##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





---




FORM 10-Q





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




For the Quarterly Period Ended June 30, 2002





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 (State of
Incorporation)

63-1114426 (I.R.S. Employer
Identification No.)





1927 First Avenue North, Birmingham, Alabama 35203-4009


(Address of principal executive office)





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





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





---




Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  ̈





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 August 9, 2002Common Stock, $1.00 Par Value

12,363,825





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INDEX





ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES





PagePART 1.

FINANCIAL INFORMATIONItem 1.

Financial Statements (Unaudited)Consolidated statements of condition June 30, 2002 and December 31, 2001

3Consolidated statements of income Three months ended June 30, 2002 and 2001; Six months ended June 30, 2002 and 2001

4Consolidated statements of comprehensive income Three months ended June 30, 2002 and 2001; Six months ended June 30, 2002 and 2001

8Consolidated condensed statements of cash flows Six months ended June 30, 2002 and 2001

10Notes to the unaudited consolidated financial statements June 30, 2002

11Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

15Item 3.

Quantitative and Qualitative Disclosures about Market Risk

29PART II.

OTHER INFORMATIONItem 4.

Submission of Matters to a Vote of Security Holders

29Item 6.

Exhibits and Reports on Form 8-K

30SIGNATURES



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), through its senior management, from time to time makes forward-looking public statements concerning its expected future operations and performance and other developments. Such
forward-looking statements are necessarily estimates reflecting Alabama Nationals best judgment based upon current information and involve a number of risks and uncertainties, and various factors could cause results to differ materially from
those contemplated by such forward-looking statements. Such factors could include those identified from time to time in Alabama Nationals Securities and Exchange Commission filings and other public announcements, including the factors
described in Alabama Nationals Annual Report on Form 10-K for the year ended December 31, 2001. With respect to the adequacy of the allowance for loan losses for Alabama National, these factors include the rate of growth in the economy,
especially in the Southeast, the relative strength and weakness in the consumer and commercial credit sectors and in the real estate markets and the performance of the stock and bond markets. The forward-looking statements contained in this
Quarterly Report speak only as of the date of this report, and Alabama National undertakes no obligation to revise these statements following the date of this Quarterly Report on Form 10-Q.




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PART IFINANCIAL INFORMATION





Item 1Financial Statements (Unaudited)





ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CONDITION


(In thousands, except share amounts)





June 30, 2002


December 31, 2001ASSETSCash and due from banks

$
91,436


$
78,262Interest-bearing deposits in other banks


10,580



10,813Investment securities (market value $278,947 and $234,808, respectively)


275,572



234,766Securities available for sale


381,292



332,922Trading securities






1,341Federal funds sold and securities purchased under resell agreements


74,367



32,241Loans held for sale


20,833



36,554Loans


2,079,566



1,966,631Unearned income


(2,488
)


(2,462
)Loans, net of unearned income


2,077,078



1,964,169Allowance for loan losses


(30,680
)


(28,519
)Net loans


2,046,398



1,935,650Property, equipment and leasehold improvements, net


66,167



60,821Goodwill


15,325



14,813Intangible assets


4,103



4,062Cash surrender value of life insurance


54,632



53,171Receivable from investment division customers


46,393



16,551Other assets


57,250



31,500Totals

$
3,144,348


$
2,843,467LIABILITIES AND STOCKHOLDERS EQUITYDeposits:Noninterest bearing

$
336,454


$
306,319Interest bearing


1,881,600



1,760,440Total deposits


2,218,054



2,066,759Federal funds purchased and securities sold under repurchase agreements


340,801



240,060Treasury, tax and loan accounts


1,267



3,490Short-term borrowings


72,100



68,350Payable for securities purchased for investment division customers


46,393



16,428Accrued expenses and other liabilities


60,156



30,863Long-term debt


184,081



209,631Total liabilities


2,922,852



2,635,581Common stock, $1 par, 27,500,000 and 17, 500,500 shares authorized at June 30, 2002 and December 31, 2001, respectively;
12,424,544 share issued at June 30, 2002 and December 31, 2001


12,425



12,425Additional paid-in capital


104,436



103,624Retained earnings


103,521



92,866Treasury stock at cost, 62,145 and 77,476 shares at June 30, 2002 and December 31, 2001, respectively



(1,674
)


(2,087
)Accumulated other comprehensive income, net of tax


2,788



1,058Total stockholders equity


221,496



207,886Totals

$
3,144,348


$
2,843,467





See accompanying notes to unaudited consolidated financial statements




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ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF INCOME (Unaudited)


(In thousands, except per share data)





For the three months
ended June 30,2002


2001Interest income:Interest and fees on loans

$
35,590


$
37,539Interest on securities


8,760



6,874Interest on deposits in other banks


43



169Interest on trading securities


14



33Interest on Federal funds sold and securities purchased under resell agreements


185



592Total interest income


44,592



45,207Interest expense:Interest on deposits


12,488



19,205Interest on Federal funds purchased and securities sold under repurchase agreements


998



2,406Interest on long and short-term borrowings


2,807



2,443Total interest expense


16,293



24,054Net interest income


28,299



21,153Provision for loan losses


1,211



701Net interest income after provision for loan losses


27,088



20,452Noninterest income:Securities gains


5



Gain (loss) on disposition of assets


(51
)


15Service charges on deposit accounts


2,889



2,339Investment services income


2,578



2,806Securities brokerage and trust income


3,122



2,163Origination and sale of mortgage loans


2,145



1,932Bank owned life insurance


752



556Insurance commissions


622



457Other


1,304



1,140Total noninterest income


13,366



11,408




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ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Continued)


(In thousands, except per share data)





For the three months
ended June 30,2002

2001Noninterest expense:Salaries and employee benefits


14,325


10,785Commission based compensation


3,547


2,820Occupancy and equipment expenses


2,864


2,454Amortization of intangibles


191


289Other


6,659


5,341Total noninterest expense


27,586


21,689Income before provision for income taxes


12,868


10,171Provision for income taxes


4,086


3,195Net income

$
8,782

$
6,976Net income per common share (basic)

$
.71

$
.59Weighted average common shares outstanding (basic)


12,359


11,821Net income per common share (diluted)

$
.69

$
.58Weighted average common and common equivalent shares outstanding (diluted)


12,657


12,089











See accompanying notes to unaudited consolidated financial statements




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ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


(In thousands, except per share data)





For the six months
ended June 30,2002


2001Interest income:Interest and fees on loans

$
70,543


$
75,818Interest on securities


17,508



13,632Interest on deposits in other banks


84



238Interest on trading securities


29



59Interest on Federal funds sold and securities purchased under resell agreements


385



1,285Total interest income


88,549



91,032Interest expense:Interest on deposits


25,593



39,453Interest on Federal funds purchased and securities sold under repurchase agreements


1,933



5,042Interest on long and short-term borrowings


5,647



5,045Total interest expense


33,173



49,540Net interest income


55,376



41,492Provision for loan losses


2,481



1,294Net interest income after provision for loan losses


52,895



40,198Noninterest income:Securities gains


35



Gain (loss) on disposition of assets


(184
)


36Service charges on deposit accounts


5,611



4,554Investment services income


5,659



6,512Securities brokerage and trust income


5,930



4,545Origination and sale of mortgage loans


4,558



3,247Bank owned life insurance


1,465



1,104Insurance commissions


1,149



972Other


2,370



2,245Total noninterest income


26,593



23,215




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ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Continued)


