<PAGE> 1
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, 1996
OR
[ ] 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 63-1114426
-------- ----------
(State of Incorporation) (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) 583-3654
NONE
(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
----- -----
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding at September 30, 1996
----- ---------------------------------
Common Stock, $1.00 Par Value 6,515,418
<PAGE> 2
<TABLE>
<CAPTION>
INDEX
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
<S> <C>
PART 1. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Consolidated statements of condition
September 30, 1996 and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated statements of income
Three month periods ended September 30, 1996 and 1995;
Nine month periods ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . 4
Consolidated statements of cash flows
Nine month periods ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . 8
Notes to the unaudited consolidated financial statements
September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
ASSETS
Cash and due from banks .................................................... $ 38,726 $ 39,202
Interest-bearing deposits in other banks ................................... 239 11,168
Investment securities (estimated market values of $75,183 and $61,618) ..... 75,815 61,594
Securities available for sale .............................................. 75,579 92,270
Trading securities ......................................................... 1,866 4,402
Federal funds sold and securities purchased under agreements to resell ..... 21,864 37,820
Loans ...................................................................... 590,590 555,252
Unearned income ............................................................ (1,883) (2,133)
---------- --------
Loans, net of unearned income .............................................. 588,707 553,119
Allowance for loan losses .................................................. (9,245) (8,909)
---------- --------
Net loans .................................................................. 579,462 544,210
Property, equipment and leasehold improvements, net ........................ 20,567 20,163
Intangible assets .......................................................... 7,389 7,595
Other assets ............................................................... 19,684 21,299
---------- --------
Totals ..................................................................... $ 841,191 $839,723
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing .................................................... $ 119,375 $112,382
Interest bearing ....................................................... 548,850 564,154
---------- --------
Total deposits ............................................................. 668,225 676,536
Federal funds purchased and securities sold under agreements to repurchase . 51,296 58,921
Treasury tax and loan account .............................................. 6,243 2,441
Short-term borrowings ...................................................... 41,434 21,280
Accrued expenses and other liabilities ..................................... 10,288 21,535
Long-term debt ............................................................. 307 821
---------- --------
Total liabilities .......................................................... 777,793 781,534
---------- --------
STOCKHOLDERS' EQUITY:
Common stock, $1 par; authorized 10,000,000 shares;
issued 6,881,968 and 6,871,968 shares ................................. 6,882 6,872
Additional paid-in capital ................................................. 53,438 53,401
Retained earnings .......................................................... 8,889 3,119
Treasury stock, 366,550 shares at cost ..................................... (5,023) (5,023)
Unearned restricted stock .................................................. (208) (278)
Unrealized gain (loss) on available for sale securities, net of taxes ...... (580) 98
---------- --------
Total stockholders' equity ................................................. 63,398 58,189
---------- --------
Totals ..................................................................... $ 841,191 $839,723
========== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE> 4
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the three months
ended September 30,
--------------------
1996 1995
---- ----
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans ........................................ $13,456 $7,683
Interest on securities ............................................ 2,430 1,540
Interest on deposits in other banks ............................... 15 -
Interest on trading securities .................................... 30 42
Interest on federal funds sold and securities purchased under
agreements to resell ........................................... 215 574
------- ------
Total interest income ................................................ 16,146 9,839
INTEREST EXPENSE:
Interest on deposits ............................................. 6,034 4,324
Interest on federal funds purchased and securities sold under
agreements to resell ........................................... 711 510
Interest on long and short-term borrowings ....................... 605 251
------- ------
Total interest expense ............................................... 7,350 5,085
------- ------
Net interest income .................................................. 8,796 4,754
Provision for loan losses ............................................ - 202
------- ------
Net interest income after provision for loan losses .................. 8,796 4,552
NONINTEREST INCOME:
Securities gains ................................................. 7 -
Gain on sale of assets ........................................... 20 -
Service charges on deposit accounts .............................. 935 428
Investment services .............................................. 1,801 1,312
Trust department income .......................................... 395 315
Other ............................................................ 705 213
------- ------
Total noninterest income ............................................. 3,863 2,268
</TABLE>
4
<PAGE> 5
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the three months
ended September 30,
-------------------
1996 1995
---- ----
<S> <C> <C>
NONINTEREST EXPENSE:
Salaries and employee benefits ......................... 4,819 3,126
Occupancy and equipment expenses ....................... 1,156 799
Other .................................................. 3,198 1,573
------ --------
Total noninterest expense ................................ 9,173 5,498
------ --------
Income before provision for income taxes and
minority interest in earnings of consolidated
subsidiaries ............................................. 3,486 1,322
Provision for income taxes ............................... 897 132
Income before minority interest in earnings of ------ --------
consolidated subsidiaries ................................ 2,589 1,190
Minority interest in earnings of consolidated
subsidiaries ............................................ 4 171
------ --------
Net income ............................................... 2,585 1,019
Less cash dividends on preferred stock ................... 4 600
------ --------
Net income available for common shares ................... $2,581 $ 419
====== ========
Net income per common share .............................. $ 0.39 $ 0.15
====== ========
Weighted average common and common equivalent
shares outstanding .................................... 6,679 2,874
====== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE> 6
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
-------------------
1996 1995
---- ----
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans ......................................... $39,487 $21,966
Interest on securities .............................................. 7,355 4,482
Interest on deposits in other banks ................................. 203 -
Interest on trading securities ...................................... 154 42
