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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, 2001, 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, 2002 was $344,325,770.
As of March 12, 2002 the registrant had outstanding 12,350,088 shares of its
common stock.
DOCUMENTS INCORPORATED BY REFERENCE IN THIS FORM 10-K:
The definitive Proxy Statement for the 2002 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 45
Risk.....................................................
8. Financial Statements and Supplementary Data............... 45
9. Changes in and Disagreements with Accountants on 46
Accounting and Financial Disclosure......................
PART III
10. Directors and Executive Officers of the Registrant........ 46*
11. Compensation of Executive Officers and Directors.......... 46*
12. Security Ownership of Certain Beneficial Owners and 46*
Management...............................................
13. Certain Relationships and Related Transactions............ 46*
PART IV
14. Exhibits, Financial Statement Schedules and Reports on 47
Form 8-K.................................................
SIGNATURES.......................................................... 48
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* Portions of the Proxy Statement for the Registrant's Annual Meeting of
Stockholders to be held on May 2, 2002 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 which became effective in 2000, 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 and
Auburn/Opelika, Alabama), Public Bank (St. Cloud, Florida), Georgia State Bank
(Mableton, Georgia), First Citizens Bank, (Talladega, Alabama) and 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, ANB Insurance Services (Decatur, Alabama).
Recent Developments
Acquisition of Farmers National Bancshares, Inc.
Effective December 14, 2001, Alabama National acquired Farmers National
Bancshares, Inc., ("Farmers National"), a national bank holding company
headquartered in Opelika, Alabama, with approximately $188.4 million in total
assets as of December 14, 2001. The terms of the Farmers National acquisition
are described in that certain Agreement and Plan of Merger dated as of
September 6, 2001 (the "Farmers National Merger Agreement"). Pursuant to the
Farmers National acquisition, (i) the stockholders of Farmers National
received 0.53125 shares of Alabama National common stock for each share of
Farmers National common stock, or, at the option of the Farmers National
stockholders $17.27 in cash for each share of Farmers National common stock,
(ii) Farmers National was merged with and into Alabama National, and (iii)
Farmers National's wholly-owned national bank subsidiary, Farmers National
Bank of Opelika, was merged with and into First American Bank. The Farmers
National acquisition was accounted for as a purchase.
Subsidiary Banks
Alabama National operates through eleven subsidiary Banks which have a total
of 60 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 interest, at December 31, 2001, were
approximately $1.96 billion, or approximately 75.2% 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.
3
Loan Portfolio
Real Estate Loans. Loans secured by real estate are the primary component of
Alabama National's loan portfolio, constituting approximately $1.42 billion,
or 72.3% of total loans, net of unearned interest, at December 31, 2001. 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 2001, the Banks sold approximately $506.7 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 $82.9
million, or 4.22% of Alabama National's loan portfolio at December 31, 2001.
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 50% on loans
secured by inventory, and up to 100% on loans secured by equipment. The Banks
also make some unsecured commercial loans and offer equipment leasing.
Commercial and financial loans constituted $247.6 million, or 12.6% of Alabama
National's loan portfolio at December 31, 2001. Interest rates are negotiable
based upon the borrower's financial condition, credit history, management
stability and collateral.
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
4
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
Alabama National's President and Chief Operating Officer. 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.
Securities Brokerage and Trust Division
NBC's wholly owned subsidiary, NBC Securities, Inc. ("NBC Securities"), 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
advisors in Birmingham, Decatur and Gulf Shores, Alabama; Naples and
Pensacola, Florida; and Mableton, Georgia. NBC also 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.
5
Mortgage Lending Division
Substantially all of the Banks operate mortgage lending divisions that make
home loans to individuals located in the markets served by the Banks. 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 agency, Rankin Insurance, Inc., in 1999. Rankin Insurance, now
operating under the name ANB Insurance Services, 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 Alabama and elsewhere. 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.
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
6
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 and Lee County in east, central 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 and has experienced growth in this market. First American entered
the Lee County market, which includes the communities of Auburn and Opelika,
with the December 14, 2001 acquisition of Farmers National Bancshares, Inc.
Lee County is also one of Alabama's higher growth counties. 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,
Lee and St. Clair Counties have been named in statistical surveys as four 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.
Public Bank also expanded to the Atlantic Coast in September 2001 with the
opening of a new office in Vero Beach, Florida. Community Bank of Naples,
N.A., located in Collier County, Florida, and Georgia State Bank, located in
the greater-Atlanta counties of Cobb, Douglas and Paulding, 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 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.
7
Employees
As of December 31, 2001, Alabama National and the Banks together had
approximately 1,137 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,
examination and supervision of the Federal Reserve. The Banks are subject to
supervision, examination 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.
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
8
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 Federal Reserve has adopted rules to incorporate market and interest
rate risk components into its risk-based capital standards. Amendments to the
risk-based capital requirements, incorporating market risk, became effective
January 1, 1998. Under these market risk requirements, capital will be
allocated to support the amount of market risk related to a financial
institution's ongoing trading activities.
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.
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 FDIC currently uses a risk-based assessment system for insured
depository institutions that takes into account the risks attributable to
different categories and concentrations of assets and liabilities. The FDIC
recently has proposed changes to its assessment system that are designed to
require premium payments by a greater number of banks and other FDIC-insured
depository institutions and that also would provide rebates to some
institutions. If any of these changes were to take effect, the assessment
obligations of the Banks could change.
9
The Gramm-Leach-Bliley Act, which became effective in 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. At this time, Alabama National
has not registered to become a financial holding company.