(In thousands, except per share data)





For the six months
ended June 30,2002

2001Noninterest expense:Salaries and employee benefits


27,753


22,076Commission based compensation


6,987


5,864Occupancy and equipment expenses


5,632


4,986Amortization of intangibles


375


569Other


13,294


11,153Total noninterest expense


54,041


44,648Income before provision for income taxes


25,447


18,765Provision for income taxes


8,057


5,946Net income

$
17,390

$
12,819Net income per common share (basic)

$
1.41

$
1.09Weighted average common shares outstanding (basic)


12,354


11,805Net income per common share (diluted)

$
1.38

$
1.06Weighted average common and common equivalent shares outstanding (diluted)


12,644


12,080





See accompanying notes to unaudited consolidated financial statements




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ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)


(In thousands)





For the three months
ended June 30,2002

2001Net income

$
8,782

$
6,976Other comprehensive income (loss):Unrealized gains (losses) on securities available for sale


4,265


(79
)Less: Reclassification adjustment for net gains included in net income


35


Other comprehensive income (loss), before tax


4,230


(79
)Provision for income taxes related to items of other comprehensive income


1,429


4Other comprehensive income (loss), net of tax


2,801


(83
)Comprehensive income

$
11,583

$
6,893





See accompanying notes to unaudited consolidated financial statements




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ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


(In thousands)





For the six months
ended June 30,2002

2001Net income

$
17,390

$
12,819Other comprehensive income:Unrealized gains on securities available for sale


2,745


3,968Less: Reclassification adjustment for net gains included in net income


35


Other comprehensive income, before tax


2,710


3,968Provision for income taxes related to items of other comprehensive income


980


1,386Other comprehensive income, net of tax


1,730


2,582Comprehensive income

$
19,120

$
15,401











See accompanying notes to unaudited consolidated financial statements




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ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES





CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)


(In thousands)





For the six months
ended June 302002


2001Net cash flows provided by operating activities

$
25,601


$
24,592Cash flows from investing activities:Proceeds from maturities of investment securities


54,024



16,838Purchases of investment securities


(94,768
)


(93,272
)Purchases of securities available for sale


(240,958
)


(77,220
)Proceeds from sale of securities available for sale


14,808



Proceeds from maturities of securities available for sale


180,593



115,366Net decrease (increase) in interest bearing deposits in other banks under resell agreements


233



(15,283
)Net increase in Federal funds sold and securities purchased


(42,126
)


(8,638
)Net increase in loans


(98,532
)


(94,021
)Purchases of property, equipment and leasehold improvements


(7,611
)


(2,934
)Premiums returned for bank-owned life insurance.






791Purchase acquisitions


(400
)


Proceeds from sale of other real estate owned


548



1,175Proceeds from sale of property, equipment and leasehold improvements


106



52Net cash used in investing activities


(234,083
)


(157,146
)Cash flows from financing activities:Net increase in deposits


151,295



61,357Increase in Federal funds purchased and securities sold under agreements to repurchase


100,741



94,290Net (decrease) increase in short and long-term borrowings and capital leases


(24,023
)


14,489Exercise of stock options and stock based compensation


(172
)


245Changes incidental to merger


(7
)


(10
)Dividends on common stock


(6,178
)


(5,434
)Net cash provided by financing activities


221,656



164,937Increase in cash and cash equivalents


13,174



32,383Cash and cash equivalents, beginning of period


78,262



80,476Cash and cash equivalents, end of period

$
91,436


$
112,859Supplemental schedule of noncash investing and financing activitiesAcquisition of collateral in satisfaction of loans

$
1,024


$
1,307Adjustment to market value of securities available for sale, net of deferred income taxes

$
1,730


$
2,582





See accompanying notes to unaudited consolidated financial statements




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ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES





NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


June 30, 2002





NOTE ABASIS OF PRESENTATION





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





NOTE B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. As of June 30, 2002, the total unfunded commitments which are not reflected in the consolidated statements of condition totaled $567.8 million. A majority of these commitments expire within one year.





NOTE CRECENTLY ISSUED PRONOUNCEMENTS





Business Combinations and Goodwill and Other Intangibles





In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations and SFAS No.
142, Goodwill and Other Intangible Assets, having a required effective date for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and other intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives.





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





The recorded amount of goodwill increased during the first quarter of 2002 from $14.8 million at December 31, 2001, to $15.3 million at
March 31, 2002, and was unchanged during the second quarter of 2002. The increase during the first quarter was attributable to items related to the fourth quarter acquisition of Farmers National Bank of Opelika.




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





For the three months
ended June 30

For the six months
ended June 302002

2001

2002

2001Net Income:Reported net income

$
8,782

$
6,976

$
17,390

$
12,819Add back:Goodwill amortization, net of taxes





123





241Net income excluding goodwill amortization, net of taxes

$
8,782

$
7,099

$
17,390

$
13,060Basic net income per common share:Reported net income

$
0.71

$
0.59

$
1.41

$
1.09Add back:Goodwill amortization, net of taxes





0.01





0.02Net income excluding goodwill amortization, net of taxes

$
0.71

$
0.60

$
1.41

$
1.11Weighted average shares outstanding (basic)


12,359


11,821


12,354


11,805Diluted net income per common share:Reported net income

$
0.69

$
0.58

$
1.38

$
1.06Add back:Goodwill amortization, net of taxes





0.01





0.02Net income excluding goodwill amortization, net of taxes

$
0.69

$
0.59

$
1.38

$
1.08Weighted average shares outstanding (diluted)


12,657


12,089


12,644


12,080





Intangible assets that have finite useful lives will continue to be
amortized over their useful lives. Alabama Nationals intangible assets consist of core deposit intangibles and customer lists associated with the acquisition of an insurance agency and each are considered to have finite lives. The gross
carrying amount of amortizable intangible assets as of June 30, 2002, was $7.4 million with a balance of $3.3 million in accumulated amortization. As a result of adoption of the Statements, there have been no changes to amortizable lives or methods
for intangible assets that have finite useful lives. The amortization of intangible assets for the three months ended June 30, 2002 and 2001 was $190,000 and $157,000, respectively. The amortization of intangible assets for the six months ended June
30, 2002 and 2001 was $374,000 and $315,000, respectively. The estimated amortization expense (assuming no activities, such as acquisitions, which would result in additional amortizable intangible assets) for each of the five succeeding fiscal years
is as follows (amounts in thousands):





For the year ended December 31,2002

$  7932003

$  8332004

$  7822005

$  7422006

$  721





Accounting for Asset Retirement Obligations





In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations.    This
Statement applies to legal obligations associated with retirement of tangible long-lived assets. The Statement is effective for financial statements issued for fiscal years beginning after June 15, 2002, with earlier application encouraged.
Management does not anticipate that the adoption of this Statement will have a material impact on Alabama Nationals consolidated financial position or consolidated results of operations.




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Accounting for the Impairment or Disposal of Long-Lived Assets





In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, that replaces SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. The provisions of SFAS No. 144 are effective for financial statements issued for fiscal years beginning
after December 15, 2001. Alabama National adopted SFAS No. 144 effective January 1, 2002, and the adoption did not have a material impact on Alabama Nationals consolidated financial position or consolidated results of operations.





