10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended March 31, 2004

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 0-25160

ALABAMA NATIONAL BANCORPORATION

(Exact Name of Registrant as Specified in Its Charter)

DELAWARE	63-1114426
(State of Incorporation)	(I.R.S. Employer Identification No.)

1927 FIRST AVENUE NORTH, BIRMINGHAM, ALABAMA 35203-4009

(Address of principal executive office)

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

(Former Name, Former Address and Former Fiscal Year,

if Changed Since Last Report)

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

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

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

Class	Outstanding at May 6, 2004
Common Stock, $1.00 Par Value	15,395,920

INDEX

ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES

		PAGE
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Financial Condition at March 31, 2004 and December 31, 2003	3
	Consolidated Statements of Income For The Three Months Ended March 31, 2004 and 2003	4
	Consolidated Statements of Comprehensive Income For The Three Months Ended March 31, 2004 and 2003	6
	Consolidated Condensed Statements of Cash Flows For The Three Months Ended March 31, 2004 and 2003	7
	Notes to the Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	21
Item 4.	Controls and Procedures	21
PART II. OTHER INFORMATION
Item 6.	Exhibits and Reports on Form 8-K	21
SIGNATURES		22
CERTIFICATIONS

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, 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.

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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)

	March 31, 2004			December 31, 2003
Assets
Cash and due from banks	$	153,844		$	123,086
Interest-bearing deposits in other banks		32,844			10,019
Federal funds sold and securities purchased under resell agreements		40,619			16,534
Trading securities, at fair value		—			109
Investment securities (fair values of $420,839 and $271,536)		417,625			271,035
Securities available for sale, at fair value		723,799			539,192
Loans held for sale		27,356			16,415
Loans and leases		3,139,821			2,662,358
Unearned income		(2,883	)		(2,918	)
Loans and leases, net of unearned income		3,136,938			2,659,440
Allowance for loan and lease losses		(42,392	)		(36,562	)
Net loans and leases		3,094,546			2,622,878
Property, equipment and leasehold improvements, net		87,475			77,291
Goodwill		124,057			30,964
Other intangible assets, net		13,327			4,623
Cash surrender value of life insurance		62,565			59,425
Receivable from investment division customers		127,629			12,966
Other assets		41,361			35,575
Total assets	$	4,947,047		$	3,820,112
Liabilities and Stockholders’ Equity
Deposits:
Noninterest bearing	$	565,803		$	404,755
Interest bearing		2,895,341			2,348,994
Total deposits		3,461,144			2,753,749
Federal funds purchased and securities sold under repurchase agreements		431,555			358,393
Treasury, tax and loan accounts		630			1,431
Accrued expenses and other liabilities		52,006			41,577
Payable for securities purchased for investment division customers		122,569			11,967
Short-term borrowings		67,743			41,150
Long-term debt		384,984			332,427
Total liabilities		4,520,631			3,540,694
Commitments and contingencies (Note B)
Common stock, $1 par; 27,500,000 shares authorized; 15,361,572 and 12,838,844 shares issued at March 31, 2004 and December 31, 2003, respectively		15,362			12,839
Additional paid-in capital		259,820			126,370
Retained earnings		146,147			140,028
Accumulated other comprehensive income, net of tax		5,087			181
Total stockholders’ equity		426,416			279,418
Total liabilities and stockholders’ equity	$	4,947,047		$	3,820,112

See accompanying notes to unaudited consolidated financial statements

3

Alabama National BanCorporation and Subsidiaries

Consolidated Statements of Income (Unaudited)

(In thousands, except per share data)

	For the Three Months Ended March 31,
	2004			2003
Interest income:
Interest and fees on loans and leases	$	40,213		$	34,516
Interest on securities		8,755			8,335
Interest on deposits in other banks		11			35
Interest on trading securities		18			20
Interest on federal funds sold and securities purchased under resell agreements		133			124
Total interest income		49,130			43,030
Interest expense:
Interest on deposits		10,216			11,146
Interest on federal funds purchased and securities sold under repurchase agreements		997			759
Interest on short-term borrowings		294			556
Interest on long-term debt		2,953			2,582
Total interest expense		14,460			15,043
Net interest income		34,670			27,987
Provision for loan and lease losses		1,228			1,091
Net interest income after provision for loan and lease losses		33,442			26,896
Noninterest income:
Securities gains		—			5
Gain (loss) on disposition of assets		(20	)		49
Service charges on deposit accounts		3,811			3,322
Investment services income		3,907			5,160
Securities brokerage and trust income		4,099			4,118
Gain on sale of mortgages		2,542			3,334
Bank owned life insurance		727			720
Insurance commissions		958			784
Other		1,616			1,253
Total noninterest income		17,640			18,745

4

Alabama National BanCorporation and Subsidiaries

Consolidated Statements of Income (Unaudited) (Continued)

(In thousands, except per share data)

