<PAGE>
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, 2000
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) 583-3600
--------------
------------------------------------------------------------
(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
-------- --------
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 November 10, 2000
----- --------------------------------
Common Stock, $1.00 Par Value 11,047,805
<PAGE>
INDEX
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE
----------------------------- ----
Item 1. Financial Statements (Unaudited)
Consolidated statements of condition
September 30, 2000 and December 31, 1999 ........................ 3
Consolidated statements of income
Three months ended September 30, 2000 and 1999;
nine months ended September 30, 2000 and 1999 ................... 4
Consolidated statements of other comprehensive income
Three months ended September 30, 2000 and 1999;
nine months ended September 30, 2000 and 1999 ................... 8
Consolidated statements of cash flows
nine months ended September 30, 2000 and 1999 ................... 10
Notes to the unaudited consolidated financial statements
September 30, 2000 .............................................. 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ....................................... 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk ...... 30
PART II. OTHER INFORMATION
--------------------------
Item 6. Exhibits and Reports on Form 8-K ................................ 30
SIGNATURES ............................................................... 31
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" or, the "Company"), 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. 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.
<PAGE>
Part I - Financial Information
------------------------------
Item 1 - Financial Statements (Unaudited)
Alabama National BanCorporation and Subsidiaries
Consolidated Statements of Condition
------------------------------------
(In thousands, except share amounts)
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
(Unaudited)
<S> <C> <C>
Assets
Cash and due from banks ...................................................... $ 75,246 $ 73,125
Interest-bearing deposits in other banks ..................................... 1,893 6,768
Investment securities (estimated market values of $34,454 and $19,738)........ 34,098 19,616
Securities available for sale................................................. 305,543 325,507
Trading securities ........................................................... 246 2,701
Federal funds sold and securities purchased under resell agreements .......... 44,449 33,568
Loans held for sale .......................................................... 8,761 8,615
Loans ........................................................................ 1,587,196 1,321,245
Unearned income .............................................................. (976) (1,085)
---------- ----------
Loans, net of unearned income ................................................ 1,586,220 1,320,160
Allowance for loan losses .................................................... (20,840) (18,068)
---------- ----------
Net loans .................................................................... 1,565,380 1,302,092
Property, equipment and leasehold improvements, net .......................... 48,388 43,855
Intangible assets ............................................................ 14,619 10,730
Cash surrender value of life insurance ....................................... 40,455 31,642
Receivable from investment division customers ................................ 8,102 24,573
Other assets.................................................................. 40,144 39,092
---------- ----------
Totals........................................................................ $2,187,324 $1,921,884
========== ==========
Liabilities and Stockholders' Equity
Deposits:
Noninterest bearing......................................................... $ 248,896 $ 210,185
Interest bearing............................................................ 1,455,914 1,231,970
---------- ----------
Total deposits ............................................................... 1,704,810 1,442,155
Federal funds purchased and securities sold under repurchase agreements ...... 138,089 131,878
Treasury, tax and loan accounts............................................... 2,551 6,199
Short-term borrowings......................................................... 72,589 18,389
Accrued expenses and other liabilities........................................ 37,109 61,003
Long-term debt ............................................................... 78,948 124,005
---------- ----------
Total liabilities ............................................................ 2,034,096 1,783,629
Common stock, $1 par, authorized 17,500,000 shares; issued
11,187,019 shares at September 30, 2000 and December 31, 1999............... 11,187 11,187
Additional paid-in capital ................................................... 85,642 81,939
Retained earnings ............................................................ 65,466 54,897
Treasury stock at cost, 139,714 and 121,129 shares at September 30, 2000
and December 31, 1999, respectively......................................... (3,523) (3,226)
Accumulated other comprehensive income (loss), net of tax .................... (5,544) (6,542)
---------- ----------
Total stockholders' equity ................................................... 153,228 138,255
---------- ----------
Totals........................................................................ $2,187,324 $1,921,884
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
3
<PAGE>
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,
------------------------
2000 1999
------- -------
<S> <C> <C>
Interest income:
Interest and fees on loans......................................................................... $35,638 $26,482
Interest on securities............................................................................. 5,796 5,238
Interest on deposits in other banks................................................................ 28 44
Interest on trading securities..................................................................... 35 77
Interest on Federal funds sold and securities purchased under resell agreements.................... 566 491
------- -------
Total interest income................................................................................ 42,063 32,332
Interest expense:
Interest on deposits............................................................................... 17,901 12,226
Interest on Federal funds purchased and securities sold
under repurchase agreements...................................................................... 2,419 1,994
Interest on long and short-term borrowings......................................................... 2,657 1,080
------- -------
Total interest expense.............................................................................. 22,977 15,300
------- -------
Net interest income.................................................................................. 19,086 17,032
Provision for loan losses............................................................................ 400 408
------- -------
Net interest income after provision for loan losses.................................................. 18,686 16,624
Noninterest income:
Securities gains................................................................................... 1 -
Gain (loss) on disposition of assets............................................................... (7) 38
Service charges on deposit accounts................................................................ 1,946 1,916
Investment division income......................................................................... 1,603 1,406
Securities brokerage income........................................................................ 1,300 779
Trust department income............................................................................ 555 550
Origination and sale of mortgage loans............................................................. 890 860
Bank owned life insurance.......................................................................... 503 386
Insurance commissions.............................................................................. 402 356
Other.............................................................................................. 957 648
------- -------
Total noninterest income............................................................................. 8,150 6,939
</TABLE>
4
<PAGE>
Alabama National BanCorporation and Subsidiaries
Consolidated Statements of Income (Unaudited) (Continued)
---------------------------------------------------------
(In thousands, except per share data)
For the three months
ended September 30,
--------------------
2000 1999
------- -------
Noninterest expense:
Salaries and employee benefits............................ 10,756 9,048
Occupancy and equipment expenses ......................... 2,131 1,885
Other..................................................... 4,983 4,301
------- -------
Total noninterest expense .................................. 17,870 15,234
------- -------
Income before provision for income taxes ................... 8,966 8,329
Provision for income taxes ................................. 2,760 2,609
------- -------
Net income ................................................. $ 6,206 $ 5,720
======= =======
Net income per common share (basic) ........................ $ .56 $ .51
======= =======
Weighted average common shares outstanding (basic) ......... 11,047 11,127
======= =======
Net income per common share (diluted) ...................... $ .55 $ .51
======= =======
Weighted average common shares outstanding (diluted) ....... 11,219 11,315
======= =======
See accompanying notes to unaudited consolidated financial statements
5
<PAGE>
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,
---------------------
2000 1999
-------- -------
<S> <C> <C>
Interest income:
Interest and fees on loans ............................................................................. $ 97,559 $73,877
Interest on securities.................................................................................. 17,627 14,716
Interest on deposits in other banks .................................................................... 152 65
Interest on trading securities ......................................................................... 97 286
Interest on Federal funds sold and securities purchased under resell agreements......................... 1,746 1,867
-------- -------
Total interest income .................................................................................... 117,181 90,811
Interest expense:
Interest on deposits.................................................................................... 47,828 34,306
Interest on Federal funds purchased and securities sold under repurchase agreements..................... 6,683 5,377
Interest on long and short-term borrowings ............................................................. 6,982 2,758
-------- -------
Total interest expense ................................................................................... 61,493 42,441
-------- -------
Net interest income ...................................................................................... 55,688 48,370
Provision for loan losses ................................................................................ 1,553 1,338
-------- -------
