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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q


  x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

    For the Quarterly Period Ended September 30, 2002

OR

  o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 0-25160


ALABAMA NATIONAL BANCORPORATION
(Exact Name of Registrant as Specified in Its Charter)


  DELAWARE
(State of Incorporation)
   63-1114426
(I.R.S. Employer Identification No.)		  

1927 FIRST AVENUE NORTH, BIRMINGHAM, ALABAMA 35203-4009
(Address of principal executive office)

Registrant’s telephone number, including area code: (205) 583-3600

_____________________________________________
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)

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 o

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

  Class
Common Stock, $1.00 Par Value
   Outstanding at November 13, 2002
12,370,384		  


 

Table of Contents

INDEX

ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES

        PAGE
           
PART 1.   FINANCIAL INFORMATION  
           
    Item 1.   Financial Statements (Unaudited)  
           
        Consolidated statements of condition as of September 30, 2002 and December 31, 2001 3
           
        Consolidated statements of income for the three months ended September 30, 2002 and 2001 and for the nine months ended September 30, 2002 and 2001 4
           
        Consolidated statements of comprehensive income for the three months ended September 30, 2002 and 2001 and for the nine months ended September 30, 2002 and 2001 8
           
        Consolidated condensed statements of cash flows for the nine months ended September 30, 2002 and 2001 10
           
        Notes to the unaudited consolidated financial statements September 30, 2002 11
           
    Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 13
           
    Item 3.   Quantitative and Qualitative Disclosures about Market Risk 25
           
    Item 4.   Controls and Procedures 25
           
PART II.   OTHER INFORMATION  
           
    Item 6.   Exhibits and Reports on Form 8-K 25

 
   
SIGNATURES 26
   
CERTIFICATIONS
27

FORWARD-LOOKING INFORMATION

Statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements. In addition, Alabama National BanCorporation (“Alabama National”), through its senior management, from time to time makes forward-looking public statements concerning its expected future operations and performance and other developments. Such forward-looking statements are necessarily estimates reflecting Alabama National’s best judgment based upon current information and involve a number of risks and uncertainties, and various factors could cause results to differ materially from those contemplated by such forward-looking statements. Such factors could include those identified from time to time in Alabama National’s Securities and Exchange Commission filings and other public announcements, including the factors described in Alabama National’s Annual Report on Form 10-K for the year ended December 31, 2001. With respect to the adequacy of the allowance for loan losses for Alabama National, these factors include the rate of growth in the economy, especially in the Southeast, the relative strength and weakness in the consumer and commercial credit sectors and in the real estate markets and the performance of the stock and bond markets. The forward-looking statements contained in this Quarterly Report speak only as of the date of this report, and Alabama National undertakes no obligation to revise these statements following the date of this Quarterly Report on Form 10-Q.

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Part I - Financial Information

Item 1 - Financial Statements (Unaudited)
Alabama National BanCorporation and Subsidiaries
Consolidated Statements of Condition
(In thousands, except share amounts)