Interest on federal funds sold and securities purchased under
agreements to resell ............................................. 1,274 1,039
------- -------
Total interest income .................................................. 48,473 27,529
INTEREST EXPENSE:
Interest on deposits ............................................... 18,534 11,858
Interest on federal funds purchased and securities sold under
agreements to resell ............................................. 2,530 1,242
Interest on long and short-term borrowings ......................... 1,620 703
------- -------
Total interest expense ................................................. 22,684 13,803
------- -------
Net interest income .................................................... 25,789 13,726
Provision for loan losses .............................................. 209 210
------- -------
Net interest income after provision for loan losses .................... 25,580 13,516
NONINTEREST INCOME:
Securities gains ................................................... 41 -
Gain on sale of assets and deposits ................................ 343 -
Service charges on deposit accounts ................................ 2,780 1,258
Investment services ................................................ 5,942 1,967
Trust department income ............................................ 1,105 891
Other .............................................................. 1,771 560
------- -------
Total noninterest income ............................................... 11,982 4,676
</TABLE>
6
<PAGE> 7
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
--------------------
1996 1995
---- ----
<S> <C> <C>
NONINTEREST EXPENSE:
Salaries and employee benefits ....................... 15,867 7,551
Occupancy and equipment expenses ..................... 3,325 1,988
Other ................................................ 8,126 4,003
------ ------
Total noninterest expense .............................. 27,318 13,542
------ ------
Income before provision for income taxes and
minority interest in earnings of consolidated
subsidiaries ........................................... 10,244 4,650
Provision for income taxes ............................. 3,288 333
Income before minority interest in earnings of ------ ------
consolidated subsidiaries .............................. 6,956 4,317
Minority interest in earnings of consolidated
subsidiaries .......................................... 14 613
------ ------
Net income ............................................. 6,942 3,704
Less cash dividends on preferred stock ................. 4 679
------ ------
Net income available for common shares ................. $6,938 $3,025
====== ======
Net income per common share ............................ $ 1.04 $ 1.05
Weighted average common and common equivalent ====== ======
shares outstanding .................................. 6,675 2,874
====== ======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
7
<PAGE> 8
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
-------------------
1996 1995
---- ----
<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES . . . . . . . . . . $ 202 $ (523)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities . . . . . . . . . . . . . . . . . . (23,857) (4,920)
Proceeds from maturities of investment securities . . . . . . . . . . . 9,569 4,618
Purchases of securities available for sale . . . . . . . . . . . . . . (34,832) (2,227)
Proceeds from sale of securities available for sale . . . . . . . . . . 1,816 -
Proceeds from maturities of securities available for sale . . . . . . . 49,452 -
Net decrease in interest-bearing deposits in other banks . . . . . . . 10,929 -
Net (increase) decrease in federal funds sold and securities purchased
under agreements to resell . . . . . . . . . . . . . . . . . . . . 16,136 (28,893)
Net increase in loans . . . . . . . . . . . . . . . . . . . . . . . . . (35,588) (14,844)
Purchases of property, equipment and leasehold improvements . . . . . (1,916) (995)
Proceeds from sale of property, equipment and leasehold improvements . 381 -
Proceeds from sale of life insurance policy . . . . . . . . . . . . . . 250 -
Bank acquisition, net of cash acquired . . . . . . . . . . - 3,113
Proceeds from sale of banking offices, net of cash paid . . . . . . . 274 -
Proceeds from sale of other real estate owned . . . . . . . . . . . . . 327 1,118
-------- ---------
Net cash used in investing activities . . . . . . . . . . . . . . . . . (7,059) (43,030)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits . . . . . . . . . . . . . . . . . . . . . . . 189 31,854
Sale of deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,500) -
Increase (decrease) in federal funds purchased, securities sold under
agreements to repurchase, and treasury, tax and loan account . . . (3,823) 14,831
Net increase in short-term and long-term borrowings . . . . . . . . . . 19,640 3,557
Sale of common stock . . . . . . . . . . . . . . . . . . . . . . . . . 100 -
Dividends on common stock . . . . . . . . . . . . . . . . . . . . . . . (1,168) -
Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . (4) (679)
Dividends paid to minority stockholders . . . . . . . . . . . . . . . - (172)
Retirement of preferred stock . . . . . . . . . . . . . . . . . . . . . (53) (3,580)
-------- ---------
Net cash provided by financing activities . . . . . . . . . . . . . . .
6,381 45,811
-------- ---------
Increase (decrease) in cash and cash equivalents. . . . . . . . . . . . (476) 2,258
Cash and cash equivalents, beginning of period . . . . . . . . . . . . 39,202 20,427
-------- ---------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . $ 38,726 $ 22,685
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . $ 23,209 $ 13,513
======== =========
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . $ 3,669 $ 752
======== =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Acquisition of collateral in satisfaction of a loan . . . . . . . . . . $ 275 $ 1,238
======== =========
Adjustment to market value of other real estate owned . . . . . . . . . $ (16) $ 50
======== =========
Adjustment to market value of securities available for sale,
net of deferred income taxes . . . . . . . . . . . . . . . . . . $ (678) $ 1,319
======== =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
8
<PAGE> 9
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
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 nine months ended
September 30, 1996 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, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in Form 10-K, Annual Report
under the Securities Exchange Act of 1934, for the year ended December 31,
1995.
NOTE B - COMMITMENT AND CONTINGENCIES
The Company'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.
NOTE C - RECENTLY ISSUED PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
("Statement 121") which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company adopted
Statement 121 effective January 1, 1996. The adoption of Statement 121 did not
have a material effect on the Company's unaudited consolidated financial
statements.
In May 1995, the FASB issued Statement of Financial Accounting Standards No.
122 "Accounting for Mortgage Servicing Rights, an Amendment of FASB No. 65,"
("Statement 122"). Statement 122 requires companies that originate mortgage
loans to capitalize the cost of mortgage servicing rights separate from the
cost of originating the loan when a definitive plan to sell those loans and
retain the mortgage servicing rights exist. Prior to the adoption of Statement
122 only mortgage servicing rights that are purchased from other parties are
capitalized and recorded as an asset. Therefore, Statement 122 eliminates the
accounting inconsistencies that existed between mortgage servicing rights that
are derived from loan origination activities and those acquired through
purchase transactions. Statement 122 also requires that capitalized mortgage
servicing rights be assessed for impairment based on the fair value of those
rights. The Company adopted Statement 122 effective January 1, 1996, with no
material effect on the Company's unaudited consolidated financial statements.