Net interest income after provision for loan losses ...................................................... 54,135 47,032
Noninterest income:
Securities gains ....................................................................................... 1 189
Gain (loss) on disposition of assets.................................................................... (15) 246
Service charges on deposit accounts .................................................................... 5,699 5,538
Investment division income.............................................................................. 3,949 5,364
Securities brokerage income............................................................................. 3,760 2,665
Trust department income................................................................................. 1,694 1,620
Origination and sale of mortgage loans ................................................................. 2,625 3,229
Bank owned life insurance .............................................................................. 1,491 1,111
Insurance commissions .................................................................................. 1,499 488
Other................................................................................................... 2,697 1,942
-------- -------
Total noninterest income ................................................................................. 23,400 22,392
</TABLE>
6
<PAGE>
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,
-------------------
2000 1999
----- -----
<S> <C> <C>
Noninterest expense:
Salaries and employee benefits ......................................................... 30,960 27,538
Occupancy and equipment expenses ....................................................... 6,123 5,272
Other................................................................................... 14,817 13,043
------- -------
Total noninterest expense ................................................................. 51,900 45,853
------- -------
Income before provision for income taxes .................................................. 25,635 23,571
Provision for income taxes ................................................................ 7,868 7,452
------- -------
Net income ................................................................................ $17,767 $16,119
======= =======
Net income per common share (basic) ....................................................... $ 1.61 $ 1.45
======= =======
Weighted average common shares outstanding (basic) ........................................ 11,059 11,084
======= =======
Net income per common share (diluted) ..................................................... $ 1.58 $ 1.43
======= =======
Weighted average common shares outstanding (diluted) ...................................... 11,221 11,273
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements
7
<PAGE>
Alabama National BanCorporation and Subsidiaries
Consolidated Statements of Other Comprehensive Income (Unaudited)
-----------------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
For the three months
ended September 30,
----------------------
2000 1999
---- ----
<S> <C> <C>
Net income........................................................................................... $6,206 $5,720
Other comprehensive income (loss):
Unrealized gains (losses) on securities available for sale ........................................ 3,341 (755)
Less: Reclassification adjustment for net gains included in net income ............................. - -
------ ------
Other comprehensive income (loss), before tax ........................................................ 3,341 (755)
Provision for (benefit of) income taxes related to
items of other comprehensive income ............................................................... 1,162 (475)
------ ------
Other comprehensive income (loss), net of tax ....................................................... 2,179 (280)
------ ------
Comprehensive income ................................................................................ $8,385 $5,440
====== ======
</TABLE>
See accompanying notes to unaudited consolidated financial statements
8
<PAGE>
Alabama National BanCorporation and Subsidiaries
Consolidated Statements of Other Comprehensive Income (Unaudited)
-----------------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
----------------------
2000 1999
------- -------
<S> <C> <C>
Net income...................................................................... $17,767 $16,119
Other comprehensive income (loss):
Unrealized gains (losses) on securities available for sale.................... 1,439 (5,959)
Less: Reclassification adjustment for net gains included
in net income................................................................. - 189
------- -------
Other comprehensive income (loss), before tax .................................. 1,439 (6,148)
Provision for (benefit of) income taxes related to
items of other comprehensive income........................................... 441 (2,244)
------- -------
Other comprehensive income (loss), net of tax .................................. 998 (3,904)
------- -------
Comprehensive income ........................................................... $18,765 $12,215
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements
9
<PAGE>
Alabama National BanCorporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
-------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
--------------------
2000 1999
---- ----
<S> <C> <C>
Net cash flows provided by operating activities .................................................... $ 20,021 $ 30,526
Cash flows from investing activities:
Proceeds from maturities of investment securities .................................................. 6,476 13,100
Purchases of investment securities ................................................................. (20,954) -
Purchases of securities available for sale ......................................................... (37,071) (210,425)
Proceeds from sale of securities available for sale ................................................ 126 256
Proceeds from maturities of securities available for sale .......................................... 58,450 166,571
Net (increase) decrease in interest bearing deposits in other banks ................................ 4,875 (12,771)
Net (increase) decrease in Federal funds sold and securities purchased
under resell agreements .......................................................................... (10,881) (4,459)
Net increase in loans .............................................................................. (198,370) (156,236)
Purchases of property, equipment and leasehold improvements ........................................ (6,595) (6,900)
Cash paid for bank-owned life insurance ............................................................ (8,213) -
Costs capitalized on other real estate owned ....................................................... (48) -
Proceeds from sale of other real estate owned ...................................................... 470 -
Purchase of treasury stock in purchase business combination ........................................ - (3,226)
Cash paid in purchase business combination, net of cash received ................................... (19,019) (114)
Proceeds from sale of property, equipment and leasehold improvements ............................... 7 18
--------- --------
Net cash used in investing activities .............................................................. (230,747) (214,186)
--------- --------
Cash flows from financing activities:
Net increase in deposits .......................................................................... 208,639 133,790
Increase (decrease) in Federal funds purchased and securities sold
under agreements to repurchase .................................................................. 6,211 (16,093)
Net increase in short and long-term borrowings and capital leases.................................. 5,495 68,427
Exercise of stock options ......................................................................... 58 704
Purchase of treasury stock ........................................................................ (588) -
Dividends on common stock ......................................................................... (6,968) (5,967)
--------- ---------
Net cash provided by financing activities ......................................................... 212,847 180,861
--------- ---------
Increase in cash and cash equivalents ............................................................. 2,121 (2,799)
Cash and cash equivalents, beginning of period .................................................... 73,125 70,813
--------- ---------
Cash and cash equivalents, end of period .......................................................... $ 75,246 $ 68,014
========= =========
Supplemental schedule of noncash investing and financing activities
Acquisition of collateral in satisfaction of loans ................................................ $ 421 $ 1,017
========= =========
Adjustment to market value of securities available for sale, net
of deferred income taxes ........................................................................ $ 998 $ (3,904)
========= =========
Assets acquired in purchase business combination .................................................. $ 70,293 $ 3,704
========= =========
Liabilities assumed in purchase business combination ............................................. $ 54,361 $ 721
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
10
<PAGE>
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
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, 2000,
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, 2000. These
interim financial statements should be read in conjunction with the consolidated
financial statements and footnotes thereto included in Alabama National's Annual
Report on Form 10-K for the year ended December 31, 1999.
NOTE B - COMMITMENT 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.
NOTE C - RECENTLY ISSUED PRONOUNCEMENTS
---------------------------------------
Derivative Investments and Hedging Activities
In June 1998, the FASB issued Statement of Financial Standard No. 133,
Accounting for Derivative Instruments and Hedging Activities, ("Statement 133"),
effective for all fiscal quarters of all fiscal years beginning after June 30,
1999. Statement 133 standardizes the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts, by
requiring that an entity recognize those items as assets or liabilities in the
statement of financial position and measure them at fair value. If certain
conditions are met, an entity may elect to designate a derivative instrument as
a hedging instrument. Statement 133 generally provides for matching the timing
of gain or loss recognition on the hedging instrument with the recognition of
(a) the changes in the fair value of the hedged asset or liability that are
attributable to the hedged risk or (b) the earnings effect of the hedged
forecasted transaction. Statement 133, as amended by Statement of Financial
Accounting Standards No. 137, Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of SFAS No. 133, and Statement of
Financial Accounting Standards No. 138, Accounting for Derivative Instruments
and Hedging Activities - an Amendment of SFAS No. 133, is effective for fiscal
years beginning after June 15, 2000, and is effective for interim periods in the
year of adoption. Management of Alabama National does not expect the adoption of
Statement 133 to have a material impact on its financial statements since
Alabama National does not invest in derivative instruments.