September 30,
2002		 December 31,
2001
Assets              
   Cash and due from banks   $ 98,970   $ 78,262  
   Interest-bearing deposits in other banks     18,163     10,813  
   Investment securities (market value $250,436 and $234,808, respectively)     247,583     234,766  
   Securities available for sale     380,024     332,922  
   Trading securities     1,429     1,341  
   Federal funds sold and securities purchased under resell agreements     43,813     32,241  
   Loans held for sale     48,835     36,554  
   Loans     2,172,871     1,966,631  
   Unearned income     (2,471 )   (2,462 )
   Loans, net of unearned income     2,170,400     1,964,169  
   Allowance for loan losses     (32,674 )   (28,519 )
   Net loans     2,137,726     1,935,650  
   Property, equipment and leasehold improvements, net     67,688     60,821  
   Goodwill     15,448     14,813  
   Intangible assets     4,931     4,062  
   Cash surrender value of life insurance     55,391     53,171  
   Receivable from investment division customers     68,118     16,551  
   Other assets     41,717     31,500  
   Totals   $ 3,229,836   $ 2,843,467  
Liabilities and Stockholders’ Equity              
   Deposits:              
     Noninterest bearing   $ 347,675   $ 306,319  
     Interest bearing     1,922,357     1,760,440  
   Total deposits     2,270,032     2,066,759  
   Federal funds purchased and securities sold under repurchase agreements     353,361     240,060  
   Treasury, tax and loan accounts     1,744     3,490  
   Short-term borrowings     77,100     68,350  
   Payables for securities purchased for investment division customers     60,000     16,428  
   Accrued expenses and other liabilities     49,940     30,863  
   Long-term debt     189,074     209,631  
   Total liabilities     3,001,251     2,635,581  
   Common stock, $1 par, 27,500,000 and 17,500,000 shares authorized at
       September 30, 2002 and December 31, 2001, respectively; 12,424,544
       shares issued at September 30, 2002 and December 31, 2001		     12,425     12,425  
   Additional paid-in capital     104,884     103,624  
   Retained earnings     109,312     92,866  
   Treasury stock at cost, 58,650 and 77,476 shares at September 30, 2002 and
       December 31, 2001, respectively		     (1,580 )   (2,087 )
   Accumulated other comprehensive income, net of tax     3,544     1,058  
   Total stockholders’ equity     228,585     207,886  
   Totals   $ 3,229,836   $ 2,843,467  

See accompanying notes to unaudited consolidated financial statements

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Alabama National BanCorporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
(In thousands, except per share data)

For the three months
ended September 30,
2002 2001
Interest income:              
   Interest and fees on loans   $ 36,627   $ 37,056  
   Interest on securities     9,011     7,201  
   Interest on deposits in other banks     36     162  
   Interest on trading securities     14     18  
   Interest on Federal funds sold and securities purchased under resell agreements     172     448  
Total interest income     45,860     44,885  
             
Interest expense:              
   Interest on deposits     12,375     17,603  
   Interest on Federal funds purchased and securities sold under repurchase agreements     1,251     2,209  
   Interest on long and short-term borrowings     2,768     2,532  
Total interest expense     16,394     22,344  
Net interest income     29,466     22,541  
Provision for loan losses     2,245     919  
Net interest income after provision for loan losses     27,221     21,622  
             
Noninterest income:              
   Securities gains     —     91  
   Gain on disposition of assets     435     24  
   Service charges on deposit accounts     3,158     2,318  
   Investment services income     3,261     3,132  
   Securities brokerage and trust income     3,864     2,092  
   Origination and sale of mortgage loans     2,814     1,950  
   Bank owned life insurance     791     618  
   Insurance commissions     651     499  
   Other     1,209     1,011  
Total noninterest income     16,183     11,735  

 

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Alabama National BanCorporation and Subsidiaries
Consolidated Statements of Income (Unaudited) (Continued)
(In thousands, except per share data)

For the three months
ended September 30,
2002 2001
             
Noninterest expense:              
   Salaries and employee benefits     15,808     11,026  
   Commission based compensation     4,279     3,053  
   Occupancy and equipment expenses     3,006     2,400  
   Amortization of intangibles     225     275  
   Other     6,856     5,595  
Total noninterest expense     30,174     22,349  
             
Income before provision for income taxes     13,230     11,008  
Provision for income taxes     4,212     3,500  
Net income   $ 9,018   $ 7,508  
             
Net income per common share (basic)   $ .73   $ .63  
             
Weighted average common shares outstanding (basic)     12,364     11,846  
             
Net income per common share (diluted)   $ .71   $ .62  
             
Weighted average common and common equivalent shares outstanding (diluted)     12,679     12,135  

See accompanying notes to unaudited consolidated financial statements

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Alabama National BanCorporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
(In thousands, except per share data)

For the nine months
ended September 30,
2002 2001
             
Interest income:              
   Interest and fees on loans   $ 107,170   $ 112,874  
   Interest on securities     26,519     20,833  
   Interest on deposits in other banks     120     400  
   Interest on trading securities     43     77  
   Interest on Federal funds sold and securities purchased under resell agreements     557     1,733  
Total interest income     134,409     135,917  
             