9
<PAGE> 10
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE D-MERGERS AND ACQUISITIONS
On December 29, 1995, Alabama National BanCorporation ("ANB") merged ("the
Merger") with National Commerce Corporation ("NCC") and Commerce Bankshares,
Inc. ("CBS") (collectively the "Company"). The Merger was accomplished by
converting each share of NCC stock into 348.14 shares of ANB stock and each
share of CBS stock into 7.0435 shares of ANB stock for a total of 3,106,981
shares (or 50.1%) of the Company stock. The Merger was accounted for as a
"reverse acquisition," whereby NCC is deemed to have acquired ANB for financial
reporting purposes. However, ANB remains the continuing legal entity and
registrant for Securities and Exchange Commission filing purposes. Consistent
with the reverse acquisition accounting treatment, the historical financial
statements of the Company presented for the three months and the nine months
ended September 30, 1995 are actually only the consolidated financial
statements of NCC and differ from the consolidated financial statements of ANB
as previously reported. The operations of ANB are included in the financial
statements from the date of the Merger. The historical stockholders' equity of
NCC prior to the Merger is retroactively restated for the equivalent number of
shares received in the Merger after giving effect to any difference in par
value of ANB's and NCC stock by an offset to paid-in capital.
The purchase price, determined by the ANB common stock average closing price
for the month of March 1995, prior to the announcement of the Merger plus
direct acquisition costs, was allocated to the ANB assets and liabilities
acquired based on their fair market value at the date of acquisition. The
excess of the purchase price over the fair market value of net assets acquired
is being amortized on a straight line basis over twenty five years. The ANB
assets purchased and liabilities assumed (at fair market values) as of December
29, 1995 were as follows (in thousands):
<TABLE>
<S> <C>
Cash, due from banks, interest-bearing deposits with other
banks, and federal funds sold . . . . . . . . . . . . . . . . . $ 27,788
Securities available for sale . . . . . . . . . . . . . . . . . . . . . 27,821
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . 19,954
Loans, net of unearned income and allowance for loan losses . . . . . . 204,485
Bank premises and equipment . . . . . . . . . . . . . . . . . . . . . . 11,734
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,423
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,354
Deposits assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . (253,611)
Liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . (20,217)
---------
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . $ 31,731
=========
</TABLE>
The following pro forma consolidated results of operations for the three and
the nine months ended September 30, 1995, are presented as if the Merger had
occurred on January 1, 1995.
<TABLE>
<CAPTION>
For the three For the nine
months ended months ended
------------ ------------
September 30, 1995
----------------------------------
(In thousands, except per share data)
<S> <C> <C>
Net interest income $8,099 $23,692
Provision for loan losses 415 544
Noninterest income 2,958 6,852
Noninterest expense 7,956 21,458
Provision for income taxes 476 1,444
Net income 2,210 7,098
Earnings per common and common equivalent share $.33 $1.07
</TABLE>
10
<PAGE> 11
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE D-MERGERS AND ACQUISITIONS (CONTINUED)
Historical financial information of Alabama National BanCorporation and its
subsidiaries prior to the Merger described above is as follows:
<TABLE>
<CAPTION>
December 29, 1995 September 30, 1995
----------------- ------------------
(In thousands)
<S> <C> <C>
Statement of Condition Data
- ---------------------------
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . $19,877 $33,414
Securities available for sale . . . . . . . . . . . . . . . . . . . . . 27,821 19,015
Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202,762 196,051
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298,683 294,894
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253,611 261,820
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . 26,994 33,078
</TABLE>
<TABLE>
<CAPTION>
For the nine For the nine
months ended months ended
------------ ------------
September 30, 1995
------------------
(In thousands)
<S> <C> <C>
Statement of Income Data
- ------------------------
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . $3,594 $10,712
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . 213 334
Noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . 693 2,185
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . 2,426 7,820
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,202 3,327
Net income per common share . . . . . . . . . . . . . . . . . . . . . . $ .35 $ .96
</TABLE>
CBS was formed on April 4, 1995 to succeed as owner of all the interest of
National Bank of Commerce of Birmingham ("NBC"), a consolidated subsidiary of
NCC. CBS, a bank and thrift holding company, was formed primarily to
accomplish the acquisition of Talladega Federal Savings and Loan Association
(TFSLA). On July 20, 1995, CBS issued 600,125 shares of its common stock to
NCC and 95,126 shares of its common stock to the individual stockholders of NBC
in exchange for all the common stock of NBC and became a consolidated
subsidiary of NCC. Also, on August 1, 1995, CBS acquired all of the stock of
TFSLA for $1,703,000 in cash. This acquisition was accounted for under the
purchase method; accordingly, the purchase price was allocated to the assets
and liabilities based on their values. No goodwill was recorded.
At the date of acquisition, TFSLA had assets of $34,982,000 and equity of
$1,813,000. The results of operations of TFSLA are included in NCC's results
of operations beginning August 1, 1995. TFSLA was merged with Citizens Bank of
Talladega, another subsidiary of the Company on December 29, 1995.
The TFSLA assets purchased and liabilities assumed as of August 1, 1995 were as
follows (in thousands):
<TABLE>
<S> <C>
Cash, due from banks, interest-bearing deposits with other
banks, and federal funds sold . . . . . . . . . . . . . . . . . $ 4,815
Securities available for sale . . . . . . . . . . . . . . . . . . . . . 334
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . 5,583
Loans, net of unearned income and allowance for loan losses . . . . . . 16,757
Bank premises and equipment . . . . . . . . . . . . . . . . . . . . . . 528
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,028
Deposits assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . (32,956)
Liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . (386)
--------
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,703
========
</TABLE>
11
<PAGE> 12
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE D - MERGERS AND ACQUISITIONS (CONTINUED)
On September 30, 1996, FirstBank Holding Company, Inc. ("FIRSTBANC"), a one
bank holding company headquartered in Robertsdale, Alabama, was merged into the
Company. The Company acquired all of the outstanding common stock of FIRSTBANC
in exchange for 305,000 shares of the Company's common stock. At the merger
date, FIRSTBANC had approximately $36 million in total assets, year-to-date net
interest income of approximately $1.2 million and year-to-date net income of
approximately $325,000.