Accounting for Gains & Losses from the Extinguishment of Debt Instruments





In April 2002, the FASB issued SFAS No. 145, Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections.SFAS No 145 relates to the recording of losses from the extinguishment of debt to be classified as operating income, as opposed to previous requirements which reflected such gains and losses as extraordinary. Statement No.
145 is effective for fiscal years beginning on or after May 15, 2002. Management does not anticipate that the adoption of this Statement will have a material impact on Alabama Nationals consolidated financial position or consolidated results
of operations.





Accounting for Asset Retirement Obligations





In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146
addresses financial accounting and reporting for costs associated with exit or disposal activities and requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The provisions of
SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. Management does not anticipate that the adoption of this Statement will have a material impact on Alabama
Nationals consolidated financial position or consolidated results of operations.





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 six months ended June 30, 2002 and 2001.





Income

Shares

Per Share Amount(In thousands, except per share amounts)THREE MONTHS ENDED JUNE 30, 2002Basic EPS net income

$
8,782

12,359

$
0.71Effect of dilutive securities




298Diluted EPS

$
8,782

12,657

$
0.69THREE MONTHS ENDED JUNE 30, 2001Basic EPS net income

$
6,976

11,821

$
0.59Effect of dilutive securities




268Diluted EPS

$
6,976

12,089

$
0.58SIX MONTHS ENDED JUNE 30, 2002Basic EPS net income

$
17,390

12,354

$
1.41Effect of dilutive securities




290Diluted EPS

$
17,390

12,644

$
1.38SIX MONTHS ENDED JUNE 30, 2001Basic EPS net income

$
12,819

11,805

$
1.09Effect of dilutive securities




275Diluted EPS

$
12,819

12,080

$
1.06





NOTE E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).




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Investment Services Division

Securities Brokerage & Trust Division

Mortgage Lending Division

Insurance Division


Retail and Commercial Banking

Corporate Overhead


Elimination Entries


TotalThree months ended June 30, 2002:Interest income

$


$
214

$
277

$



$
44,155

$
(23
)

$
(31
)

$
44,592Interest expenses





30


111






15,841


342



(31
)


16,293Net interest income





184


166






28,314


(365
)






28,299Provision for loan losses















1,211










1,211Noninterest income


2,578


3,122


2,196


622



4,848










13,366Noninterest expense


2,089


3,011


1,515


672



18,560


1,739







27,586Income (loss) before tax

$
489

$
295

$
847

$
(50
)

$
13,391

$
(2,104
)

$



$
12,868Three months ended June 30, 2001:Interest income

$


$
472

$
357

$



$
44,471

$
(13
)

$
(80
)

$
45,207Interest expenses





76


235


1



23,459


363



(80
)


24,054Net interest income





396


122


(1
)


21,012


(376
)






21,153Provision for loan losses















701










701Noninterest income


2,806


2,163


1,933


457



4,040


9







11,408Noninterest expense


2,197


2,217


1,079


472



14,183


1,541







21,689Income (loss) before tax

$
609

$
342

$
976

$
(16
)

$
10,168

$
(1,908
)

$



$
10,171Six months ended June 30, 2002:Interest income

$


$
465

$
701

$



$
87,494

$
(41
)

$
(70
)

$
88,549Interest expenses





69


272


1



32,223


678



(70
)


33,173Net interest income





396


429


(1
)


55,271


(719
)






55,376Provision for loan losses















2,481










2,481Noninterest income


5,659


5,930


4,642


1,149



9,213










26,593Noninterest expense


4,366


5,683


2,952


1,278



36,916


2,846







54,041Income (loss) before tax

$
1,293

$
643

$
2,119

$
(130
)

$
25,087

$
(3,565
)

$



$
25,447Six months ended June 30, 2001:Interest income

$


$
1,178

$
535

$
5


$
89,641

$
(25
)

$
(302
)

$
91,032Interest expenses





296


372


4



48,353


817



(302
)


49,540Net interest income





882


163


1



41,288


(842
)






41,492Provision for loan losses















1,294










1,294Noninterest income


6,512


4,545


3,291


972



7,875


20







23,215Noninterest expense


4,891


4,460


1,981


975



29,622


2,719







44,648Income (loss) before tax

$
1,621

$
967

$
1,473

$
(2
)

$
18,247

$
(3,541
)

$



$
18,765





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.




14




---

##### Table of Contents




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, 2001.





Critical Accounting Policies
and Estimates





Alabama Nationals accounting policies are critical to understanding the results of
operations as reported in the consolidated financial statements. Significant accounting policies utilized by Alabama National are discussed in more detail in the notes to the consolidated financial statements appearing in Alabama Nationals
Annual Report on Form 10-K for the year ended December 31, 2001.





Some of the more complex technical accounting
policies require management to make significant estimates and judgments that affect the valuation of reported assets and liabilities, including associated revenues, expenses, and disclosure. The following briefly describes the more complex policies
involving a significant amount of judgment about valuation and the application of complex accounting standards and interpretations.





Allowance for Loan Losses





Alabama National records estimated probable incurred
credit losses in the loan and lease portfolios as an allowance for loan losses. The methodologies and assumptions for determining the adequacy of the overall allowance for loan losses involve significant judgments to be made by management. Some of
the more critical judgments supporting the amount Alabama Nationals allowance for loan losses methodology and estimates include judgments about: credit worthiness of borrowers, estimated value of underlying collateral, assumptions about cash
flow, determination of loss factors for estimating credit losses, and the impact of current events, conditions, and other factors impacting the level of probable incurred losses. Under different conditions or using different assumptions, the actual
amount of credit losses ultimately confirmed by Alabama National may be different than managements estimates provided in the consolidated financial statements.





For a more complete discussion of the methodology employed to calculate the allowance for loan losses, see Note 1 to Alabama Nationals consolidated financial
statements included in Alabama Nationals Annual Report on Form 10-K for the year ended December 31, 2001.





Other





There are other complex accounting standards that require Alabama National to employ
significant judgment in interpreting and applying certain of the principles proscribed by those standards. These judgments include, but are not limited to, determination of whether a financial instrument or other contract meets the definition of a
derivative in accordance with SFAS No. 133, the accounting for a transfer of financial assets and extinguishments of liabilities in accordance with SFAS No. 140, and the determination of asset impairment,




15




---

##### Table of Contents

including when such impairment is other-than-temporary. For a more complete discussion of the accounting policies see Note 1 to Alabama Nationals consolidated financial statements included
in Alabama Nationals Annual Report on Form 10-K for the year ended December 31, 2001.





Performance Overview





Alabama Nationals net income was $8.8 million for the second quarter of 2002 (the 2002 second quarter),
compared to $7.0 million for the second quarter of 2001 (the 2001 second quarter). Net income for the six months ended June 30, 2002 (the 2002 six months) was $17.4 million, compared to $12.8 million for the six months ended
June 30, 2001 (the 2001 six months). Net income per diluted common share for the 2002 and 2001 second quarters was $0.69 and $0.58, respectively. For the 2002 six months, net income per diluted common share was $1.38, compared to $1.06
for the 2001 six months. Net income for the 2001 six months, excluding after tax merger-related charges of $781,000 relating to the Peoples State Bank merger, totaled $12.8 million (Adjusted 2001 Net Income). Net income for the 2002 six
months increased $3.8 million, or 27.9%, as compared to Adjusted 2001 Net Income. Income per diluted common share increased 22.2% to $1.38, as compared to Adjusted 2001 Net Income per diluted common share of $1.13.