Interest expense:              
   Interest on deposits     37,968     57,056  
   Interest on Federal funds purchased and securities sold under repurchase agreements     3,184     7,251  
   Interest on long and short-term borrowings     8,415     7,577  
Total interest expense     49,567     71,884  
Net interest income     84,842     64,033  
Provision for loan losses     4,726     2,213  
Net interest income after provision for loan losses     80,116     61,820  
             
Noninterest income:              
   Securities gains     35     91  
   Gain on disposition of assets     251     60  
   Service charges on deposit accounts     8,769     6,872  
   Investment services income     8,920     9,644  
   Securities brokerage and trust income     9,794     6,637  
   Origination and sale of mortgage loans     7,372     5,197  
   Bank owned life insurance     2,256     1,722  
   Insurance commissions     1,800     1,471  
   Other     3,579     3,256  
Total noninterest income     42,776     34,950  

  

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Alabama National BanCorporation and Subsidiaries
Consolidated Statements of Income (Unaudited) (Continued)
(In thousands, except per share data)

For the nine months
ended September 30,
2002 2001
             
Noninterest expense:              
   Salaries and employee benefits     43,561     33,102  
   Commission based compensation     11,266     8,917  
   Occupancy and equipment expenses     8,638     7,386  
   Amortization of intangibles     600     844  
   Other     20,150     16,748  
Total noninterest expense     84,215     66,997  
             
Income before provision for income taxes     38,677     29,773  
Provision for income taxes     12,269     9,446  
Net income   $ 26,408   $ 20,327  
             
Net income per common share (basic)   $ 2.14   $ 1.72  
             
Weighted average common shares outstanding (basic)     12,358     11,819  
             
Net income per common share (diluted)   $ 2.08   $ 1.68  
             
Weighted average common and common equivalent shares outstanding (diluted)     12,668     12,116  

See accompanying notes to unaudited consolidated financial statements

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Alabama National BanCorporation and Subsidiaries
Consolidated Statements of Comprehensive Income (Unaudited)
(In thousands)

For the three months
ended September 30,
2002 2001
             
Net income   $ 9,018   $ 7,508  
Other comprehensive income:              
   Unrealized gains on securities available for sale     1,142     2,803  
Less: Reclassification adjustment for net gains included in net income     —     91  
Other comprehensive income, before tax     1,142     2,712  
Provision for income taxes related to items of other comprehensive income     386     996  
Other comprehensive income, net of tax     756     1,716  
Comprehensive income   $ 9,774   $ 9,224  

See accompanying notes to unaudited consolidated financial statements

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Alabama National BanCorporation and Subsidiaries
Consolidated Statements of Comprehensive Income (Unaudited)
(In thousands)

For the nine months
ended September 30,
2002 2001
Net income   $ 26,408   $ 20,327  
Other comprehensive income:              
   Unrealized gains on securities available for sale     3,887     6,771  
Less: Reclassification adjustment for net gains included in net income     35     91  
Other comprehensive income, before tax     3,852     6,680  
Provision for income taxes related to items of other comprehensive income     1,366     2,382  
Other comprehensive income, net of tax     2,486     4,298  
Comprehensive income   $ 28,894   $ 24,625  

See accompanying notes to unaudited consolidated financial statements

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Alabama National BanCorporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows (Unaudited)
(In thousands)

For the nine months
ended September 30,
2002 2001
Net cash flows provided by operating activities   $ 31,640   $ 43,862  
             