The consolidated financial statements of the Company give effect to the
FIRSTBANC merger, which was accounted for as a pooling-of-interests and,
accordingly, financial statements for all periods have been restated to reflect
the results of operations of the companies on a combined basis from the
earliest period presented, except for dividends per share.
The Company's consolidated financial data for the three months and nine months
ended September 30, 1995 have been restated as follows:
<TABLE>
<CAPTION>
As As
Previously Currently
Reported FIRSTBANC Reported
-------- --------- --------
<S> <C> <C> <C>
Three Months Ended September 30, 1995:
Net interest income $4,373 $381 $4,754
Provision for loan losses 200 2 202
Net income 907 112 1,019
Nine Months Ended September 30, 1995:
Net interest income $12,592 $1,134 $13,726
Provision for loan losses 200 10 210
Net income 3,400 304 3,704
</TABLE>
12
<PAGE> 13
ITEM 2. 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 the Company at September 30, 1996, and the results of its
operations for the three and nine month periods ended September 30, 1996 and
1995. On December 29, 1995, Alabama National BanCorporation ("ANB") merged
("the Merger") with National Commerce Corporation ("NCC") and Commerce
Bankshares, Inc. ("CBS") (collectively the "Company"). The Merger was
accomplished, among other things, by converting each share of NCC stock into
348.14 shares of ANB stock and each share of CBS stock into 7.0435 shares of
ANB stock for a total of 3,106,981 shares (or 50.1%) of the Company stock. The
Merger was accounted for as a "reverse acquisition," whereby NCC is deemed to
have acquired ANB for financial reporting purposes. However, ANB remains the
continuing legal entity and registrant for Securities and Exchange Commission
filing purposes. Consistent with the reverse acquisition accounting treatment,
the historical financial statements of the Company presented for the three and
nine month periods ended September 30, 1995, are the consolidated financial
statements of NCC and differ from the consolidated financial statements of ANB
previously reported. The results of operations of ANB are included in the
financial statements from the date of the Merger. (See Note D to the Company's
unaudited consolidated financial statements.)
On September 30, 1996, FirstBanc Holding Company, Inc. ("FIRSTBANC") was merged
into the Company with each share of FIRSTBANC stock being converted into
7.12917 shares of ANB stock. The FIRSTBANC merger was accounted for as a
pooling- of-interests. Accordingly, financial statements for all periods have
been restated to reflect the results of operations of the combined companies
from the earliest period presented, except for dividends per share. (See Note
D to the Company's unaudited consolidated financial statements.)
This information should be read in conjunction with the Company's unaudited
consolidated financial statements and related notes appearing elsewhere in this
report and Management's Discussion and Analysis of Financial Condition and
Results of Operations appearing in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
PERFORMANCE OVERVIEW
The Company's net income was $2.585 million for the third quarter of 1996 (the
"1996 Quarter") compared to $1.019 million for the third quarter of 1995 (the
"1995 quarter"). Net income for the nine month period ended September 30, 1996
(the "1996 nine months") was $6.942 million compared to $3.704 million for the
nine months ended September 30, 1995 (the "1995 nine months"). Net income per
common share for the 1996 and 1995 quarters was $.39 and $.15, respectively.
For the 1996 nine months, net income per common share was $1.04 compared to
$1.05 for the 1995 nine months. The Company has approximately 3.8 million more
common shares outstanding for the 1996 quarter and nine months as a result of
the Merger.
During the 1996 quarter, the Company absorbed an after tax charge of
approximately $420,000 ($.06 per common share) as the result of final Savings
Association Insurance Fund ("SAIF") legislation enacted on September 30, 1996.
The Company realized $126,000 ($.02 per common share) in income in the 1996
quarter from resolution of a matter involving a letter of credit.
The principal reason for the increase in net income for the 1996 quarter and
the 1996 nine months is the Merger. The improvement in 1996 net earnings
through September 30 is attributable to an increased interest margin and
increased noninterest income, a reduced minority interest in the earnings of
consolidated subsidiaries, less increased noninterest expenses and income
taxes.
The return on average assets for the Company was 1.12% for the 1996 nine months
compared to 1.09% for the 1995 nine months. The return on average
stockholders' equity decreased for the 1996 nine months to 15.01%, as compared
to 17.97% for the 1995 nine months. Book value per share at September 30, 1996
was $9.73, an increase of $.79 from year end 1995. Tangible book value per
share at September 30, 1996 was $8.60, an increase of $.83 from year end 1995.
The Company declared $.19 in cash dividends on common shares in the 1996 nine
months.
13
<PAGE> 14
NET INCOME
The largest component of the Company's net income is its net interest income,
which is the difference between the income earned on assets and the interest
paid on deposits and borrowings used to support such assets. As a result of
the Merger, average earning assets for the 1996 nine months increased by
approximately $286.0 million and average interest- bearing liabilities
increased by approximately $255.2 million. The Company's net interest income
benefited from the faster growth of average earning assets than average
interest-bearing liabilities. The average taxable equivalent rates earned on
assets were 8.59% for the 1996 nine months, compared to 8.65% for the 1995 nine
months. The average rates paid on interest-bearing liabilities were 4.67% for
the 1996 nine months compared to 5.09% for the 1995 nine months. The net
interest margin for the 1996 nine months was 4.52% compared to 4.29% for the
1995 nine months.
14
<PAGE> 15
The following table depicts, on a taxable equivalent basis for the 1996 and 1995
nine months, certain information related to the Company'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 balance
of the associated assets or liabilities.