The annualized return on average assets for Alabama National was 1.19% for the 2002 second quarter, compared to 1.12% for the 2001 second
quarter. The annualized return on average assets for Alabama National was 1.20% for the 2002 six months, compared to 1.06% for the 2001 six months. The annualized return on average stockholders equity increased for the 2002 second quarter to
16.09%, as compared to 15.43% for the 2001 second quarter. The annualized return on average stockholders equity increased for the 2002 six months to 16.22%, as compared to 14.48% for the 2001 six months. On an operating basis (excluding
Peoples State Bank merger-related charges), the annualized return on average stockholders equity increased for the 2002 six months to 16.22%, as compared to 15.36% for the 2001 six months. Book value per share at June 30, 2002 was $17.92, an
increase of $1.08 from year-end 2001. Tangible book value per share at June 30, 2002 was $16.35, an increase of $1.04 from year-end 2001. Alabama National declared cash dividends totaling $0.50 on common shares during the 2002 six months, compared
to $0.46 declared on common shares during the 2001 six months.





Net Income





Alabama National experienced a significant increase in net interest income and noninterest income for each of the 2002 second quarter and the 2002 six months, compared
to the same periods in 2001. Net interest income 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 $7.1 million, or
33.8%, to $28.3 million during the 2002 second quarter. Net interest income increased to $55.4 million during the 2002 six months, from $41.5 million during the 2001 six months, representing an increase of $13.9 million, or 33.5%. The increased net
interest income in each of these periods, as described in more detail below, is attributable to the repricing of interest bearing liabilities during the fourth quarter of 2001 and the first six months of 2002. During the 2002 second quarter
noninterest income totaled $13.4 million, compared to $11.4 million in the 2001 second quarter, an increase of 17.2%. During the 2002 six months Alabama National recorded noninterest income of $26.6 million, compared to $23.2 million during the 2001
six months, an increase of 14.6%. The increase in noninterest income in each of these periods is attributable to increased revenue from both the mortgage division and the securities brokerage and trust division. Service charges on deposit accounts
also increased during each period of 2002. The increases in noninterest income and net interest income were offset by increases in noninterest expense of $5.9 million, to $27.6 million for the 2002 second quarter, and $9.4 million, to $54.0 million
for the 2002 six months, compared to $21.7 million and $44.6 million, respectively, for the same periods in 2001. The net income for the 2001 six months includes after-tax merger-related charges relating to the Peoples State Bank merger totaling
$781,000. These charges on a pre-tax basis consist of approximately $135,000 in legal and accounting fees, $385,000 in employment-related expenses, $300,000 in advisory fees/commissions, $121,000 in technology conversion charges, and $57,000 in
other charges. These pre-tax charges increased noninterest expense for the 2001 six months by $997,000.




16




---

##### Table of Contents




Average earning assets for the 2002 second quarter and six months increased by
$440.7 million and $444.3 million, respectively, as compared to the same periods in 2001. Average interest-bearing liabilities increased by $384.2 million and $393.5 million during the 2002 second quarter and six months, respectively, as compared to
the same periods in 2001. The average taxable equivalent rate earned on assets was 6.61% and 6.70% for the 2002 second quarter and 2002 six months, compared to 8.00% and 8.25% for the 2001 second quarter and 2001 six months, respectively. The
average rate paid on interest-bearing liabilities was 2.74% and 2.83% for the 2002 second quarter and 2002 six months, respectively, compared to 4.83% and 5.08% for the 2001 second quarter and 2001 six months, respectively. The net interest margin
was 4.17% and 4.16% for the 2002 second quarter and 2002 six months, respectively, compared to 3.72% and 3.74% for the 2001 second quarter and 2001 six months, respectively. The increased net interest margin is due to Alabama Nationals ability
to reprice most of its time deposits at a lower rate during the 2001 fourth quarter and the 2002 first six months. The Federal Reserve Bank reduced interest rates repeatedly during 2001, causing time deposits originated in a higher rate environment
to be significantly higher than current rates. As those time deposits matured, the funds were either moved into transaction type deposit accounts or into another time deposit at the lower current rates. The result is that the companys interest
bearing liability costs fell more than its yield on earning assets. The net interest margin increased slightly (2 basis points) during the 2002 second quarter as compared the 2002 first quarters net interest margin of 4.15%. Management
anticipates the net interest margin to remain stable at current levels, absent any additional rate reductions by the Federal Reserve or significant changes in the general interest rate environment.





The following tables depict, on a taxable equivalent basis for the 2002 and 2001 second quarter and six 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.





AVERAGE BALANCES, INCOME AND EXPENSES AND RATES


(Amounts in thousands, except yields and rates)





Six months ended June 30,2002


2001Average Balance


Income/ Expense

Yield/ Cost


Average Balance


Income/ Expense

Yield/ CostAssets:Earning assets:Loans(1)(3)

$
2,043,512


$
70,690

6.98
%

$
1,759,905


$
75,964

8.70
%Securities:Taxable


556,351



16,725

6.06



386,664



12,893

6.72Tax exempt


31,749



1,186

7.53



29,689



1,120

7.61Cash balances in other banks


7,948



84

2.13



11,939



238

4.02Funds sold


42,934



385

1.81



49,215



1,285

5.27Trading account securities


1,164



29

5.02



1,900



59

6.26Total earning assets(2)


2,683,658



89,099

6.70



2,239,312



91,559

8.25Cash and due from banks


90,344









81,911Premises and equipment


65,656









51,993Other assets


122,407









98,258Allowance for loan losses


(29,921
)








(22,815
)Total assets

$
2,932,144








$
2,448,659Liabilities:Interest-bearing liabilities:Interest-bearing transaction accounts

$
395,582



2,645

1.35


$
299,932



4,675

3.14Savings deposits


392,538



2,838

1.46



311,536



5,303

3.43Time deposits


1,054,005



20,110

3.85



959,284



29,475

6.20Funds purchased


242,102



1,933

1.61



210,188



5,042

4.84Other short-term borrowings


80,447



984

2.47



34,922



1,129

6.52Long-term debt


196,679



4,663

4.78



152,030



3,916

5.19Total interest-bearing liabilities


2,361,353



33,173

2.83



1,967,892



49,540

5.08Demand deposits


308,528









253,567Accrued interest and other liabilities


46,083









48,637Stockholders' equity


216,180









178,563Total liabilities and stockholders equity

$
2,932,144








$
2,448,659Net interest spread








3.87
%








3.17
%Net interest income/margin on a taxable equivalent basis






55,926

4.20
%






42,019

3.78
%Tax equivalent adjustment(2)






550









527Net interest income/margin





$
55,376

4.16
%





$
41,492

3.74
%




17




---

##### Table of Contents

---

|(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 $2,536,000 and $2,084,000 are included in interest and fees on loans for the six months ended June 30, 2002 and 2001, respectively.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------




AVERAGE BALANCES, INCOME AND EXPENSES AND RATES


(Amounts in thousands, except yields and rates)





Three months ended June 30,2002


2001Average Balance


Income/ Expense

Yield/ Cost


Average Balance


Income/ Expense

Yield/ CostAssets:Earning assets:Loans(1)(3)