	For the Three Months Ended March 31,
	2004		2003
Noninterest expense:
Salaries and employee benefits		17,679		15,292
Commission based compensation		4,765		5,574
Occupancy and equipment expenses		3,498		3,213
Amortization of intangibles		482		233
Other		7,747		7,179
Total noninterest expense		34,171		31,491
Income before provision for income taxes		16,911		14,150
Provision for income taxes		5,604		4,625
Net income	$	11,307	$	9,525
Weighted average common shares outstanding:
Basic		13,927		12,503
Diluted		14,171		12,685
Earnings per common share:
Basic	$	0.81	$	0.76
Diluted	$	0.80	$	0.75
Cash dividends per common share	$	0.3125	$	0.25

See accompanying notes to unaudited consolidated financial statements

5

Alabama National BanCorporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Unaudited)

(In thousands)

	For the Three Months Ended March 31,
	2004		2003
Net income	$	11,307	$	9,525
Other comprehensive income:
Unrealized gains on securities available for sale arising during the period		7,620		458
Less: Reclassification adjustment for net gains included in net income		—		5
Other comprehensive income, before tax		7,620		453
Provision for income taxes related to items of other comprehensive income		2,714		138
Other comprehensive income		4,906		315
Comprehensive income	$	16,213	$	9,840

See accompanying notes to unaudited consolidated financial statements

6

Alabama National BanCorporation and Subsidiaries

Consolidated Condensed Statements of Cash Flows (Unaudited)

(In thousands)

	For the Three Months Ended March 31,
	2004			2003
Net cash flows provided by operating activities	$	3,770		$	4,739
Cash flows from investing activities:
Proceeds from calls and maturities of investment securities		27,930			99,985
Purchases of investment securities		(148,766	)		(103,017	)
Purchases of securities available for sale		(272,179	)		(269,457	)
Proceeds from sale of securities available for sale		2,357			14,609
Proceeds from calls and maturities of securities available for sale		335,108			139,595
Net (increase) decrease in interest bearing deposits in other banks		(22,825	)		1,168
Net (increase) decrease in federal funds sold and securities purchased under resell agreements		(22,742	)		41,187
Net increase in loans and leases		(115,108	)		(89,607	)
Purchase acquisitions, net of cash acquired		28,866			—
Purchases of property, equipment and leasehold improvements		(4,270	)		(2,381	)
Proceeds from sale of other real estate owned and fixed assets		136			779
Net cash used in investing activities		(191,493	)		(167,139	)
Cash flows from financing activities:
Net increase in deposits		158,448			157,153
Net increase in federal funds purchased and securities sold under agreements to repurchase		33,563			33,885
Net increase (decrease) in short-term borrowings and capital leases		25,500			(57,207	)
Proceeds from long-term debt		5,000			34,000
Purchase of treasury stock		—			(900	)
Dividends on common stock		(4,800	)		(3,525	)
Other		770			115
Net cash provided by financing activities		218,481			163,521
Increase in cash and cash equivalents		30,758			1,121
Cash and cash equivalents, beginning of period		123,086			99,561
Cash and cash equivalents, end of period	$	153,844		$	100,682
Supplemental schedule of noncash investing and financing activities
Acquisition of collateral in satisfaction of loans	$	465		$	2,933
Adjustment to market value of securities available for sale, net of deferred income taxes	$	4,906		$	315
Assets acquired in business combinations	$	781,225		$	—
Liabilities assumed in business combinations	$	641,764		$	—

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 ended March 31, 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 March 31, 2004, the total unfunded commitments which are not reflected in the consolidated statements of condition totaled $943.4 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 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

8

attributable, at least in part, to credit quality. It 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 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 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 three-step

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model used to determine other-than-temporary impairments shall be applied prospectively to all current and future investments in interim or annual reporting periods beginning after June 15, 2004. 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.

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 quarters ended March 31, 2004 and 2003 (in thousands except per share data).

	For the Three Months Ended March 31,
	2004		2003
Basic Earnings Per Share:
Net income available to common shareholders	$	11,307	$	9,525
Weighted average basic common shares outstanding		13,927		12,503
Basic Earnings Per Share	$	0.81	$	0.76
Diluted Earnings Per Share:
Net income available to common shareholders	$	11,307	$	9,525
Weighted average common shares outstanding		13,927		12,503
Effect of dilutive securities		244		182
Weighted average diluted common shares outstanding		14,171		12,685
Diluted Earnings Per Share	$	0.80	$	0.75

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).