11
<PAGE>
NOTE D - EARNINGS PER SHARE
-----------------------------
The following table reflects the reconciliation of the numerator and denominator
of the basic earnings per share computation to the diluted earnings per share
computation for the three months and nine months ended September 30, 2000 and
1999.
<TABLE>
<CAPTION>
Per Share
Income Shares Amount
-------- --------- ---------
<S> <C> <C> <C>
(In thousands, except per share amounts)
THREE MONTHS ENDED SEPTEMBER 30, 2000
Basic EPS net income................................... $ 6,206 11,047 $0.56
=====
Effect of dilutive securities.......................... - 172
------- ------
Diluted EPS............................................ $ 6,206 11,219 $0.55
======= ====== =====
THREE MONTHS ENDED SEPTEMBER 30, 1999
Basic EPS net income................................... $ 5,720 11,127 $0.51
=====
Effect of dilutive securities.......................... - 188
------- ------
Diluted EPS............................................ $ 5,720 11,315 $0.51
======= ====== =====
NINE MONTHS ENDED SEPTEMBER 30, 2000
Basic EPS net income................................... $17,767 11,059 $1.61
=====
Effect of dilutive securities.......................... - 162
------- ------
Diluted EPS............................................ $17,767 11,221 $1.58
======= ====== =====
NINE MONTHS ENDED SEPTEMBER 30, 1999
Basic EPS net income................................... $16,119 11,084 $1.45
=====
Effect of dilutive securities.......................... - 189
------- ------
Diluted EPS............................................ $16,119 11,273 $1.43
======= ====== =====
</TABLE>
NOTE E - TREASURY STOCK REPURCHASE PLAN
----------------------------------------
In the second quarter of 2000, the Board of Directors of Alabama National
authorized the repurchase of up to 250,000 shares of the Company's common stock.
On October 10, 2000, the Board of Directors rescinded this share repurchase
program. A total of 30,000 shares were purchased under the rescinded plan.
NOTE F - MERGERS AND ACQUISITIONS
----------------------------------
On August 4, 2000, First American Bank, a subsidiary of Alabama National,
completed the acquisition of two banking branches in Madison and Huntsville,
Alabama. The acquisition increased loans and deposits by approximately $68.9
million and $54.0 million, respectively. The acquisition was accounted for as a
purchase transaction.
On October 10, 2000, Alabama National entered into a merger agreement with
Peoples State Bank, located in Groveland, Florida. Under the terms of the
merger agreement, Peoples State Bank will merge with a newly formed subsidiary
of Alabama National, whereby Peoples State Bank will become a wholly owned
subsidiary of Alabama National. Alabama National will issue approximately
735,000 shares of its common stock to existing Peoples State Bank shareholders
at an exchange ratio of 1.164 shares of Alabama National common stock for each
share of Peoples State Bank common stock. As of September 30, 2000, Peoples
State Bank had assets of $121.6 million. The merger with Peoples State Bank is
expected to be completed in the first quarter of 2001. The merger is subject to
Peoples State Bank shareholder approval and certain regulatory approvals, and is
expected to be accounted for as a pooling of interests.
12
<PAGE>
NOTE G - SEGMENT REPORTING
---------------------------
Alabama National's reportable segments represent the distinct major product
lines it offers and are viewed separately for strategic planning purposes by
management. The following table is a reconciliation of the reportable segment
revenues, expenses, and profit to Alabama National's consolidated totals (in
thousands).
<TABLE>
<CAPTION>
Investment Securities Mortgage Retail and
Services Brokerage Trust Lending Insurance Commercial Corporate Elimination
Division Division Division Division Division Banking Overhead Entries Total
---------- ---------- -------- -------- ---------- ---------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Nine months ended
September 30, 2000:
-------------------
Interest income $ - $2,793 $ - $ 318 $ 16 $115,599 $ (45) $(1,500) $117,181
Interest expenses 1,500 201 10 60,270 1,012 (1,500) 61,493
-----------------------------------------------------------------------------------------------------
Net interest income 1,293 117 6 55,329 (1,057) 55,688
Provision for loan losses 1,553 1,553
Noninterest income 3,949 3,760 1,694 2,840 1,499 9,642 16 23,400
Noninterest expense 3,764 4,400 987 2,060 1,421 36,941 $ 2,327 51,900
-----------------------------------------------------------------------------------------------------
Net income before tax $ 185 $ 653 $ 707 $ 897 $ 84 $ 26,477 $(3,368) $ - $ 25,635
=====================================================================================================
Nine months ended
September 30, 1999:
-------------------
Interest income $ - $1,278 $ - $ 372 $ 1 $ 89,804 $ (72) $ (545) $ 90,638
Interest expenses 545 240 5 41,666 551 (545) 42,462
-----------------------------------------------------------------------------------------------------
Net interest income 733 132 (4) 48,138 (623) 48,376
Provision for loan losses 1,338 1,338
Noninterest income 5,364 2,665 1,620 3,420 488 8,654 175 22,386
Noninterest expense 4,752 3,091 856 2,288 449 32,415 2,002 45,853
-----------------------------------------------------------------------------------------------------
Net income before tax $ 612 $ 307 $ 764 $1,264 $ 35 $ 23,039 $(2,450) $ - $ 23,571
=====================================================================================================
</TABLE>
Corporate overhead is comprised of compensation and benefits for certain members
of management, merger-related costs, interest expense on parent company debt,
amortization of intangibles and other expenses.
13
<PAGE>
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 Alabama National and results of operations as of the dates and for
the periods indicated. All significant intercompany accounts and transactions
have been eliminated. The accounting and reporting policies of Alabama National
conform with generally accepted accounting principles and with general financial
services industry practices.
This information should be read in conjunction with Alabama National'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 Alabama National's Annual Report on
Form 10-K for the year ended December 31, 1999.
Performance Overview
--------------------
Alabama National's net income was $6.21 million for the third quarter of 2000
(the "2000 third quarter") compared to $5.72 million for the third quarter of
1999 (the "1999 third quarter"). Net income for the nine month period ended
September 30, 2000 (the "2000 nine months") was $17.77 million compared to
$16.12 million for the nine months ended September 30, 1999 (the "1999 nine
months"). Net income per diluted common share for the 2000 and 1999 third
quarters was $0.55 and $0.51, respectively. For the 2000 nine months, net
income per diluted common share was $1.58 compared to $1.43 for the 1999 nine
months.
The annualized return on average assets for Alabama National was 1.17% for the
2000 third quarter compared to 1.27% for the 1999 third quarter. The annualized
return on average assets for Alabama National was 1.17% for the 2000 nine months
compared to 1.25% for the 1999 nine months. The annualized return on average
stockholders' equity for the 2000 third quarter was 16.39%, as compared to
16.45% for the 1999 third quarter. The annualized return on average
stockholders' equity increased for the 2000 nine months to 16.42%, as compared
to 15.86% for the 1999 nine months. Book value per share at September 30, 2000
was $13.87, an increase of $1.38 from year-end 1999. Tangible book value per
share at September 30, 2000 was $12.55, an increase of $1.03 from year-end 1999.