$
2,078,024


$
35,660

6.88
%

$
1,789,388


$
37,620

8.43
%Securities:Taxable


560,545



8,374

5.99



392,796



6,514

6.65Tax exempt


31,436



584

7.45



29,104



546

7.52Cash balances in other banks


8,244



43

2.09



17,242



169

3.93Funds sold


41,682



185

1.78



49,562



592

4.79Trading account securities


1,111



14

5.05



2,222



33

5.96Total earning assets(2)


2,721,042



44,860

6.61



2,280,314



45,474

8.00Cash and due from banks


85,618









82,316Premises and equipment


68,296









51,860Other assets


122,558









96,735Allowance for loan losses


(30,568
)








(22,993
)Total assets

$
2,966,946








$
2,488,232Liabilities:Interest-bearing liabilities:Interest-bearing transaction accounts

$
401,866



1,349

1.35


$
308,208



2,241

2.92Savings deposits


389,360



1,393

1.43



315,871



2,581

3.28Time deposits


1,072,822



9,746

3.64



953,503



14,383

6.05Funds purchased


245,442



998

1.63



230,172



2,406

4.19Other short-term borrowings


89,887



585

2.61



27,222



440

6.48Long-term debt


184,142



2,222

4.84



164,357



2,003

4.89Total interest-bearing liabilities


2,383,519



16,293

2.74



1,999,333



24,054

4.83Demand deposits


317,670









262,421Accrued interest and other liabilities


46,889









45,191Stockholders equity


218,868









181,287Total liabilities and stockholders equity

$
2,966,946








$
2,488,232Net interest spread








3.87
%








3.16
%Net interest income/margin on a taxable equivalent basis






28,567

4.21
%






21,420

3.77
%Tax equivalent adjustment(2)






268









267Net interest income/margin





$
28,299

4.17
%





$
21,153

3.72
%


---

|(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 $1,320,000 and $1,023,000 are included in interest and fees on loans for the three months ended June 30, 2002 and 2001, respectively.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



18




---

##### Table of Contents




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 2002 second quarter and six months compared to the 2001 second quarter and six 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)





Three Months Ended June 30,2002 Compared to 2001 Variance Due toVolume


Yield/Rate


TotalEarning assets:Loans

$
25,007


$
(26,967
)

$
(1,960
)Securities:Taxable


5,716



(3,856
)


1,860Tax exempt


71



(33
)


38Cash balances in other banks


(66
)


(60
)


(126
)Funds sold


(82
)


(325
)


(407
)Trading account securities


(15
)


(4
)


(19
)Total interest income


30,631



(31,245
)


(614
)Interest-bearing liabilities:Interest-bearing transaction accounts


3,172



(4,064
)


(892
)Savings and money market deposits


3,066



(4,254
)


(1,188
)Time deposits


9,878



(14,515
)


(4,637
)Funds purchased


1,016



(2,424
)


(1,408
)Other short-term borrowings


1,788



(1,643
)


145Long-term debt


353



(134
)


219Total interest expense


19,273



(27,034
)


(7,761
)Net interest income on a taxable equivalent basis

$
11,358


$
(4,211
)


7,147Taxable equivalent adjustment










(1
)Net interest income









$
7,146





ANALYSIS OF CHANGES IN NET INTEREST INCOME


(Amounts in thousands)





Six Months Ended June 30,2002 Compared to 2001 Variance Due toVolume


Yield/Rate


TotalEarning assets:Loans

$
24,819


$
(30,093
)

$
(5,274
)Securities:Taxable


7,302



(3,470
)


3,832Tax exempt


99



(33
)


66Cash balances in other banks


(64
)


(90
)


(154
)Funds sold


(146
)


(754
)


(900
)Trading account securities


(20
)


(10
)


(30
)Total interest income


31,990



(34,450
)


(2,460
)Interest-bearing liabilities:Interest-bearing transaction accounts


3,124



(5,154
)


(2,030
)Savings and money market deposits


3,057



(5,522
)


(2,465
)Time deposits


7,383



(16,748
)


(9,365
)Funds purchased


1,940



(5,049
)


(3,109
)Other short-term borrowings


1,818



(1,963
)


(145
)Long-term debt


1,571



(824
)


747Total interest expense


18,893



(35,260
)


(16,367
)Net interest income on a taxable equivalent basis

$
13,097


$
810



13,907Taxable equivalent adjustment










(23
)Net interest income









$
13,884




19




---

##### Table of Contents




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, the level of potential problem loans, historical loan loss experience, and the amount of loan losses actually charged against the allowance during a given period and current economic conditions. The provision for loan losses
was $1.2 million and $2.5 million for the 2002 second quarter and six months, respectively, compared to $0.7 million and $1.3 million recorded during the 2001 second quarter and six months respectively. The increased provision during the 2002
periods is attributable to an increase in potential problem loans, an increase in nonperforming loans and growth in the loan portfolio. The allowance for loan losses as a percentage of outstanding loans, net of unearned income, was 1.48% at June 30,
2002, compared to 1.45% at December 31, 2001.





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 2002 second quarter was $13.4 million, compared to $11.4 million for the 2001 second quarter, an increase
of 17.2%. For the 2002 six months, noninterest income increased to $26.6 million, compared to $23.2 million for the 2001 six months, an increase of 14.6%. The components of noninterest income include service charges on deposits, investment services
revenue, securities brokerage and trust revenue, insurance commissions, bank owned life insurance, and fees relating to the origination and sale of mortgage loans. Service charges on deposits for the 2002 second quarter and 2001 second quarter were
$2.9 million and $2.3 million, respectively. For the 2002 six months, service charge income increased to $5.6 million, from $4.6 million for the 2001 six months. The increased service charges for each period of 2002 is attributable to service charge
income earned on Farmers National transaction accounts (a purchase acquisition closed in fourth quarter of 2001) and an increased number of transaction accounts at existing banks. Revenue from the investment division totaled $2.6 million in the 2002
second quarter, a decrease of $0.2 million, or 8.1%, as compared to $2.8 million recorded in the 2001 second quarter. During the 2002 six months the investment division revenue totaled $5.6 million, a decrease of $0.9 million, or 13.1%, as compared
to $6.5 million in the 2001 six months. The revenue generated by the investment division is dependent upon the demand for fixed income securities by its customers that include correspondent community banks and corporate customers. During 2001, the
investment division had a record year benefiting from increased liquidity of community banks and falling interest rates, both of which led to increased demand for fixed income securities by its customers. Although lower than the 2001 six months, the
$5.6 million in investment division revenue in the 2002 six months remains relatively high as compared with historical levels. Securities brokerage and trust revenue increased 44.3%, to $3.1 million, in the 2002 second quarter, compared to $2.2
million in the 2001 second quarter. For the 2002 six months securities brokerage and trust revenue totaled $5.9 million, as compared to $4.5 million during the 2001 six months, an increase of 30.5%. The increase in the securities brokerage and trust
division revenue during each period of 2002 is attributable to continued expansion in the number of customers and total customer assets under management by these departments, as well as an increase in the number of registered representatives, offset
slightly by a decline in margin account lending revenue. Insurance commissions totaled $0.6 million and $1.1 million, during the 2002 second quarter and 2002 six months, respectively, as compared to $0.5 million and $1.0 million, recorded in the
same periods during 2001. Fees generated from the origination and sale of mortgages increased to $2.1 million for the 2002 second quarter, from $1.9 million in the 2001 second quarter, representing an 11.0% increase. During the 2002 six months
mortgage fees increased to $4.6 million from $3.2 million during the 2001 six months, an increase of 40.4%. This increase is primarily a result of declining interest rates and the impact the interest rate environment has on refinancing and new
mortgage origination activity. Such activity was strong in each of the 2002 quarters as well as the 2001 second quarter, but was weak in the 2001 first quarter. Other noninterest income increased to $1.3 million for the 2002 second quarter, compared
to $1.1 million during the 2001 second quarter. Other noninterest income increased to $2.4 million during the 2002 six months, an increase of 5.6%, compared to $2.2 million recorded in the 2001 six months.