AVERAGE BALANCES, INCOME AND EXPENSES AND RATES
(AMOUNTS IN THOUSANDS, EXCEPT YIELDS AND RATES)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------------------------------
1996 1995
------------------------------------- ---------------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
ASSETS: BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- ------- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans (1) (3) ................................. $563,306 $39,617 9.38% $312,152 21,966 9.38%
Securities:
Taxable ...................................... 139,544 6,640 6.34 87,764 4,509 6.85
Tax exempt ................................... 17,732 1,083 8.14 2,422 135 7.43
Cash balances in other banks .................. 5,159 203 5.25 0 0 (-)
Funds sold .................................... 31,168 1,274 5.45 23,444 1,039 5.91
Trading account securities .................... 3,182 154 6.45 897 42 6.24
-------- ------- -------- -------
Total earning assets (2) .................. 760,091 48,971 8.59 426,679 27,691 8.65
-------- ------- -------- -------
Cash and due from banks ......................... 29,545 17,520
Premises and equipment .......................... 29,367 7,659
Other assets .................................... 15,079 7,368
Allowance for loan losses ....................... (9,249) (5,131)
-------- --------
Total assets ............................. $824,833 $454,095
======== ========
LIABILITIES:
Interest-bearing liabilities:
Interest-bearing transaction accounts ......... $81,073 1,693 2.78 $36,397 819 3.00
Savings and money market deposits ............. 199,462 5,423 3.63 127,274 4,163 4.36
Time deposits ................................. 270,342 11,418 5.63 155,092 6,861 5.90
Funds purchased ............................... 64,476 2,530 5.23 29,625 1,242 5.59
Other short-term borrowings ................... 32,201 1,567 6.49 12,586 655 6.94
Long-term debt ................................ 777 53 9.09 908 63 9.25
-------- ------- ---- -------- ------- ----
Total interest-bearing liabilities ....... 648,331 22,684 4.67 361,882 13,803 5.09
-------- ------- ---- -------- ------- ----
Demand deposits ................................. 103,528 56,101
Accrued interest and other liabilities .......... 11,288 8,633
Stockholders' equity ............................ 61,686 27,479
-------- --------
Total liabilities and stockholders' equity .. $824,833 $454,095
======== ========
Net interest spread ............................. 3.92% 3.56%
==== ====
Net interest income/margin on
a taxable equivalent basis .................... 26,287 4.61% 13,888 4.34%
==== ====
Tax equivalent adjustment (2).................... 498 162
------- -------
Net interest income/margin ...................... $25,789 4.52% $13,726 4.29%
======= ==== ======= ====
</TABLE>
(1) Average loans include nonaccrual loans. All loans and deposits are
domestic.
(2) Tax equivalent adjustments are based on an assumed tax 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 $1,197,000 and $573,000 are included in interest and
fees on loans for the nine months ended September 30, 1996 and 1995,
respectively.
15
<PAGE> 16
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 from the 1996 nine months
compared to the 1995 nine months. For the purposes of this table, changes which
are not soley 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)
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------------
1996 COMPARED TO 1995
VARIANCE DUE TO
------------------------------------
VOLUME YIELD/RATE TOTAL
----------- ---------- ------
<S> <C> <C> <C>
EARNING ASSETS:
Loans ............................................ $17,651 $ - $17,651
Securities:
Taxable ........................................ 2,489 (358) 2,131
Tax exempt ..................................... 934 14 948
Cash balances in other banks ..................... 203 - 203
Funds sold ....................................... 321 (86) 235
Trading account securities ....................... 111 1 112
------- ------ -------
Total interest income ....................... 21,709 (429) 21,280
INTEREST-BEARING LIABILITIES:
Interest-bearing transaction accounts ............ 938 (64) 874
Savings and money market deposits ................ 2,049 (789) 1,260
Time deposits .................................... 4,884 (327) 4,557
Funds purchased .................................. 1,373 (85) 1,288
Other short-term borrowings ...................... 957 (45) 912
Long-term debt ................................... (9) (1) (10)
------- ------ -------
Total interest expense ...................... 10,192 (1,311) 8,881
------- ------ -------
Net interest income on a taxable
equivalent basis .......................... $11,517 $ 882 12,399
======= ======
Taxable equivalent adjustment .................... (336)
-------
Net interest income .............................. $12,063
=======
</TABLE>
16
<PAGE> 17
Net revenue from earning assets during the 1996 nine months increased $12.1
million or 87.9%, over the corresponding period in 1995. Approximately 93% of
this increase came from volume.
The provision for loan losses represents a charge to current earnings necessary
to maintain the allowance for loan losses at an appropriate level based on
management's analysis of the potential risk in the loan portfolio. The amount
of the provision is a function of the level of loans outstanding, the level of
non-performing loans, historical loan loss experience, the amount of loan
losses actually charged against the allowance during a given period and current
and anticipated economic conditions. No provision was made for the 1996
quarter, compared to a $202,000 provision during the 1995 quarter. Recoveries
exceeded charge-offs by $159,000 for the 1996 quarter compared to net
charge-offs of $189,000 for the same period of 1995. The provision for loan
losses was $209,000 for the 1996 nine months, compared to $210,000 for the 1995
nine months. Recoveries exceeded charge-offs by $127,000 for the 1996 nine
months, compared to net charge-offs of $221,000 for the 1995 nine months. The
allowance for loan losses as a percentage of outstanding loans, net of unearned
income was 1.57% at September 30, 1996, compared to 1.61% at December 31, 1995.
Because of the inherent uncertainty of assumptions made during the assessment
process, there can be no assurance that loan losses in future periods will not
exceed the allowance for loan losses or that additional allocations to the
allowance will not be required. See Asset Quality.
Noninterest income for the 1996 quarter was $3.9 million, compared to $2.3
million for the 1995 quarter. For the 1996 nine months noninterest income
increased to $12.0 million, compared to $4.7 million for the 1995 nine months.