Alabama National paid cash dividends totaling $0.63 on common shares during the
2000 nine months, compared to $0.54 on common shares during the 1999 nine
months.
Net Income
----------
The principal reason for the increase in net income for each of the 2000 third
quarter and the 2000 nine months, compared to the same periods in 1999, was the
growth in net interest income, which is the difference between the income earned
on interest bearing assets and the interest paid on deposits and borrowings used
to support such assets. Net interest income increased by $2.1 million, or
12.06%, to $19.1 million during the 2000 third quarter from $17.0 million during
the 1999 third quarter. Net interest income increased to $55.7 million during
the 2000 nine months from $48.4 million during the 1999 nine months,
representing an increase of $7.3 million, or 15.1%. The increase in net
interest income was offset by an increase in noninterest expense of $2.6
million, to $17.9 million for the 2000 third quarter, and $6.0 million to $51.9
million for the 2000 nine months, compared to $15.2 million and $45.9 million,
respectively, for the same periods in 1999.
14
<PAGE>
Average earning assets for the 2000 third quarter and nine months increased by
approximately $313.6 million and $294.5 million, respectively, and was
substantially matched by growth in average interest-bearing liabilities of
$319.4 million and $306.6 million during the 2000 third quarter and nine months,
respectively. The average taxable equivalent rate earned on assets was 8.74% and
8.56% for the 2000 third quarter and nine months compared to 8.02% and 7.93% for
the 1999 third quarter and nine months, respectively. The average rate paid on
interest-bearing liabilities was 5.36% and 5.06% for the 2000 third quarter and
nine months, respectively, compared to 4.38% and 4.31% for the 1999 third
quarter and nine months, respectively. The net interest margin for the 2000
third quarter and nine months was 3.94% and 4.04%, respectively, compared to
4.19% for both the 1999 third quarter and nine months, respectively. The
reduction in net interest margin is largely due to strong loan demand in excess
of growth in low cost deposit accounts. This has resulted in much of the
incremental growth of loans being funded by higher cost liability sources, such
as Federal Home Loan Bank advances, in-market CD's, and brokered CD's.
The following tables depict, on a taxable equivalent basis for the 2000 and 1999
third quarter and nine months, 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 balance of the associated assets or liabilities.
15
<PAGE>
AVERAGE BALANCES, INCOME AND EXPENSES AND RATES
(Amounts in thousands, except yields and rates)
<TABLE>
<CAPTION>
Three months ended September 30,
----------------------------------------------------------------------------------
2000 1999
-------------------------------------- -----------------------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost
----------- ----------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Earning assets:
Loans (1) (3).................................. $1,544,399 $35,687 9.19% $1,226,461 $26,530 8.58%
Securities:
Taxable....................................... 313,077 5,418 6.88 302,275 4,832 6.34
Tax exempt.................................... 29,995 573 7.60 33,624 615 7.26
Cash balances in other banks................... 2,423 28 4.60 2,528 44 6.91
Funds sold..................................... 33,417 566 6.74 40,727 491 4.78
Trading account securities..................... 1,964 35 7.09 6,016 77 5.08
---------- ------- ---------- -------
Total earning assets (2)................... 1,925,275 42,307 8.74 1,611,631 32,589 8.02
---------- ------- ---------- -------
Cash and due from banks.......................... 68,189 67,595
Premises and equipment........................... 47,646 45,616
Other assets..................................... 90,903 73,084
Allowance for loan losses........................ (20,195) (17,419)
---------- ----------
Total assets.............................. $2,111,818 $1,780,507
========== ==========
Liabilities:
Interest-bearing liabilities:
Interest-bearing transaction accounts.......... $ 246,366 2,113 3.41 201,940 1,293 2.54
Savings deposits............................... 304,411 2,771 3.62 322,225 2,788 3.43
Time deposits.................................. 836,628 13,017 6.19 637,623 8,145 5.07
Funds purchased................................ 158,071 2,419 6.09 143,385 1,994 5.52
Other short-term borrowings.................... 80,953 1,452 7.14 12,880 181 5.58
Long-term debt................................. 79,571 1,205 6.02 68,506 899 5.21
---------- ------- ---------- -------
Total interest-bearing liabilities........ 1,706,000 22,977 5.36 1,386,559 15,300 4.38
---------- ------- ---------- -------
Demand deposits.................................. 225,129 219,187
Accrued interest and other liabilities........... 30,032 36,803
Stockholders' equity............................. 150,657 137,958
---------- ----------
Total liabilities and stockholders' equity... $2,111,818 $1,780,507
========== ==========
Net interest spread.............................. 3.38% 3.64%
==== ====
Net interest income/margin on
a taxable equivalent basis..................... 19,330 3.99% 17,289 4.26%
==== ====
Tax equivalent adjustment (2).................... 244 257
------- -------
Net interest income/margin....................... $19,086 3.94% $17,032 4.19%
======= ==== ======= ====
</TABLE>
________________
(1) Average loans include nonaccrual loans. All loans and deposits are
domestic.
(2) Tax equivalent adjustments are based upon assumed tax rate of 34%, and do
not reflect the disallowance for Federal income tax purposes of interest
expense related to certain tax exempt assets.
(3) Fees in the amount of $826,000 and $704,000 are included in interest and
fees on loans for the three months ended September 30, 2000 and 1999,
respectively.
16
<PAGE>
AVERAGE BALANCES, INCOME AND EXPENSES AND RATES
(Amounts in thousands, except yields and rates)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------------------------------------------------------
2000 1999
------------------------------------ ---------------------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost
------------ ---------- -------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Earning assets:
Loans (1) (3).................................... $1,446,936 $ 97,712 9.02% $1,163,205 $74,029 8.51%
Securities:
Taxable......................................... 319,475 16,500 6.90 290,197 13,491 6.22
Tax exempt...................................... 30,308 1,708 7.53 33,465 1,856 7.42
Cash balances in other banks..................... 3,650 152 5.56 1,393 65 6.24
Funds sold....................................... 37,322 1,746 6.25 49,683 1,867 5.02
Trading account securities....................... 1,891 97 6.85 7,163 286 5.34
---------- -------- ---------- -------
Total earning assets (2)..................... 1,839,582 117,915 8.56 1,545,106 91,594 7.93
---------- -------- ---------- -------
Cash and due from banks............................ 69,996 64,227
Premises and equipment............................. 46,249 42,147
Other assets....................................... 86,990 84,215
Allowance for loan losses.......................... (19,121) (17,149)
---------- ----------
Total assets................................ $2,023,696 $1,718,546
========== ==========
Liabilities:
Interest-bearing liabilities:
Interest-bearing transaction accounts............ $ 242,754 5,798 3.19 191,999 3,344 2.33
Savings deposits................................. 302,933 8,016 3.53 318,487 7,994 3.36
Time deposits.................................... 774,936 34,014 5.86 591,771 22,968 5.19
Funds purchased.................................. 150,894 6,683 5.92 145,187 5,377 4.95
Other short-term borrowings...................... 48,751 2,556 7.00 23,197 935 5.39
Long-term debt................................... 104,012 4,426 5.68 47,036 1,823 5.18
---------- -------- ---------- -------
Total interest-bearing liabilities.......... 1,624,280 61,493 5.06 1,317,677 42,441 4.31
---------- -------- ---------- -------
Demand deposits.................................... 223,952 216,458
Accrued interest and other liabilities............. 30,959 48,533
Stockholders' equity............................... 144,505 135,878
---------- ----------
Total liabilities and stockholders' equity..... $2,023,696 $1,718,546
========== ==========
Net interest spread................................ 3.50% 3.62%
==== ====
Net interest income/margin on
a taxable equivalent basis....................... 56,422 4.10% 49,153 4.25%
==== ====
Tax equivalent adjustment (2)...................... 734 783
-------- -------
Net interest income/margin......................... $ 55,688 4.04% $48,370 4.19%
======== ==== ======= ====
</TABLE>
________________
(1) Average loans include nonaccrual loans. All loans and deposits are
domestic.