20




---

##### Table of Contents




Noninterest expense was $27.6 million for the 2002 second quarter, compared to
$21.7 million for the 2001 second quarter. For the 2002 six months, noninterest expense was $54.0 million, compared to $44.6 million for the 2001 six months. The 2001 six months includes $1.0 million of merger-related charges associated with the
acquisition of Peoples State Bank. Noninterest expense includes salaries and employee benefits, commission based compensation, occupancy and equipment expenses and other expenses. Salaries and employee benefits were $14.3 million for the 2002 second
quarter, compared to $10.8 million for the 2001 second quarter. For the 2002 six months, salaries and employee benefits were $27.8 million, compared to $22.1 million in the 2001 six months. The 2002 second quarter and six months includes the
salaries and employee benefit expense for Farmers National Bank of Opelika which was acquired during the fourth quarter of 2001 and accounted for as a purchase transaction. Also contributing to the increase in salaries and employee benefits were
general staffing increases concurrent with expansion of offices and business lines. Performance based (or bonus) compensation increases were also higher in the 2002 quarter and six months than in the same periods of 2001 due to achievement of higher
performance levels. Commission based compensation was $3.5 million for the 2002 second quarter, compared to $2.8 million for the 2001 second quarter. For the 2002 six months, commission based compensation was $7.0 million, compared to $5.9 million
in the 2001 six months. The increase in commission based compensation during these periods is attributable to increased production in the mortgage and securities brokerage and trust divisions, as a significant portion of the compensation in these
divisions is production based. Occupancy and equipment expense totaled $2.9 million in the 2002 second quarter and $2.5 million in the 2001 second quarter. Occupancy and equipment expense totaled $5.6 million in the 2002 six months and $5.0 million
in the 2001 six months. A majority of the increase during these periods is due to the effect of the Farmers National acquisition, but also contributing to the increase is the effect of recent branch expansions. Other noninterest expense increased to
$6.7 million in the 2002 second quarter, compared with $5.3 million in the 2001 second quarter. Other noninterest expense was $13.3 million in the 2002 six months and $11.2 million in the 2001 six months.





Because of an increase in pre-tax income, income tax expense was $4.1 million for the 2002 second quarter, compared to $3.2 million for
the 2001 second quarter. For the 2002 six months, income tax expense was $8.1 million, compared to $5.9 million for the 2001 six months. The effective tax rates for the 2002 second quarter and the 2002 six months were 31.8% and 31.6%, respectively,
compared to 31.4% and 31.7% for the same periods of 2001. These effective tax rates are impacted by items of income and expense that are not subject to federal or state taxation.





Earning Assets





Loans comprised the largest single category
of Alabama Nationals earning assets on June 30, 2002. Loans, net of unearned income, were $2.08 billion, or 66.1% of total assets at June 30, 2002, compared to $1.96 billion, or 69.1% at December 31, 2001. Loans grew $112.9 million, or 5.7%,
during the 2002 six months, compared to the 2001 year-end. Average loans grew $283.6 million, or 16.1%, during the 2002 six months, compared to the 2001 six months. The following table details the composition of the loan portfolio by category at the
dates indicated:




21




---

##### Table of Contents




COMPOSITION OF LOAN PORTFOLIO


(Amounts in thousands, except percentages)





June 30, 2002


December 31, 2001Amount


Percent of Total


Amount


Percent of TotalCommercial, financial and agricultural

$
245,400


11.80
%

$
247,613


12.59
%Real estate:Construction


263,760


12.68



231,369


11.76Mortgageresidential


588,266


28.29



546,730


27.80Mortgagecommercial


662,307


31.85



637,575


32.42Mortgageother


5,763


.28



5,645


.29Consumer


84,400


4.06



82,909


4.22Lease financing receivables


83,559


4.02



73,924


3.76Securities brokerage margin loans


15,474


.74



16,302


.83Other


130,637


6.28



124,564


6.33Total gross loans


2,079,566


100.00
%


1,966,631


100.00
%Unearned income


(2,488
)





(2,462
)Total loans, net of unearned income


2,077,078






1,964,169Allowance for loan losses


(30,680
)





(28,519
)Total net loans

$
2,046,398





$
1,935,650





The carrying value of investment securities increased $40.8 million
in the 2002 six months, from $234.8 million at December 31, 2001, to $275.6 million, at June 30, 2002. During the 2002 six months, Alabama National purchased $94.8 million of investment securities and received $54.0 million from maturities,
including principal paydowns of mortgage backed securities.





The carrying value of securities available for sale
increased $48.4 million in the 2002 six months from $332.9 million at December 31, 2001, to $381.3 million, at June 30, 2002. Purchases of available for sale securities totaled $241.0 million and maturities, calls, and sales of available for sale
securities totaled $195.4 million. Unrealized gains on available for sale securities totaled $2.8 million net of income taxes, during the 2002 six months. June 30, 2002 balances were higher than average balances during the quarter due to the
purchase of approximately $49.9 million in short-term securities to use as collateral for deposits made by customers into securities sold under agreements to repurchase accounts. Because Alabama National expects these particular deposits to be
short-term in nature, it purchased short maturity securities for collateral purposes.





Trading account securities,
which had a balance of zero at June 30, 2002, 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 $74.4 million at June 30, 2002 and $32.2 million at December 31, 2001.





Deposits and Other Funding Sources





Deposits
increased by $151.3 million from year-end 2001, to $2.22 billion at June 30, 2002. All categories of deposits experienced growth during the 2002 six months. Average deposits grew $326.3 million, or 17.9%, during the 2002 six months, compared to the
2001 six months. Average deposits grew by more than ending deposits due to the December 14, 2001 Farmers National acquisition.





Federal funds purchased and securities sold under agreements to repurchase totaled $340.8 million at June 30, 2002, an increase of $100.7 million, from December 31, 2001. The treasury, tax and loan account decreased




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to $1.3 million at June 30, 2002, compared with $3.5 million at December 31, 2001. Short-term borrowings at June 30, 2002 totaled $72.1 million, including a note payable to a third party bank of
$19.1 million and advances from the Federal Home Loan Bank (FHLB) totaling $53.0 million. Alabama National was able to decrease its reliance on funding from the FHLB due to an increase in deposits during the first six months of 2002.





Alabama Nationals short-term borrowings at June 30, 2002 and December 31, 2001 are summarized as follows:





SHORT-TERM BORROWINGS


(Amounts in thousands)





June 30, 2002

December 31, 2001Note payable to third party bank under secured master note agreement; rate varies with LIBOR and was 2.59% and 2.68% at
June 30, 2002 and December 31, 2001, respectively; collateralized by Alabama National's stock in subsidiary banks.