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. Bank holding companies that have not become financial holding
companies are prohibited from engaging in activities other than banking or
managing or controlling banks or other permissible subsidiaries and from
acquiring or retaining direct or indirect control of any company engaged in
any activities other than those activities determined by the Federal Reserve
to be so closely related to banking or managing or controlling banks as to be
a proper incident thereto.
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.
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 50--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 55--Vice Chairman. Mr. Nichol has served as Vice
Chairman of Alabama National since 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 56--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 and Chief
Executive Officer of First American Bank, positions he has held since 1995.
Mr. David served as Chairman and Chief Executive Officer of First American
Bancorp from 1995 through 1997.
John R. Bragg--Age 40--Executive Vice President. Mr. Bragg has served as
Executive Vice President of Alabama National since 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 39--President and Chief Operating Officer. Mr.
Murray has served as President and Chief Operating Officer of Alabama National
since 2000. Prior to such time, Mr. Murray served as Executive Vice President
of Alabama National beginning 1998 and Executive Vice President of NBC
beginning 1997. Mr. Murray served as Senior Vice President of NBC from 1990
until 1997.
William E. Matthews, V--Age 37--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 1998. Prior to that date,
Mr. Matthews served as Senior Vice President of NBC beginning in 1996.
Shelly S. Williams--Age 39--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 60 banking offices
and one insurance office. Of these offices, Alabama National, through the
Banks, owns 50 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, 2002 Alabama National had 1,435 stockholders of record
(including shares held in "street" names by nominees who are record holders)
and 12,350,088 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 2000 and 2001 are shown
below:
Dividends
High Low Declared
------ ----- ---------
2000
First Quarter......................................... $21.75 14.13 .21
Second Quarter........................................ 20.50 17.13 .21
Third Quarter......................................... 24.75 17.13 .21
Fourth Quarter........................................ 23.63 18.75 .21
2001
First Quarter......................................... $32.00 22.50 .23
Second Quarter........................................ 32.45 27.50 .23
Third Quarter......................................... 34.99 25.51 .23
Fourth Quarter........................................ 35.68 30.04 .23
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, 2002 was $35.10. The prices shown do not
reflect retail mark-ups and mark-downs. The market makers for Alabama National
Common Stock as of December 31, 2001, were Morgan, Stanley & Co., Inc.,
Raymond James & Associates, Inc., Legg Mason Wood Walker Inc., Speer, Leeds &
Kellogg, Keefe, Bruyette & Woods, Inc., Trident Securities, Inc., Sherwood
Securities Corp., Herzog, Heine, Geduld, Inc., Instinet Corporation, RediBook
ECN LLC, Knight Securities L.P., Archipelago L.L.C., Island System
Corporation, MARKETXT, Inc., Midwest Research-First Tennessee, Hoefer &
Arnett, Incorporated, THE BRUT ECN, LLC and SunTrust Capital Markets, Inc.
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,
----------------------------------------------------------
2001(1) 2000(1) 1999(1) 1998(1) 1997(1)
---------- ---------- ---------- ---------- ----------
Income Statement Data:
Interest income......... $ 179,537 $ 171,222 $ 133,106 $ 121,713 $ 110,050
Interest expense........ 90,393 90,987 62,307 59,064 50,848
---------- ---------- ---------- ---------- ----------
Net interest income..... 89,144 80,235 70,799 62,649 59,202
Provision for loan
losses................. 3,946 2,506 2,107 1,796 3,421
---------- ---------- ---------- ---------- ----------
Net interest income
after provision for
loan losses............ 85,198 77,729 68,692 60,853 55,781
Net securities gains
(losses)............... 246 (119) 196 187 (4)
Noninterest income...... 48,461 33,466 31,120 29,963 21,111
Noninterest expense..... 92,233 74,111 65,860 64,401 55,510
---------- ---------- ---------- ---------- ----------
Income before income
taxes.................. 41,672 36,965 34,148 26,602 21,378
Provision for income
taxes.................. 13,232 11,421 10,817 8,504 6,495
---------- ---------- ---------- ---------- ----------
Income before minority
interest in earnings of
consolidated
subsidiary............. 28,440 25,544 23,331 18,098 14,883
Minority interest in
earnings of
consolidated
subsidiary............. 25 26 25 23 12
---------- ---------- ---------- ---------- ----------
Net income.............. $ 28,415 $ 25,518 $ 23,306 $ 18,075 $ 14,871
========== ========== ========== ========== ==========
Balance Sheet Data:
Total assets............ $2,843,467 $2,358,285 $2,025,503 $1,751,724 $1,568,662
Earning assets.......... 2,612,806 2,140,562 1,811,312 1,563,967 1,380,908
Securities.............. 567,688 386,059 353,923 333,898 275,653
Loans held for sale .... 36,554 5,226 8,615 19,047 5,291
Loans, net of unearned
income ................ 1,964,169 1,710,810 1,403,489 1,147,100 1,015,105
Allowance for loan
losses................. 28,519 22,368 19,111 17,465 15,780
Deposits................ 2,066,759 1,807,095 1,529,251 1,345,017 1,190,940
Short-term debt......... 68,350 91,439 24,389 21,700 29,087
Long-term debt.......... 209,631 83,926 124,005 32,328 16,587
Stockholders' equity.... 207,886 171,604 146,280 138,515 123,972
