits........ (19) 249 247
Securities gains...................................... 1 190 174
Bank owned life insurance............................. 2,034 1,504 1,167
Insurance commissions................................. 2,099 1,068 --
Gain on pension curtailment........................... -- 819 --
Other................................................. 3,740 2,734 2,562
------- ------- -------
Total noninterest income............................ $32,680 $30,557 $29,350
======= ======= =======
Noninterest Expense
The following table sets forth, for the periods indicated, the principal
components of noninterest expense.
NONINTEREST EXPENSE
(Amounts in thousands)
Year ended December 31,
-----------------------
2000 1999 1998
------- ------- -------
Salaries and employee benefits......................... $42,531 $37,452 $36,021
Net occupancy expense.................................. 8,232 7,265 6,724
Amortization of goodwill............................... 501 387 302
Advertising............................................ 1,004 1,028 976
Banking assessments.................................... 616 482 473
Data processing expenses............................... 1,291 1,442 2,435
Legal and professional fees............................ 2,286 2,911 3,609
Net non-credit losses.................................. 130 206 129
Other.................................................. 13,783 11,282 10,485
------- ------- -------
Total noninterest expense............................ $70,374 $62,455 $61,154
======= ======= =======
Noninterest expense increased $7.9 million, or 12.7%, to $70.4 million in
2000, from $62.5 million in 1999. Salaries and employee benefits increased
$5.1 million, or 13.6%, in 2000. This increase reflects Alabama National's
general growth in employment concurrent with its expansion of offices and
business lines, its asset and revenue growth as well as salary increases
reflecting employee performance, job duties, and competitive
28
employment market conditions. Net occupancy expense increased $967,000, or
13.3%, in 2000. This increase is attributable the opening of three banking
branches and the acquisition of two banking branches during 2000 and a full
year of occupancy expenses associated with the insurance division.
Investment Services
The following table sets forth, for the periods indicated, the summary of
operations for the investment services division of Alabama National:
INVESTMENT SERVICES DIVISION
(Amounts in thousands)