##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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QUARTERLY REPORT

PURSUANT TO SECTION 13 or 15(d)

OF
THE SECURITIES EXCHANGE ACT OF 1934



FOR THE QUARTER
ENDED SEPTEMBER 30, 2004



0-25160

(Commission File No.)



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ALABAMA NATIONAL BANCORPORATION

(Exact Name of Registrant as Specified in Its Charter)



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|                                             |  |                                     
|-------------------------------------------- |  | ------------------------------------
|Delaware                                     |  | 63-1114426                          
|(State of incorporation)                     |  | (IRS employer identification number)
|                                             | 
|1927 First Avenue North, Birmingham, Alabama |  | 35203-4009                          
|(Address of principal executive offices)     |  | (Zip Code)                          



205-583-3600

(Registrants Telephone Number)



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



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No ̈



The registrant has 16,981,496 shares of common stock, par value $1.00 per share, outstanding at November 8, 2004.



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##### Table of Contents

INDEX



ALABAMA NATIONAL BANCORPORATION



|                              |  |                                                                                                                                                             |  |     
|----------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                                                                                                             |  | PAGE
|PART I.
FINANCIAL INFORMATION |  |                                                                                                                                                            
|                              |  |                                                                                                                                                            
|Item 1.                       |  | Financial Statements (Unaudited)                                                                                                                            |  |     
|                              |  |                                                                                                                                                            
|                              |  | Consolidated Statements of Financial Condition at September 30, 2004 and December 31, 2003                                                                  |  | 3   
|                              |  |                                                                                                                                                            
|                              |  | Consolidated Statements of IncomeFor The Three Months Ended September 30, 2004 and 2003;For The Nine Months Ended September 30, 2004 and 2003               |  | 4   
|                              |  |                                                                                                                                                            
|                              |  | Consolidated Statements of Comprehensive IncomeFor The Three Months Ended September 30, 2004 and 2003;For The Nine Months Ended September 30, 2004 and 2003 |  | 8   
|                              |  |                                                                                                                                                            
|                              |  | Consolidated Condensed Statements of Cash Flows ForThe Nine Months Ended September 30, 2004 and 2003                                                        |  | 10  
|                              |  |                                                                                                                                                            
|                              |  | Notes to the Unaudited Consolidated Financial Statements                                                                                                    |  | 11  
|                              |  |                                                                                                                                                            
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                                       |  | 16  
|                              |  |                                                                                                                                                            
|Item 3.                       |  | Quantitative and Qualitative Disclosures about Market Risk                                                                                                  |  | 28  
|                              |  |                                                                                                                                                            
|Item 4.                       |  | Controls and Procedures                                                                                                                                     |  | 28  
|                             
|PART II.
OTHER INFORMATION   
|                              |  |                                                                                                                                                            
|Item 6.                       |  | Exhibits                                                                                                                                                    |  | 28  
|                              | 
|SIGNATURES                    |  | 29                                                                                                                                                         



FORWARD-LOOKING INFORMATION



Statements contained in this Quarterly Report on Form 10-Q that are not
historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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, 2003. With respect to
the adequacy of the allowance for loan and lease 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.



2



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##### Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Financial Statements (Unaudited)

Alabama National BanCorporation and Subsidiaries

Consolidated Statements of Financial Condition

(In thousands, except share amounts)



|                                                                                                                                                      |  |                    |           |   |                   |   |           |  
|----------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | --------- | - | ----------------- | - | --------- | -
|                                                                                                                                                      |  | September 30, 2004 |           |   | December 31, 2003 |  
|Assets                                                                                                                                                |  |                    |           |   |                   |   |           |  
|Cash and due from banks                                                                                                                               |  | $                  | 144,110   |   |                   | $ | 123,086   |  
|Interest-bearing deposits in other banks                                                                                                              |  |                    | 16,313    |   |                   |   | 10,019    |  
|Federal funds sold and securities purchased under resell agreements                                                                                   |  |                    | 39,844    |   |                   |   | 16,534    |  
|Trading securities, at fair value                                                                                                                     |  |                    | 494       |   |                   |   | 109       |  
|Investment securities (fair values of $533,526 and $271,536)                                                                                          |  |                    | 533,492   |   |                   |   | 271,035   |  
|Securities available for sale, at fair value                                                                                                          |  |                    | 637,301   |   |                   |   | 539,192   |  
|Loans held for sale                                                                                                                                   |  |                    | 22,634    |   |                   |   | 16,415    |  
|Loans and leases                                                                                                                                      |  |                    | 3,403,695 |   |                   |   | 2,662,358 |  
|Unearned income                                                                                                                                       |  |                    | (3,398    | ) |                   |   | (2,918    | )
|                                                                                                                                                      |  |                    |           |   |                   |   |           |  
|Loans and leases, net of unearned income                                                                                                              |  |                    | 3,400,297 |   |                   |   | 2,659,440 |  
|Allowance for loan and lease losses                                                                                                                   |  |                    | (45,903   | ) |                   |   | (36,562   | )
|                                                                                                                                                      |  |                    |           |   |                   |   |           |  
|Net loans and leases                                                                                                                                  |  |                    | 3,354,394 |   |                   |   | 2,622,878 |  
|Property, equipment and leasehold improvements, net                                                                                                   |  |                    | 94,792    |   |                   |   | 77,291    |  
|Goodwill                                                                                                                                              |  |                    | 145,169   |   |                   |   | 30,964    |  
|Other intangible assets, net                                                                                                                          |  |                    | 12,139    |   |                   |   | 4,623     |  
|Cash surrender value of life insurance                                                                                                                |  |                    | 63,898    |   |                   |   | 59,425    |  
|Receivable from investment division customers                                                                                                         |  |                    | 34,394    |   |                   |   | 12,966    |  
|Other assets                                                                                                                                          |  |                    | 45,132    |   |                   |   | 35,575    |  
|                                                                                                                                                      |  |                    |           |   |                   |   |           |  
|Total assets                                                                                                                                          |  | $                  | 5,144,106 |   |                   | $ | 3,820,112 |  
|                                                                                                                                                      |  |                    |           |   |                   |   |           |  
|Liabilities and Stockholders Equity                                                                                                                  |  |                    |           |   |                   |   |           |  
|Deposits:                                                                                                                                             |  |                    |           |   |                   |   |           |  
|Noninterest bearing                                                                                                                                   |  | $                  | 599,117   |   |                   | $ | 404,755   |  
|Interest bearing                                                                                                                                      |  |                    | 3,035,607 |   |                   |   | 2,348,994 |  
|                                                                                                                                                      |  |                    |           |   |                   |   |           |  
|Total deposits                                                                                                                                        |  |                    | 3,634,724 |   |                   |   | 2,753,749 |  
|Federal funds purchased and securities sold under repurchase agreements                                                                               |  |                    | 460,493   |   |                   |   | 358,393   |  
|Treasury, tax and loan accounts                                                                                                                       |  |                    | 895       |   |                   |   | 1,431     |  
|Accrued expenses and other liabilities                                                                                                                |  |                    | 49,279    |   |                   |   | 41,577    |  
|Payable for securities purchased for investment division customers                                                                                    |  |                    | 33,692    |   |                   |   | 11,967    |  
|Short-term borrowings                                                                                                                                 |  |                    | 40,000    |   |                   |   | 41,150    |  
|Long-term debt                                                                                                                                        |  |                    | 403,792   |   |                   |   | 332,427   |  
|                                                                                                                                                      |  |                    |           |   |                   |   |           |  
|Total liabilities                                                                                                                                     |  |                    | 4,622,875 |   |                   |   | 3,540,694 |  
|                                                                                                                                                      |  |                   
|Commitments and contingencies (Note B)                                                                                                                |  |                    |           |   |                   |   |           |  
|                                                                                                                                                      |  |                   
|Common stock, $1 par; 27,500,000 shares authorized; 16,975,772 and 12,838,844 shares issued at September 30, 2004 and December 31, 2003,
respectively |  |                    | 16,976    |   |                   |   | 12,839    |  
|Additional paid-in capital                                                                                                                            |  |                    | 340,400   |   |                   |   | 126,370   |  
|Retained earnings                                                                                                                                     |  |                    | 163,690   |   |                   |   | 140,028   |  
|Accumulated other comprehensive income, net of tax                                                                                                    |  |                    | 165       |   |                   |   | 181       |  
|                                                                                                                                                      |  |                    |           |   |                   |   |           |  
|Total stockholders equity                                                                                                                            |  |                    | 521,231   |   |                   |   | 279,418   |  
|                                                                                                                                                      |  |                    |           |   |                   |   |           |  
|Total liabilities and stockholders equity                                                                                                            |  | $                  | 5,144,106 |   |                   | $ | 3,820,112 |  
|                                                                                                                                                      |  |                    |           |   |                   |   |           |  



See accompanying notes to unaudited
consolidated financial statements.



3



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##### Table of Contents

Alabama National BanCorporation and Subsidiaries

Consolidated Statements of Income (Unaudited)

(In thousands, except per share data)



|                                                                                    |  |                                         |        |   |      |   |       
|----------------------------------------------------------------------------------- |  | --------------------------------------- | ------ | - | ---- | - | ------
|                                                                                    |  | For the three monthsended September 30,
|                                                                                    |  | 2004                                    |        |   | 2003
|Interest income:                                                                    |  |                                         |        |   |      |   |       
|Interest and fees on loans and leases                                               |  | $                                       | 48,320 |   |      | $ | 37,578
|Interest on securities                                                              |  |                                         | 11,981 |   |      |   | 7,428 
|Interest on deposits in other banks                                                 |  |                                         | 18     |   |      |   | 26    
|Interest on trading securities                                                      |  |                                         | 9      |   |      |   | 27    
|Interest on federal funds sold and securities purchased under resell agreements     |  |                                         | 244    |   |      |   | 198   
|                                                                                    |  |                                         |        |   |      |   |       
|Total interest income                                                               |  |                                         | 60,572 |   |      |   | 45,257
|                                                                                    |  |                                        
|Interest expense:                                                                   |  |                                         |        |   |      |   |       
|Interest on deposits                                                                |  |                                         | 11,924 |   |      |   | 10,355
|Interest on federal funds purchased and securities sold under repurchase agreements |  |                                         | 1,394  |   |      |   | 815   
|Interest on short-term borrowings                                                   |  |                                         | 186    |   |      |   | 315   
|Interest on long-term debt                                                          |  |                                         | 3,454  |   |      |   | 2,674 
|                                                                                    |  |                                         |        |   |      |   |       
|Total interest expense                                                              |  |                                         | 16,958 |   |      |   | 14,159
|                                                                                    |  |                                         |        |   |      |   |       
|Net interest income                                                                 |  |                                         | 43,614 |   |      |   | 31,098
|Provision for loan and lease losses                                                 |  |                                         | 1,624  |   |      |   | 1,396 
|                                                                                    |  |                                         |        |   |      |   |       
|Net interest income after provision for loan and lease losses                       |  |                                         | 41,990 |   |      |   | 29,702
|                                                                                    |  |                                        
|Noninterest income:                                                                 |  |                                         |        |   |      |   |       
|Securities gains                                                                    |  |                                         |       |   |      |   | 4     
|Gain (loss) on disposition of assets                                                |  |                                         | (68    | ) |      |   | 914   
|Service charges on deposit accounts                                                 |  |                                         | 4,537  |   |      |   | 3,623 
|Investment services income                                                          |  |                                         | 2,685  |   |      |   | 4,555 
|Securities brokerage and trust income                                               |  |                                         | 4,056  |   |      |   | 3,995 
|Gain on sale of mortgages                                                           |  |                                         | 2,852  |   |      |   | 5,478 
|Bank owned life insurance                                                           |  |                                         | 637    |   |      |   | 684   
|Insurance commissions                                                               |  |                                         | 833    |   |      |   | 797   
|Other                                                                               |  |                                         | 3,034  |   |      |   | 1,822 
|                                                                                    |  |                                         |        |   |      |   |       
|Total noninterest income                                                            |  |                                         | 18,566 |   |      |   | 21,872



See accompanying notes to unaudited
consolidated financial statements.



4



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##### Table of Contents

Alabama National BanCorporation and Subsidiaries

Consolidated Statements of Income (Unaudited) (Continued)

(In thousands, except per share data)



|                                            |  |                                          |        |      |   |       
|------------------------------------------- |  | ---------------------------------------- | ------ | ---- | - | ------
|                                            |  | For the three months ended September 30,
|                                            |  | 2004                                     |        | 2003
|Noninterest expense:                        |  |                                          |        |      |   |       
|Salaries and employee benefits              |  |                                          | 19,630 |      |   | 16,874
|Commission based compensation               |  |                                          | 4,357  |      |   | 6,062 
|Occupancy and equipment expenses            |  |                                          | 4,085  |      |   | 3,326 
|Amortization of intangibles                 |  |                                          | 858    |      |   | 285   
|Other                                       |  |                                          | 9,278  |      |   | 9,078 
|                                            |  |                                          |        |      |   |       
|Total noninterest expense                   |  |                                          | 38,208 |      |   | 35,625
|                                            |  |                                          |        |      |   |       
|Income before provision for income taxes    |  |                                          | 22,348 |      |   | 15,949
|Provision for income taxes                  |  |                                          | 7,642  |      |   | 5,368 
|                                            |  |                                          |        |      |   |       
|Net income                                  |  | $                                        | 14,706 |      | $ | 10,581
|                                            |  |                                          |        |      |   |       
|Weighted average common shares outstanding: |  |                                          |        |      |   |       
|Basic                                       |  |                                          | 16,765 |      |   | 12,935
|                                            |  |                                          |        |      |   |       
|Diluted                                     |  |                                          | 17,013 |      |   | 13,161
|                                            |  |                                          |        |      |   |       
|Earnings per common share:                  |  |                                          |        |      |   |       
|Basic                                       |  | $                                        | 0.88   |      | $ | 0.82  
|                                            |  |                                          |        |      |   |       
|Diluted                                     |  | $                                        | 0.86   |      | $ | 0.80  
|                                            |  |                                          |        |      |   |       
|Cash dividends per common share             |  | $                                        | 0.3125 |      | $ | 0.285 
|                                            |  |                                          |        |      |   |       



See accompanying notes to unaudited
consolidated financial statements.