Weighted Average Shares
Outstanding--
Diluted(2)............. 12,141 11,973 12,008 11,908 11,734
Per Common Share Data:
Net income--diluted .... $ 2.34 $ 2.13 $ 1.94 $ 1.52 $ 1.27
Book value (period
end)................... 16.84 14.56 12.40 11.83 10.93
Tangible book value
(period end) .......... 15.31 13.34 11.49 11.13 10.16
Dividends declared ..... 0.92 0.84 0.72 0.60 0.46
Performance Ratios:
Return on average assets
....................... 1.12% 1.17% 1.26% 1.09% 1.05%
Return on average equity
....................... 15.40 16.29 16.11 13.57 12.63
Net interest margin(3).. 3.83 4.03 4.23 4.28 4.63
Net interest margin
(taxable
equivalent)(3)......... 3.88 4.08 4.30 4.35 4.71
Asset Quality Ratios:
Allowance for loan
losses to period end
loans(4)............... 1.45% 1.31% 1.36% 1.52% 1.55%
Allowance for loan
losses to period end
nonperforming
loans(5)............... 377.09 614.17 431.11 330.78 260.40
Net charge-offs to
average loans(4) ...... 0.09 0.04 0.04 0.01 0.13
Nonperforming assets to
period end loans and
foreclosed
property(4)(5)......... 0.47 0.30 0.38 0.57 0.77
Capital and Liquidity
Ratios:
Average equity to
average assets......... 7.28% 7.16% 7.80% 8.03% 8.35%
Leverage (4.00% required
minimum)(6)............ 7.61 6.83 7.23 7.51 7.85
Risk-based capital
Tier 1 (4.00% required
minimum)(6).......... 9.92 8.86 9.46 10.18 10.11
Total (8.00% required
minimum)(6).......... 11.17 10.11 10.70 11.43 11.36
Average loans to average
deposits............... 97.74 94.04 89.00 83.00 85.26
13
- -------
(1) On January 31, 2001, Peoples State Bank of Groveland ("PSB") merged with a
newly formed subsidiary of Alabama National, whereby PSB became a wholly
owned subsidiary of Alabama National ("the PSB Merger"). Pursuant to the
terms of the PSB Merger each share of PSB common stock was converted into
1.164 shares of Alabama National common stock. 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. Each of the
aforementioned mergers was accounted for as a 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 PSB, Naples,
CFC, PBC and FAB 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 PSB, Naples, CFC, PBC and FAB 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 BanCorporation ("Alabama National") and results
of operations as of the dates and for the periods indicated. On January 31,
2001, Peoples State Bank of Groveland, a bank headquartered in Groveland,
Florida, was merged with and into a newly formed subsidiary of Alabama
National, whereby Peoples State Bank of Groveland became a wholly owned
subsidiary of Alabama National. Pursuant to the terms of the merger, each
share of Peoples State Bank common stock was converted into 1.164 shares of
Alabama National common stock for a total of 734,609 shares. The historical
consolidated financial statements of Alabama National reflect adjustments for
the Peoples State Bank merger, which was accounted for as a pooling of
interests, and differ from consolidated financial statements of Alabama
National as previously reported. All significant intercompany accounts and
transactions have been eliminated. The accounting and reporting policies of
Alabama National conform with accounting principles generally accepted in the
United States of America 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 2001 and 2000
for each of the Banks.
SELECTED BANK FINANCIAL DATA
(Amounts in thousands, except ratios)
(Unaudited)
December 31, 2001
------------------------------------------------------------------------------------------------------
National Alabama Citizens & First First First Peoples Georgia
Bank of Exchange Bank of Peoples American Citizens Gulf State Public State
Commerce Bank Dadeville Bank, N.A. Bank Bank Bank Bank Bank Bank
---------- -------- --------- ---------- -------- -------- -------- -------- -------- --------
Summary of
Operations:
Interest income... $ 66,266 $ 5,326 $ 5,254 $ 4,340 $ 37,547 $ 6,653 $ 12,897 $ 10,417 $ 7,222 $ 14,936
Interest
expense........... 35,830 1,811 2,285 2,529 18,537 3,189 5,936 4,903 3,480 7,305
Net interest
income............ 30,436 3,515 2,969 1,811 19,010 3,464 6,961 5,514 3,742 7,631
Provision for
loan losses....... 1,100 160 87 242 510 20 537 225 340 350
Securities
gains............. 140 -- -- -- 15 -- -- -- -- 11
Noninterest
income............ 29,745 681 660 422 8,065 804 2,900 1,040 1,406 2,149
Noninterest
expense........... 41,513 2,252 1,651 1,578 17,915 2,124 5,924 4,251 3,131 5,343
Net income........ 12,299 1,225 1,353 275 5,918 1,638 2,224 1,293 1,051 2,733
Balance Sheet
Highlights:
At Period-End:
Total assets.... $1,080,094 $75,982 $69,833 $76,518 $691,692 $93,907 $189,176 $133,143 $111,825 $219,461
Securities...... 238,484 25,459 14,108 14,307 95,977 41,340 16,638 19,522 19,637 66,616
Loans, net of
unearned
income.......... 722,864 39,063 48,770 55,174 502,618 43,348 150,744 103,926 79,422 120,535
Allowance for
loan losses..... 9,449 579 641 702 8,745 590 1,960 1,527 1,031 1,613
Deposits........ 579,350 64,033 58,120 58,117 584,337 79,924 150,256 116,690 94,579 168,724
Short-term
debt............ 25,000 -- -- 4,000 -- -- 6,000 4,000 -- --
Long-term debt.. 106,077 5,000 5,000 2,000 28,020 6,000 16,000 -- 5,000 15,000
Stockholders'
equity.......... 82,061 6,323 5,677 5,006 63,013 7,190 13,660 9,902 8,623 15,399
Performance Ratios:
Return on average
assets............ 1.22% 1.60% 1.90% 0.43% 1.23% 1.72% 1.24% 0.99% 1.05% 1.33%
Return on average
equity............ 15.52 18.68 22.92 6.35 13.36 22.08 17.75 13.51 13.98 18.83
Net interest
margin............ 3.23 5.01 4.54 3.09 4.34 3.93 4.25 4.49 4.10 4.06
Capital and
Liquidity Ratios:
Average equity to
average assets.... 7.83 8.55 8.30 6.75 9.24 7.80 7.01 7.32 7.53 7.07
Leverage (4.00%
required
minimum).......... 7.72 7.36 8.17 6.90 9.69 7.17 7.21 7.35 7.97 6.88
Risk-based
capital ..........
