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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

OR

Commission File No. 0-25160

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

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

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

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INDEX

ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES

FORWARD-LOOKING INFORMATION

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

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Part I - Financial Information

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

See accompanying notes to unaudited consolidated financial statements

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

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

See accompanying notes to unaudited consolidated financial statements

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

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

See accompanying notes to unaudited consolidated financial statements

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

See accompanying notes to unaudited consolidated financial statements

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

See accompanying notes to unaudited consolidated financial statements

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

See accompanying notes to unaudited consolidated financial statements

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

NOTE A - BASIS OF PRESENTATION

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

NOTE B - COMMITMENTS AND CONTINGENCIES

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

NOTE C - RECENTLY ISSUED PRONOUNCEMENTS

Business Combinations and Goodwill and Other Intangibles

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

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

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

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

Intangible assets that have finite useful lives will continue to be amortized over their useful lives. Alabama National’s identifiable intangible assets consist of core deposit intangibles and customer lists associated with the acquisition of insurance agencies and each are considered to have finite lives. The gross carrying amount of amortizable intangible assets as of

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September 30, 2002 was $8.4 million with a balance of $3.5 million in accumulated amortization. As a result of adoption of the Statements, there have been no changes to amortizable lives or methods for intangible assets that have finite useful lives. The amortization of intangible assets for the three months ended September 30, 2002 and 2001 was $226,000 and $142,000, respectively. The amortization of intangible assets for the nine months ended September 30, 2002 and 2001 was $600,000 and $458,000, respectively. The estimated amortization expense (assuming no activities, such as acquisitions, which would result in additional amortizable intangible assets) for each of the five succeeding fiscal years is as follows (amounts in thousands):

Accounting for Asset Retirement Obligations

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

Accounting for the Impairment or Disposal of Long-Lived Assets

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

Accounting for Gains & Losses from the Extinguishment of Debt Instruments

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

Accounting for Costs Associated with Exit or Disposal Activities

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

Acquisitions of Certain Financial Institutions, An Amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9

In October 2002, the FASB issued SFAS No. 147, Acquisitions of Certain Financial Institutions, An Amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9. Statement 147 provides guidance for the accounting and reporting for the acquisition of all or part of a financial institution and accounting for the impairment or disposal of long-term customer-relationship intangible assets of financial institutions. Statement 147 is effective for applicable acquisitions dated subsequent to October 1, 2002. Management does not anticipate that the adoption of this Statement will have a material impact on Alabama National’s financial position or results of operations.

NOTE D - EARNINGS PER SHARE

The following table reflects the reconciliation of the numerator and denominator of the basic earnings per share computation to the diluted earnings per share computation for the three months and nine months ended September 30, 2002 and 2001.

NOTE E – SEGMENT REPORTING

Alabama National’s reportable segments represent the distinct major product lines it offers and are viewed separately for strategic planning purposes by management. The following table is a reconciliation of the reportable segment revenues, expenses, and profit to Alabama National’s consolidated totals (in thousands).

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.

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Basis of Presentation

The following is a discussion and analysis of the consolidated financial condition of Alabama National and results of operations as of the dates and for the periods indicated. All significant intercompany accounts and transactions have been eliminated. The accounting and reporting policies of Alabama National conform with generally accepted accounting principles and with general financial services industry practices.

This information should be read in conjunction with Alabama National’s unaudited consolidated financial statements and related notes appearing elsewhere in this report and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing in Alabama National’s Annual Report on Form 10-K for the year ended December 31, 2001.

Critical Accounting Policies and Estimates

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

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

Allowance for Loan Losses

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

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

Other

There are other complex accounting standards that require Alabama National to employ significant judgment in interpreting and applying certain of the principles proscribed by those standards. These judgments include, but are not limited to, determination of whether a financial instrument or other contract meets the definition of a derivative in accordance with SFAS No. 133, the accounting for a transfer of financial assets and extinguishments of liabilities in accordance with SFAS No. 140, and the determination of asset impairment, including when such impairment is other-than-temporary. For a more complete discussion of the accounting policies see Note 1 to Alabama National’s consolidated financial statements included in Alabama National’s Annual Report on Form 10-K for the year ended December 31, 2001.

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Performance Overview

Alabama National’s net income was $9.0 million for the third quarter of 2002 (the “2002 third quarter”), compared to $7.5 million for the third quarter of 2001 (the “2001 third quarter”). Net income for the nine months ended September 30, 2002 (the “2002 nine months”) was $26.4 million, compared to $20.3 million for the nine months ended September 30, 2001 (the “2001 nine months”). Net income per diluted common share for the 2002 and 2001 third quarters was $0.71 and $0.62, respectively. For the 2002 nine months, net income per diluted common share was $2.08, compared to $1.68 for the 2001 nine months. Net income for the 2001 nine months, excluding after tax merger-related charges of $781,000 relating to the Peoples State Bank merger, totaled $21.1 million (“Adjusted 2001 Net Income”). Net income for the 2002 nine months increased $5.3 million, or 25.1%, as compared to Adjusted 2001 Net Income.