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##### Table of Contents

Alabama National BanCorporation and Subsidiaries

Consolidated Statements of Income (Unaudited)

(In thousands, except per share data)



|                                                                                    |  |                                        |         |   |      |   |        
|----------------------------------------------------------------------------------- |  | -------------------------------------- | ------- | - | ---- | - | -------
|                                                                                    |  | For the nine monthsended September 30,
|                                                                                    |  | 2004                                   |         |   | 2003
|Interest income:                                                                    |  |                                        |         |   |      |   |        
|Interest and fees on loans and leases                                               |  | $                                      | 132,632 |   |      | $ | 108,041
|Interest on securities                                                              |  |                                        | 31,833  |   |      |   | 23,878 
|Interest on deposits in other banks                                                 |  |                                        | 46      |   |      |   | 86     
|Interest on trading securities                                                      |  |                                        | 44      |   |      |   | 76     
|Interest on federal funds sold and securities purchased under resell agreements     |  |                                        | 544     |   |      |   | 531    
|                                                                                    |  |                                        |         |   |      |   |        
|Total interest income                                                               |  |                                        | 165,099 |   |      |   | 132,612
|                                                                                    |  |                                       
|Interest expense:                                                                   |  |                                        |         |   |      |   |        
|Interest on deposits                                                                |  |                                        | 33,403  |   |      |   | 32,495 
|Interest on federal funds purchased and securities sold under repurchase agreements |  |                                        | 3,354   |   |      |   | 2,435  
|Interest on short-term borrowings                                                   |  |                                        | 765     |   |      |   | 1,313  
|Interest on long-term debt                                                          |  |                                        | 9,659   |   |      |   | 7,911  
|                                                                                    |  |                                        |         |   |      |   |        
|Total interest expense                                                              |  |                                        | 47,181  |   |      |   | 44,154 
|                                                                                    |  |                                        |         |   |      |   |        
|Net interest income                                                                 |  |                                        | 117,918 |   |      |   | 88,458 
|Provision for loan and lease losses                                                 |  |                                        | 4,130   |   |      |   | 3,911  
|                                                                                    |  |                                        |         |   |      |   |        
|Net interest income after provision for loan and lease losses                       |  |                                        | 113,788 |   |      |   | 84,547 
|                                                                                    |  |                                       
|Noninterest income:                                                                 |  |                                        |         |   |      |   |        
|Securities gains                                                                    |  |                                        |        |   |      |   | 43     
|Gain (loss) on disposition of assets                                                |  |                                        | (31     | ) |      |   | 881    
|Service charges on deposit accounts                                                 |  |                                        | 12,868  |   |      |   | 10,436 
|Investment services income                                                          |  |                                        | 9,865   |   |      |   | 16,087 
|Securities brokerage and trust income                                               |  |                                        | 12,352  |   |      |   | 12,018 
|Gain on sale of mortgages                                                           |  |                                        | 8,885   |   |      |   | 13,427 
|Bank owned life insurance                                                           |  |                                        | 2,047   |   |      |   | 2,052  
|Insurance commissions                                                               |  |                                        | 2,570   |   |      |   | 2,435  
|Other                                                                               |  |                                        | 6,938   |   |      |   | 4,774  
|                                                                                    |  |                                        |         |   |      |   |        
|Total noninterest income                                                            |  |                                        | 55,494  |   |      |   | 62,153 



See accompanying notes to unaudited
consolidated financial statements.



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##### Table of Contents

Alabama National BanCorporation and Subsidiaries

Consolidated Statements of Income (Unaudited) (Continued)

(In thousands, except per share data)



|                                            |  |                                        |         |      |   |        
|------------------------------------------- |  | -------------------------------------- | ------- | ---- | - | -------
|                                            |  | For the nine monthsended September 30,
|                                            |  | 2004                                   |         | 2003
|Noninterest expense:                        |  |                                        |         |      |   |        
|Salaries and employee benefits              |  |                                        | 56,301  |      |   | 48,732 
|Commission based compensation               |  |                                        | 13,906  |      |   | 18,285 
|Occupancy and equipment expenses            |  |                                        | 11,450  |      |   | 9,696  
|Amortization of intangibles                 |  |                                        | 2,182   |      |   | 762    
|Other                                       |  |                                        | 26,152  |      |   | 23,978 
|                                            |  |                                        |         |      |   |        
|Total noninterest expense                   |  |                                        | 109,991 |      |   | 101,453
|                                            |  |                                        |         |      |   |        
|Income before provision for income taxes    |  |                                        | 59,291  |      |   | 45,247 
|Provision for income taxes                  |  |                                        | 20,034  |      |   | 14,977 
|                                            |  |                                        |         |      |   |        
|Net income                                  |  | $                                      | 39,257  |      | $ | 30,270 
|                                            |  |                                        |         |      |   |        
|Weighted average common shares outstanding: |  |                                        |         |      |   |        
|Basic                                       |  |                                        | 15,427  |      |   | 12,678 
|                                            |  |                                        |         |      |   |        
|Diluted                                     |  |                                        | 15,680  |      |   | 12,875 
|                                            |  |                                        |         |      |   |        
|Earnings per common share:                  |  |                                        |         |      |   |        
|Basic                                       |  | $                                      | 2.54    |      | $ | 2.39   
|                                            |  |                                        |         |      |   |        
|Diluted                                     |  | $                                      | 2.50    |      | $ | 2.35   
|                                            |  |                                        |         |      |   |        
|Cash dividends per common share             |  | $                                      | 0.9375  |      | $ | 0.855  
|                                            |  |                                        |         |      |   |        



See accompanying notes to unaudited
consolidated financial statements.



7



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##### Table of Contents

Alabama National BanCorporation and Subsidiaries

Consolidated Statements of Comprehensive Income
(Unaudited)

(In thousands)



|                                                                                              |  |                                         |        |      |   |        |  
|--------------------------------------------------------------------------------------------- |  | --------------------------------------- | ------ | ---- | - | ------ | -
|                                                                                              |  | For the three monthsended September 30, |       
|                                                                                              |  | 2004                                    |        | 2003 |  
|Net income                                                                                    |  | $                                       | 14,706 |      | $ | 10,581 |  
|Other comprehensive income (loss):                                                            |  |                                         |        |      |   |        |  
|Unrealized gains (losses) on securities available for sale arising during the period          |  |                                         | 11,972 |      |   | (6,572 | )
|Less: Reclassification adjustment for net gains included in net income                        |  |                                         |       |      |   | 4      |  
|                                                                                              |  |                                         |        |      |   |        |  
|Other comprehensive income (loss), before tax                                                 |  |                                         | 11,972 |      |   | (6,576 | )
|Provision for (benefit of) income taxes related to items of other comprehensive income (loss) |  |                                         | 4,237  |      |   | (2,303 | )
|                                                                                              |  |                                         |        |      |   |        |  
|Other comprehensive income (loss)                                                             |  |                                         | 7,735  |      |   | (4,273 | )
|                                                                                              |  |                                         |        |      |   |        |  
|Comprehensive income                                                                          |  | $                                       | 22,441 |      | $ | 6,308  |  
|                                                                                              |  |                                         |        |      |   |        |  



See accompanying notes to unaudited
consolidated financial statements.



8



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##### Table of Contents

Alabama National BanCorporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Unaudited)

(In thousands)



|                                                                                       |  |                                        |        |   |      |   |        |  
|-------------------------------------------------------------------------------------- |  | -------------------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                       |  | For the nine monthsended September 30, |       
|                                                                                       |  | 2004                                   |        |   | 2003 |  
|Net income                                                                             |  | $                                      | 39,257 |   |      | $ | 30,270 |  
|Other comprehensive (loss):                                                            |  |                                        |        |   |      |   |        |  
|Unrealized (losses) on securities available for sale arising during the period         |  |                                        | (13    | ) |      |   | (3,389 | )
|Less: Reclassification adjustment for net gains included in net income                 |  |                                        |       |   |      |   | 43     |  
|                                                                                       |  |                                        |        |   |      |   |        |  
|Other comprehensive (loss), before tax                                                 |  |                                        | (13    | ) |      |   | (3,432 | )
|Provision for (benefit of) income taxes related to items of other comprehensive (loss) |  |                                        | 3      |   |      |   | (1,182 | )
|                                                                                       |  |                                        |        |   |      |   |        |  
|Other comprehensive income (loss)                                                      |  |                                        | (16    | ) |      |   | (2,250 | )
|                                                                                       |  |                                        |        |   |      |   |        |  
|Comprehensive income                                                                   |  | $                                      | 39,241 |   |      | $ | 28,020 |  
|                                                                                       |  |                                        |        |   |      |   |        |  



See accompanying notes to unaudited
consolidated financial statements.



9



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##### Table of Contents

Alabama National BanCorporation and Subsidiaries

Consolidated Condensed Statements of Cash Flows
(Unaudited)

(In thousands)



|                                                                                               |  |                                        |          |   |      |   |          |  
|---------------------------------------------------------------------------------------------- |  | -------------------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                               |  | For the nine months endedSeptember 30, |         
|                                                                                               |  | 2004                                   |          |   | 2003 |  
|Net cash flows provided by operating activities                                                |  | $                                      | 46,915   |   |      | $ | 52,345   |  
|                                                                                               |  |                                       
|Cash flows from investing activities:                                                          |  |                                        |          |   |      |   |          |  
|Proceeds from calls and maturities of investment securities                                    |  |                                        | 93,114   |   |      |   | 264,830  |  
|Purchases of investment securities                                                             |  |                                        | (330,101 | ) |      |   | (205,133 | )
|Purchases of securities available for sale                                                     |  |                                        | (412,988 | ) |      |   | (832,232 | )
|Proceeds from sale of securities available for sale                                            |  |                                        | 6,233    |   |      |   | 47,504   |  
|Proceeds from calls and maturities of securities available for sale                            |  |                                        | 562,524  |   |      |   | 622,027  |  
|Net increase in interest bearing deposits in other banks                                       |  |                                        | (6,294   | ) |      |   | (11,850  | )
|Net (increase) decrease in federal funds sold and securities purchased under resell agreements |  |                                        | (21,734  | ) |      |   | 55,267   |  
|Net increase in loans and leases                                                               |  |                                        | (290,446 | ) |      |   | (292,259 | )
|Purchase acquisitions, net of cash acquired                                                    |  |                                        | 35,166   |   |      |   | (2,952   | )
|Purchases of property, equipment and leasehold improvements                                    |  |                                        | (10,151  | ) |      |   | (5,325   | )
|Proceeds from liquidation of assets                                                            |  |                                        |         |   |      |   | 799      |  
|Proceeds from sale of other real estate owned and fixed assets                                 |  |                                        | 1,336    |   |      |   | 5,044    |  
|                                                                                               |  |                                        |          |   |      |   |          |  
|Net cash used in investing activities                                                          |  |                                        | (373,341 | ) |      |   | (354,280 | )
|                                                                                               |  |                                        |          |   |      |   |          |  
|Cash flows from financing activities:                                                          |  |                                        |          |   |      |   |          |  
|Net increase in deposits                                                                       |  |                                        | 229,199  |   |      |   | 330,714  |  
|Net increase in federal funds purchased and securities sold under agreements to repurchase     |  |                                        | 59,252   |   |      |   | 39,995   |  
|Net decrease in short-term borrowings and capital leases                                       |  |                                        | (1,992   | ) |      |   | (90,898  | )
|Proceeds from long-term debt                                                                   |  |                                        | 24,000   |   |      |   | 82,000   |  
|Repayment of long-term debt                                                                    |  |                                        |         |   |      |   | (7,000   | )
|Purchase of treasury stock                                                                     |  |                                        |         |   |      |   | (900     | )
|Penalty on long-term debt repayment                                                            |  |                                        |         |   |      |   | (822     | )
|Dividends on common stock                                                                      |  |                                        | (14,922  | ) |      |   | (10,712  | )
|Proceeds from the sale of common stock                                                         |  |                                        | 49,682   |   |      |   |         |  
|Other                                                                                          |  |                                        | 2,231    |   |      |   | 448      |  
|                                                                                               |  |                                        |          |   |      |   |          |  
|Net cash provided by financing activities                                                      |  |                                        | 347,450  |   |      |   | 342,825  |  
|                                                                                               |  |                                        |          |   |      |   |          |  
|Increase in cash and cash equivalents                                                          |  |                                        | 21,024   |   |      |   | 40,890   |  
|Cash and cash equivalents, beginning of period                                                 |  |                                        | 123,086  |   |      |   | 99,561   |  
|                                                                                               |  |                                        |          |   |      |   |          |  
|Cash and cash equivalents, end of period                                                       |  | $                                      | 144,110  |   |      | $ | 140,451  |  
|                                                                                               |  |                                        |          |   |      |   |          |  
|Supplemental schedule of noncash investing and financing activities                            |  |                                        |          |   |      |   |          |  
|Acquisition of collateral in satisfaction of loans                                             |  | $                                      | 2,275    |   |      | $ | 4,891    |  
|                                                                                               |  |                                        |          |   |      |   |          |  
|Adjustment to market value of securities available for sale, net of deferred income taxes      |  | $                                      | (16      | ) |      | $ | (2,250   | )
|                                                                                               |  |                                        |          |   |      |   |          |  
|Assets acquired in business combinations net of cash received                                  |  | $                                      | 875,686  |   |      | $ | 122,727  |  
|                                                                                               |  |                                        |          |   |      |   |          |  
|Liabilities assumed in business combinations                                                   |  | $                                      | 748,354  |   |      | $ | 99,956   |  
|                                                                                               |  |                                        |          |   |      |   |          |  



Additionally, in connection with the
consummation of the Companys three acquisitions during the nine months ended September 30, 2004, the Company issued a total of 3,016,073 shares of common stock with an aggregate fair value of approximately $162.5 million. Further, during the
nine months ended September 30, 2003, the Company issued 395,244 shares of common stock having a market value of approximately $19.8 million in connection with the Companys acquisition of Millennium Bank.



See accompanying notes to unaudited consolidated financial statements.



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ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



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 only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating
results for the three months and nine months ended September 30, 2004 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, 2004. 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, 2003.



NOTE B - COMMITMENTS AND CONTINGENCIES



Alabama Nationals subsidiary banks make loan commitments and incur contingent
liabilities in the normal course of business, which are not reflected in the consolidated statements of condition. As of September 30, 2004, the total unfunded commitments which are not reflected in the consolidated statements of condition totaled
$983.0 million. A majority of these commitments will expire in less than one year.



Alabama National, in the normal course of business, is subject to various pending and threatened litigation. Although it is not possible to determine with certainty Alabama Nationals potential exposure from pending and threatened
litigation, based on current knowledge and advice of legal counsel, management does not anticipate that the ultimate liability, if any, resulting from such litigation will have a material adverse effect on Alabama Nationals financial condition
or results of operations.



NOTE C - RECENTLY ISSUED PRONOUNCEMENTS



In December 2003, the FASB issued a revision to Statement No. 132,
Employers Disclosures about Pensions and Other Postretirement Benefits (Statement 132). Statement 132 requires enhanced disclosures for defined benefit pension plans. Statement 132 requires companies to provide more details about
their plan assets, investment strategy, measurement dates, benefit obligations, cash flows, and components of net periodic benefit cost recognized during interim periods. The disclosures required by Statement 132 are effective for financial
statements with fiscal years ending after December 15, 2003, except for disclosures regarding estimated future benefit payments. Disclosures regarding estimated future benefit payments will be required for fiscal years ending after June 15, 2004.
The interim-period disclosures required by this statement are effective for interim periods beginning after December 15, 2003. See Note H Defined Benefit Pension Plan in the Notes to the Unaudited Consolidated Financial Statements for
the disclosures required by this statement. As Statement 132 relates to changes in disclosures, its adoption did not have an impact on Alabama Nationals financial condition or results of operations.