Tier 1 (4.00%
required
minimum)........ 10.60 13.42 11.69 8.85 9.73 13.67 10.12 10.25 9.88 11.12
Total (8.00%
required
minimum)........ 11.83 14.67 12.94 10.10 10.98 14.86 11.37 11.50 11.06 12.28
Average loans to
average
deposits.......... 118.73 63.58 83.20 74.35 97.39 55.12 99.65 89.02 81.22 75.73
Community
Bank of
Naples, N.A.
------------
Summary of
Operations:
Interest income... $ 10,144
Interest
expense........... 4,607
Net interest
income............ 5,537
Provision for
loan losses....... 375
Securities
gains............. 80
Noninterest
income............ 1,038
Noninterest
expense........... 3,152
Net income........ 2,000
Balance Sheet
Highlights:
At Period-End:
Total assets.... $159,297
Securities...... 15,520
Loans, net of
unearned
income.......... 132,574
Allowance for
loan losses..... 1,682
Deposits........ 117,892
Short-term
debt............ 13,000
Long-term debt.. 6,000
Stockholders'
equity.......... 10,942
Performance Ratios:
Return on average
assets............ 1.37%
Return on average
equity............ 20.14
Net interest
margin............ 4.37
Capital and
Liquidity Ratios:
Average equity to
average assets.... 6.82
Leverage (4.00%
required
minimum).......... 6.91
Risk-based
capital ..........
Tier 1 (4.00%
required
minimum)........ 8.85
Total (8.00%
required
minimum)........ 10.10
Average loans to
average
deposits.......... 104.72
15
SELECTED BANK FINANCIAL DATA (continued)
(Amounts in thousands, except ratios)
(Unaudited)
December 31, 2000
---------------------------------------------------------------------------------------------------
National Alabama Citizens & First First First Peoples Georgia
Bank of Exchange Bank of Peoples American Citizens Gulf State Public State
Commerce Bank Dadeville Bank, N.A. Bank Bank Bank Bank Bank Bank
-------- -------- --------- ---------- -------- -------- -------- -------- ------- --------
Summary of
Operations:
Interest income... $ 71,622 $ 5,593 $ 5,639 $ 3,400 $ 31,322 $ 6,907 $ 11,706 $ 9,818 $ 6,192 $ 13,252
Interest
expense.......... 42,725 1,936 2,706 2,211 15,802 3,467 5,788 4,549 2,634 6,407
Net interest
income........... 28,897 3,657 2,933 1,189 15,520 3,440 5,918 5,269 3,558 6,845
Provision for
loan losses...... 425 160 35 110 618 -- 95 503 178 20
Securities
losses........... -- -- -- -- -- -- -- (120) -- --
Noninterest
income........... 19,159 680 597 355 6,142 760 1,711 787 1,127 1,715
Noninterest
expense.......... 32,775 1,992 1,596 1,291 13,545 1,963 4,568 3,737 2,642 4,963
Net income........ 10,441 1,438 1,321 107 5,223 1,703 1,950 1,126 1,165 2,357
Balance Sheet
Highlights:
At Period-End:
Total assets.... $952,623 $73,719 $71,472 $53,122 $443,982 $92,666 $165,784 $122,587 $89,664 $179,860
Securities...... 130,204 19,526 14,752 12,407 54,353 36,825 18,075 10,747 13,260 51,455
Loans, net of
unearned
income......... 710,094 40,223 47,637 33,563 338,270 44,934 130,516 101,345 62,659 110,624
Allowance for
loan losses.... 9,010 593 556 467 4,799 588 1,519 1,501 719 1,313
Deposits........ 642,227 61,617 56,021 48,862 368,989 78,996 142,667 103,146 77,466 137,315
Short-term
debt........... 16,900 5,000 5,000 -- 5,000 4,000 5,000 8,000 5,000 5,000
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 9,140 6,546 13,020
Performance Ratios:
Return on average
assets........... 1.12% 1.92% 1.81% 0.23% 1.42% 1.83% 1.31% 0.97% 1.45% 1.38%
Return on average
equity........... 15.50 23.59 24.33 2.92 15.76 26.41 19.27 13.11 19.63 20.56
Net interest
margin........... 3.35 5.36 4.38 2.83 4.67 4.02 4.37 4.94 4.88 4.47
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 7.41 6.73
Leverage (4.00%
required
minimum)......... 7.78 7.45 7.89 8.09 7.89 7.39 7.00 7.39 7.57 7.16
Risk-based
capital .........
Tier 1 (4.00%
required
minimum)........ 9.79 13.08 11.73 11.42 9.52 13.56 8.88 9.75 9.68 10.93
Total (8.00%
required
minimum)........ 10.97 14.33 12.87 12.67 10.77 14.74 10.07 11.00 10.73 12.02
Average loans to
average
deposits......... 112.63 65.68 78.30 68.54 93.36 55.38 91.92 96.72 80.23 70.88
Community
Bank of
Naples, N.A.