(2) Tax equivalent adjustments are based upon assumed tax rate of 34%, and do
not reflect the disallowance for Federal income tax purposes of interest
expense related to certain tax exempt assets.
(3) Fees in the amount of $2,376,000 and $2,250,000 are included in interest
and fees on loans for the three months ended September 30, 2000 and 1999,
respectively.
17
<PAGE>
The following tables set 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 the 2000 third
quarter and nine months compared to the 1999 third quarter and nine months,
respectively. For the purposes of these tables, changes, which are not solely
attributable to volume or rate, are allocated to volume and rate on a pro rata
basis.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------------
2000 Compared to 1999
Variance Due to
--------------------------------------
Volume Yield/Rate Total
--------------------------------------
<S> <C> <C> <C>
Earning assets:
Loans................................................. $19,262 $4,421 $23,683
Securities:
Taxable............................................. 1,444 1,565 3,009
Tax exempt.......................................... (192) 44 (148)
Cash balances in other banks.......................... 99 (12) 87
Funds sold............................................ (677) 556 (121)
Trading account securities............................ (293) 104 (189)
------- ------ -------
Total interest income............................ 19,643 6,678 26,321
Interest-bearing liabilities:
Interest-bearing transaction accounts................. 1,024 1,430 2,454
Savings and money market deposits..................... (521) 543 22
Time deposits......................................... 7,795 3,251 11,046
Funds purchased....................................... 218 1,088 1,306
Other short-term borrowings........................... 1,275 346 1,621
Long-term debt........................................ 2,411 192 2,603
------- ------ -------
Total interest expense........................... 12,202 6,850 19,052
------- ------ -------
Net interest income on a taxable
equivalent basis............................... $ 7,441 $ (172) 7,269
======= ======
Taxable equivalent adjustment......................... 49
-------
Net interest income................................... $ 7,318
=======
</TABLE>
18
<PAGE>
ANALYSIS OF CHANGES IN NET INTEREST INCOME
(Amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------------
2000 Compared to 1999
Variance Due to
--------------------------------------
Volume Yield/Rate Total
--------------------------------------
<S> <C> <C> <C>
Earning assets:
Loans................................................ $7,186 $1,971 $9,157
Securities:
Taxable............................................ 173 413 586
Tax exempt......................................... (189) 147 (42)
Cash balances in other banks......................... (2) (14) (16)
Funds sold........................................... (463) 538 75
Trading account securities........................... (179) 137 (42)
------ ------ ------
Total interest income........................... 6,526 3,192 9,718
Interest-bearing liabilities:
Interest-bearing transaction accounts................ 321 499 820
Savings and money market deposits.................... (620) 603 (17)
Time deposits........................................ 2,853 2,019 4,872
Funds purchased...................................... 212 213 425
Other short-term borrowings.......................... 1,207 64 1,271
Long-term debt....................................... 156 150 306
------ ------ ------
Total interest expense.......................... 4,129 3,548 7,677
------ ------ ------
Net interest income on a taxable
equivalent basis.............................. $2,397 $ (356) 2,041
====== ======
Taxable equivalent adjustment........................ 13
------
Net interest income.................................. $2,054
======
</TABLE>
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
economic conditions. The provision for loan losses was $400,000 for the 2000
third quarter, compared with $408,000 in the 1999 third quarter. The provision
for loan losses was $1,553,000 for the 2000 nine months, compared to $1,338,000
in the 1999 nine months. The higher provision for loan losses in the 2000 nine
months is attributable to the growth in loans during the 2000 nine months
compared to the 1999 nine months. The allowance for loan losses as a percentage
of outstanding loans, net of unearned income, was 1.31% at September 30, 2000,
compared to 1.37% at December 31, 1999.
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.
-------------
Total noninterest income for the 2000 third quarter was $8.2 million, compared
to $6.9 million for the 1999 third quarter. For the 2000 nine months,
noninterest income increased to $23.4 million compared to $22.4 million for the
19
<PAGE>
1999 nine months. Noninterest income includes service charges on deposits,
investment division revenue, securities brokerage revenue, trust department
revenue, fees relating to the origination and sale of mortgage loans, and
insurance commission revenue. Service charges on deposits for both the 2000
third quarter and 1999 third quarter were $1.9 million. For the 1999 nine
months, service charge income increased to $5.7 million from the 1999 nine
months' level of $5.5 million. During the 2000 third quarter investment
division revenue increased to $1.6 million compared to $1.4 million for the 1999
third quarter. Despite the slight increase in investment division revenue
during the 2000 third quarter, revenue for the investment division for the 2000
nine months decreased by $1.5 million, to $3.9 million, compared to $5.4 million
for the 1999 nine months. The decreased revenue for the 2000 nine months
reflects a decline in demand for debt securities from community banks.
Securities brokerage revenue increased 66.9% to $1.3 million during the 2000
third quarter and totaled $3.8 million for the 2000 nine months, an increase of
41.1% over 1999 nine month total of $2.7 million. The increase in brokerage
revenue is attributable to continued strong production in this area and
favorable market conditions. Trust fees remained relatively flat for the third
quarter and nine months of 2000 and 1999. Fees generated from the origination
and sale of mortgages for the 2000 third quarter totaled $890,000, relatively
unchanged from 1999's third quarter total of $860,000. During the 2000 nine
months fees generated from the origination and sale of mortgage loans were $2.6
million compared to $3.2 million for the 1999 nine months. The year to date
decrease is due to rising interest rates and the impact of rising interest rates
on refinancing and new mortgage origination activity. Insurance commission
revenue increased to $402,000 for the 2000 third quarter, representing a 12.9%
increase over 1999's third quarter total of $356,000. Insurance commission
revenue totaled $1.5 million for the 2000 nine months, compared to $488,000
during the 1999 nine months. The insurance division was acquired on May 28,
1999, so the 1999 nine months include only four month's results for this
division.
Noninterest expense was $17.9 million for the 2000 third quarter compared to
$15.2 million for the 1999 third quarter. For the 2000 nine months, noninterest
expense was $51.9 million compared to $45.9 million for the 1999 nine months.