$
19,100

$
16,350FHLB debt due at various maturities ranging from December 2, 2002 through February 11, 2003; bearing interest at fixed
and variable rates ranging from 2.13% to 2.53% and 2.17% to 2.53% at June 30, 2002 and December 31, 2001, respectively; collateralized by FHLB stock and certain first mortgages. The total for June 30, 2002, includes $25 million that was classified
as long-term at December 31, 2001.


53,000


47,000FHLB open ended note payable; rate varies daily based on the FHLB Daily Rate Credit interest price and was 1.83% at
December 31, 2001; collateralized by FHLB stock and certain first mortgage loans. This note was repaid during the first quarter of 2002.





5,000Total short-term borrowings

$
72,100

$
68,350





Alabama Nationals long-term debt at June 30, 2002 and
December 31, 2001 is summarized as follows:





LONG-TERM DEBT


(Amounts in thousands)





June 30, 2002

December 31, 2001FHLB debt due at various maturities ranging from November 5, 2003 through November 7, 2011; bearing interest at fixed
rates ranging from 3.31% to 6.00% at June 30, 2002 and December 31, 2001; convertible at the option of the FHLB at dates ranging from July 7, 2002 to November 7, 2006; collateralized by FHLB stock, certain first mortgage loans and pledged available
for sale securities.

$
169,000

$
169,000FHLB debt due February 11, 2003; interest rate varies with LIBOR and was 5.3275% at December 31, 2001; collateralized by
FHLB stock and certain first mortgage loans. At June 30, 2002, note was classified as short-term.





25,000Trust preferred securities due December 18, 2031; rate varies with LIBOR and was 5.479% and 5.60% at June 30, 2002 and
December 31, 2001, respectively.


15,000


15,000Various notes payable


14


554Capital leases payable


67


77$
184,081

$
209,631




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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 June 30, 2002, Alabama National had no loans past due 90 days or more and
still accruing interest, as it is Alabama Nationals policy to place a delinquent loan on nonaccrual status when it becomes 90 days or more past due. 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. When a loan is placed on nonaccrual status, all interest that is accrued on the loan is
reversed and deducted from earnings as a reduction of reported interest. No additional interest is accrued on the loan balance until 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 the allowance for loan losses.





At June 30, 2002, nonperforming assets totaled $10.0 million, compared to $9.2 million at year-end 2001. Nonperforming assets as a percentage of loans plus other real
estate were 0.48% at June 30, 2002, compared to 0.47% at December 31, 2001. The following table presents Alabama Nationals nonperforming assets for the dates indicated.





NONPERFORMING ASSETS


(Amounts in thousands, except percentages)





June 30, 2002


December 31, 2001Nonaccrual loans

$
8,083


$
7,563Restructured loans






Loans past due 90 days or more and still accruing






Total nonperforming loans


8,083



7,563Other real estate owned


1,906



1,680Total nonperforming assets

$
9,989


$
9,243Allowance for loan losses to period-end loans


1.48
%


1.45
%Allowance for loan losses to period-end nonperforming loans


379.56



377.09Allowance for loan losses to period-end nonperforming assets


307.14



308.55Net charge-offs to average loans


0.03



0.09Nonperforming assets to period-end loans and other real estate owned


0.48



0.47Nonperforming loans to period-end loans


0.39



0.39





Net loan charge-offs for the 2002 six months totaled $0.3 million,
or 0.03% (annualized) of average loans for the period. The allowance for loan losses as a percentage of total loans, net of unearned income, was 1.48% at June 30, 2002, compared to 1.45% at December 31, 2001. The following table analyzes activity in
the allowance for loan losses for the 2002 six months.




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ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES


For the Six Months Ended June 30, 2002


(Amounts in thousands, except percentages)





Allowance for loan losses at beginning of period

$
28,519Charge-offs:Commercial, financial and agricultural


951Real estatemortgage


449Consumer


485Total charge-offs


1,885Recoveries:Commercial, financial and agricultural


538Real estatemortgage


586Consumer


441Total recoveries


1,565Net charge-offs


320Provision for loan losses


2,481Allowance for loan losses at end of period

$
30,680





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 June 30, 2002 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





Alabama National monitors and manages the pricing and maturity of its assets and liabilities in order to diminish the potential adverse impact that changes in interest rates could have on net interest income. The principal monitoring
technique employed by Alabama National is simulation analysis, which technique is augmented by gap analysis.





In simulation analysis, Alabama National reviews each individual asset and liability category and its projected behavior in various different interest rate environments. These projected behaviors are based upon managements past
experiences and upon current competitive environments, including the various environments in the different markets in which Alabama National competes. Using this projected behavior and differing rate scenarios as inputs, the simulation analysis
generates as output a projection of net interest income. Alabama National also periodically verifies the validity of this approach by comparing actual results with those that were projected in previous models. See Market Risk.





Another technique used by Alabama National in interest rate management is the measurement of the interest
sensitivity gap, which is the positive or negative dollar difference between assets and liabilities that are subject to interest rate repricing within a given period of time. Interest rate sensitivity can be managed by repricing assets
and liabilities, selling securities available for sale, replacing an asset or liability at maturity or by adjusting the interest rate during the life of an asset or liability.





Alabama National evaluates interest sensitivity risk and then formulates guidelines regarding asset generation and repricing, and sources and prices of off-balance sheet
commitments in order to decrease interest




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##### Table of Contents

sensitivity risk. Alabama National uses computer simulations to measure the net income effect of various interest rate scenarios. The modeling reflects interest rate changes and the related
impact on net income over specified periods of time.





The following table illustrates Alabama Nationals
interest rate sensitivity at June 30, 2002, 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)





June 30, 2002Zero Through Three
Months


After Three Through Twelve Months


One Through
Three Years


Greater Than Three
Years


TotalAssets:Earning assets:Loans(1)

$
1,033,132


$
281,037


$
418,001


$
357,658


$
2,089,828Securities(2)


89,840



101,929



206,151



242,554



640,474Trading securities


















Interest-bearing deposits in other banks


10,580















10,580Funds sold


74,367















74,367Total interest-earning assets

$
1,207,919


$
382,966


$
624,152


$
600,212


$
2,815,249Liabilities:Interest-bearing liabilities:Interest-bearing deposits:Demand deposits

$
130,690


$



$



$
267,808


$
398,498Savings and money market deposits


150,774











237,866



388,640Time deposits(3)


381,678



479,910



193,752



39,122



1,094,462Funds purchased


340,801















340,801Short-term borrowings(4)


45,367



58,000











103,367Long-term debt


110,004



59,012



10,017



5,048



184,081Total interest-bearing liabilities

$
1,159,314


$
596,922


$
203,769


$
549,844


$
2,509,849Period gap

$
48,605


$
(213,956
)

$
420,383


$
50,368Cumulative gap

$
48,605


$
(165,351
)

$
255,032


$
305,400


$
305,400Ratio of cumulative gap to total earning assets


1.73
%


-5.87
%


9.06
%


10.85
%


---

|(1) |  | Excludes nonaccrual loans of $8,083,000
|--- |  | ---------------------------------------

|(2) |  | Excludes available for sale equity securities of $16,381,000
|--- |  | ------------------------------------------------------------

|(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 $1,267,000
|--- |  | -----------------------------------------------------