The annualized return on average assets for Alabama National was 1.16% for each of the 2002 and 2001 third quarters. The annualized return on average assets for Alabama National was 1.18% for the 2002 nine months, compared to 1.09% for the 2001 nine months. The annualized return on average stockholders’ equity was 15.79% for the 2002 third quarter, as compared to 16.07% for the 2001 third quarter. The annualized return on average stockholders’ equity increased for the 2002 nine months to 16.07%, as compared to 15.03% for the 2001 nine months. On an operating basis (excluding Peoples State Bank merger-related charges), the annualized return on average stockholders’ equity increased for the 2002 nine months to 16.07%, as compared to 15.61% for the 2001 nine months. Book value per share at September 30, 2002 was $18.48, an increase of $1.64 from year-end 2001. Tangible book value per share at September 30, 2002 was $16.84, an increase of $1.53 from year-end 2001. Alabama National declared cash dividends totaling $0.75 on common shares during the 2002 nine months, compared to $0.69 declared on common shares during the 2001 nine months.

Net Income

Alabama National experienced a significant increase in net interest income and noninterest income for each of the 2002 third quarter and the 2002 nine months, compared to the same periods in 2001. Net interest income is the difference between the income earned on interest bearing assets and the interest paid on deposits and borrowings used to support such assets. Net interest income increased by $6.9 million, or 30.7%, to $29.5 million during the 2002 third quarter. Net interest income increased to $84.8 million during the 2002 nine months, from $64.0 million during the 2001 nine months, representing an increase of $20.8 million, or 32.5%. The increased net interest income in each of these periods, as described in more detail below, is attributable to the repricing of interest bearing liabilities during the fourth quarter of 2001 and the first nine months of 2002 by more than the concurrent reduction in earning asset yields, resulting in an increased net interest spread. In addition, as discussed below, Alabama National also had higher average balances of earning assets during the 2002 third quarter and nine months on which to earn this higher spread. During the 2002 third quarter noninterest income totaled $16.2 million, compared to $11.7 million in the 2001 third quarter, an increase of 37.9%. During the 2002 nine months Alabama National recorded noninterest income of $42.8 million, compared to $35.0 million during the 2001 nine months, an increase of 22.4%. The increase in noninterest income in each of these periods is attributable to increased revenue from both the mortgage division and the securities brokerage and trust division. Service charges on deposit accounts also increased during each period of 2002. The increases in noninterest income and net interest income were offset by increases in noninterest expense of $7.8 million, to $30.2 million for the 2002 third quarter, and $17.2 million, to $84.2 million for the 2002 nine months, compared to $22.3 million and $6 7.0 million, respectively, for the same periods in 2001. The net income for the 2001 nine months includes after-tax merger-related charges relating to the Peoples State Bank merger totaling $781,000. These charges on a pre-tax basis consist of approximately $135,000 in legal and accounting fees, $385,000 in employment-related expenses, $300,000 in advisory fees/commissions, $121,000 in technology conversion charges, and $57,000 in other charges. These pretax charges increased noninterest expense for the 2001 nine months by $997,000.

Average earning assets for the 2002 third quarter and nine months increased by $480.2 million and $456.4 million, respectively, as compared to the same periods in 2001. Average interest-bearing liabilities increased by $413.6 million and $400.2 million during the 2002 third quarter and nine months, respectively, as compared to the same periods in 2001. The average taxable equivalent rate earned on assets was 6.47% and 6.62% for the 2002 third quarter and 2002 nine months, compared to 7.63% and 8.03% for the 2001 third quarter and 2001 nine months, respectively. The average rate paid on interest-bearing liabilities was 2.63% and 2.76% for the 2002 third quarter and 2002 nine months, respectively, compared to 4.30% and 4.80% for the 2001 third quarter and 2001 nine months, respectively. The net interest margin was 4.13% and 4.15% for the 2002 third quarter and 2002 nine months, respectively, compared to 3.81%

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and 3.76% for the 2001 third quarter and 2001 nine months, respectively. The increased net interest margin is due to Alabama National’s ability to reprice most of its time deposits at a lower rate during the 2001 fourth quarter and first nine months of 2002. The Federal Reserve Bank reduced interest rates repeatedly during 2001, causing time deposits originated in a higher rate environment to be significantly higher than current rates. As those time deposits matured, the funds were either moved into transaction type deposit accounts or into other time deposits at the lower current rates. The result is that the company’s interest bearing liability costs fell more than its yield on earning assets. The net interest margin decreased 4 basis points during the 2002 third quarter as compared the 2002 second quarter’s net interest margin of 4.17%. The decrease was attributable to competitive pressure on pricing new and refinanced loans and the effect of re-investing the significant cash flow from mortgage backed securities in the current low interest rate environment. On November 6, 2002 (subsequent to the end of the 2002 third quarter and nine months), the Federal Reserve reduced the federal funds rate by 0.50%, resulting in a 0.50% reduction in Alabama National’s prime lending rate. Management expects that this rate reduction will result in some contraction in Alabama National’s net interest spread and net interest margin, as earning asset rates are likely to decline more than interest bearing liability costs. Many liability accounts are close to their effective lower limit, so the opportunity for additional rate reductions in these liabilities is limited.

The following tables depict, on a taxable equivalent basis for the 2002 and 2001 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)

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AVERAGE BALANCES, INCOME AND EXPENSES AND RATES
(Amounts in thousands, except yields and rates)