In December 2003, the American Institute of Certified Public Accountants issued Statement of
Position 03-3, Accounting for Certain Loans and Debt Securities Acquired in a Transfer (SOP 03-3). SOP 03-3 addresses accounting for differences between contractual cash flows expected to be collected and an investors initial
investment in loans or debt securities acquired in a transfer if those differences are attributable, at least in part, to credit quality. SOP 03-3s application includes loans and debt securities acquired in purchase business combinations. SOP
03-3 limits the yield that may be accreted (accretable yield) to the excess of the investors estimate of undiscounted expected principal, interest and other cash flows (cash flows expected at acquisition to be collected) over the
investors initial investment in the loan. SOP 03-3 requires that the excess of contractual cash flows over cash flows to be collected (nonaccretable difference) not be recognized as an adjustment of yield, loss accrual or valuation allowance.
SOP 03-3 prohibits investors from displaying accretable yield and nonaccretable difference in the balance sheet. Subsequent increases in cash flows expected to be collected generally should be recognized prospectively through adjustment of the
loans yield over its remaining life. Decreases in cash flows expected to be collected should be recognized as impairment. SOP 03-3



11



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##### Table of Contents

prohibits carrying over or creation of valuation allowances in the initial accounting of all loans acquired
in a transfer that are within the scope of SOP 03-3. The prohibition of the valuation allowance carryover applies to the purchase of an individual loan, a pool of loans, a group of loans, and loans acquired in a purchase business combination. SOP
03-3 is effective for loans acquired in fiscal years beginning after December 15, 2004. Alabama National does not anticipate that the adoption of SOP 03-3 will have a material impact on its financial condition or results of operations.



On March 9, 2004, the SEC issued Staff Accounting Bulletin 105, Application of
Accounting Principles to Loan Commitments, (SAB 105) to inform registrants of the Staffs view that the fair value of the recorded loan commitments should not consider the expected future cash flows related to the associated servicing of
the future loan. The provisions of SAB 105 must be applied to loan commitments accounted for as derivatives that are entered into after March 31, 2004. The Staff will not object to the application of existing accounting practices to loan commitments
accounted for as derivatives that are entered into on or before March 31, 2004, with appropriate disclosures. On April 1, 2004, Alabama National adopted the provisions of SAB 105. Alabama National records the value of its mortgage loan commitments
at fair market value for mortgages it intends to sell. Alabama National does not currently include, and was not previously including, the value of mortgage servicing or any other internally-developed intangible assets in the valuation of its
mortgage loan commitments. Therefore, the adoption of SAB 105 did not have an impact on Alabama Nationals financial condition or results of operations.



In March 2004, the Emerging Issues Task Force reached a consensus on Issue 03-1, Meaning of Other Than Temporary Impairment (Issue 03-1). The Task Force
reached a consensus on an other-than-temporary impairment model for debt and equity securities accounted for under Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities and
cost method investments. The basic model developed by the Task Force in evaluating whether an investment within the scope of Issue 03-1 is other-than-temporarily impaired is as follows: Step 1: Determine whether the investment is impaired. An
investment is impaired if its fair value is less than its cost. Step 2: Evaluate whether the impairment is other-than-temporary. Step 3: If the impairment is other-than-temporary, recognize an impairment loss equal to the difference between the
investments cost and its fair value. The guidance in Issue 03-1 was intended to be effective for reporting periods beginning after June 15, 2004. However, in September 2004, the FASB issued FSP EITF 03-1-1, which deferred the effective date
for the measurement and recognition provisions of Issue 03-1 until further implementation guidance could be established. Alabama National does not anticipate that the adoption of Issue 03-1 will have a material impact on its financial condition or
results of operations.



Management evaluates securities for
other-than-temporary impairment no less frequently than quarterly, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) length of time and the extent to which fair value has been less than cost,
(2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of Alabama National to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.



As of September 30, 2004, Alabama National has securities with gross
unrealized losses totaling $7.2 million. The losses for all securities are a direct result of rising interest rates and the effect that rising interest rates has on the value of debt securities and not the credit worthiness of the issuers. In
addition, Alabama National has the ability and intent to hold these securities for a period of time sufficient to allow for a recovery in fair value. Therefore, Alabama National has not recognized any other-than-temporary impairments.



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, 2004 and 2003.



|                                                   |  |                                         |        |                                        |   |        |  |      |        |  |   |       
|-------------------------------------------------- |  | --------------------------------------- | ------ | -------------------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|                                                   |  | For the three monthsended September 30, |        | For the nine monthsended September 30,
|                                                   |  | 2004                                    |        | 2003                                   |   | 2004   |  | 2003
|                                                   |  | (In thousands, except per share data)  
|Basic Earnings Per Share:                          |  |                                         |        |                                        |   |        |  |      |        |  |   |       
|Net income available to common shareholders        |  | $                                       | 14,706 |                                        | $ | 10,581 |  | $    | 39,257 |  | $ | 30,270
|Weighted average basic common shares outstanding   |  |                                         | 16,765 |                                        |   | 12,935 |  |      | 15,427 |  |   | 12,678
|                                                   |  |                                         |        |                                        |   |        |  |      |        |  |   |       
|Basic Earnings Per Share                           |  | $                                       | 0.88   |                                        | $ | 0.82   |  | $    | 2.54   |  | $ | 2.39  
|                                                   |  |                                         |        |                                        |   |        |  |      |        |  |   |       
|Diluted Earnings Per Share:                        |  |                                         |        |                                        |   |        |  |      |        |  |   |       
|Net income available to common shareholders        |  | $                                       | 14,706 |                                        | $ | 10,581 |  | $    | 39,257 |  | $ | 30,270
|Weighted average common shares outstanding         |  |                                         | 16,765 |                                        |   | 12,935 |  |      | 15,427 |  |   | 12,678
|Effect of dilutive securities                      |  |                                         | 248    |                                        |   | 226    |  |      | 253    |  |   | 197   
|                                                   |  |                                         |        |                                        |   |        |  |      |        |  |   |       
|Weighted average diluted common shares outstanding |  |                                         | 17,013 |                                        |   | 13,161 |  |      | 15,680 |  |   | 12,875
|                                                   |  |                                         |        |                                        |   |        |  |      |        |  |   |       
|Diluted Earnings Per Share                         |  | $                                       | 0.86   |                                        | $ | 0.80   |  | $    | 2.50   |  | $ | 2.35  
|                                                   |  |                                         |        |                                        |   |        |  |      |        |  |   |       



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 net income (loss) to Alabama Nationals
consolidated totals (in thousands).



|                                       |  |                            |        |                                     |   |                         |  |                               |        |  |                             |       |                   |  |   |                    |  |   |        |   |  |   |     |   |  |   |          
|-------------------------------------- |  | -------------------------- | ------ | ----------------------------------- | - | ----------------------- |  | ----------------------------- | ------ |  | --------------------------- | ----- | ----------------- |  | - | ------------------ |  | - | ------ | - |  | - | --- | - |  | - | ---------
|                                       |  | InvestmentServicesDivision |        | SecuritiesBrokerage &Trust Division |   | MortgageLendingDivision |  | InsuranceServicesDivision (1) |        |  | Retail andCommercialBanking |       | CorporateOverhead |  |   | EliminationEntries |  |   | Total 
|Three months ended September 30, 2004: |  |                            |        |                                     |   |                         |  |                               |        |  |                             |       |                   |  |   |                    |  |   |        |   |  |   |     |   |  |   |          
|Interest income                        |  | $                          |       |                                     | $ | 267                     |  | $                             | 305    |  | $                           |      |                   |  | $ | 60,067             |  | $ | (29    | ) |  | $ | (38 | ) |  | $ | 60,572   
|Interest expense                       |  |                            |        |                                     |   | 23                      |  |                               | 83     |  |                             |       |                   |  |   | 16,181             |  |   | 709    |   |  |   | (38 | ) |  |   | 16,958   
|                                       |  |                            |        |                                     |   |                         |  |                               |        |  |                             |       |                   |  |   |                    |  |   |        |   |  |   |     |   |  |   |          
|Net interest income                    |  |                            |        |                                     |   | 244                     |  |                               | 222    |  |                             |       |                   |  |   | 43,886             |  |   | (738   | ) |  |   |     |   |  |   | 43,614   
|Provision for loan and lease losses    |  |                            |        |                                     |   |                         |  |                               |        |  |                             |       |                   |  |   | 1,624              |  |   |        |   |  |   |     |   |  |   | 1,624    
|Noninterest income                     |  |                            | 2,685  |                                     |   | 4,056                   |  |                               | 3,512  |  |                             | 911   |                   |  |   | 7,383              |  |   | 19     |   |  |   |     |   |  |   | 18,566   
|Noninterest expense                    |  |                            | 2,117  |                                     |   | 3,946                   |  |                               | 2,741  |  |                             | 887   |                   |  |   | 26,877             |  |   | 1,640  |   |  |   |     |   |  |   | 38,208   
|                                       |  |                            |        |                                     |   |                         |  |                               |        |  |                             |       |                   |  |   |                    |  |   |        |   |  |   |     |   |  |   |          
|Net income (loss) before tax           |  | $                          | 568    |                                     | $ | 354                     |  | $                             | 993    |  | $                           | 24    |                   |  | $ | 22,768             |  | $ | (2,359 | ) |  | $ |    |   |  | $ | 22,348   
|                                       |  |                            |        |                                     |   |                         |  |                               |        |  |                             |       |                   |  |   |                    |  |   |        |   |  |   |     |   |  |   |          
|Total assets as of September 30, 2004  |  | $                          | 35,036 |                                     | $ | 27,822                  |  | $                             | 24,066 |  | $                           | 4,316 |                   |  | $ | 5,043,578          |  | $ | 9,288  |   |  |   |     |   |  | $ | 5,144,106
|                                       |  |                            |        |                                     |   |                         |  |                               |        |  |                             |       |                   |  |   |                    |  |   |        |   |  |   |     |   |  |   |          
|Three months ended September 30, 2003: |  |                            |        |                                     |   |                         |  |                               |        |  |                             |       |                   |  |   |                    |  |   |        |   |  |   |     |   |  |   |          
|Interest income                        |  | $                          |       |                                     | $ | 295                     |  | $                             | 830    |  | $                           |      |                   |  | $ | 44,183             |  | $ | (29    | ) |  | $ | (22 | ) |  | $ | 45,257   
|Interest expense                       |  |                            |        |                                     |   | 29                      |  |                               | 256    |  |                             |       |                   |  |   | 13,494             |  |   | 402    |   |  |   | (22 | ) |  |   | 14,159   
|                                       |  |                            |        |                                     |   |                         |  |                               |        |  |                             |       |                   |  |   |                    |  |   |        |   |  |   |     |   |  |   |          
|Net interest income                    |  |                            |        |                                     |   | 266                     |  |                               | 574    |  |                             |       |                   |  |   | 30,689             |  |   | (431   | ) |  |   |     |   |  |   | 31,098   
|Provision for loan and lease losses    |  |                            |        |                                     |   |                         |  |                               |        |  |                             |       |                   |  |   | 1,396              |  |   |        |   |  |   |     |   |  |   | 1,396    
|Noninterest income                     |  |                            | 4,555  |                                     |   | 3,995                   |  |                               | 5,721  |  |                             | 797   |                   |  |   | 6,804              |  |   |        |   |  |   |     |   |  |   | 21,872   
|Noninterest expense                    |  |                            | 3,036  |                                     |   | 3,790                   |  |                               | 3,243  |  |                             | 748   |                   |  |   | 22,932             |  |   | 1,876  |   |  |   |     |   |  |   | 35,625   
|                                       |  |                            |        |                                     |   |                         |  |                               |        |  |                             |       |                   |  |   |                    |  |   |        |   |  |   |     |   |  |   |          
|Net income (loss) before tax           |  | $                          | 1,519  |                                     | $ | 471                     |  | $                             | 3,052  |  | $                           | 49    |                   |  | $ | 13,165             |  | $ | (2,307 | ) |  | $ |    |   |  | $ | 15,949   
|                                       |  |                            |        |                                     |   |                         |  |                               |        |  |                             |       |                   |  |   |                    |  |   |        |   |  |   |     |   |  |   |          
|Total assets as of September 30, 2003  |  | $                          | 72,685 |                                     | $ | 34,125                  |  | $                             | 40,067 |  | $                           | 4,998 |                   |  | $ | 3,694,506          |  | $ | 6,560  |   |  |   |     |   |  | $ | 3,852,941
|                                       |  |                            |        |                                     |   |                         |  |                               |        |  |                             |       |                   |  |   |                    |  |   |        |   |  |   |     |   |  |   |          
|Nine months ended September 30, 2004:  |  |                            |        |                                     |   |                         |  |                               |        |  |                             |       |                   |  |   |                    |  |   |        |   |  |   |     |   |  |   |          
|Interest income                        |  | $                          |       |                                     | $ | 812                     |  | $                             | 780    |  | $                           |      |                   |  | $ | 163,672            |  | $ | (86    | ) |  | $ | (79 | ) |  | $ | 165,099  
|Interest expense                       |  |                            |        |                                     |   | 79                      |  |                               | 214    |  |                             |       |                   |  |   | 45,045             |  |   | 1,922  |   |  |   | (79 | ) |  |   | 47,181   
|                                       |  |                            |        |                                     |   |                         |  |                               |        |  |                             |       |                   |  |   |                    |  |   |        |   |  |   |     |   |  |   |          
|Net interest income                    |  |                            |        |                                     |   | 733                     |  |                               | 566    |  |                             |       |                   |  |   | 118,627            |  |   | (2,008 | ) |  |   |     |   |  |   | 117,918  
|Provision for loan and lease losses    |  |                            |        |                                     |   |                         |  |                               |        |  |                             |       |                   |  |   | 4,130              |  |   |        |   |  |   |     |   |  |   | 4,130    
|Noninterest income                     |  |                            | 9,865  |                                     |   | 12,352                  |  |                               | 9,501  |  |                             | 2,648 |                   |  |   | 21,074             |  |   | 54     |   |  |   |     |   |  |   | 55,494   
|Noninterest expense                    |  |                            | 7,482  |                                     |   | 11,748                  |  |                               | 6,801  |  |                             | 2,663 |                   |  |   | 76,590             |  |   | 4,707  |   |  |   |     |   |  |   | 109,991  
|                                       |  |                            |        |                                     |   |                         |  |                               |        |  |                             |       |                   |  |   |                    |  |   |        |   |  |   |     |   |  |   |          
|Net income (loss) before tax           |  | $                          | 2,383  |                                     | $ | 1,337                   |  | $                             | 3,266  |  | $                           | (15   | )                 |  | $ | 58,981             |  | $ | (6,661 | ) |  | $ |    |   |  | $ | 59,291   
|                                       |  |                            |        |                                     |   |                         |  |                               |        |  |                             |       |                   |  |   |                    |  |   |        |   |  |   |     |   |  |   |          
|Nine months ended September 30, 2003:  |  |                            |        |                                     |   |                         |  |                               |        |  |                             |       |                   |  |   |                    |  |   |        |   |  |   |     |   |  |   |          
|Interest income                        |  | $                          |       |                                     | $ | 762                     |  | $                             | 2,099  |  | $                           |      |                   |  | $ | 129,912            |  | $ | (86    | ) |  | $ | (75 | ) |  | $ | 132,612  
|Interest expense                       |  |                            |        |                                     |   | 90                      |  |                               | 723    |  |                             | 2     |                   |  |   | 42,246             |  |   | 1,168  |   |  |   | (75 | ) |  |   | 44,154   
|                                       |  |                            |        |                                     |   |                         |  |                               |        |  |                             |       |                   |  |   |                    |  |   |        |   |  |   |     |   |  |   |          
|Net interest income                    |  |                            |        |                                     |   | 672                     |  |                               | 1,376  |  |                             | (2    | )                 |  |   | 87,666             |  |   | (1,254 | ) |  |   |     |   |  |   | 88,458   
|Provision for loan and lease losses    |  |                            |        |                                     |   |                         |  |                               |        |  |                             |       |                   |  |   | 3,911              |  |   |        |   |  |   |     |   |  |   | 3,911    
|Noninterest income                     |  |                            | 16,087 |                                     |   | 12,018                  |  |                               | 14,018 |  |                             | 2,435 |                   |  |   | 17,593             |  |   | 2      |   |  |   |     |   |  |   | 62,153   
|Noninterest expense                    |  |                            | 10,499 |                                     |   | 11,433                  |  |                               | 8,154  |  |                             | 2,301 |                   |  |   | 63,926             |  |   | 5,140  |   |  |   |     |   |  |   | 101,453  
|                                       |  |                            |        |                                     |   |                         |  |                               |        |  |                             |       |                   |  |   |                    |  |   |        |   |  |   |     |   |  |   |          
|Net income (loss) before tax           |  | $                          | 5,588  |                                     | $ | 1,257                   |  | $                             | 7,240  |  | $                           | 132   |                   |  | $ | 37,422             |  | $ | (6,392 | ) |  | $ |    |   |  | $ | 45,247   
|                                       |  |                            |        |                                     |   |                         |  |                               |        |  |                             |       |                   |  |   |                    |  |   |        |   |  |   |     |   |  |   |          

---

|(1) | Noninterest income for the three and nine months ended September 30, 2004, includes $78,000 from the sale of two satellite locations.
|--- | -------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

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.