Gain on the sale of assets and deposits of $343,000 during the 1996 nine months
resulted from the sale of a branch and the deposits at that branch of $274,000,
the sale of other real estate of $28,000 and the sale of loans and
miscellaneous assets of $41,000. Service charges on deposits for the 1996
quarter were $935,000, compared with $428,000 for the 1995 quarter. For the
1996 nine months, service charges were $2.8 million, compared with $1.3 million
for the 1995 nine months. For both 1996 periods, substantially all of the
increase came from the banks acquired in the Merger. Continued increased
activity in the investment services division resulted in a $489,000 increase in
the 1996 quarter over the same period in 1995 and a $4.0 million increase in
the 1996 nine months, when compared to the 1995 nine months. Management
anticipates this increased activity to continue, but is unable to predict the
impact on the future results of operations. A slowdown was experienced in the
1996 quarter. Trust fees increased $80,000 in the 1996 quarter compared to the
1995 quarter and increased $214,000 for the 1996 nine months, when compared
with the 1995 nine months. Other noninterest income increased $492,000 in the
1996 quarter when compared to the 1995 quarter and increased $1.2 million for
the 1996 nine months when compared with the 1995 nine months. $258,000 of this
increase in the 1996 quarter and $523,000 of this increase in the 1996 nine
months came from banks acquired in the Merger. Miscellaneous charges by NBC
Securities, Inc., a subsidiary of the Company, accounted for $283,000 of the
increase for the 1996 quarter and $469,000 of the increase for the 1996 nine
months. The 1996 nine months includes an $80,000 recovery from a settlement
with a third-party financial institution.
Noninterest expense was $9.2 million for the 1996 quarter, compared to $5.5
million for the 1995 quarter. For the 1996 nine months, noninterest expense
was $27.3 million, a $13.8 million increase over the 1995 nine months.
Salaries and employee benefits increased to $4.8 million for the 1996 quarter,
compared to $3.1 million for the 1995 quarter. For the 1996 nine months,
salaries and employee benefits increased to $15.9 million from $7.6 million in
the 1995 nine months. The increase in the 1996 quarter were principally the
result of $1.3 million in salaries and employee benefits of the banks acquired
in the Merger and increased salaries and employee benefits of the investment
services division of approximately $418,000. The increase in salaries and
employee benefits for the 1996 nine months were principally the result of $5.2
million in salaries and employee benefits of the banks acquired in the Merger,
including $947,000 in charges connected with the settlement of employment
contracts of the former chairman and CEO of the Company and one of the
subsidiary bank presidents, and increased salaries and employee benefits of the
investment services division of $2.8 million. Occupancy and equipment expense
increased to $1.2 million in the 1996 quarter, compared to $799,000 in the 1995
quarter. Approximately $444,000 of this increase came from the banks acquired
in the Merger. For the 1996 nine months, occupancy and equipment expenses
increased to $3.3 million compared to $2.0 million for the same period on 1995.
Substantially all of this increase came from banks acquired in the Merger.
Other noninterest expense increased to $3.2 million in the 1996 quarter,
compared to $1.6 million in the 1995 quarter. Approximately $1.8 million of
this increase, including the SAIF assessment of $677,000, came from banks
acquired in the Merger. Other noninterest expense increased to $8.1million in
the 1996 nine months, compared to $4.0 million in the 1995 nine months.
Substantially all of this increase came from the banks acquired in the Merger
(including the SAIF assessment and a $375,000 charge for the settlement of the
employee contracts with the former chairman and CEO of the Company.
17
<PAGE> 18
Income tax expense was $897,000 for the 1996 quarter compared to $132,000 for
the 1995 quarter. For the 1996 nine months, income tax expense was $3.3
million, compared to $333,000 for the 1995 nine months. The principal reason
for these increases was NCC's utilization of its loss carryforwards and credit
carry forwards in the year ended December 31, 1995. The effective tax rates
the 1996 quarter and the 1996 nine months were 25.7% and 32.1%, respectively.
EARNING ASSETS
Loans comprised the largest single category of the Company's earning assets on
September 30, 1996. Loans, net of unearned income were $588.7 million or 70.0%
of total assets at September 30, 1996, compared to $553.1 million or 65.9% at
December 31, 1995. Loans grew $35.6 million or 6.4% during the 1996 nine
months.
Investment securities increased $14.2 million for the 1996 nine months.
Purchases of investment securities totaled $23.9 million and maturities and
calls of investment securities totaled $9.7 million.
Securities available for sale decreased $16.7 million in the 1996 nine months.
Purchases of available for sale securities totaled $34.8 million and sales,
maturities and calls of available for sale securities totaled $51.3 million.
Overall investment securities and securities available for sale decreased $2.5
million during the 1996 nine months. Trading accounts securities decreased
$2.5 million during the 1996 nine months. The trading account securities are
securities owned by the Company prior to delivery to the Company's customers.
It is the policy of the Company to limit positions in such securities to reduce
its exposure to market and interest rate changes . Federal funds sold and
securities purchased under agreements to resell totaled $21.9 million at
September 30, 1996 compared to $37.9 million at December 31, 1995, a decrease
of $16.0 million. Interest-bearing deposits in other banks at September 30,
1996 were $239,000 compared to $11.2 million at December 31, 1995.
Approximately $8.5 million of this reduction in interest- bearing deposits at
other banks was used to fund the sale of deposits by a subsidiary bank.
DEPOSITS AND OTHER FUNDING SOURCES
Deposits decreased $8.3 million from year-end 1995, to $668.2 million at
September 30, 1996. One of the subsidiary banks sold a branch and its
deposits, which totaled $8.5 million. Additionally, one customer used escrow
funds at another subsidiary bank totaling $9.4 million. Excluding these two
transactions, deposits grew approximately $9.6 million.