Noninterest expense includes salaries and employee benefits, occupancy and
equipment expenses and other expenses. Salaries and employee benefits were
$10.8 million for the 2000 third quarter compared to $9.0 million for the 1999
third quarter. For the 2000 nine months, salaries and employee benefits were
$31.0 million compared to $27.5 million in the 1999 nine months. The increase
in salaries and employee benefits partially results from the acquired insurance
agency noted above, and the acquisition of two banking branches during the 2000
third quarter, but primarily represents general staffing increases in other
areas of Alabama National relating to continued expansion and additional
compensation related to annual performance reviews. Occupancy and equipment
expense totaled $2.1 million in the 2000 third quarter and $1.9 million in the
1999 third quarter. Occupancy and equipment expense totaled $6.1 million in the
2000 nine months and $5.3 million in the 1999 nine months. Other noninterest
expense increased to $5.0 million in the 2000 third quarter, compared with $4.3
million in the 1999 third quarter. Other noninterest expense was $14.8 million
in the 2000 nine months and $13.0 million in the 1999 nine months. Other
noninterest expense is comprised of advertising expenses, banking assessments,
data processing expenses, legal and professional fees, directors fees, postage
and freight charges, supplies and printing expenses, amortization of intangibles
and various other expenses.
Because of an increase in pre-tax income, income tax expense was $2.8 million
for the 2000 third quarter compared to $2.6 million for the 1999 third quarter.
For the 2000 nine months income tax expense was $7.9 million, compared to $7.5
million for the 1999 nine months. The effective tax rates for the 2000 third
quarter and the 2000 nine months were 30.8% and 30.7%, respectively, compared to
31.3% and 31.6% for the same periods of 1999. These effective rates are impacted
by items of income and expense that are not subject to federal or state
taxation.
20
<PAGE>
Earning Assets
--------------
Loans comprised the largest single category of Alabama National's earning assets
on September 30, 2000. Loans, net of unearned income, were $1.59 billion or
72.5% of total assets at September 30, 2000, compared to $1.32 billion or 68.7%
at December 31, 1999. Loans grew $266.1 million, or 20.2%, during the 2000 nine
months compared to 1999 year-end totals, due to continued strong loan demand in
many markets served by Alabama National and the successful calling efforts by
the lending staff. Average loans grew $283.7 million, or 24.4%, during the 2000
nine months, compared to the 1999 nine months. Loans, net of unearned income
and average loans were impacted by the acquisition of two banking branches
during the 2000 third quarter. The acquired branches had outstanding loans of
approximately $68.9 million. The following table details the composition of the
loan portfolio by category at the dates indicated:
COMPOSITION OF LOAN PORTFOLIO
(Amounts in thousands, except percentages)
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
---------------------------- --------------------------
Percent Percent
Amount of Total Amount of Total
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural............................. $ 258,603 16.29% $ 257,047 19.45%
Real estate:
Construction............................. 207,221 13.06 148,228 11.22
Mortgage - residential................... 426,241 26.85 358,400 27.13
Mortgage - commercial.................... 444,276 27.99 369,158 27.94
Mortgage - other......................... 3,973 .25 3,111 .24
Consumer................................... 75,407 4.75 73,388 5.55
Other...................................... 171,475 10.80 111,913 8.47
---------- ------ ---------- ------
Total gross loans........................ 1,587,196 100.00% 1,321,245 100.00%
====== ======
Unearned income............................ (976) (1,085)
---------- ----------
Total loans, net of
unearned income........................ 1,586,220 1,320,160
Allowance for loan losses.................. (20,840) (18,068)
---------- ----------
Total net loans.......................... $1,565,380 $1,302,092
========== ==========
</TABLE>
Investment securities increased $14.5 million in the 2000 nine months from $19.6
million at December 31, 1999 to $34.1 million at September 30, 2000. During the
2000 nine months, the Company purchased $21.0 million of investment securities
and received $6.5 million from maturities, including principal paydowns of
mortgage backed securities.
Securities available for sale decreased $20.0 million in the 2000 nine months
from $325.5 million at December 31, 1999, to $305.5 million at September 30,
2000. Purchases of available for sale securities totaled $37.1 million and
maturities, calls, and sales of available for sale securities totaled $58.6
million. Write downs to estimated market value of available for sale securities
totaled $1.0 million, net of income taxes, during the 2000 nine months.
Trading account securities, which had a balance of $246,000 at September 30,
2000, are securities owned by Alabama National prior to sale and delivery to
Alabama National's customers. It is the policy of Alabama National 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 $44.4 million at September 30, 2000, and $33.6 million at December 31,
1999.
21
<PAGE>
Deposits and Other Funding Sources
----------------------------------
Deposits increased $262.7 million from year-end 1999, to $1.70 billion at
September 30, 2000. All categories of deposits experienced growth during the
2000 nine months. During the 2000 third quarter, deposits increased $54.0
million due to the acquisition of the two banking branches in Huntsville,
Alabama. Included in deposits at September 30, 2000 and December 31, 1999, were
$93.1 million and $47.5 million of brokered deposits, respectively.
Federal funds purchased and securities sold under agreements to repurchase
totaled $138.1 million at September 30, 2000, an increase of $6.2 million from
December 31, 1999. The treasury, tax and loan account decreased to $2.6 million
at September 30, 2000, compared with $6.2 million at December 31, 1999. Short-
term borrowings at September 30, 2000, totaled $72.6 million, including a note
payable to a third party bank of $26.6 million and advances from the Federal
Home Loan Bank ("FHLB") totaling $46.0 million. At September 30, 2000, the
Company also had $78.9 million of FHLB advances classified as long-term debt.
Alabama National's short-term debt at September 30, 2000 and December 31, 1999
is summarized as follows:
SHORT-TERM BORROWINGS
(Amounts in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Note payable to third party bank under secured
master note agreement; interest rate varies with
LIBOR and was 7.306% and 7.2113% at September 30,
2000 and December 31, 1999, respectively;
collateralized by the Company's stock in
subsidiary banks. $26,589 $16,389
FHLB open ended notes payable, interest rate
varies daily based on the FHLB Daily Rate Credit
interest price and was 6.70% and 4.55% at
September 30, 2000 and December 31, 1999,
respectively; collateralized by FHLB
stock and certain first mortgage loans. 1,000 2,000
FHLB debt due July 25, 2001; interest at a fixed
rate of 6.40%; collateralized by FHLB stock and
certain pledged available for sale securities.
Borrowing was classified as long-term at December
31, 1999. 2,000 -
FHLB debt due June 4, 2001; interest rate varies
with three month LIBOR and was 6.6225% on
September 30, 2000; collateralized by FHLB stock
and certain first mortgage loans. 43,000 -
------- -------
Total short-term borrowings $72,589 $18,389
======= =======
</TABLE>
22
<PAGE>
Alabama National's long-term debt at September 30, 2000 and December 31, 1999 is
summarized as follows:
LONG-TERM BORROWINGS
(Amounts in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
FHLB debt due October 21, 2003; interest at fixed
rate of 4.30%; convertible at the option of the
FHLB on October 21, 2000 to a three month LIBOR
advance; collateralized by FHLB stock and certain
first mortgage loans. $10,000 $ 10,000
FHLB debt due April 23, 2004; interest rate varies
with LIBOR and was 6.46% and 5.9425% at September
30, 2000 and December 31, 1999, respectively; rate
changes to 5.02% from April 23, 2001 to April
23,2004; convertible at the option of the FHLB on
April 23, 2001 to a three month LIBOR advance;
collateralized by FHLB stock and certain first
mortgage loans. 13,700 13,700
FHLB debt due March 26, 2008; interest at fixed
rate of 5.51%; convertible at the option of the
FHLB on March 26, 2003 to a three month LIBOR
advance; collateralized by FHLB stock and certain
first mortgage loans. 5,000 5,000
FHLB debt due July 25, 2001; interest at a fixed
rate of 6.40%; collateralized by FHLB stock and
certain pledged available for sale securities.