At September 30, 2004, the carrying value of goodwill totaled $145.2 million. The amounts attributable to the Retail and Commercial Banking segment and Insurance Services Division are $142.5 million and $2.7 million,
respectively.



NOTE F - MERGERS AND ACQUISITIONS



On July 9, 2004, Alabama National completed the acquisition of Coquina Bank
(Coquina). Pursuant to the terms of the merger agreement, Coquina was merged with another Alabama National subsidiary, Cypress Bank, on August 20, 2004 to form CypressCoquina Bank.



In addition to the Coquina acquisition, Alabama National completed the acquisition of Cypress
Bankshares, Inc. (Cypress) on February 20, 2004, and the acquisition of Indian River Banking Company (Indian River) on February 27, 2004. The following table summarizes some details of the three acquisitions completed in
2004.



|                                               |  |                         |                     |                             |   |                     |  |   |                      
|---------------------------------------------- |  | ----------------------- | ------------------- | --------------------------- | - | ------------------- |  | - | ---------------------
|                                               |  | CypressBankshares, Inc. |                     | Indian RiverBanking Company |   | Coquina Bank       
|Location                                       |  |                         | Palm Coast, Florida |                             |   | Vero Beach, Florida |  |   | Ormond Beach, Florida
|Merger closing date                            |  |                         | 2/20/2004           |                             |   | 2/27/2004           |  |   | 7/9/2004             
|Shares of Alabama National common stock issued |  |                         | 455,449             |                             |   | 2,017,053           |  |   | 543,571              
|Stock options assumed (as converted)           |  |                         | 52,130              |                             |   | 123,430             |  |   |                     
|Additional cash consideration                  |  | $                       | 1.9 million         |                             | $ | 5.1 million         |  | $ | 2.0 million          
|Total purchase price                           |  | $                       | 27.4 million        |                             | $ | 112.4 million       |  | $ | 31.7 million         



The following table summarizes the
estimated fair values of the assets acquired and liabilities assumed for Cypress, Indian River and Coquina at the respective dates of acquisition. Management continues to finalize the fair value of assets acquired and liabilities assumed in
connection with these acquisitions.



|                                             |  |                         |         |                             |   |              |  |   |        
|-------------------------------------------- |  | ----------------------- | ------- | --------------------------- | - | ------------ |  | - | -------
|                                             |  | CypressBankshares, Inc. |         | Indian RiverBanking Company |   | Coquina Bank
|                                             |  | (Amounts in thousands) 
|Cash                                         |  | $                       | 9,691   |                             | $ | 26,178       |  | $ | 8,281  
|Securities                                   |  |                         | 26,111  |                             |   | 241,905      |  |   | 11,421 
|Federal funds sold and repurchase agreements |  |                         | 959     |                             |   | 384          |  |   | 233    
|Net loans                                    |  |                         | 75,396  |                             |   | 282,857      |  |   | 89,229 
|Other assets                                 |  |                         | 7,636   |                             |   | 10,299       |  |   | 6,265  
|Goodwill                                     |  |                         | 17,686  |                             |   | 73,220       |  |   | 21,893 
|Core deposit intangible                      |  |                         | 1,644   |                             |   | 7,542        |  |   | 1,006  
|                                             |  |                         |         |                             |   |              |  |   |        
|Total assets acquired                        |  |                         | 139,123 |                             |   | 642,385      |  |   | 138,328
|                                             |  |                         |         |                             |   |              |  |   |        
|Deposits                                     |  |                         | 104,250 |                             |   | 444,697      |  |   | 102,829
|Other liabilities                            |  |                         | 7,484   |                             |   | 85,333       |  |   | 3,761  
|                                             |  |                         |         |                             |   |              |  |   |        
|Total liabilities assumed                    |  |                         | 111,734 |                             |   | 530,030      |  |   | 106,590
|                                             |  |                         |         |                             |   |              |  |   |        
|Net assets acquired                          |  | $                       | 27,389  |                             | $ | 112,355      |  | $ | 31,738 
|                                             |  |                         |         |                             |   |              |  |   |        



The acquisitions of Cypress, Indian
River and Coquina resulted in the recognition of $19.3 million, $80.8 million and $22.9 million of intangible assets, respectively. Alabama National allocated $1.6 million, $7.5 million and $1.0 million of the total intangible created to core
deposits of Cypress, Indian River and Coquina, respectively. This allocation was based upon Alabama Nationals valuation of the core deposits of Cypress, Indian River and Coquina. Among the factors considered in the valuation included: (1) the
rate and maturity structure of the interest bearing liabilities, (2) estimated retention rates for each deposit liability category, (3) the current interest rate environment and (4) estimated noninterest income potential of acquired relationships.
The core deposit intangible created is being amortized on an accelerated basis not to exceed seven years. The remaining intangible created was allocated to goodwill.



The following table presents the unaudited pro forma results of operations for Alabama National, as if the Millennium Bank
(Millennium), Cypress, Indian River and Coquina acquisitions had occurred at January 1, 2004 and 2003. The results for the nine month period ended September 30, 2004 were adjusted for Indian River, Cypress and Coquina only, as Millennium
was included for the entire period. The three month period ended September 30, 2004 was not adjusted for the Coquina acquisition, as Coquina was included for all but nine days of the 2004 third quarter. Since no consideration is given to the
operational efficiencies and expanded products and services typically offered by the newly acquired banks subsequent to acquisition, the pro forma summary information does not necessarily reflect the results of operations as they would have been, if
the respective acquisitions had occurred at the indicated dates (amounts in thousands, except per share data):



|                  |  |                                 |        |                                |   |        |  |      |         |  |   |        
|----------------- |  | ------------------------------- | ------ | ------------------------------ | - | ------ |  | ---- | ------- |  | - | -------
|                  |  | Three months endedSeptember 30, |        | Nine months endedSeptember 30,
|                  |  | 2004                            |        | 2003                           |   | 2004   |  | 2003
|Total revenue (1) |  | $                               | 62,180 |                                | $ | 60,780 |  | $    | 180,285 |  | $ | 176,513
|Net income        |  | $                               | 14,706 |                                | $ | 12,154 |  | $    | 39,973  |  | $ | 35,248 
|Basic EPS         |  | $                               | 0.88   |                                | $ | 0.76   |  | $    | 2.45    |  | $ | 2.21   
|Diluted EPS       |  | $                               | 0.86   |                                | $ | 0.75   |  | $    | 2.40    |  | $ | 2.17   

---

|(1) | Total revenue consists of net interest income plus noninterest income.
|--- | ----------------------------------------------------------------------



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##### Table of Contents

NOTE G - GOODWILL AND OTHER ACQUIRED INTANGIBLES



The changes in the carrying amounts of goodwill attributable to the Retail and Commercial
Banking segment and the Insurance Services Division for the nine months ended September 30, 2004 are as follows (in thousands):



|                            |  |                             |         |                           |   |      
|--------------------------- |  | --------------------------- | ------- | ------------------------- | - | -----
|                            |  | Retail andCommercialBanking |         | InsuranceServicesDivision
|Balance, January 1, 2004    |  | $                           | 28,271  |                           | $ | 2,693
|Acquired goodwill           |  |                             | 112,799 |                           |   |     
|Other goodwill adjustments  |  |                             | 1,406   |                           |   |     
|                            |  |                             |         |                           |   |      
|Balance, September 30, 2004 |  | $                           | 142,476 |                           | $ | 2,693
|                            |  |                             |         |                           |   |      



Other goodwill adjustments relates to
the refinement of the fair values assigned to the assets and liabilities of a previous acquisition.



Intangible assets as of September 30, 2004 and December 31, 2003 are as follows (in thousands):



|                                   |  |                          |        |                         |   |        |                  |  |   |       
|---------------------------------- |  | ------------------------ | ------ | ----------------------- | - | ------ | ---------------- |  | - | ------
|                                   |  | As of September 30, 2004
|                                   |  | GrossCarryingAmount      |        | AccumulatedAmortization |   |        | NetCarryingValue
|Amortizing intangible assets       |  |                          |        |                         |   |        |                  |  |   |       
|Core deposit intangibles           |  | $                        | 18,130 |                         | $ | (6,351 | )                |  | $ | 11,779
|Other customer intangibles         |  |                          | 959    |                         |   | (599   | )                |  |   | 360   
|                                   |  |                          |        |                         |   |        |                  |  |   |       
|Total amortizing intangible assets |  | $                        | 19,089 |                         | $ | (6,950 | )                |  | $ | 12,139
|                                   |  |                          |        |                         |   |        |                  |  |   |       
|                                   | 
|                                   |  | As of December 31, 2003 
|                                   |  | GrossCarryingAmount      |        | AccumulatedAmortization |   |        | NetCarryingValue
|Amortizing intangible assets:      |  |                          |        |                         |   |        |                  |  |   |       
|Core deposit intangibles           |  | $                        | 7,938  |                         | $ | (4,342 | )                |  | $ | 3,596 
|Other customer intangibles         |  |                          | 1,453  |                         |   | (426   | )                |  |   | 1,027 
|                                   |  |                          |        |                         |   |        |                  |  |   |       
|Total amortizing intangible assets |  | $                        | 9,391  |                         | $ | (4,768 | )                |  | $ | 4,623 
|                                   |  |                          |        |                         |   |        |                  |  |   |       



During the nine months
ended September 30, 2004 and 2003, Alabama National recognized $2,182,000 and $762,000 of other intangible amortization expense, respectively, and during the three months ended September 30, 2004 and 2003, Alabama National recognized $858,000 and
$285,000 of other intangible expense, respectively. Based upon recorded intangible assets as of September 30, 2004, aggregate amortization expense for each of the next five years is estimated to be $3.2 million, $2.8 million, $2.4 million, $1.7
million and $1.1 million, respectively.



NOTE H - DEFINED BENEFIT PENSION
PLAN



The following table provides certain information with respect to
Alabama Nationals defined benefit pension plans for the periods indicated (amounts in thousands):



|                                   |  |                                        |      |   |                                       |   |      |      |  |   |      |   |  |   |      |  
|---------------------------------- |  | -------------------------------------- | ---- | - | ------------------------------------- | - | ---- | ---- |  | - | ---- | - |  | - | ---- | -
|                                   |  | For the threemonths endedSeptember 30, |      |   | For the ninemonths endedSeptember 30, |  
|                                   |  | 2004                                   |      |   | 2003                                  |   |      | 2004 |  |   | 2003 |  
|Service cost                       |  | $                                      |     |   |                                       | $ |     |      |  | $ |     |   |  | $ |     |  
|Interest cost                      |  |                                        | 92   |   |                                       |   | 92   |      |  |   | 275  |   |  |   | 275  |  
|Expected return on plan assets     |  |                                        | (118 | ) |                                       |   | (109 | )    |  |   | (353 | ) |  |   | (329 | )
|Amortization of prior service cost |  |                                        |     |   |                                       |   |     |      |  |   |     |   |  |   |     |  
|Amortization of transition asset   |  |                                        |     |   |                                       |   | (1   | )    |  |   |     |   |  |   | (1   | )
|Amortization of net loss           |  |                                        | 8    |   |                                       |   | 17   |      |  |   | 25   |   |  |   | 52   |  
|                                   |  |                                        |      |   |                                       |   |      |      |  |   |      |   |  |   |      |  
|Net periodic pension income        |  | $                                      | (18  | ) |                                       | $ | (1   | )    |  | $ | (53  | ) |  | $ | (3   | )
|                                   |  |                                        |      |   |                                       |   |      |      |  |   |      |   |  |   |      |  



As of September 30, 2004, Alabama
National has not made any 2004 contributions to the defined benefit pension plan because the plan is fully funded and Alabama National does not anticipate making any contributions in the year ended December 31, 2004. If needed in the future, Alabama
National will contribute any amounts necessary to satisfy funding requirements of the Employee Retirement Income Security Act.



NOTE I - TREASURY STOCK REPURCHASE PLAN



On February 18, 2004, the Board of Directors of Alabama National renewed its share repurchase program that expired on December 31, 2003. The renewed plan authorizes the
Company to repurchase up to 300,000 shares of its common stock and will expire on December 31, 2004. There were no shares repurchased during the nine months ended September 30, 2004.



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##### Table of Contents

NOTE J - UNDERWRITTEN PUBLIC OFFERING



During the 2004 third quarter, Alabama National completed an underwritten public offering of 977,500 shares of its common stock at a public
offering price of $54.20 per share. Alabama National received net proceeds of approximately $49.7 million from the public offering.



NOTE K - SUBSEQUENT EVENTS-ALABAMA NATIONAL SUBSIDIARY BANK MERGERS



Alabama National announced by press release on October 29, 2004 that it plans to unite First American Bank with National Bank of Commerce of
Birmingham in February 2005 and with First Citizens Bank of Talladega in May 2005, creating a financial institution with approximately $2.5 billion in assets as of September 30, 2004. The combined institution will be called First American Bank, with
33 locations in north and central Alabama.



Alabama National also announced in
the press release the planned March 2005 unification of First Gulf Bank in Baldwin County, Alabama and Citizens & Peoples Bank, N.A. of Pensacola, Florida. These two banks will unite to form First Gulf Bank, N.A., which will be a $425 million
bank headquartered in Pensacola serving its customers through 10 offices. To be consummated, these transactions must first receive certain regulatory approvals.



15



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##### 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.



Many of the comparisons of financial data from period to period
presented in the following discussion have been rounded from actual values reported in the financial statements. The percentage changes presented herein are based on a comparison of the actual values recorded in the financial statements, not the
rounded values.



Alabama National acquired Millennium Bank on June 19, 2003,
Cypress Bankshares, Inc. on February 20, 2004, Indian River Banking Company on February 27, 2004 and Coquina Bank on July 9, 2004, using the purchase method of accounting in each transaction. Accordingly, the results of operations for Cypress Bank,
Indian River National Bank and Coquina Bank are not included in the three or nine month periods ended September 30, 2003. Millennium Banks results of operations are included for the entire three months ended September 30, 2003, but the nine
months ended September 30, 2003 include only Millennium Banks results subsequent to the acquisition date. The three and nine month periods ended September 30, 2004 include Millennium for the entire periods but only include the results of
operations of Cypress, Indian River and Coquina subsequent to the acquisition date for each.



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, 2003.