Federal funds purchased and securities sold under agreements to repurchase
totaled $51.3 million at September 30, 1996 an decrease of $7.6 million from
December 31, 1995. The Treasury tax and loan account increased to $6.2 million
at September 30, 1996, compared with $2.4 million at December 31, 1995.
Short-term borrowings at September 30, 1996 totaled $41.4 million and consisted
of $18.4 million in borrowings by the Company from an independent bank and
$23.0 million in borrowings by subsidiary banks from the Federal Home Loan
Bank.
The Company's only long-term debt at September 30, 1996 was capital lease
obligations which decreased $17,000 during the 1996 nine months.
ASSET QUALITY
Nonperforming loans are comprised of loans past due 90 days or more and still
accruing interest, loans accounted for on a nonaccrual basis and loans in which
the terms have been restructured to provide a reduction or deferral of interest
or principal because of a deterioration in the financial position of the
borrower. Accrual of interest is discontinued on a loan when management
believes, after considering economic and business conditions and collection
efforts, that the borrower's financial condition is such that the collection of
interest is doubtful. A delinquent loan is generally placed on nonaccrual
status when it becomes 90 days or more past due. When a loan is placed on
nonaccrual status, all interest which has been accrued on the loan but remains
unpaid is reversed and deducted from earnings as a reduction of reported
interest income. No additional interest is accrued on the loan balance until
the collection of both principal and interest becomes reasonably certain. When
a problem loan is finally resolved, there may ultimately be an actual writedown
or charge-off of the principal balance of the loan which would necessitate
additional charges to earnings.
18
<PAGE> 19
At September 30, 1996, nonperforming assets totaled $3.2 million, an increase
of $272,000 from December 31, 1995. Nonperforming assets as a percentage of
loans plus other real estate was .55% at September 30, 1996 compared to .53% at
December 31,1995.
NONPERFORMING ASSETS
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Nonaccrual loans ........................................ $ 1,936 $ 1,245
Restructured loans ...................................... 896 949
Loans past due 90 days or more and still accruing ....... - 126
--------- ---------
Total nonperforming loans .......................... 2,832 2,320
Other real estate owned ................................. 385 625
--------- ---------
Total nonperforming assets ......................... $ 3,217 $ 2,945
========= =========
Nonperforming assets to period-end loans and
foreclosed real estate ............................ .55% .53%
Allowance for loan losses to period-end
nonperforming assets ............................... 287.38 302.51
Net recoveries to average loans (1) ..................... .03 .04
</TABLE>
- ----------------------
(1) Annualized for the nine months ended September 30, 1996.
Net recoveries for the 1996 nine months totaled $127,000. The allowance for
loan losses as a percentage of total loans was 1.57% at September 30,1996
compared to 1.61% on December 31,1995.
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<S> <C>
Allowance for loan losses at December 31,1995 . . . . . . . . . . . . . . . . . . . . . $ 8,909
Charge-offs:
Commercial, financial and agricultural . . . . . . . . . . . . . . . . . . . . 548
Real estate mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 403
--------
Total charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,026
Recoveries:
Commercial, financial and agricultural . . . . . . . . . . . . . . . . . . . . 923
Real estate mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
--------
Total recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,153
--------
Net recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Provision charged to income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209
--------
Allowance for loan losses at September 30, 1996 . . . . . . . . . . . . . . . . . . . . $ 9,245
========
</TABLE>
19
<PAGE> 20
The loan portfolio is periodically reviewed to evaluate the outstanding loans
and to measure both the performance of the portfolio and the adequacy of the
allowance for loan losses. This analysis includes a review of delinquency
trends, actual losses and internal credit ratings. Based on this analysis,
management considers the allowance for loan losses at September 30, 1996 to be
adequate to cover possible loan losses in the portfolio as of that date.
However, because of the inherent uncertainty of assumptions made during the
evaluation process, there can be no assurance that loan losses in future
periods will not exceed the allowance for loan losses or that additional
allocations to the allowance will not be required.
INTEREST RATE SENSITIVITY
The Company 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 its net interest income. The principal monitoring
technique employed by the Company 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. Managing the amount of assets and liabilities
repricing in this same time interval helps to hedge the risk and minimize the
impact of rising or falling interest rates on net interest income.
The Company evaluates interest sensitivity risk and then formulates guidelines
regarding asset generation and repricing, funding sources and pricing and
off-balance sheet commitments in order to decrease interest sensitivity risk.
The Company 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.
The following table illustrates the Company's interest rate sensitivity at
September 30, 1996, assuming relevant assets and liabilities are collected and
paid, respectively, in accordance with their stated maturities.
20
<PAGE> 21
INTEREST SENSITIVITY ANALYSIS
(AMOUNTS IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------------------------------------------------------------
AFTER ONE AFTER THREE
THROUGH THROUGH GREATER
WITHIN ONE THREE TWELVE WITHIN ONE THAN
MONTH MONTHS MONTHS YEAR ONE YEAR TOTAL
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Earning assets:
Loans(1) ........................... $ 206,812 $ 82,422 $ 103,160 $ 392,394 $ 194,377 $ 586,771
Securities(2) ...................... 4,012 1,526 7,555 13,093 138,117 151,210
Interest-bearing deposits in
other banks ...................... 239 - - 239 - 239
Funds sold ......................... 21,864 - - 21,864 - 21,864
--------- --------- --------- --------- -------- ---------
Total interest-earning assets.. 232,927 83,948 110,715 427,590 332,494 760,084
LIABILITIES:
Interest-bearing liabilities:
Interest-bearing deposits:
Demand deposits ................ 80,834 - - 80,834 - 80,834
Savings deposits ............... 190,329 - - 190,329 - 190,329
Time deposits(3) ............... 26,721 53,844 139,226 219,791 57,896 277,687
Funds purchased ................... 51,296 - - 51,296 - 51,296
Short-term borrowings(4) .......... 47,677 - - 47,677 - 47,677
Long-term debt .................... 1 4 15 20 287 307
--------- --------- --------- --------- --------- --------
Total interest-bearing
liabilities.................. 396,858 53,848 139,241 589,947 58,183 648,130
--------- --------- --------- --------- --------- --------
Period gap ............................ $(163,931) $ 30,100 $ (28,526) $(162,357) $ 274,311
========= ========= ========= ========= =========
Cumulative gap ........................ $(163,931) $(133,831) $(162,357) $(162,357) $ 111,954 $111,954
========= ========= ========= ========= ========= ========
Ratio of cumulative gap to total
earning assets ...................... (21.57)% (17.61)% (21.36)% (21.36)% 14.73%
- ----------------------------
</TABLE>
(1) Excludes nonaccrual loans of $1,936,000.