Borrowing classified as short-term at September 30,
2000. - 2,000
FHLB debt due June 18, 2003; interest at a fixed
rate of 5.40%; convertible at the option of the
FHLB on June 18, 2000 to a three month LIBOR
advance; collateralized by FHLB stock and certain
first mortgage loans. Note was called during 2000. - 5,000
FHLB debt due November 5, 2003; interest at a fixed
rate of 4.74%; convertible at the option of the
FHLB on November 5, 2001 to a three month LIBOR
advance; collateralized by FHLB stock and certain
first mortgage loans. 5,000 5,000
FHLB debt due August 7, 2009; interest at a fixed
rate of 4.95%; convertible at the option of the
FHLB on February 7, 2000 and any payment date
thereafter; collateralized by FHLB stock and
certain first mortgage loans. Note was called
during 2000. - 25,000
FHLB debt due July 30, 2004; interest at a fixed
rate of 5.715%; convertible in whole at the option
of the FHLB on July 30, 2001; collateralized by
FHLB stock and certain first mortgage loans. 5,000 5,000
FHLB debt due December 2, 2009; interest at a fixed
rate of 5.29%; convertible in whole at the option
of the FHLB on June 2, 2000; collateralized by FHLB
stock, certain first mortgage loans and pledged
available for sale securities. Note was called
during 2000. - 43,000
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
FHLB debt due October 12, 2001; interest rate
varies with LIBOR and reprices monthly; rate at
September 30, 2000 and December 31, 1999 was
6.66063% and 6.50125%, respectively; collateralized
by FHLB stock, certain first mortgage loans and
certain pledged available for sale securities. 10,000 10,000
FHLB debt due February 11, 2003; interest rate
varies with LIBOR and reprices monthly; rate at
September 30, 2000 was 6.42%; collateralized by
FHLB stock and certain first mortgage loans. 25,000 -
FHLB debt due June 15, 2010; interest at a fixed
rate of 6.00%; convertible in whole at the option of
FHLB on December 15, 2000 to a three month LIBOR
advance; collateralized by FHLB stock and certain
first mortgage loans. 5,000 -
Various notes payable 29 39
Capital leases payable 219 266
------- --------
Total long-term borrowings $78,948 $124,005
======= ========
</TABLE>
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. At September 30, 2000, the Company had no loans past due 90 days or
more and still accruing interest. 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. It is Alabama National's policy to place a
delinquent loan on nonaccrual status when it becomes 90 days or more past due.
When a loan is placed on nonaccrual status, all interest that is accrued on the
loan balance is reversed and deducted from earnings as a reduction of reported
interest. 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 could necessitate
additional charges to the allowance for loan losses.
24
<PAGE>
At September 30, 2000, nonperforming assets totaled $5.8 million, an increase of
$1.0 million from December 31, 1999. At September 30, 2000, nonperforming
assets as a percentage of loans plus other real estate were 0.37%, unchanged
from year-end 1999. The following table presents the Company's nonperforming
assets for the dates indicated.
NONPERFORMING ASSETS
(Amounts in thousands, except percentages)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------- ------------
<S> <C> <C>
Nonaccrual loans ....................................... $ 4,615 $ 4,141
Restructured loans ..................................... - 5
Loans past due 90 days or more and still accruing ...... - -
------- -------
Total nonperforming loans............................ 4,615 4,146
Other real estate owned ................................ 1,225 687
------- -------
Total nonperforming assets........................... $ 5,840 $ 4,833
======= =======
Allowance for loan losses to period-end loans .......... 1.31% 1.37%
Allowance for loan losses to period-end
nonperforming loans.................................. 451.57 435.79
Allowance for loan losses to period-end
nonperforming assets................................. 356.85 373.85
Net charge-offs to average loans ...................... 0.02 0.04
Nonperforming assets to period-end loans
and other real estate owned.......................... 0.37 0.37
Nonperforming loans to period-end loans ................ 0.29 0.31
</TABLE>
25
<PAGE>
Net loan charge-offs for the 2000 nine months totaled $181,000, or 0.02%
(annualized) of average loans for the period. The allowance for loan losses as
a percentage of total loans, net of unearned income, was 1.31% at September 30,
2000, compared to 1.37% at December 31, 1999. The following table analyzes
activity in the allowance for loan losses for the 2000 nine months.
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
For the Nine Months Ended September 30, 2000
(Amounts in thousands, except percentages)
Allowance for loan losses at
beginning of period............................................ $18,068
Charge-offs:
Commercial, financial and agricultural......................... 216
Real estate - mortgage......................................... 84
Consumer....................................................... 486
-------
Total charge-offs............................................ 786
=======
Recoveries:
Commercial, financial and agricultural......................... 139
Real estate - mortgage......................................... 205
Consumer....................................................... 261
-------
Total recoveries............................................. 605
-------
Net charge-offs.............................................. 181
-------
Provision for loan losses......................................... 1,553
Additions to allowance through purchase........................... 1,400
-------
Allowance for loan losses at
end of period.................................................. $20,840
=======
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, 2000, to be
adequate to cover probable 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 net interest income. The principal monitoring
technique employed by the Company is simulation analysis, which technique is
augmented by "gap" analysis.
In simulation analysis, the Company 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 the Company competes. Using this
projected behavior and differing rate scenarios as inputs, the simulation
analysis generates as output a projection of net interest income. The Company
also periodically verifies the validity of this approach by comparing actual
results with those that were projected in previous models. See Market Risk.
-----------
26
<PAGE>
Another technique used by the Company 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.
The Company 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. 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 Alabama National's interest rate sensitivity at
September 30, 2000, assuming 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)
<TABLE>
<CAPTION>
September 30, 2000
------------------------------------------------------------------------
Zero After Three One
Through Through Through
Three Twelve Three Greater Than
Months Months Years Three Years Total
--------- ----------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Assets:
Earning assets:
Loans (1)................................. $723,514 $ 239,059 $281,576 $346,217 $1,590,366
Securities (2)............................ 26,462 35,277 72,647 194,813 329,199
Trading securities........................ 246 - - - 246
Interest-bearing deposits in
other banks............................. 1,893 - - - 1,893
Funds sold................................ 44,449 - - - 44,449
-------- --------- -------- -------- ----------
Total interest-earning assets........ $796,564 $ 274,336 $354,223 $541,030 $1,966,153
Liabilities:
Interest-bearing liabilities:
Interest-bearing deposits:
Demand deposits....................... $ 78,220 $ - $ - $184,869 $ 263,089
Savings and money market deposits..... 88,457 - - 211,590 300,047
Time deposits (3)..................... 258,848 534,234 78,318 21,378 892,778
Funds purchased.......................... 138,089 - - - 138,089
Short-term borrowings (4)................ 70,589 2,000 - - 72,589
Long-term debt........................... 63,709 5,023 10,066 150 78,948
-------- --------- -------- -------- ----------
Total interest-bearing liabilities.... $697,912 $ 541,257 $ 88,384 $417,987 $1,745,540
-------- --------- -------- -------- ----------
Period gap................................... $ 98,652 $(266,921) $265,839 $123,043
======== ========= ======== ========
Cumulative gap............................... $ 98,652 $(168,269) $ 97,570 $220,613 $ 220,613
======== ========= ======== ======== ==========
Ratio of cumulative gap to total
earning assets.............................. 5.02% -8.56% 4.96% 11.22%
</TABLE>
____________________________
(1) Excludes nonaccrual loans of $4,615,000.