Critical Accounting Policies and Estimates



Alabama Nationals accounting policies are critical to understanding the results of operations and financial position as reported in
the consolidated financial statements. Significant accounting policies utilized by Alabama National are discussed in detail in the notes to the consolidated financial statements and in 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, 2003.



Performance Overview



Alabama Nationals net income was $14.7 million for the third quarter of 2004 (the 2004 third quarter), compared to $10.6 million for the third quarter
of 2003 (the 2003 third quarter). Net income for the nine months ended September 30, 2004 (the 2004 nine months) was $39.3 million, compared to $30.3 million for the nine months ended September 30, 2003 (the 2003 nine
months). Net income per diluted common share for the 2004 and 2003 third quarters was $0.86 and $0.80, respectively. For the 2004 nine months, net income per diluted common share was $2.50, compared to $2.35 for the 2003 nine months.



The annualized return on average assets for Alabama National was 1.15% and
1.12% for the 2004 and 2003 third quarters, respectively. The annualized return on average assets for Alabama National was 1.11% for the 2004 nine months, compared to 1.14% for the 2003 nine months. The annualized return on average
stockholders equity was 11.77% for the 2004 third quarter, as compared to 15.55% for the 2003 third quarter. The annualized return on average stockholders equity was 12.39% and 16.07% for the 2004 and 2003 nine months, respectively.
Return on average assets and return on average stockholders equity have each been negatively affected by recent acquisitions due to the amount of goodwill and other intangible assets recorded, which amount increased the denominator in both of
these ratio calculations. The recent public offering by Alabama National has also negatively affected the return on average shareholders equity for the 2004 periods because it resulted in an increase in shareholders equity. Book value
per share at September 30, 2004 was $30.70, an increase of $8.94 from year-end 2003, due primarily to the impact of 2004 acquisitions. Alabama National declared cash dividends totaling $0.9375 per share on common stock during the 2004 nine months,
compared to $0.855 per share declared on common stock during the 2003 nine months.



16



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##### Table of Contents

Net Income



The primary reasons for the increased net income during the 2004 third quarter and 2004 nine months, compared to the same periods in 2003, are an increase in net interest
income and the acquisitions of Cypress Bank, Indian River National Bank and Coquina Bank. The 2004 acquisitions contributed $2.7 million and $5.5 million in net income for the 2004 third quarter and nine months, respectively. Net interest income for
the 2004 third quarter totaled $43.6 million, a 40.2% increase over the $31.1 million recorded in the 2003 third quarter. During the 2004 nine months, net interest income totaled $117.9 million, a 33.3% increase compared to $88.5 million recorded in
the 2003 nine months. The increased net interest income was offset by a decline in total noninterest income recorded during the 2004 third quarter and nine months. During the 2004 third quarter, total noninterest income was $18.6 million, a decrease
of $3.3 million as compared to the 2003 third quarter. For the 2004 nine months, noninterest income was $55.5 million, a decrease of 10.7% from $62.2 million recorded in the 2003 nine months. The income from the sale of mortgage loans and income
from investment services experienced a significant decrease in each period of 2004 as compared to the same periods in 2003. The revenue recorded in these two business segments during the 2003 third quarter and nine months were both near record
levels for Alabama National.



Average earning assets for the 2004 third quarter
and nine months increased by $1.18 billion and $1.03 billion, respectively, as compared to the same periods in 2003. Average interest-bearing liabilities increased by $919.6 million and $833.2 million during the 2004 third quarter and nine months,
respectively, as compared to the same periods in 2003. Recent acquisitions have contributed greatly to the increases in average earning assets and interest-bearing liabilities. The average taxable equivalent rate earned on assets was 5.27% and 5.18%
for the 2004 third quarter and 2004 nine months, respectively, compared to 5.27% and 5.48% for the 2003 third quarter and 2003 nine months, respectively. The average rate paid on interest-bearing liabilities was 1.72% and 1.70% for the 2004 third
quarter and 2004 nine months, respectively, compared to 1.87% and 2.06% for the 2003 third quarter and 2003 nine months, respectively. The net interest margin was 3.77% and 3.67% for the 2004 third quarter and 2004 nine months, respectively,
compared to 3.60% and 3.63% for the 2003 third quarter and 2003 nine months, respectively. The net interest margin for the 2004 third quarter increased by 16 basis points compared to the second quarter of 2004. Alabama National has benefited from
the Federal Reserve Banks three separate fed funds rate increases beginning June 30, 2004. Alabama Nationals variable rate loans have repriced at the higher rates but deposit costs have not repriced as quickly.



The following tables depict, on a taxable equivalent basis for the 2004 and 2003 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.



AVERAGE BALANCES, INCOME AND EXPENSES AND RATES

(Amounts in thousands, except yields and rates)



|                                                         |  |                                  |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|-------------------------------------------------------- |  | -------------------------------- | --------- | - | -------------- | - | ---------- |  | ---- | -------------- |  | - | -------------- | - | ---------- | - | ------ |  | ---- | -
|                                                         |  | Three months ended September 30, |          
|                                                         |  | 2004                             |           |   | 2003           |  
|                                                         |  | AverageBalance                   |           |   | Income/Expense |   | Yield/Cost |  |      | AverageBalance |  |   | Income/Expense |   | Yield/Cost |  
|Assets:                                                  |  |                                  |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Earning assets:                                          |  |                                  |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Loans and leases (1)(2)(3)                               |  | $                                | 3,360,817 |   |                | $ | 48,442     |  | 5.73 | %              |  | $ | 2,549,891      |   |            | $ | 37,643 |  | 5.86 | %
|Securities:                                              |  |                                  |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Taxable                                                  |  |                                  | 1,120,518 |   |                |   | 11,406     |  | 4.05 |                |  |   | 768,416        |   |            |   | 7,061  |  | 3.65 |  
|Tax exempt (2)                                           |  |                                  | 57,312    |   |                |   | 871        |  | 6.05 |                |  |   | 30,881         |   |            |   | 531    |  | 6.82 |  
|Cash balances in other banks                             |  |                                  | 5,242     |   |                |   | 18         |  | 1.37 |                |  |   | 11,650         |   |            |   | 26     |  | 0.89 |  
|Funds sold                                               |  |                                  | 58,722    |   |                |   | 244        |  | 1.65 |                |  |   | 61,345         |   |            |   | 198    |  | 1.28 |  
|Trading account securities                               |  |                                  | 778       |   |                |   | 9          |  | 4.60 |                |  |   | 3,191          |   |            |   | 27     |  | 3.36 |  
|                                                         |  |                                  |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Total earning assets (2)                                 |  |                                  | 4,603,389 |   |                |   | 60,990     |  | 5.27 |                |  |   | 3,425,374      |   |            |   | 45,486 |  | 5.27 |  
|                                                         |  |                                  |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Cash and due from banks                                  |  |                                  | 160,867   |   |                |   |            |  |      |                |  |   | 85,028         |   |            |   |        |  |      |  
|Premises and equipment                                   |  |                                  | 90,134    |   |                |   |            |  |      |                |  |   | 76,805         |   |            |   |        |  |      |  
|Other assets                                             |  |                                  | 266,000   |   |                |   |            |  |      |                |  |   | 189,257        |   |            |   |        |  |      |  
|Allowance for loan losses                                |  |                                  | (45,345   | ) |                |   |            |  |      |                |  |   | (36,334        | ) |            |   |        |  |      |  
|                                                         |  |                                  |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Total assets                                             |  | $                                | 5,075,045 |   |                |   |            |  |      |                |  | $ | 3,740,130      |   |            |   |        |  |      |  
|                                                         |  |                                  |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Liabilities:                                             |  |                                  |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Interest-bearing liabilities:                            |  |                                  |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Interest-bearing transaction accounts                    |  | $                                | 751,808   |   |                | $ | 1,440      |  | 0.76 | %              |  | $ | 511,578        |   |            | $ | 931    |  | 0.72 | %
|Savings deposits                                         |  |                                  | 873,149   |   |                |   | 2,120      |  | 0.97 |                |  |   | 515,106        |   |            |   | 1,109  |  | 0.85 |  
|Time deposits                                            |  |                                  | 1,449,082 |   |                |   | 8,364      |  | 2.30 |                |  |   | 1,285,128      |   |            |   | 8,315  |  | 2.57 |  
|Funds purchased                                          |  |                                  | 406,405   |   |                |   | 1,394      |  | 1.36 |                |  |   | 342,499        |   |            |   | 815    |  | 0.94 |  
|Other short-term borrowings                              |  |                                  | 37,135    |   |                |   | 186        |  | 1.99 |                |  |   | 66,750         |   |            |   | 315    |  | 1.87 |  
|Long-term debt                                           |  |                                  | 403,007   |   |                |   | 3,454      |  | 3.41 |                |  |   | 279,922        |   |            |   | 2,674  |  | 3.79 |  
|                                                         |  |                                  |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Total interest-bearing liabilities                       |  |                                  | 3,920,586 |   |                |   | 16,958     |  | 1.72 |                |  |   | 3,000,983      |   |            |   | 14,159 |  | 1.87 |  
|                                                         |  |                                  |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Demand deposits                                          |  |                                  | 602,994   |   |                |   |            |  |      |                |  |   | 418,895        |   |            |   |        |  |      |  
|Accrued interest and other liabilities                   |  |                                  | 54,442    |   |                |   |            |  |      |                |  |   | 50,273         |   |            |   |        |  |      |  
|Stockholders equity                                     |  |                                  | 497,023   |   |                |   |            |  |      |                |  |   | 269,979        |   |            |   |        |  |      |  
|                                                         |  |                                  |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Total liabilities and stockholders equity               |  | $                                | 5,075,045 |   |                |   |            |  |      |                |  | $ | 3,740,130      |   |            |   |        |  |      |  
|                                                         |  |                                  |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Net interest spread                                      |  |                                  |           |   |                |   |            |  | 3.55 | %              |  |   |                |   |            |   |        |  | 3.40 | %
|                                                         |  |                                  |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Net interest income/margin on a taxable equivalent basis |  |                                  |           |   |                |   | 44,032     |  | 3.81 | %              |  |   |                |   |            |   | 31,327 |  | 3.63 | %
|                                                         |  |                                  |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Tax equivalent adjustment (2)                            |  |                                  |           |   |                |   | 418        |  |      |                |  |   |                |   |            |   | 229    |  |      |  
|                                                         |  |                                  |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Net interest income/margin                               |  |                                  |           |   |                | $ | 43,614     |  | 3.77 | %              |  |   |                |   |            | $ | 31,098 |  | 3.60 | %
|                                                         |  |                                  |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  

---

|(1) | Average loans include nonaccrual loans. All loans and deposits are domestic.
|--- | ----------------------------------------------------------------------------

|(2) | Tax equivalent adjustments are based upon an 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 $2.0 million and $1.7 million are included in interest and fees on loans for the three months
|--- | -------------------------------------------------------------------------------------------------------------------

ended September 30, 2004 and 2003, respectively.



17



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##### Table of Contents

AVERAGE BALANCES, INCOME AND EXPENSES AND RATES

(Amounts in thousands, except yields and rates)



|                                                         |  |                                 |           |   |                |   |            |  |      |                |  |   |                |   |            |   |         |  |      |  
|-------------------------------------------------------- |  | ------------------------------- | --------- | - | -------------- | - | ---------- |  | ---- | -------------- |  | - | -------------- | - | ---------- | - | ------- |  | ---- | -
|                                                         |  | Nine months ended September 30, |          
|                                                         |  | 2004                            |           |   | 2003           |  
|                                                         |  | AverageBalance                  |           |   | Income/Expense |   | Yield/Cost |  |      | AverageBalance |  |   | Income/Expense |   | Yield/Cost |  
|Assets:                                                  |  |                                 |           |   |                |   |            |  |      |                |  |   |                |   |            |   |         |  |      |  
|Earning assets:                                          |  |                                 |           |   |                |   |            |  |      |                |  |   |                |   |            |   |         |  |      |  
|Loans and leases (1)(2)(3)                               |  | $                               | 3,142,319 |   |                | $ | 132,962    |  | 5.65 | %              |  | $ | 2,404,068      |   |            | $ | 108,249 |  | 6.02 | %
|Securities:                                              |  |                                 |           |   |                |   |            |  |      |                |  |   |                |   |            |   |         |  |      |  
|Taxable                                                  |  |                                 | 1,029,276 |   |                |   | 30,274     |  | 3.93 |                |  |   | 749,279        |   |            |   | 22,765  |  | 4.06 |  
|Tax exempt (2)                                           |  |                                 | 50,860    |   |                |   | 2,362      |  | 6.20 |                |  |   | 31,233         |   |            |   | 1,661   |  | 7.11 |  
|Cash balances in other banks                             |  |                                 | 6,215     |   |                |   | 46         |  | 0.99 |                |  |   | 11,465         |   |            |   | 86      |  | 1.00 |  
|Funds sold                                               |  |                                 | 58,959    |   |                |   | 544        |  | 1.23 |                |  |   | 55,341         |   |            |   | 531     |  | 1.28 |  
|Trading account securities                               |  |                                 | 1,319     |   |                |   | 44         |  | 4.46 |                |  |   | 2,689          |   |            |   | 76      |  | 3.78 |  
|                                                         |  |                                 |           |   |                |   |            |  |      |                |  |   |                |   |            |   |         |  |      |  
|Total earning assets (2)                                 |  |                                 | 4,288,948 |   |                |   | 166,232    |  | 5.18 |                |  |   | 3,254,075      |   |            |   | 133,368 |  | 5.48 |  
|                                                         |  |                                 |           |   |                |   |            |  |      |                |  |   |                |   |            |   |         |  |      |  
|Cash and due from banks                                  |  |                                 | 141,475   |   |                |   |            |  |      |                |  |   | 87,812         |   |            |   |         |  |      |  
|Premises and equipment                                   |  |                                 | 88,204    |   |                |   |            |  |      |                |  |   | 74,649         |   |            |   |         |  |      |  
|Other assets                                             |  |                                 | 234,469   |   |                |   |            |  |      |                |  |   | 163,433        |   |            |   |         |  |      |  
|Allowance for loan losses                                |  |                                 | (42,573   | ) |                |   |            |  |      |                |  |   | (34,520        | ) |            |   |         |  |      |  
|                                                         |  |                                 |           |   |                |   |            |  |      |                |  |   |                |   |            |   |         |  |      |  
|Total assets                                             |  | $                               | 4,710,523 |   |                |   |            |  |      |                |  | $ | 3,545,449      |   |            |   |         |  |      |  
|                                                         |  |                                 |           |   |                |   |            |  |      |                |  |   |                |   |            |   |         |  |      |  
|Liabilities:                                             |  |                                 |           |   |                |   |            |  |      |                |  |   |                |   |            |   |         |  |      |  
|Interest-bearing liabilities:                            |  |                                 |           |   |                |   |            |  |      |                |  |   |                |   |            |   |         |  |      |  
|Interest-bearing transaction accounts                    |  | $                               | 695,276   |   |                | $ | 3,868      |  | 0.74 | %              |  | $ | 507,490        |   |            | $ | 3,482   |  | 0.92 | %
|Savings deposits                                         |  |                                 | 744,658   |   |                |   | 5,041      |  | 0.90 |                |  |   | 458,843        |   |            |   | 3,286   |  | 0.96 |  
|Time deposits                                            |  |                                 | 1,427,334 |   |                |   | 24,494     |  | 2.29 |                |  |   | 1,227,867      |   |            |   | 25,727  |  | 2.80 |  
|Funds purchased                                          |  |                                 | 392,212   |   |                |   | 3,354      |  | 1.14 |                |  |   | 310,743        |   |            |   | 2,435   |  | 1.05 |  
|Other short-term borrowings                              |  |                                 | 57,785    |   |                |   | 765        |  | 1.77 |                |  |   | 89,904         |   |            |   | 1,313   |  | 1.95 |  
|Long-term debt                                           |  |                                 | 382,541   |   |                |   | 9,659      |  | 3.37 |                |  |   | 271,793        |   |            |   | 7,911   |  | 3.89 |  
|                                                         |  |                                 |           |   |                |   |            |  |      |                |  |   |                |   |            |   |         |  |      |  
|Total interest-bearing liabilities                       |  |                                 | 3,699,806 |   |                |   | 47,181     |  | 1.70 |                |  |   | 2,866,640      |   |            |   | 44,154  |  | 2.06 |  
|                                                         |  |                                 |           |   |                |   |            |  |      |                |  |   |                |   |            |   |         |  |      |  
|Demand deposits                                          |  |                                 | 538,931   |   |                |   |            |  |      |                |  |   | 368,953        |   |            |   |         |  |      |  
|Accrued interest and other liabilities                   |  |                                 | 48,610    |   |                |   |            |  |      |                |  |   | 57,995         |   |            |   |         |  |      |  
|Stockholders equity                                     |  |                                 | 423,176   |   |                |   |            |  |      |                |  |   | 251,861        |   |            |   |         |  |      |  
|                                                         |  |                                 |           |   |                |   |            |  |      |                |  |   |                |   |            |   |         |  |      |  
|Total liabilities and stockholders equity               |  | $                               | 4,710,523 |   |                |   |            |  |      |                |  | $ | 3,545,449      |   |            |   |         |  |      |  
|                                                         |  |                                 |           |   |                |   |            |  |      |                |  |   |                |   |            |   |         |  |      |  
|Net interest spread                                      |  |                                 |           |   |                |   |            |  | 3.48 | %              |  |   |                |   |            |   |         |  | 3.42 | %
|                                                         |  |                                 |           |   |                |   |            |  |      |                |  |   |                |   |            |   |         |  |      |  
|Net interest income/margin on a taxable equivalent basis |  |                                 |           |   |                |   | 119,051    |  | 3.71 | %              |  |   |                |   |            |   | 89,214  |  | 3.67 | %
|                                                         |  |                                 |           |   |                |   |            |  |      |                |  |   |                |   |            |   |         |  |      |  
|Tax equivalent adjustment (2)                            |  |                                 |           |   |                |   | 1,133      |  |      |                |  |   |                |   |            |   | 756     |  |      |  
|                                                         |  |                                 |           |   |                |   |            |  |      |                |  |   |                |   |            |   |         |  |      |  
|Net interest income/margin                               |  |                                 |           |   |                | $ | 117,918    |  | 3.67 | %              |  |   |                |   |            | $ | 88,458  |  | 3.63 | %
|                                                         |  |                                 |           |   |                |   |            |  |      |                |  |   |                |   |            |   |         |  |      |  