------------
Summary of
Operations:
Interest income... $ 8,777
Interest
expense.......... 4,180
Net interest
income........... 4,597
Provision for
loan losses...... 362
Securities
losses........... --
Noninterest
income........... 749
Noninterest
expense.......... 2,367
Net income........ 1,690
Balance Sheet
Highlights:
At Period-End:
Total assets.... $130,883
Securities...... 24,375
Loans, net of
unearned
income......... 94,174
Allowance for
loan losses.... 1,303
Deposits........ 93,593
Short-term
debt........... 6,000
Long-term debt.. --
Stockholders'
equity......... 8,821
Performance Ratios:
Return on average
assets........... 1.42%
Return on average
equity........... 22.02
Net interest
margin........... 4.49
Capital and
Liquidity Ratios:
Average equity to
average assets... 6.46
Leverage (4.00%
required
minimum)......... 6.96
Risk-based
capital .........
Tier 1 (4.00%
required
minimum)........ 10.16
Total (8.00%
required
minimum)........ 11.41
Average loans to
average
deposits......... 88.49
16
Critical Accounting Policies and Estimates
Alabama National's accounting policies are critical to understanding the
results of operations as reported in the consolidated financial statements.
Significant accounting policies utilized by Alabama National are discussed in
more detail in the notes to the consolidated financial statements set forth
elsewhere herein.
Some of the more complex technical accounting policies require management to
make significant estimates and judgements that affect the valuation of
reported assets and liabilities, including associated revenues, expenses, and
disclosure. The following briefly describes the more complex policies
involving a significant amount of judgements about valuation and the
application of complex accounting standards and interpretations.
Allowance for Loan Losses
Alabama National records estimated probable incurred credit ,losses in the
loan and lease portfolios as an allowance for loan losses. The methodologies
and assumptions for determining the adequacy of the overall allowance for loan
losses involve significant judgements to be made by management. Some of the
more critical judgements supporting the amount Alabama National's allowance
for loan losses methodology and estimates include judgements about: credit
worthiness of borrowers, estimated value of underlying collateral, assumptions
about cash flow, determination of loss factors for estimating credit losses,
and the impact of current events, conditions, and other factors impacting the
level of probable incurred losses. Under different conditions or using
different assumptions, the actual amount of credit losses ultimately confirmed
by Alabama National may be different than management's estimates provided in
the consolidated financial statements.
For a more complete discussion of the methodology employed to calculate the
allowance for loan losses, see Note 1 to Alabama National's consolidated
financial statements included in this Annual Report and "Provision and
Allowance for Loan Losses."
Other
There are other complex accounting standards that require Alabama National
to employ significant judgement in interpreting and applying certain of the
principles proscribed by those standards. These judgments include, but are not
limited to, determination of whether a financial instrument or other contract
meets the definition of a derivative in accordance with SFAS No. 133, the
accounting for a transfer of financial assets and extinguishments of
liabilities in accordance with SFAS No. 140, and the determination of asset
impairment, including when such impairment is other-than-temporary. For a more
complete discussion of the accounting policies see Note 1 to Alabama
National's consolidated financial statements included in this Annual Report.
Results of Operations
Year ended December 31, 2001, compared with year ended December 31, 2000
Alabama National's net income increased by $2.9 million, or 11.4%, to $28.4
million in the year ended December 31, 2001, from $25.5 million for the year
ended December 31, 2000. Return on average assets during 2001 was 1.12%,
compared with 1.17% during 2000, and return on average equity was 15.40%
during 2001, compared with 16.29% during 2000.
Net interest income increased $8.9 million, or 11.1%, to $89.1 million in
2001, from $80.2 million in 2000, as interest income increased by $8.3 million
and interest expense decreased $0.6 million. The increase in net interest
income is attributable to a $233.8 million increase in average loans to $1.81
billion during 2001, from $1.58 billion in 2000, as a result of continued
management emphasis on loan growth. In general, loans are Alabama National's
highest yielding earning asset. Alabama National also experienced a growth in
its securities portfolio that also contributed to the increase in net interest
income in 2001. Average securities totaled $449.9 million in 2001, compared to
$365.3 in 2000. Despite an increase in average interest bearing liabilities of
$285.8 million, to $2.04 billion in 2001, interest expense decreased slightly
during 2001. This is a result of the interest rate cuts during 2001 by the
Federal Reserve Bank and the effect
17
these cuts had on rates paid on Alabama National's deposits and other funding
sources. Except for other short-term borrowings, all categories of average
interest-bearing liabilities increased during 2001. Average time deposits
increased $88.9 million, to $948.2 million in 2001, compared to $859.4 million
in 2000. The interest rate paid on time deposits decreased 32 basis points to
5.68% in 2001. Also, average long-term and short-term debt increased a
combined $49.5 million, to $211.7 million during 2001, from $162.2 million in
2000. The increases in the above liability categories are due to Alabama
National's need to fund loan and asset 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 3.33%
and 3.83%, respectively, in 2001, compared to 3.47% and 4.03%, respectively,
in 2000. These decreases resulted because the rate paid on interest-bearing
liabilities did not reprice as rapidly as the yield earned on average loans.
During 2001, as the Federal Reserve cut interest rates, Alabama National's
loans repriced more rapidly than the deposits and other funding sources used
to fund loans and other earning assets.