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




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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. Also, due to the current low interest rate environment, the rate paid on Alabama Nationals interest-bearing accounts cannot decrease as much as rates earned on interest earning
assets and would create significant spread compression if rates were to decrease from current levels. 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, prepayment options exist
whereby the borrower may elect to repay the obligation at any time. These prepayment options make anticipating the performance of those instruments difficult given changes in prevailing rates. At June 30, 2002, mortgage backed securities with a
carrying value of $511.2 million, or 16.3% of total assets, and essentially every loan, net of unearned income, (totaling $2.08 billion, or 66.1% of total assets), carried such prepayment options. Management believes that assumptions used in its
simulation analysis about the performance of financial instruments with such prepayment 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 $2.22 billion, or 70.5% of total assets, at June 30, 2002. Since deposits are the primary funding source for earning assets, the associated market risk is considered by management in its simulation analysis.
Generally, it is anticipated that deposits will be sufficient to support funding requirements. However, the rates paid for deposits at varying levels of prevailing interest rates have a significant impact on net interest income and therefore, must
be quantified by Alabama National in its simulation analysis. Specifically, Alabama Nationals spread, the difference between the rates earned on earning assets and rates paid on interest bearing liabilities, is generally higher when prevailing
rates are higher. As prevailing rates reduce, the spread tends to compress, with severe compression at very low prevailing interest rates. This characteristic is called spread compression and adversely effects net interest income in the
simulation analysis when anticipated prevailing rates are reduced from current rates. Management relies upon historical experience to estimate the degree of spread compression in its simulation analysis. Management believes that such estimates of
possible spread




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##### Table of Contents

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. Due to the current low interest rate environment, Alabama Nationals net
interest income would decrease significantly if prevailing interest rates were to further decrease 100 or 200 basis points. The current rates paid on interest-bearing accounts cannot decrease below zero, yet rates earned on loans can experience a
decrease in the falling rate scenarios, and the interest rate spread would therefore compress. Because of the inherent use of estimates and assumptions in the simulation model used to derive this information, the actual results of the future impact
of market risk on Alabama Nationals net interest margin, may differ from that found in the table.





MARKET RISK


(Amounts in thousands)





As of June 30, 2002

As of December 31, 2001Change in Prevailing
Interest Rates(1)

Net Interest Income
Amount

Change from Income
Amount

Net Interest Income
Amount

Change from Income
Amount+200 basis points

$121,407

5.87%

$117,465

5.47%+100 basis points

120,138

4.76

115,562

3.760 basis points

114,676



111,375

-100 basis points

95,795

(16.46)

101,536

(8.83)-200 basis points

87,738

(23.49)

96,871

(13.02)


---

|(1) |  | Assumes an immediate rate change of this magnitude.
|--- |  | ---------------------------------------------------




Liquidity and Capital Adequacy





Alabama Nationals
net loan to deposit ratio was 93.6% at June 30, 2002, compared to 95.0% at year-end 2001. Alabama Nationals liquid assets as a percentage of total deposits were 8.0% at June 30, 2002, compared to 5.9% at year-end 2001. At June 30, 2002,
Alabama National had unused federal funds lines of approximately $140.7 million, unused lines at the Federal Home Loan Bank of $250.7 million and an unused credit line with a third party bank of $15.9 million. Alabama National also has access to
approximately $143.2 million via a credit facility with the Federal Reserve Bank of Atlanta. At June 30, 2002 and year-end 2001, 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 $13.6 million from December 31, 2001, to $221.5 million at June
30, 2002. This increase was attributable to the following components (in thousands):





Net income

$
17,390Dividends


(6,178
)Issuance of stock from treasury


(6
)Additional paid in capital related to stock based compensation


674Change in unrealized gain or loss on securities available for sale, net of deferred taxes


1,730Net increase

$
13,610




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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 June 30, 2002. 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 June 30, 2002:





Tier 1 Risk Based


Total Risk Based


Tier 1 LeverageAlabama National BanCorporation

9.64
%

10.89
%

7.29
%National Bank of Commerce of Birmingham

9.84


11.09


7.80Alabama Exchange Bank

13.57


14.82


7.43Bank of Dadeville

12.34


13.59


7.88Citizens & Peoples Bank, N.A.

10.25


11.50


7.22Community Bank of Naples, N.A.

9.94


11.19


7.08First American Bank

9.33


10.58


7.49First Citizens Bank

13.94


15.17


7.02First Gulf Bank

10.03


11.28


7.21Georgia State Bank

11.91


13.09


7.59Public Bank

9.23


10.37


7.73eoples State Bank

10.90


12.16


7.55Required minimums

4.00


8.00


4.00





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 4Submission of Matters to a Vote of Security-Holders





Alabama National held
its Annual Meeting of Stockholders on May 2, 2002. At the meeting, the stockholders of Alabama National were asked to vote on the election of 15 directors to serve until the next annual meeting of stockholders and their successors are elected and
qualified and several other matters. The results of the stockholder voting on all matters are summarized as follows:





For

Withhold AuthorityProposal 1Election of Directors:W. Ray Barnes

9,480,856

27,015Dan M. David

9,481,013

26,858John V. Denson

9,478,897

28,974T. Morris Hackney

9,478,240

29,631John H. Holcomb, III

9,410,808

97,063John D. Johns

9,480,913

26,958John J. McMahon, Jr.

9,480,913

26,958C. Phillip McWane

9,449,672

58,199William D. Montgomery

9,481,013

26,858Drayton Nabers, Jr.

9,480,856

27,015Victor E. Nichol, Jr.

9,481,013

26,858C. Lloyd Nix

9,476,064

31,807G. Ruffner Page, Jr.

9,451,848

56,023William E. Sexton

9,478,240

29,631W. Stancil Starnes

9,451,148

56,273




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##### Table of Contents




Proposal 2Amend the Companys Certificate of Incorporation to Increase Maximum Size of the
Board


of Directors from Fifteen to Twenty.





For

Withhold Authority

Abstain9,289,960

148,826

69,085





Proposal 3Amend the Companys Certificate of Incorporation to Increase the
Number of Authorized


Shares of Common Stock.





For

Withhold Authority

Abstain9,279,967

192,532

35,372





Proposal 4Second Amendment and Restatement of the Alabama National BanCorporation
Performance Share Plan.





For

Withhold Authority

Abstain9,320,605

112,885

74,381





Proposal 5Second Amendment and Restatement of the Alabama National BanCorporation
Annual Incentive Plan.





For

Withhold Authority

Abstain9,281,287

181,273

45,311





Proposal 6Ratification of Appointment of Independent Public Accountants.





For

Withhold Authority

Abstain9,374,234

106,113

27,254





Item 6Exhibits and Reports on Form 8-K





(a)  Exhibits:





Exhibit 3.1Restated Certificate of Incorporation (filed as an Exhibit to Alabama Nationals
Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2002 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 10.1Sixth Amendment to Credit Agreement between Alabama National BanCorporation and AmSouth
Bank dated May 31, 2002.Exhibit 11Computation of Earnings Per ShareExhibit 99.1Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.Exhibit 99.2Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.





(b)  Reports on Form 8-K





None.




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##### Table of Contents

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/s/    JOHN H. HOLCOMB,
IIIJohn H. Holcomb, III, its
Chairman and Chief Executive Officer





Date: August 12, 2002





/s/    WILLIAM E. MATTHEWS,
V.William E. Matthews, V., its
Executive Vice President and Chief Financial Officer





Date: August 12, 2002




31