---

|(1) | Average loans include nonaccrual loans. All loans and deposits are domestic.
|--- | ----------------------------------------------------------------------------

|(2) | Tax equivalent adjustments are based upon an 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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



18



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##### Table of Contents

|(3) | Fees in the amount of $5.6 million and $4.5 million are included in interest and fees on loans for the nine months ended September 30, 2004 and 2003, respectively.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 2004 third quarter and nine months, compared to the 2003 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)



|                                                  |  |                                       |        |   |            |   |        |       |  |   |        |  
|------------------------------------------------- |  | ------------------------------------- | ------ | - | ---------- | - | ------ | ----- |  | - | ------ | -
|                                                  |  | Three months ended September 30,      |       
|                                                  |  | 2004 Compared to 2003 Variance Due to |       
|                                                  |  | Volume                                |        |   | Yield/Rate |   |        | Total | 
|Earning assets:                                   |  |                                       |        |   |            |   |        |       |  |   |        |  
|Loans and leases                                  |  | $                                     | 16,292 |   |            | $ | (5,493 | )     |  | $ | 10,799 |  
|Securities:                                       |  |                                       |        |   |            |   |        |       |  |   |        |  
|Taxable                                           |  |                                       | 3,506  |   |            |   | 839    |       |  |   | 4,345  |  
|Tax exempt                                        |  |                                       | 721    |   |            |   | (381   | )     |  |   | 340    |  
|Cash balances in other banks                      |  |                                       | (61    | ) |            |   | 53     |       |  |   | (8     | )
|Funds sold                                        |  |                                       | (53    | ) |            |   | 99     |       |  |   | 46     |  
|Trading account securities                        |  |                                       | (65    | ) |            |   | 47     |       |  |   | (18    | )
|                                                  |  |                                       |        |   |            |   |        |       |  |   |        |  
|Total interest income                             |  |                                       | 20,340 |   |            |   | (4,836 | )     |  |   | 15,504 |  
|                                                  |  |                                       |       
|Interest-bearing liabilities:                     |  |                                       |        |   |            |   |        |       |  |   |        |  
|Interest-bearing transaction accounts             |  |                                       | 455    |   |            |   | 54     |       |  |   | 509    |  
|Savings and money market deposits                 |  |                                       | 840    |   |            |   | 171    |       |  |   | 1,011  |  
|Time deposits                                     |  |                                       | 3,833  |   |            |   | (3,784 | )     |  |   | 49     |  
|Funds purchased                                   |  |                                       | 171    |   |            |   | 408    |       |  |   | 579    |  
|Other short-term borrowings                       |  |                                       | (253   | ) |            |   | 124    |       |  |   | (129   | )
|Long-term debt                                    |  |                                       | 2,368  |   |            |   | (1,588 | )     |  |   | 780    |  
|                                                  |  |                                       |        |   |            |   |        |       |  |   |        |  
|Total interest expense                            |  |                                       | 7,414  |   |            |   | (4,615 | )     |  |   | 2,799  |  
|                                                  |  |                                       |        |   |            |   |        |       |  |   |        |  
|Net interest income on a taxable equivalent basis |  | $                                     | 12,926 |   |            | $ | (221   | )     |  |   | 12,705 |  
|                                                  |  |                                       |        |   |            |   |        |       |  |   |        |  
|Taxable equivalent adjustment                     |  |                                       |        |   |            |   |        |       |  |   | (189   | )
|                                                  |  |                                       |        |   |            |   |        |       |  |   |        |  
|Net interest income                               |  |                                       |        |   |            |   |        |       |  | $ | 12,516 |  
|                                                  |  |                                       |        |   |            |   |        |       |  |   |        |  



ANALYSIS OF CHANGES
IN NET INTEREST INCOME

(Amounts in thousands)



|                                                  |  |                                       |        |   |            |   |         |       |  |   |        |  
|------------------------------------------------- |  | ------------------------------------- | ------ | - | ---------- | - | ------- | ----- |  | - | ------ | -
|                                                  |  | Nine months ended September 30,       |       
|                                                  |  | 2004 Compared to 2003 Variance Due to |       
|                                                  |  | Volume                                |        |   | Yield/Rate |   |         | Total | 
|Earning assets:                                   |  |                                       |        |   |            |   |         |       |  |   |        |  
|Loans and leases                                  |  | $                                     | 35,415 |   |            | $ | (10,702 | )     |  | $ | 24,713 |  
|Securities:                                       |  |                                       |        |   |            |   |         |       |  |   |        |  
|Taxable                                           |  |                                       | 8,711  |   |            |   | (1,202  | )     |  |   | 7,509  |  
|Tax exempt                                        |  |                                       | 1,055  |   |            |   | (354    | )     |  |   | 701    |  
|Cash balances in other banks                      |  |                                       | (39    | ) |            |   | (1      | )     |  |   | (40    | )
|Funds sold                                        |  |                                       | 43     |   |            |   | (30     | )     |  |   | 13     |  
|Trading account securities                        |  |                                       | (51    | ) |            |   | 19      |       |  |   | (32    | )
|                                                  |  |                                       |        |   |            |   |         |       |  |   |        |  
|Total interest income                             |  |                                       | 45,134 |   |            |   | (12,270 | )     |  |   | 32,864 |  
|                                                  |  |                                       |       
|Interest-bearing liabilities:                     |  |                                       |        |   |            |   |         |       |  |   |        |  
|Interest-bearing transaction accounts             |  |                                       | 1,448  |   |            |   | (1,062  | )     |  |   | 386    |  
|Savings and money market deposits                 |  |                                       | 2,095  |   |            |   | (340    | )     |  |   | 1,755  |  
|Time deposits                                     |  |                                       | 5,323  |   |            |   | (6,556  | )     |  |   | (1,233 | )
|Funds purchased                                   |  |                                       | 693    |   |            |   | 226     |       |  |   | 919    |  
|Other short-term borrowings                       |  |                                       | (435   | ) |            |   | (113    | )     |  |   | (548   | )
|Long-term debt                                    |  |                                       | 3,445  |   |            |   | (1,697  | )     |  |   | 1,748  |  
|                                                  |  |                                       |        |   |            |   |         |       |  |   |        |  
|Total interest expense                            |  |                                       | 12,569 |   |            |   | (9,542  | )     |  |   | 3,027  |  
|                                                  |  |                                       |        |   |            |   |         |       |  |   |        |  
|Net interest income on a taxable equivalent basis |  | $                                     | 32,565 |   |            | $ | (2,728  | )     |  |   | 29,837 |  
|                                                  |  |                                       |        |   |            |   |         |       |  |   |        |  
|Taxable equivalent adjustment                     |  |                                       |        |   |            |   |         |       |  |   | (377   | )
|                                                  |  |                                       |        |   |            |   |         |       |  |   |        |  
|Net interest income                               |  |                                       |        |   |            |   |         |       |  | $ | 29,460 |  
|                                                  |  |                                       |        |   |            |   |         |       |  |   |        |  



The provision for loan and lease
losses represents a charge to current earnings necessary to maintain the allowance for loan and lease losses at an appropriate level based on managements analysis of the loss in the loan and lease portfolio. The amount of the provision is a
function of the level of loans and leases outstanding, the level of non-performing loans and adversely rated loans, historical loan and lease loss experience, the amount of loan and lease charge-offs during a given period, and current economic
conditions. The provision for loan and lease losses was $1.6 million for the 2004 third quarter, an increase of $228,000 when compared with $1.4 million recorded in the 2003 third quarter. The provision for loan and lease losses was $4.1 million for
the 2004 nine months, compared to $3.9 million in the 2003 nine months. The allowance for loan and lease losses as a percentage of outstanding loans, net of unearned income (excluding loans held for sale), was 1.35% at September 30, 2004, compared
to 1.37% at December 31, 2003.



Because of the inherent uncertainty of
assumptions made during the assessment process, there can be no assurance that loan and lease losses in future periods will not exceed the allowance for loan and lease losses or that additional allocations to the allowance will not be required. See
Asset Quality.



Total noninterest income for the 2004 third
quarter was $18.6 million, compared to $21.9 million for the 2003 third quarter, a decrease of 15.1%. For the 2004 nine months, noninterest income decreased to $55.5 million, compared to $62.2 million for the 2003 nine months, a decrease of 10.7%.
The major components of noninterest income include service charges on deposits, investment services revenue, securities brokerage and trust revenue, insurance commissions, fees relating to the sale of mortgage loans, and income earned on bank owned
life insurance. Service charges on deposits posted a significant increase in both periods of 2004. Service charges on deposits for the 2004 third quarter and 2003 third quarter were $4.5 million and $3.6 million, respectively. For the 2004 nine
months, service charge income increased to $12.9 million from $10.4 million for the 2003 nine months. The primary reason for the increase in service charges is the impact of Alabama Nationals recent acquisitions, which contributed $779,000 and
$1.8 million of service charge income during the 2004 third quarter and nine months, respectively.



Revenue from Alabama Nationals investment division totaled $2.7 million in the 2004 third quarter, a decrease of $1.9 million, or 41.1%, as compared to $4.6 million recorded in the 2003 third quarter. During the
2004 nine months the investment divisions revenue totaled $9.9 million, a decrease of $6.2 million, or 38.7%, as compared to $16.1 million in the 2003 nine months. Since Coquina Bank, Cypress Bank, Indian River National Bank and Millennium
Bank do not operate in this business line, the acquisition of these banks had no impact on investment services revenue. The revenue recorded by the investment division in the 2003 nine months was at a record level for this division. The revenue
generated by the investment division is dependent upon the demand for fixed income securities by its customers, which are primarily correspondent community banks. Demand for these securities was high during the 2003 third quarter and nine months due
to increased liquidity of community banks resulting from decreased loan demand and increased cash flow from their existing securities portfolios. Although the activity for this division has moderated as interest rates have remained low, the
investment division continues to add new customers and expand its market area.



Securities brokerage and trust revenue increased modestly during the 2004 third quarter and nine months as compared with the same periods of 2003. The increase in the securities brokerage and trust division revenue during each period of
2004 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. The gain generated from the sale of mortgages
decreased to $2.9 million for the 2004 third quarter from $5.5 million in the 2003 third quarter, representing a 47.9% decrease. During the 2004 nine months the gain from sale of mortgages decreased to $8.9 million



19



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##### Table of Contents

from $13.4 million during the 2003 nine months, a decrease of 33.8%. The gain recorded from the sale of mortgages during
the 2003 third quarter and nine months were record levels for Alabama National due to falling interest rates and the impact on mortgage refinancing activity. Mortgage rates have shown modest increases in 2004, and refinance activity has thus slowed
and revenue from refinancing has decreased.



Other noninterest income increased
to $3.0 million for the 2004 third quarter, compared to $1.8 million during the 2003 third quarter. Other noninterest income increased to $6.9 million during the 2004 nine months, an increase of 45.3%, compared to $4.8 million recorded in the 2003
nine months. During the 2004 third quarter Alabama National received approximately $400,000 from settlement of a litigation claim, increasing other noninterest income for each period of 2004. Also contributing to this increase is the impact of
Alabama Nationals recent acquisitions, which contributed $210,000 and $573,000 of other noninterest income during the 2004 third quarter and nine months, respectively. Another reason for the increase is an increase in the income earned from
debit card and credit card activity.



Noninterest expense was $38.2 million for
the 2004 third quarter, compared to $35.6 million for the 2003 third quarter. For the 2004 nine months, noninterest expense was $110.0 million, compared to $101.5 million for the 2003 nine months. Noninterest expense includes salaries and employee
benefits, commission based compensation, occupancy and equipment expenses, amortization of intangibles, and other expenses. Salaries and employee benefits were $19.6 million for the 2004 third quarter, compared to $16.9 million for the 2003 third
quarter. For the 2004 nine months, salaries and employee benefits were $56.3 million, compared to $48.7 million in the 2003 nine months. The most significant reason for the increase in salaries and employee benefit expense is the impact of recent
acquisitions, which accounted for $2.6 million and $5.9 million of the increase during the 2004 third quarter and nine months, respectively. Commission based compensation was $4.4 million for the 2004 third quarter, compared to $6.1 million for the
2003 third quarter. For the 2004 nine months, commission based compensation totaled $13.9 million, compared to $18.2 million in the 2003 nine months. The decrease in commission based compensation recorded for each period of 2004 is attributable to
decreased production in the mortgage and investment services divisions, as a significant portion of the compensation in these divisions is production-based. Occupancy and equipment expense totaled $4.1 million in the 2004 third quarter and $3.3
million in the 2003 third quarter. Occupancy and equipment expense totaled $11.5 million in the 2004 nine months and $9.7 million in the 2003 nine months. The increased occupancy and equipment expense for the 2004 third quarter and nine months is
due primarily to Alabama Nationals recent acquisitions. Other noninterest expense increased to $9.3 million in the 2004 third quarter, compared with $9.1 million in the 2003 third quarter. Other noninterest expense was $26.2 million in the
2004 nine months, compared to $24.0 million in the 2003 nine months. The primary reason for the increase in period of 2004 is due to Alabama Nationals recent acquisitions. Other components of noninterest expense that experienced increases in
the 2004 periods are transactional costs associated with a greater volume of debit and credit card transactions and an increase in professional services associated with complying with the Sarbanes-Oxley Act.