(2) Excludes investment equity securities of $2,050,000.
(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 $6,243,000.
The Company generally would benefit from increasing market rates of interest
when it has an asset-sensitive gap and generally would benefit from decreasing
market rates of interest when it is liability sensitive. The Company is
liability sensitive in the one month, three through twelve months and within
one year time frames. However, the Company's gap analysis is not a precise
indicator of its interest sensitivity position. The analysis presents only a
static view of the timing of maturities 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 rates are viewed by management as significantly less
interest-sensitive than market-based rates such as those paid on non-core
deposits. Accordingly, management believes that a liability-sensitive gap
position is not as indicative of the Company'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 affected by other
significant factors in a given interest rate environment, including changes in
the volume and mix of earning assets and interest-bearing liabilities.
21
<PAGE> 22
LIQUIDITY AND CAPITAL ADEQUACY
The Company's net loan to deposit ratio increased to 88.1% at September 30,
1996, compared to 81.8% at year end 1995. The Company's liquid assets as a
percentage of total deposits were 9.10% at September 30, 1996, compared to
13.04% at year-end 1995. At September 30, 1996, the Company had unused federal
funds lines of approximately $52.2 million, unused lines at the Federal Home
Loan Bank of $37.2 million and an unused credit line at an independent bank of
$4.56 million. Management analyzes the level of off-balance sheet assets such
as unfunded loan commitments and outstanding letters of credit as they relate
to the levels of cash, cash equivalents, liquid investments and available funds
lines in an attempt to minimize the possibility that a potential shortfall will
exist. Based on this analysis, management believes that the Company has
adequate liquidity to meet short-term operating requirements.
The Company's stockholders' equity increased by $5.2 million to $63.4 million
at September 30, 1996 from December 31, 1995. This increase was attributable
to:
<TABLE>
<S> <C>
Net income ............................................................. $6,942,000
Increase in unrealized losses on securities available for sale, net
of deferred income tax benefits ........................................ (678,000)
Cash dividends declared ................................................ (1,172,000)
Decrease in unearned restricted stock .................................. 70,000
Exercise of options for 10,000 shares of common stock .................. 100,000
Retirement of preferred stock of FIRSTBANC ............................. (53,000)
----------
Net increase ..................................................... $5,209,000
==========
</TABLE>
A strong capital position is vital to the continued profitability of the
Company because it promotes depositor and investor confidence and provides a
solid foundation for future growth of the organization. The capital of the
Company and its subsidiary banks (the "Banks") exceeded all prescribed
regulatory capital guidelines at September 30, 1996. Under the capital
guidelines of their regulators, the Company and the Banks are currently
required to maintain a minimum risk-based total capital ratio of 8%, with at
least 4% being Tier 1 capital. Tier 1 capital consists of common stockholders'
equity, qualifying perpetual preferred stock and minority interests in equity
accounts of consolidated subsidiaries, less goodwill. In addition, the Company
and the Banks must maintain a minimum Tier 1 leverage ratio (Tier 1 capital to
total assets) of at least 3%, but this minimum ratio is increased by 100 to 200
basis points for other than the highest rated institutions. The following
table sets forth the risk-based and leverage ratios of the Company and each
subsidiary bank at September 30, 1996:
22
<PAGE> 23
<TABLE>
<CAPTION>
TIER 1 RISK TOTAL RISK TIER 1
BASED BASED LEVERAGE
----- ----- --------
<S> <C> <C> <C>
Alabama National BanCorporation 9.46% 10.71% 6.78%
Subsidiary Banks:
National Bank of Commerce ...................................... 11.11 12.36 8.25
Alabama Exchange Bank .......................................... 13.60 14.85 9.57
Bank of Dadeville .............................................. 13.00 14.12 9.66
First National Bank of Ashland ................................. 12.29 13.50 8.22
Gulf Bank ...................................................... 11.51 12.76 9.97
Citizens Bank of Talladega ..................................... 14.12 15.37 9.00
St. Clair Federal Savings Bank ................................. 10.92 12.17 7.51
First Bank of Baldwin County ................................... 14.89 16.14 9.19
Required minimums .............................................. 4.00 8.00 4.00
</TABLE>
23
<PAGE> 24
Part II Other Information
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
(1) On July 5, 1996, amendment No. 1 on Form 8-K/A was filed to Form
8-K of Alabama National BanCorporation previously filed on April
30, 1996, Commission File No. 0-25160.
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALABAMA NATIONAL BANCORPORATION
DATE: November 8, 1996 /s/ John H. Holcomb, III
---------------- ------------------------
John H. Holcomb, III, its Chairman and
Chief Executive Officer
DATE: November 8, 1996 /s/ Frank W. Whitehead
---------------- ----------------------
Frank W. Whitehead, its Executive Vice
President, Treasurer
and Chief Financial Officer
25
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 841,191
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 6,882
<OTHER-SE> 56,516
<TOTAL-LIABILITY-AND-EQUITY> 841,191
<SALES> 0
<TOTAL-REVENUES> 60,455
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 3,288
<INCOME-CONTINUING> 6,942
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,942
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 0.00
</TABLE>