Cash flows from investing activities:              
Proceeds from maturities of investment securities     90,095     40,231  
Purchases of investment securities     (102,717 )   (162,074 )
Purchases of securities available for sale     (361,955 )   (112,942 )
Proceeds from sale of securities available for sale     14,808     5,234  
Proceeds from maturities of securities available for sale     303,969     151,690  
Net increase in interest bearing deposits in other banks     (7,350 )   (15,743 )
Net (increase) decrease in Federal funds sold and securities purchased under resell
    agreements		     (11,572 )   6,227  
Net increase in loans     (220,645 )   (134,603 )
Purchases of property, equipment and leasehold improvements     (10,340 )   (6,470 )
Cash paid for bank-owned life insurance     —     (1,869 )
Net cash paid for purchase acquisitions     (551 )   —  
Costs capitalized on other real estate owned     (284 )   (152 )
Proceeds from sale of other real estate owned     1,927     2,148  
Proceeds from sale of property, equipment and leasehold improvements     132     55  
Net cash used in investing activities     (304,483 )   (228,268 )
             
Cash flows from financing activities:              
Net increase in deposits     203,273     61,839  
Increase in Federal funds purchased and securities sold under agreements to
    repurchase		     113,301     89,525  
Net (decrease) increase in short and long-term borrowings and capital leases     (13,553 )   50,764  
Exercise of stock options and stock based compensation     (194 )   (408 )
Other     (7 )   (10 )
Dividends on common stock     (9,269 )   (8,163 )
Net cash provided by financing activities     293,551     193,547  
             
Increase in cash and cash equivalents     20,708     9,141  
Cash and cash equivalents, beginning of period     78,262     80,476  
Cash and cash equivalents, end of period   $ 98,970   $ 89,617  
             
Supplemental schedule of noncash investing and financing activities:              
Acquisition of collateral in satisfaction of loans   $ 1,562   $ 1,922  
Transfer of property to other real estate owned   $ —   $ 465  
Adjustment to market value of securities available for sale, net of deferred income
    taxes		   $ 2,486   $ 4,298  

See accompanying notes to unaudited consolidated financial statements

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ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002

NOTE A - BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months and nine months ended September 30, 2002 are subject to year-end audit and are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2002. These interim financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in Alabama National’s Form 10-K for the year ended December 31, 2001.

NOTE B - COMMITMENTS AND CONTINGENCIES

Alabama National’s subsidiary banks make loan commitments and incur contingent liabilities in the normal course of business, which are not reflected in the consolidated statements of condition. As of September 30, 2002, the total unfunded commitments which are not reflected in the consolidated statements of condition totaled $578.5 million. A majority of these commitments will expire in less than one year.

NOTE C - RECENTLY ISSUED PRONOUNCEMENTS

Business Combinations and Goodwill and Other Intangibles

In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets,” (collectively, the “Statements”) having a required effective date for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and other intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives.

Alabama National adopted the new rules on accounting for goodwill and other intangible assets in the first quarter of 2002. Application of the non-amortization provisions of SFAS No.142 is expected to result in an increase in net income of approximately $521,000 for the year ended December 31, 2002, as compared with 2001 due to the cessation of goodwill amortization. Under the transitional provisions of SFAS No. 142, Alabama National identified its reporting units and performed impairment tests on the net goodwill associated with each of the reporting units. The testing resulted in no impairment losses to any recorded goodwill.

The recorded amount of goodwill increased during 2002 from $14.8 million at December 31, 2001, to $15.4 million at September 30, 2002. The increase during 2002 is attributable to items related to the fourth quarter 2001 acquisition of Farmers National Bank of Opelika.

The following table details the impact of the non amortization of goodwill on net income for the periods indicated (amounts in thousands, except per share data):

For the three months
ended September 30		 For the nine months
ended September 30
2002 2001 2002 2001
Net income:                          
Reported net income   $ 9,018   $ 7,508   $ 26,408   $ 20,327  
Add back:                          
   Goodwill amortization, net of taxes     —     123     —     364  
                         
Net income excluding goodwill amortization, net of taxes   $ 9,018   $ 7,631   $ 26,408   $ 20,691  
                         
Basic net income per common share:                          
                         
Reported net income   $ 0.73   $ 0.63   $ 2.14   $ 1.72  
Add back:                          
   Goodwill amortization, net of taxes     —     0.01