Because of an increase in pre-tax income, income tax expense was $7.6 million for the 2004
third quarter, compared to $5.4 million for the 2003 third quarter. For the 2004 nine months, income tax expense was $20.0 million, compared to $15.0 million for the 2003 nine months. The effective tax rates for the 2004 third quarter and the 2004
nine months were 34.2% and 33.8%, respectively, compared to 33.7% and 33.1% for the same periods of 2003. These effective tax rates are impacted by items of income and expense that are not subject to federal or state taxation. The effective rate in
the 2004 third quarter and nine months is higher than the 2003 periods due to higher pre-tax income without a corresponding increase in income items not subject to federal or state taxation.



20



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##### Table of Contents

Earning Assets



Loans and leases comprised the largest single category of Alabama Nationals earning assets on September 30, 2004. Loans and leases, net of unearned income, were
$3.40 billion, or 66.1% of total assets at September 30, 2004, compared to $2.66 billion, or 69.6% of total assets at December 31, 2003. Loans and leases grew $740.9 million, or 27.9%, during the 2004 nine months, compared to the 2003 year-end.
Excluding the Indian River National Bank, Cypress Bank and Coquina Bank acquisitions, loans and leases grew $255.9 million, or 9.6% from December 31, 2003 balances. The following table details the composition of the loan and lease portfolio by
category at the dates indicated:



COMPOSITION OF LOAN AND
LEASE PORTFOLIO

(Amounts in thousands, except percentages)



|                                               |  |                    |           |   |                   |        |   |        |   |           |                 |  |        |  
|---------------------------------------------- |  | ------------------ | --------- | - | ----------------- | ------ | - | ------ | - | --------- | --------------- |  | ------ | -
|                                               |  | September 30, 2004 |           |   | December 31, 2003 |       
|                                               |  | Amount             |           |   | Percentof Total   |        |   | Amount |   |           | Percentof Total | 
|Commercial, financial and agricultural         |  | $                  | 271,996   |   |                   | 7.99   | % |        | $ | 265,923   |                 |  | 9.99   | %
|Real estate:                                   |  |                    |           |   |                   |        |   |        |   |           |                 |  |        |  
|Construction                                   |  |                    | 741,155   |   |                   | 21.78  |   |        |   | 530,024   |                 |  | 19.91  |  
|Mortgage - residential                         |  |                    | 927,994   |   |                   | 27.26  |   |        |   | 676,658   |                 |  | 25.42  |  
|Mortgage - commercial                          |  |                    | 1,025,495 |   |                   | 30.13  |   |        |   | 814,904   |                 |  | 30.61  |  
|Mortgage - other                               |  |                    | 9,615     |   |                   | .28    |   |        |   | 9,412     |                 |  | .35    |  
|Consumer                                       |  |                    | 93,677    |   |                   | 2.75   |   |        |   | 74,137    |                 |  | 2.78   |  
|Lease financing receivables                    |  |                    | 72,452    |   |                   | 2.13   |   |        |   | 77,857    |                 |  | 2.92   |  
|Securities brokerage margin loans              |  |                    | 12,521    |   |                   | .37    |   |        |   | 15,407    |                 |  | .58    |  
|Other                                          |  |                    | 248,790   |   |                   | 7.31   |   |        |   | 198,036   |                 |  | 7.44   |  
|                                               |  |                    |           |   |                   |        |   |        |   |           |                 |  |        |  
|Total gross loans and leases                   |  |                    | 3,403,695 |   |                   | 100.00 | % |        |   | 2,662,358 |                 |  | 100.00 | %
|                                               |  |                    |           |   |                   |        |   |        |   |           |                 |  |        |  
|Unearned income                                |  |                    | (3,398    | ) |                   |        |   |        |   | (2,918    | )               |  |        |  
|                                               |  |                    |           |   |                   |        |   |        |   |           |                 |  |        |  
|Total loans and leases, net of unearned income |  |                    | 3,400,297 |   |                   |        |   |        |   | 2,659,440 |                 |  |        |  
|Allowance for loan and lease losses            |  |                    | (45,903   | ) |                   |        |   |        |   | (36,562   | )               |  |        |  
|                                               |  |                    |           |   |                   |        |   |        |   |           |                 |  |        |  
|Total net loans and leases                     |  | $                  | 3,354,394 |   |                   |        |   |        | $ | 2,622,878 |                 |  |        |  
|                                               |  |                    |           |   |                   |        |   |        |   |           |                 |  |        |  



21



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##### Table of Contents

The carrying value of investment securities increased $262.5 million during the 2004 nine months from $271.0 million at
December 31, 2003. During the 2004 nine months, Alabama National purchased $330.1 million of investment securities, received $93.1 million from maturities, including principal paydowns of mortgage backed securities, and acquired $25.8 million of
investment securities in connection with the 2004 acquisitions.



The carrying
value of securities available for sale increased $98.1 million in the 2004 nine months compared to year-end 2003. The 2004 acquisitions increased the carrying value of securities available for sale by $253.7 million. During the 2004 nine months,
purchases of available for sale securities totaled $413.0 million, and maturities, calls, and sales of available for sale securities totaled $568.8 million. During the 2004 nine months, the available for sale portfolio experienced an unrealized loss
totaling $13 thousand.



Trading account securities, which had a balance of $494
thousand at September 30, 2004, 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 $39.8 million at September 30, 2004, and $16.5 million at December 31, 2003.



Deposits and Other Funding Sources



Deposits increased by $881.0 million from December 31, 2003, to $3.63 billion at September 30, 2004. Excluding the 2004 acquisitions, deposits increased $185.2
million, or 6.7%, during the 2004 nine months, compared with December 31, 2003 balances. Deposits continue to increase organically due to recent branch expansions, successful business development efforts by Alabama National and overall economic
growth in the markets served by Alabama National. At September 30, 2004, deposits included $184.3 million of brokered time deposits, compared to $156.0 million at December 31, 2003.



Federal funds purchased and securities sold under agreements to repurchase totaled $460.5 million at September 30, 2004, an increase of
$102.1 million from December 31, 2003. Short-term borrowings at September 30, 2004 totaled $40.0 million, comprised entirely of advances from the Federal Home Loan Bank (FHLB).



Alabama Nationals short-term borrowings at September 30, 2004 and December 31, 2003 are
summarized as follows:



SHORT-TERM BORROWINGS

(Amounts in thousands)



|                                                                                                                                                                                                                                                                                                                                                                |  |                    |        |                  |   |       
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ---------------- | - | ------
|                                                                                                                                                                                                                                                                                                                                                                |  | September 30, 2004 |        | December 31,2003
|Note payable to third party bank under secured master note agreement; rate varies with LIBOR and was 1.89125% at December 31, 2003;
collateralized by Alabama Nationals stock in subsidiary banks. Matures on May 31, 2005.                                                                                                                                    |  | $                  |       |                  | $ | 1,650 
|                                                                                                                                                                                                                                                                                                                                                                |  |                   
|FHLB open ended notes payable; rate varies daily based on the FHLB Daily Rate Credit interest price and was 2.15% and 1.15% at September 30,
2004 and December 31, 2003, respectively; collateralized by FHLB stock and certain first real estate mortgages.                                                                                                    |  |                    | 35,000 |                  |   | 24,500
|                                                                                                                                                                                                                                                                                                                                                                |  |                   
|FHLB borrowings at September 30, 2004 are due December 4, 2004; at December 31, 2003, maturities ranged from February 2, 2004 to December 4,
2004; bearing interest at a fixed rate of 1.79% at September 30, 2004, and at fixed rates ranging from 1.79% to 5.715% at December 31, 2003; collateralized by FHLB stock and certain first real estate mortgages. |  |                    | 5,000  |                  |   | 15,000
|                                                                                                                                                                                                                                                                                                                                                                |  |                    |        |                  |   |       
|Total short-term borrowings                                                                                                                                                                                                                                                                                                                                     |  | $                  | 40,000 |                  | $ | 41,150
|                                                                                                                                                                                                                                                                                                                                                                |  |                    |        |                  |   |       



Alabama Nationals long-term debt
at September 30, 2004 and December 31, 2003 is summarized as follows:



LONG-TERM DEBT

(Amounts in thousands)



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                   |         |                  |   |        
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | ---------------- | - | -------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | September 30,2004 |         | December 31,2003
|FHLB borrowings due at various maturities ranging from November 10, 2005 through November 7, 2012 at September 30, 2004; maturities ranged
from November 10, 2005 to October 23, 2012 at December 31, 2003; bearing interest at fixed rates ranging from 1.89% to 6.00% and 1.09% to 6.00% at September 30, 2004 and December 31, 2003, respectively; convertible to a variable rate at the option
of the FHLB at dates ranging from October 7, 2004 to November 7, 2007; collateralized by FHLB stock and certain first real estate mortgages. |  | $                 | 273,167 |                  | $ | 258,000
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                  
|FHLB borrowing due September 12, 2006; rate varies quarterly with LIBOR and was 0.52% at December 31, 2003; on September 12, 2004 the advance
converted to a fixed rate of 2.54%; convertible to a variable rate at the option of the FHLB on December 12, 2004; collateralized by FHLB stock and certain first real estate mortgages.                                                                                                                                                                                                          |  |                   | 28,000  |                  |   | 28,000 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                  
|FHLB borrowings due at dates ranging from May 12, 2006 to November 5, 2008; rates vary quarterly with LIBOR and were 1.70%; collateralized by
FHLB stock and certain first real estate mortgages.                                                                                                                                                                                                                                                                                                                                               |  |                   | 49,000  |                  |   |       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                  
|Junior subordinated debentures payable to unconsolidated trusts due at dates ranging from December 18, 2031 to September 26, 2033; rates vary
with LIBOR and ranged from 5.025% to 5.51% and 4.2125% to 4.77% at September 30, 2004 and December 31, 2003, respectively.                                                                                                                                                                                                                                                                        |  |                   | 53,610  |                  |   | 46,393 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                  
|Capital leases payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                   | 15      |                  |   | 34     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                   |         |                  |   |        
|Total long-term debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | $                 | 403,792 |                  | $ | 332,427
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                   |         |                  |   |        



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, 2004, Alabama National had no loans past due 90 days or more that were 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 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 and
lease losses.



22



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##### Table of Contents

At September 30, 2004, nonperforming assets totaled $9.8 million, compared to $10.5 million at year-end 2003.
Nonperforming assets as a percentage of loans plus other real estate were 0.29% at September 30, 2004, compared to 0.40% at December 31, 2003. The following table presents Alabama Nationals nonperforming assets for the dates indicated.



NONPERFORMING ASSETS

(Amounts in thousands, except percentages)



|                                                                      |  |                   |        |   |                  |   |        |  
|--------------------------------------------------------------------- |  | ----------------- | ------ | - | ---------------- | - | ------ | -
|                                                                      |  | September 30,2004 |        |   | December 31,2003 |  
|Nonaccrual loans                                                      |  | $                 | 8,252  |   |                  | $ | 9,817  |  
|                                                                      |  |                  
|Restructured loans                                                    |  |                   |       |   |                  |   |       |  
|                                                                      |  |                  
|Loans past due 90 days or more and still accruing                     |  |                   |       |   |                  |   |       |  
|                                                                      |  |                   |        |   |                  |   |        |  
|Total nonperforming loans                                             |  |                   | 8,252  |   |                  |   | 9,817  |  
|                                                                      |  |                  
|Other real estate owned                                               |  |                   | 1,639  |   |                  |   | 699    |  
|                                                                      |  |                   |        |   |                  |   |        |  
|Total nonperforming assets                                            |  | $                 | 9,891  |   |                  | $ | 10,516 |  
|                                                                      |  |                   |        |   |                  |   |        |  
|Allowance for loan and lease losses to period-end loans               |  |                   | 1.35   | % |                  |   | 1.37   | %
|                                                                      |  |                  
|Allowance for loan and lease losses to period-end nonperforming loans |  |                   | 556.27 |   |                  |   | 372.44 |  
|                                                                      |  |                  
|Allowance for loan losses to period-end nonperforming assets          |  |                   | 464.09 |   |                  |   | 347.68 |  
|                                                                      |  |                  
|Net charge-offs to average loans (1)                                  |  |                   | 0.07   |   |                  |   | 0.13   |  
|                                                                      |  |                  
|Nonperforming assets to period-end loans and other real estate owned  |  |                   | 0.29   |   |                  |   | 0.40   |  
|                                                                      |  |                  
|Nonperforming loans to period-end loans                               |  |                   | 0.24   |   |                  |   | 0.37   |  

---

|(1) | Excludes average loans held for sale
|--- | ------------------------------------



Net loan charge-offs for the 2004 nine months totaled $1.7 million, or 0.07% (annualized) of average loans and leases for the period. The allowance for loan and lease
losses as a percentage of total loans and leases, net of unearned income, was 1.35% at September 30, 2004, compared to 1.37% at December 31, 2003. The following table analyzes activity in the allowance for loan and lease losses for the periods
indicated.