Alabama National recorded a provision for loan losses of $3.9 million during
2001, compared to $2.5 million in 2000. Management believes that both loan
loss experience and asset quality indicate that the allowance for loan losses
is maintained at an adequate level, although there can be no assurance that
economic or regulatory factors will not require further increases in the
allowance. Alabama National's allowance for loan losses as a percentage of
period-end loans (excluding loans held for sale) was 1.45% at December 31,
2001, compared with 1.31% at December 31, 2000. The allowance for loan losses
as a percentage of period-end nonperforming assets was 308.55% at December 31,
2001, compared with 437.73% at December 31, 2000. Alabama National experienced
net charge-offs of $1.7 million in 2001, equating to a ratio of net charge-
offs to average loans of 0.09%, compared with net charge-offs of $0.6 million
in 2000, 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
$15.4 million, or 46.1%, to $48.7 million in 2001, compared with $33.3 million
in 2000. Each component of noninterest income experienced increases during
2001. The most significant increases were recorded in the investment services
division and mortgage division. Revenue from the investment services division
increased $7.9 million, or 133.8%, to $13.7 in 2001, from $5.9 million in
2000. Total revenue earned from the mortgage division increased $3.9 million,
or 110.5%, to $7.4 million in 2001, from $3.5 million in 2000. The securities
brokerage and trust division experienced a revenue increase of $1.1 million,
or 14.4%, to $8.8 million in 2001, from $7.7 million in 2000. The commissions
generated by the insurance division totaled $2.1 million in each of 2001 and
2000. Service charges on deposit accounts increased by $1.2 million, or 14.4%,
to $9.5 million in 2001, from $8.3 million in 2000. Earnings on bank owned
life insurance totaled $2.4 million in 2001, compared with $2.1 million in
2000. 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 2001. Noninterest expense
increased $18.1 million, or 24.5%, to $92.2 million in 2001, compared with
$74.1 million during 2000. For a detailed discussion of these income and
expense categories, see "Noninterest Income and Expense."
Income before the provision for income taxes increased $4.7 million, or
12.8%, to $41.7 million in 2001, from $37.0 million in 2000. Net income
totaled $28.4 million in 2001, an increase of $2.9 million, or 11.4%, compared
to $25.5 million during 2000.
Year ended December 31, 2000, compared with year ended December 31, 1999
Alabama National's net income increased by $2.2 million, or 9.5%, to $25.5
million in the year ended December 31, 2000, from $23.3 million for the year
ended December 31, 1999. Return on average assets during 2000 was 1.17%,
compared with 1.26% during 1999, and return on average equity was 16.29%
during 2000, compared with 16.11% during 1999.
Net interest income increased $9.4 million, or 13.3%, to $80.2 million in
2000 from $70.8 million in 1999, as interest income increased by $38.1 million
and interest expense increased $28.7 million. The increase in net interest
income is primarily attributable to a $303.3 million increase in average loans
to $1.6 billion during 2000, from $1.3 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 $206.3 million, to
18
$859.4 million in 2000, from $653.1 million in 1999 and an increase in the
interest rate paid on time deposits of 76 basis points, to 6.00% in 2000, from
5.24% in 1999. Also, average long-term and short-term debt increased a
combined $75.4 million to $162.2 million during 2000, from $86.8 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 3.47%
and 4.03%, 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 $2.5 million and
$2.1 million during 2000 and 1999, respectively. Management believes that both
loan loss experience and asset quality indicate that the allowance for loan
losses is maintained at an adequate level, although there can be no assurance
that economic or regulatory factors will not require further increases in the
allowance. Alabama National's allowance for loan losses as a percentage of
period-end loans (excluding loans held for sale) was 1.31% at December 31,
2000, compared with 1.36% at December 31, 1999. The allowance for loan losses
as a percentage of period-end nonperforming assets was 437.73% at December 31,
2000, compared with 360.58% at December 31, 1999. Alabama National experienced
net charge-offs of $649,000 in 2000, equating to a ratio of net charge-offs to
average loans of 0.04% compared with net charge-offs of $461,000 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
$2.0 million, or 6.5%, to $33.3 million in 2000, compared with $31.3 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 and trust
division experienced a revenue increase of $1.8 million, or 30.4%, to $7.7
million in 2000, from $5.9 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. Service charges on deposit accounts
increased by $293,000, or 3.7%, to $8.3 million in 2000 from $8.0 million in
1999. Earnings on bank owned life insurance totaled $2.1 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 $262,000 from
non-recurring sales of assets and a securities gain of $196,000. Noninterest
income for 2000 includes a securities loss of $119,000 and a loss of $19,000
from non-recurring sales of assets. Excluding these non-recurring items,
Alabama National's noninterest income increased $2.6 million, or 8.5%, in 2000
versus 1999. Noninterest expense increased $8.3 million, or 12.5%, to $74.1
million in 2000, compared with $65.9 million during 1999. See "Noninterest
Income and Expense."
Income before the provision for income taxes increased $2.8 million, or
8.2%, to $37.0 million in 2000, from $34.1 million in 1999. Net income totaled
$25.5 million in 2000, an increase of $2.2 million, or 9.5%, compared to $23.3
million during 1999.