(2) Excludes available for sale equity securities of $10,362,000.
(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 $2,551,000.
27
<PAGE>
Alabama National generally benefits from increasing market rates of interest
when it has an asset-sensitive gap and generally benefits from decreasing market
rates of interest when it is liability sensitive. Alabama National is liability
sensitive through the one-year time frame, except for the zero through three-
month period. However, Alabama National'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 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 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.
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 September 30, 2000, mortgage backed securities totaling
$190.8 million, or 8.72% of total assets and essentially every loan, net of
unearned income, (totaling $1.59 billion, or 72.5% 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 financial sophistication of the customer base, the
general level of prevailing interest rates and the relationship to their
historical levels, and general economic conditions. The difference between
those assumptions and actual results, if significant, could cause the actual
results to differ from those indicated by the simulation analysis.
Deposits totaled $1.70 billion, or 77.9%, of total assets at September 30, 2000.
Since deposits are the primary funding source for earning assets, the associated
market risk is considered by management in its simulation analysis. Generally,
it is anticipated that deposits will be sufficient to support funding
requirements. However, the rates paid for deposits at varying levels of
prevailing interest rates have a significant impact on net interest income and
therefore, must be quantified by Alabama National in its simulation analysis.
Specifically, Alabama National's spread, the difference between the rates earned
on earning assets and rates paid on interest bearing liabilities, is generally
higher when prevailing rates are higher. As prevailing rates reduce, the spread
28
<PAGE>
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.
The following table illustrates the results of simulation analysis used by
Alabama National to determine the extent to which market risk would affect net
interest margin for the next twelve months if prevailing interest rates
increased or decreased the specified amounts from current rates. Because of the
inherent use of estimates and assumptions in the simulation model used to derive
this information, the actual results of the future impact of market risk on
Alabama National's net interest margin may differ from that found in the table.
MARKET RISK
(Amounts in thousands)
<TABLE>
<CAPTION>
As of September 30, 2000 As of December 31, 1999
Change in ------------------------------ --------------------------------
Prevailing Interest Net Interest Change from Net Interest Change from
Rates Income Amount Income Amount Income Amount Income Amount
-------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
+200 basis points $85,029 5.69% $74,125 1.49%
+100 basis points 83,168 3.37 73,490 0.62
0 basis points 80,455 - 73,037 -
-100 basis points 78,868 (1.97) 71,591 (1.98)
-200 basis points 75,935 (5.62) 69,424 (4.95)
</TABLE>
Liquidity and Capital Adequacy
------------------------------
Alabama National's net loan to deposit ratio was 93.0% at September 30, 2000,
compared to 91.5% at year-end 1999. Alabama National's liquid assets as a
percentage of total deposits were 7.13% at September 30, 2000, compared to 7.87%
at year-end 1999. At September 30, 2000, Alabama National had unused federal
funds lines of approximately $157.7 million, unused lines at the Federal Home
Loan Bank of $142.7 million and an unused credit line with a third party bank of
$5.4 million. The Company also has access to approximately $170.9 million via a
credit facility with the Federal Reserve Bank of Atlanta. At September 30,
2000, and year-end 1999, there were no outstanding borrowings under this Federal
Reserve credit facility. 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
liquidity shortfall will exist. Based on this analysis, management believes
that Alabama National has adequate liquidity to meet short-term operating
requirements. However, no assurances can be given in this regard.
Alabama National's stockholders' equity increased by $15.0 million from December
31, 1999, to $153.2 million at September 30, 2000. This increase was
attributable to the following (in thousands):
Net income....................................................... $17,767
Dividends........................................................ (6,968)
Purchase of treasury stock....................................... (588)
Issuance of stock from treasury.................................. 61
Decrease in unrealized loss on securities........................
available for sale, net of deferred taxes...................... 998
Additional paid in capital related to stock based compensation... 3,703
-------
Net increase..................................................... $14,973
=======
29
<PAGE>
A strong capital position is vital to the continued profitability of Alabama
National because it promotes depositor and investor confidence and provides a
solid foundation for future growth of the organization. The capital of Alabama
National and its subsidiary banks (the "Banks") exceeded all prescribed
regulatory capital guidelines at September 30, 2000. Under the capital
guidelines of their regulators, Alabama National 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, Alabama
National 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 Alabama
National and each subsidiary bank at September 30, 2000:
<TABLE>
<CAPTION>
Tier 1 Risk Total Risk Tier 1
Based Based Leverage
----------- ---------- --------
<S> <C> <C> <C>
Alabama National BanCorporation............. 8.67% 9.91% 6.90%
National Bank of Commerce of Birmingham..... 9.40 10.57 7.70
Alabama Exchange Bank....................... 12.75 14.00 7.48
Bank of Dadeville........................... 12.05 13.24 7.96
Citizens & Peoples Bank, N.A................ 12.15 13.40 8.95
Community Bank of Naples, N.A............... 10.50 11.75 7.15
First American Bank......................... 9.48 10.73 8.60
First Citizens Bank......................... 14.07 15.31 7.24
First Gulf Bank............................. 9.07 10.32 7.19
Georgia State Bank.......................... 11.22 12.36 7.63
Public Bank................................. 9.79 10.84 7.89
Required minimums........................... 4.00 8.00 4.00
</TABLE>
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
The information required by this item is contained in Item 2 herein under the
headings "Interest Rate Sensitivity" and "Market Risk".
Part II Other Information
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits: Exhibit 3.1 - Certificate of Incorporation (filed as an
Exhibit to Alabama National's Registration Statement on Form
S-1 (Commission File no. 33-83800) and incorporated herein
by reference).
Exhibit 3.1A - Certificate of Amendment of Certificate of
Incorporation (filed as an Exhibit to Alabama National's
Annual Report of Form 10-K for the year ended December 31,
1996 and incorporated herein by reference).
Exhibit 3.1B - Certificate of Merger (filed as an Exhibit to
Alabama National's Annual Report of Form 10-K for the year
ended December 31, 1997 and incorporated herein by
reference).
Exhibit 3.1C - Certificate of Amendment of Certificate of
Incorporation dated April 23, 1998 (filed as an Exhibit to
Alabama National's Report of Form 10-Q for the quarter ended
March 31, 1998 and incorporated herein by reference).
Exhibit 3.2 - Bylaws (filed as an Exhibit to Alabama National's
Registration Statement on Form S-1 (Commission File No.
33-83800) and incorporated herein by reference).
Exhibit 10 - National Bank of Commerce Building Amended, Restated
and Consolidating Lease.
Exhibit 11 - Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
None.
30
<PAGE>
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 10, 2000 /s/ John H. Holcomb, III
----------------- ----------------------------------------
John H. Holcomb, III,
its Chairman and Chief Executive Officer
Date: November 10, 2000 /s/ William E. Matthews, V.
----------------- ----------------------------------------
William E. Matthews, V.,
its Executive Vice President and
Chief Financial Officer
31