ANALYSIS OF THE ALLOWANCE FOR LOAN AND LEASE
LOSSES

(Amounts in thousands)



|                                                           |  |                                  |        |                                 |   |        |  |      |        |  |   |       
|---------------------------------------------------------- |  | -------------------------------- | ------ | ------------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|                                                           |  | Three months ended September 30, |        | Nine months ended September 30,
|                                                           |  | 2004                             |        | 2003                            |   | 2004   |  | 2003
|Allowance for loan and lease losses at beginning of period |  | $                                | 43,484 |                                 | $ | 35,595 |  | $    | 36,562 |  | $ | 32,704
|                                                           |  |                                  |        |                                
|Charge-offs:                                               |  |                                  |        |                                 |   |        |  |      |        |  |   |       
|Commercial, financial and agricultural                     |  |                                  | 519    |                                 |   | 306    |  |      | 3,148  |  |   | 693   
|Real estate - mortgage                                     |  |                                  | 66     |                                 |   | 183    |  |      | 168    |  |   | 1,285 
|Consumer                                                   |  |                                  | 240    |                                 |   | 213    |  |      | 628    |  |   | 718   
|                                                           |  |                                  |        |                                 |   |        |  |      |        |  |   |       
|Total charge-offs                                          |  |                                  | 825    |                                 |   | 702    |  |      | 3,944  |  |   | 2,696 
|                                                           |  |                                  |        |                                 |   |        |  |      |        |  |   |       
|Recoveries:                                                |  |                                  |        |                                 |   |        |  |      |        |  |   |       
|Commercial, financial and agricultural                     |  |                                  | 121    |                                 |   | 218    |  |      | 542    |  |   | 494   
|Real estate - mortgage                                     |  |                                  | 42     |                                 |   | 197    |  |      | 314    |  |   | 375   
|Consumer                                                   |  |                                  | 88     |                                 |   | 275    |  |      | 1,389  |  |   | 1,196 
|                                                           |  |                                  |        |                                 |   |        |  |      |        |  |   |       
|Total recoveries                                           |  |                                  | 251    |                                 |   | 690    |  |      | 2,245  |  |   | 2,065 
|                                                           |  |                                  |        |                                 |   |        |  |      |        |  |   |       
|Net charge-offs                                            |  |                                  | 574    |                                 |   | 12     |  |      | 1,699  |  |   | 631   
|Provision for loan and lease losses                        |  |                                  | 1,624  |                                 |   | 1,396  |  |      | 4,130  |  |   | 3,911 
|Additions to allowance through acquisitions                |  |                                  | 1,369  |                                 |   |       |  |      | 6,910  |  |   | 995   
|                                                           |  |                                  |        |                                 |   |        |  |      |        |  |   |       
|Allowance for loan and lease losses at end of period       |  | $                                | 45,903 |                                 | $ | 36,979 |  | $    | 45,903 |  | $ | 36,979
|                                                           |  |                                  |        |                                 |   |        |  |      |        |  |   |       



The loan and lease 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 and lease 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 and lease losses at September 30, 2004 to be adequate to cover probable loan and lease 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 and lease losses in future periods will not exceed the allowance for loan and lease 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 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 September 30, 2004, assuming relevant assets and liabilities are collected and paid, respectively, based upon historical experience rather than their stated maturities.



23



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##### Table of Contents

INTEREST SENSITIVITY ANALYSIS

(Amounts in thousands, except ratios)



|                                                |  |                        |           |   |                                |   |         |                      |  |   |                         |   |  |       |          |   |  |   |          
|----------------------------------------------- |  | ---------------------- | --------- | - | ------------------------------ | - | ------- | -------------------- |  | - | ----------------------- | - |  | ----- | -------- | - |  | - | ---------
|                                                |  | September 30, 2004    
|                                                |  | ZeroThroughThreeMonths |           |   | After ThreeThroughTwelveMonths |   |         | OneThroughThreeYears |  |   | Greater ThanThree Years |   |  | Total
|Assets:                                         |  |                        |           |   |                                |   |         |                      |  |   |                         |   |  |       |          |   |  |   |          
|Earning assets:                                 |  |                        |           |   |                                |   |         |                      |  |   |                         |   |  |       |          |   |  |   |          
|Loans (1)                                       |  | $                      | 2,088,867 |   |                                | $ | 454,419 |                      |  | $ | 494,571                 |   |  | $     | 376,822  |   |  | $ | 3,414,679
|Securities (2)                                  |  |                        | 114,387   |   |                                |   | 201,832 |                      |  |   | 410,983                 |   |  |       | 420,502  |   |  |   | 1,147,704
|Trading securities                              |  |                        | 494       |   |                                |   |        |                      |  |   |                         |   |  |       |          |   |  |   | 494      
|Interest-bearing deposits in other banks        |  |                        | 16,313    |   |                                |   |        |                      |  |   |                        |   |  |       |         |   |  |   | 16,313   
|Funds sold                                      |  |                        | 39,844    |   |                                |   |        |                      |  |   |                        |   |  |       |         |   |  |   | 39,844   
|                                                |  |                        |           |   |                                |   |         |                      |  |   |                         |   |  |       |          |   |  |   |          
|Total interest-earning assets                   |  | $                      | 2,259,905 |   |                                | $ | 656,251 |                      |  | $ | 905,554                 |   |  | $     | 797,324  |   |  | $ | 4,619,034
|Liabilities:                                    |  |                        |           |   |                                |   |         |                      |  |   |                         |   |  |       |          |   |  |   |          
|Interest-bearing liabilities:                   |  |                        |           |   |                                |   |         |                      |  |   |                         |   |  |       |          |   |  |   |          
|Interest-bearing deposits:                      |  |                        |           |   |                                |   |         |                      |  |   |                         |   |  |       |          |   |  |   |          
|Demand deposits                                 |  | $                      | 371,343   |   |                                | $ |        |                      |  | $ |                        |   |  | $     | 373,377  |   |  | $ | 744,720  
|Savings and money market deposits               |  |                        | 410,188   |   |                                |   |        |                      |  |   |                        |   |  |       | 420,455  |   |  |   | 830,643  
|Time deposits (3)                               |  |                        | 346,158   |   |                                |   | 670,573 |                      |  |   | 304,795                 |   |  |       | 138,718  |   |  |   | 1,460,244
|Funds purchased                                 |  |                        | 460,493   |   |                                |   |        |                      |  |   |                        |   |  |       |         |   |  |   | 460,493  
|Short-term borrowings (4)                       |  |                        | 40,895    |   |                                |   |        |                      |  |   |                        |   |  |       |         |   |  |   | 40,895   
|Long-term debt                                  |  |                        | 302,625   |   |                                |   | 35,000  |                      |  |   | 32,000                  |   |  |       | 34,167   |   |  |   | 403,792  
|                                                |  |                        |           |   |                                |   |         |                      |  |   |                         |   |  |       |          |   |  |   |          
|Total interest-bearing liabilities              |  | $                      | 1,931,702 |   |                                | $ | 705,573 |                      |  | $ | 336,795                 |   |  | $     | 966,717  |   |  | $ | 3,940,787
|                                                |  |                        |           |   |                                |   |         |                      |  |   |                         |   |  |       |          |   |  |   |          
|Period gap                                      |  | $                      | 328,203   |   |                                | $ | (49,322 | )                    |  | $ | 568,759                 |   |  | $     | (169,393 | ) |  |   |          
|                                                |  |                        |           |   |                                |   |         |                      |  |   |                         |   |  |       |          |   |  |   |          
|Cumulative gap                                  |  | $                      | 328,203   |   |                                | $ | 278,881 |                      |  | $ | 847,640                 |   |  | $     | 678,247  |   |  | $ | 678,247  
|                                                |  |                        |           |   |                                |   |         |                      |  |   |                         |   |  |       |          |   |  |   |          
|Ratio of cumulative gap to total earning assets |  |                        | 7.11      | % |                                |   | 6.04    | %                    |  |   | 18.35                   | % |  |       | 14.68    | % |  |   |          

---

|(1) | Excludes nonaccrual loans of $8.3 million.
|--- | ------------------------------------------

|(2) | Excludes available for sale equity securities of $23.1 million.
|--- | ---------------------------------------------------------------

|(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 $0.9 million.
|--- | --------------------------------------------------------



24



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##### Table of Contents

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. As shown in the table above, Alabama National is asset sensitive on a cumulative basis throughout all periods but is liability sensitive in the after three
through twelve months time and greater than three years time frame. The analysis presents only a static view of the timing and repricing opportunities, without taking into consideration that changes in interest rates do not affect all assets and
liabilities equally. For example, rates paid on a substantial portion of core deposits may change contractually within a relatively short time frame, but those are viewed by management as significantly less interest sensitive than market-based rates
such as those paid on non-core deposits. For this and other reasons, management relies more upon the simulation analysis (as noted above) in managing interest rate risk. 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, to a large degree, 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 (adjusted in the current period due to historically low interest rates) 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 September 30, 2004,
mortgage backed securities with a carrying value of $839.6 million, or 16.3% of total assets, and essentially every loan and lease, net of unearned income (totaling $3.40 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 $3.63 billion, or 70.7%, of total assets at September 30, 2004. 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 decrease, the spread tends to compress, with severe compression at very low prevailing interest rates. This
characteristic is called spread compression and adversely affects 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.



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The following tables illustrate 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. As also noted above, this model uses estimates and assumptions in both
balance sheet growth and asset and liability account rate reactions to changes in prevailing interest rates. Because of the inherent use of these estimates and assumptions in the simulation model used to derive this market risk 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 tables.



MARKET RISK

(Amounts in thousands)



|                                        |                           |                          |                          |  |                         |                           |  |                          |         |  |       |  
|--------------------------------------- | ------------------------- | ------------------------ | ------------------------ |  | ----------------------- | ------------------------- |  | ------------------------ | ------- |  | ----- | -
|Change in Prevailing Interest Rates (1) |                           | As of September 30, 2004 |                          |  | As of December 31, 2003 |                          
|                                        | Net InterestIncome Amount |                          | Change fromIncome Amount |  |                         | Net InterestIncome Amount |  | Change fromIncome Amount |        
|+200 basis points                       |                           | $                        | 193,075                  |  | 5.66                    | %                         |  | $                        | 150,671 |  | 8.72  | %
|+100 basis points                       |                           |                          | 188,704                  |  | 3.27                    |                           |  |                          | 144,794 |  | 4.48  |  
|0 basis points                          |                           |                          | 182,724                  |  |                        |                           |  |                          | 138,592 |  |      |  
|-25 basis points                        |                           |                          | 182,151                  |  | (0.31                   | )                         |  |                          | 137,755 |  | (0.60 | )
|-50 basis points                        |                           |                          | 181,130                  |  | (0.87                   | )                         |  |                          | 136,300 |  | (1.65 | )

---

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



Liquidity and Capital Adequacy



Alabama Nationals net loans and leases to deposit ratio was 93.6% at September 30, 2004, compared to 96.6% at year-end 2003. Alabama Nationals liquid assets
as a percentage of total deposits were 5.5% at September 30, 2004, compared to 5.4% at year-end 2003. At September 30, 2004, Alabama National had unused federal funds lines of approximately $121.7 million, unused lines at the Federal Home Loan Bank
of $1.03 billion and an unused credit line with a third party bank of $30.0 million. The ability of Alabama National to use the entire amount of credit extended by the Federal Home Loan Bank depends on the available collateral to pledge for
borrowings. Alabama National also has access to approximately $41.2 million via a credit facility with the Federal Reserve Bank of Atlanta. At September 30, 2004 and year-end 2003, there were no outstanding borrowings under this Federal Reserve
credit facility.



Management analyzes the level of off-balance sheet agreements
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.



During the 2004 third quarter, Alabama National completed an underwritten public offering of
977,500 shares of common stock (including 127,500 shares subject to an over-allotment option) and received net proceeds of approximately $49.7 million after deducting underwriting discounts and offering expenses. The net proceeds were used to pay
off the credit facility with the third party bank and make capital injections in subsidiary banks. In addition, a portion of the net proceeds were retained for general corporate liquidity needs at the holding company.



Alabama Nationals stockholders equity increased by $241.8 million from December
31, 2003, to $521.2 million at September 30, 2004. This increase was attributable to the following components (in thousands):



|                                                                                          |  |   |         |  
|----------------------------------------------------------------------------------------- |  | - | ------- | -
|Net income                                                                                |  | $ | 39,257  |  
|Dividends                                                                                 |  |   | (14,922 | )
|Issuance of stock for option exercises and other stock based compensation                 |  |   | 2,066   |  
|Issuance of stock in purchase business combinations                                       |  |   | 164,180 |  
|Underwritten public offering                                                              |  |   | 49,682  |  
|Additional paid in capital related to stock based compensation                            |  |   | 1,566   |  
|Change in unrealized gain or loss on securities available for sale, net of deferred taxes |  |   | (16     | )
|                                                                                          |  |   |         |  
|Net increase                                                                              |  | $ | 241,813 |  
|                                                                                          |  |   |         |  



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, 2004. Under the capital guidelines of their regulators, Alabama National and its subsidiary 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, 2004:



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|                                        |  |                  |   |  |                 |   |  |                |  
|--------------------------------------- |  | ---------------- | - |  | --------------- | - |  | -------------- | -
|                                        |  | Tier 1 RiskBased |   |  | Total RiskBased |   |  | Tier 1Leverage |  
|Alabama National BanCorporation         |  | 12.18            | % |  | 13.43           | % |  | 8.46           | %
|National Bank of Commerce of Birmingham |  | 11.40            |   |  | 12.56           |   |  | 8.25           |  
|Alabama Exchange Bank                   |  | 14.95            |   |  | 16.21           |   |  | 7.54           |  
|Bank of Dadeville                       |  | 12.89            |   |  | 14.14           |   |  | 7.24           |  
|Citizens & Peoples Bank, N.A.           |  | 10.25            |   |  | 11.50           |   |  | 8.12           |  
|Community Bank of Naples, N.A.          |  | 9.89             |   |  | 11.14           |   |  | 8.32           |  
|First American Bank                     |  | 13.24            |   |  | 14.49           |   |  | 8.68           |  
|First Citizens Bank                     |  | 14.47            |   |  | 15.63           |   |  | 7.25           |  
|First Gulf Bank                         |  | 10.96            |   |  | 12.21           |   |  | 7.69           |  
|Georgia State Bank                      |  | 11.46            |   |  | 12.64           |   |  | 7.67           |  
|Public Bank                             |  | 11.29            |   |  | 12.55           |   |  | 8.36           |  
|Millennium Bank                         |  | 11.26            |   |  | 12.51           |   |  | 7.53           |  
|CypressCoquina Bank                     |  | 9.70             |   |  | 10.97           |   |  | 8.16           |  
|Indian River National Bank              |  | 13.18            |   |  | 14.43           |   |  | 7.79           |  
|Required minimums                       |  | 4.00             |   |  | 8.00            |   |  | 4.00           |  



On February 18, 2004, the Board of
Directors of Alabama National renewed its share repurchase program that expired on December 31, 2003. The renewed plan authorizes the company to repurchase up to 300,000 shares of its common stock and will expire on December 31, 2004. There were no
shares repurchased during the nine months ended September 30, 2004.



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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.



Item 4  Controls and Procedures.



As of
September 30, 2004, the end of the quarter covered by this report, Alabama National carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of Alabama Nationals disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that Alabama
Nationals disclosure controls and procedures are effective in timely alerting them to material information relating to Alabama National that is required to be included in its periodic filings with the Securities and Exchange Commission.



There was no significant change in Alabama Nationals internal controls
over financial reporting during the quarter ended September 30, 2004 that has materially affected, or is reasonably likely to materially affect, Alabama Nationals internal controls over financial reporting.



Part II. OTHER INFORMATION



Item 6 - 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, 2003 and incorporated herein by
reference).
|               | 
|Exhibit 3.2   |  | Amended and Restated Bylaws (filed as an Exhibit to Alabama Nationals Annual Report on Form 10-K for the year ended December 31, 2003 and incorporated herein by
reference).             
|               | 
|Exhibit 10    |  | Amendment Number Four to the Alabama National BanCorporation Plan for the Deferral of Compensation by Non-Employee Directors of the Subsidiary Banks.                                     
|               | 
|Exhibit 31.1  |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                       
|               | 
|Exhibit 31.2  |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                       
|               | 
|Exhibit 32    |  | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                   



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SIGNATURES



Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                                |  |                                                               
|------------------------------- |  | --------------------------------------------------------------
|ALABAMA NATIONAL BANCORPORATION
|                                | 
|Date: November 8, 2004          |  | /s/ John H. Holcomb, III                                      
|                                |  | John H. Holcomb, III, its Chairman and Chief Executive Officer
|                                | 
|Date: November 8, 2004          |  | /s/ William E. Matthews, V                                    
|                                |  | William E. Matthews, V, its Executive Vice President and      
|                                |  | Chief Financial Officer                                       



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