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,
-----------------------------------------------------------------------------------
2001 2000 1999
--------------------------- --------------------------- ---------------------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
---------- -------- ------ ---------- -------- ------ ---------- -------- ------
ASSETS:
-------
Earning assets:
Loans(1)(3)............ $1,812,715 $148,239 8.18% $1,578,940 $143,883 9.11% $1,275,619 $109,273 8.57%
Securities:
Taxable................ 420,582 27,593 6.56 332,717 22,876 6.88 305,548 19,300 6.32
Tax exempt............. 29,340 2,215 7.55 32,617 2,459 7.54 34,361 2,550 7.42
Cash balances in other
banks................. 15,137 510 3.37 3,781 214 5.66 1,830 110 6.01
Funds sold............. 46,630 1,931 4.14 41,856 2,721 6.50 49,117 2,594 5.28
Trading account
securities............ 2,021 119 5.89 1,795 124 6.91 6,669 356 5.34
---------- -------- ---------- -------- ---------- --------
Total earning
assets(2)........... 2,326,425 180,607 7.76 1,991,706 172,277 8.65 1,673,144 134,183 8.02
---------- -------- ---------- -------- ---------- --------
Cash and due from
banks.................. 81,705 74,276 69,985
Premises and equipment.. 53,716 49,156 44,458
Other assets............ 97,829 93,489 85,941
Allowance for loan
losses................. (23,284) (20,747) (18,276)
---------- ---------- ----------
Total assets......... $2,536,391 $2,187,880 $1,855,252
========== ========== ==========
LIABILITIES:
------------
Interest-bearing
liabilities:
Interest-bearing
transaction accounts.. $ 316,004 8,166 2.58 $ 255,534 8,383 3.28 $ 203,736 4,973 2.44
Savings and money
market deposits....... 326,474 9,355 2.87 322,590 11,612 3.60 340,207 11,214 3.30
Time deposits.......... 948,242 53,891 5.68 859,366 51,575 6.00 653,097 34,204 5.24
Funds purchased........ 239,293 8,696 3.63 156,204 9,305 5.96 147,621 7,343 4.97
Other short-term
borrowings............ 42,850 1,842 4.30 65,021 4,518 6.95 28,364 1,544 5.44
Long-term debt......... 168,857 8,443 5.00 97,162 5,594 5.76 58,445 3,029 5.18
---------- -------- ---------- -------- ---------- --------
Total interest-
bearing
liabilities......... 2,041,720 90,393 4.43 1,755,877 90,987 5.18 1,431,470 62,307 4.35
---------- -------- ---------- -------- ---------- --------
Demand deposits........ 263,876 241,527 233,914
Accrued interest and
other liabilities..... 46,244 33,795 45,243
Stockholders' equity... 184,551 156,681 144,625
---------- ---------- ----------
Total liabilities and
stockholders' equity... $2,536,391 $2,187,880 $1,855,252
========== ========== ==========
Net interest spread..... 3.33% 3.47% 3.67%
==== ==== ====
Net interest
income/margin on a
taxable equivalent
basis.................. 90,214 3.88% 81,290 4.08% 71,876 4.30%
==== ==== ====
Tax equivalent
adjustment(2).......... 1,070 1,055 1,077
-------- -------- --------
Net interest
income/margin.......... $ 89,144 3.83% $ 80,235 4.03% $ 70,799 4.23%
======== ==== ======== ==== ======== ====
- -------
(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 $4,427,000, $3,574,000, and $3,587,000 are included
in interest and fees on loans for 2001, 2000, and 1999, respectively.
20
During 2001, Alabama National experienced an increase in net interest income
of $8.9 million, or 11.1%, to $89.1 million, compared with $80.2 million in
2000. Net interest income increased despite a decrease in the net interest
spread of 14 basis points to 3.33% in 2001, from 3.47% in 2000, and a decrease
in the net interest margin of 20 basis points to 3.83% in 2001, compared with
4.03% in 2000. The decline in net interest spread and net interest margin is
largely due to the effects of the interest rate reductions by the Federal
Reserve during 2001. Alabama National's interest earning assets have repriced
more quickly than its interest-bearing liabilities as time deposits reprice
only at maturity. Alabama National's net interest margin improved 21 basis
points during the fourth quarter of 2001 as compared to the third quarter of
2001. Management anticipates the net interest margin to approximately
stabilize at current levels, absent any additional rate reductions by the
Federal Reserve or significant changes in the general interest rate
environment. During 2001, net average earning assets increased by $334.7
million, or 16.8%, to $2.33 billion, from $1.99 billion in 2000. The major
components of this increase included average loans, which increased $233.8
million, or 14.8%, to $1.81 billion in 2001, from $1.58 billion in 2000, and
securities, which increased $84.6 million, or 23.2%, to $449.9 million in
2001, from $365.3 million in 2000.
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 2001 and 2000.
For purposes of this table, changes that 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,
--------------------------------------------------------
2001 Compared to 2000 2000 Compared to 1999
Variance Due to Variance Due to
--------------------------- ---------------------------
Volume Yield/Rate Total Volume Yield/Rate Total
------- ---------- ------- ------- ---------- -------
Earning assets:
Loans................... $19,961 $(15,605) $ 4,356 $27,360 $ 7,250 $34,610
Securities:
Taxable............... 5,821 (1,104) 4,717 1,791 1,785 3,576
Tax exempt............ (247) 3 (244) (132) 41 (91)
Cash balances in other
banks.................. 413 (117) 296 111 (7) 104
Funds sold.............. 283 (1,073) (790) (418) 545 127
Trading account
securities............. 15 (20) (5) (315) 83 (232)
------- -------- ------- ------- ------- -------
Total interest
income.............. 26,246 (17,916) 8,330 28,397 9,697 38,094
Interest-bearing
liabilities:
Interest-bearing
transaction accounts... 1,767 (1,984) (217) 1,449 1,961 3,410
Savings and money market
deposits............... 137 (2,394) (2,257) (596) 994 398
Time deposits........... 5,157 (2,841) 2,316 11,904 5,467 17,371
Funds purchased......... 3,845 (4,454) (609) 443 1,519 1,962
Other short-term
borrowings............. (1,263) (1,413) (2,676) 2,448 526 2,974
Long-term debt.......... 3,670 (821) 2,849 2,194 371 2,565
------- -------- ------- ------- ------- -------
Total interest
expense............. 13,313 (13,907) (594) 17,842 10,838 28,680
------- -------- ------- ------- ------- -------
Net interest income
on a taxable
equivalent basis.... $12,933 $ (4,009) 8,924 $10,555 $(1,141) 9,414
======= ======== ======= =======
Taxable equivalent
adjustment............. (15) 22
------- -------
Net interest income..... $ 8,909 $ 9,436
======= =======
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, 2001, 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, 2001
----------------------------------------------------------------------------------
After One After Three
Within Through Through Greater
One Three Twelve Within One One Through Than
Month Months Months Year Three Years Three Years Total
-------- --------- ----------- ---------- ----------- ----------- ----------
ASSETS:
-------
Earning assets:
Loans(1).............. $759,991 $147,077 $ 327,643 $1,234,711 $421,276 $337,173 $1,993,160
Securities(2)......... 14,739 25,041 96,383 136,163 189,828 225,297 551,288
Trading securities.... 1,341 -- -- 1,341 -- -- 1,341
Interest-bearing
deposits in other
banks................ 10,813 -- -- 10,813 -- -- 10,813
Funds sold............ 32,241 -- -- 32,241 -- -- 32,241
-------- -------- --------- ---------- -------- -------- ----------
Total interest-earning
assets............... $819,125 $172,118 $ 424,026 $1,415,269 $611,104 $562,470 $2,588,843
LIABILITIES:
------------
Interest-bearing
liabilities:
Interest-bearing
deposits:
Demand deposits....... $140,110 $ -- $ -- $ 140,110 $ -- $244,245 $ 384,355
Savings and money
market deposits...... 143,911 -- -- 143,911 -- 229,398 373,309
Time deposits(3)...... 143,963 160,842 532,737 837,542 129,242 35,992 1,002,776
Funds purchased....... 240,060 -- -- 240,060 -- -- 240,060
Short-term
borrowings(4)........ 27,350 -- 41,000 68,350 -- -- 68,350
Long-term debt........ 62,491 80,003 10,547 153,041 55,036 5,044 213,121
-------- -------- --------- ---------- -------- -------- ----------
Total interest-bearing
liabilities.......... $757,885 $240,845 $ 584,284 $1,583,014 $184,278 $514,679 $2,281,971
-------- -------- --------- ---------- -------- -------- ----------
Period gap.............. $ 61,240 $(68,727) $(160,258) $ (167,745) $426,826 $ 47,791
======== ======== ========= ========== ======== ========
Cumulative gap.......... $ 61,240 $ (7,487) $(167,745) $ (167,745) $259,081 $306,872 $ 306,872
======== ======== ========= ========== ======== ======== ==========
Ratio of cumulative gap
to total earning
assets................. 2. 37% (0.29)% (6.48)% (6.48)% 10.01% 11.85%
- -------
(1) Excludes nonaccrual loans of $7,563,000
(2) Excludes investment equity securities with a market value of $16,400,000.
(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 $3,490,000.
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 one month. 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
23
indicative of Alabama National's true interest sensitivity 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, 2001, mortgage backed securities with a
carrying value totaling $486.3 million, or 17.1% of total assets and
essentially every underlying loan, net of unearned income, (totaling $1.96
billion, or 69.1% 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 $2.07 billion, or 72.7% of total assets, at December 31,
2001. 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. Due to the
current interest rate environment, Alabama National's net interest income
would decrease significantly if prevailing interest rates were to decrease 100
or 200 basis points. The current rates paid on interest-bearing accounts
cannot decrease below zero, yet rates earned on loans can experience a
decrease in the falling rate scenarios, and the interest rate spread would
therefore compress. 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, 2001 Year ended December 31, 2000
Change in --------------------------------- ---------------------------------
Prevailing Net Interest Change from Net Interest Change from
Interest Rates(1) Income Amount Income Amount Income Amount Income Amount
----------------- ------------- -------------- --------------- --------------
+200 basis points....... $ 117,465 5.47% $ 91,547 5.06%
+100 basis points....... 115,562 3.76 89,413 2.61
0 basis points.......... 111,375 -- 87,136 --
- -100 basis points....... 101,536 (8.83) 84,039 (3.55)
- -200 basis points....... 96,871 (13.02) 81,948 (5.95)
- -------
(1) Assumes an immediate rate change of this magnitude.
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 $1.4 million, or 57.5%, to $3.9
million in 2001, from $2.5 million in 2000. The increased provision during
2001 is attributable to an increase in potential problem loans, an increase in
nonperforming loans, a higher level of net charge-offs, and growth in the loan
portfolio.
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. Management believes the allowance
for loan losses, at its current level, adequately covers Alabama National's
exposure to loan losses. While management believes that it has established the
allowance in accordance with accounting principles generally accepted in the
United States of America 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,
----------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
Total loans outstanding
at end of period, net
of unearned income(1).. $1,964,169 $1,710,810 $1,403,489 $1,147,100 $1,015,105
========== ========== ========== ========== ==========
Average amount of loans
outstanding, net of
unearned income(1)..... $1,790,083 $1,571,760 $1,264,689 $1,058,770 $ 951,298
========== ========== ========== ========== ==========
Allowance for loan
losses at beginning of
period................. $ 22,368 $ 19,111 $ 17,465 $ 15,780 $ 13,552
Charge-offs:
Commercial, financial
and agricultural..... 1,875 397 215 424 517
Real estate--
mortgage............. 730 145 403 215 533
Consumer.............. 754 884 694 1,254 1,886
---------- ---------- ---------- ---------- ----------
Total charge-offs... 3,359 1,426 1,312 1,893 2,936
---------- ---------- ---------- ---------- ----------
Recoveries:
Commercial, financial
and agricultural..... 949 167 188 1,027 1,085
Real estate--
mortgage............. 226 228 348 298 200
Consumer.............. 517 382 315 45