	Investment Services Division		Securities Brokerage & Trust Division		Mortgage Lending Division		Insurance Division			Retail and Commercial Banking		Corporate Overhead			Elimination Entries			Total
Three Months Ended March 31, 2004:
Interest income	$	—	$	268	$	202	$	—		$	48,719	$	(29	)	$	(30	)	$	49,130
Interest expense				30		56					13,840		564			(30	)		14,460
Net interest income				238		146					34,879		(593	)					34,670
Provision for loan and lease losses											1,228								1,228
Noninterest income		3,907		4,099		2,654		958			6,006		16						17,640
Noninterest expense		2,403		3,868		1,807		923			23,777		1,393						34,171
Net income before tax	$	1,504	$	469	$	993	$	35		$	15,880	$	(1,970	)	$	—		$	16,911
Total assets	$	127,782	$	35,534	$	28,732	$	4,480		$	4,740,772	$	9,747					$	4,947,047
Three Months Ended March 31, 2003:
Interest income	$	—	$	221	$	474	$	—		$	42,388	$	(29	)	$	(24	)	$	43,030
Interest expense				29		192		1			14,464		381			(24	)		15,043
Net interest income				192		282		(1	)		27,924		(410	)					27,987
Provision for loan and lease losses											1,091								1,091
Noninterest income		5,160		4,118		3,360		784			5,322		1						18,745
Noninterest expense		3,396		3,878		1,978		759			20,036		1,444						31,491
Net income before tax	$	1,764	$	432	$	1,664	$	24		$	12,119	$	(1,853	)	$	—		$	14,150
Total assets	$	113,626	$	28,905	$	61,760	$	4,545		$	3,360,155	$	6,156					$	3,575,147

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 March 31, 2004, the carrying value of goodwill totaled $124.1 million. The amounts attributable to the Retail and Commercial Banking segment and Insurance Division segment are $121.4 million and $2.7 million, respectively.

NOTE F – MERGERS AND ACQUISITIONS

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. Under the terms of the merger agreements, each of these banks will continue to operate as wholly owned subsidiaries of Alabama National under its existing name, management, and board of directors. The following table summarizes some details of the transactions.

	Cypress Bankshares, Inc.		Indian River Banking Company
Location		Palm Coast, Florida		Vero Beach, Florida
Merger date		2/20/2004		2/27/2004
Common stock issued		455,449		2,017,053
Stock options		52,130		123,430
Additional cash consideration	$	1.9 million	$	5.1 million
Total purchase price	$	27.2 million	$	112.3 million
Total assets at merger	$	119.8 million	$	560.6 million

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed for Cypress Bankshares, Inc. and Indian River Banking Company at the date of acquisition. Alabama National is not yet complete with the process of determining the fair value of the assets and liabilities of each acquisition.

	Cypress Bankshares, Inc.		Indian River Banking Company
	(Amounts in thousands)
Cash	$	9,691	$	26,178
Securities		26,111		241,905
Federal funds sold and repurchase agreements		959		384
Net loans		75,396		282,857
Other assets		7,636		9,247
Goodwill		17,476		74,229
Core deposit intangible		1,644		7,542
Total assets acquired		138,913		642,342
Deposits		104,250		444,697
Other liabilities		7,484		85,333
Total liabilities assumed		111,734		530,030
Net assets acquired	$	27,179	$	112,312

The acquisitions of Cypress and Indian River resulted in the recognition of $19.1 million and $81.8 million of intangible assets, respectively. Alabama National allocated $1.6 million and $7.5 million of the total intangible created to core deposits of Cypress and Indian River, respectively. This allocation was based upon Alabama National’s valuation of the core deposits of Cypress and Indian River. Among the factors considered in the valuation were: (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.

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The following table presents the unaudited pro forma results of operations for the periods presented as if the mergers had occurred at January 1, 2004 and 2003, respectively. The results for the three month period ended March 31, 2003 have been adjusted for the Millennium Bank, Cypress and Indian River mergers. The results for the three month period ended March 31, 2004 have been adjusted for Cypress and Indian River only, as Millennium is included for the entire period. Since no consideration is given to operational efficiencies and expanded products and services, the pro forma summary information does not necessarily reflect the results of operations as they would have been, if the respective mergers had occurred at the indicated dates (in thousands, except per share data):

	For the Three Months Ended March 31,
	2004		2003
Total revenue (1)	$	56,685	$	54,497
Net income	$	11,374	$	10,903
Basic EPS	$	0.74	$	0.71
Diluted EPS	$	0.72	$	0.70

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

The following table presents the pro forma results for the three months ended March 31, 2003 adjusted only for Cypress and Indian River (in thousands, except per share data):

	March 31, 2003
Total revenue (1)	$	53,208
Net income	$	10,717
Basic EPS	$	0.72
Diluted EPS	$	0.70

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

On March 30, 2004, Alabama National signed a definitive agreement providing for the purchase of Coquina Bank of Ormond Beach, Florida (“Coquina”). Under the terms of the agreement, Coquina will be merged with Alabama National’s Cypress Bank subsidiary shortly after the acquisition. Following the acquisition, the Cypress and Coquina boards will merge as well as the management groups. Alabama National will issue approximately 560,000 shares and share equivalents of Alabama National common stock for all of the outstanding shares of Coquina common stock, or approximately 0.6326 Alabama National common shares for each share of Coquina common stock. This exchange ratio could fluctuate upward within certain limits depending on the market price of Alabama National common stock prior to closing. In addition, Coquina shareholders have the option to receive cash for up to 10% of the total consideration paid. At March 31, 2004, Coquina had assets of approximately $114.3 million.

Alabama National expects the acquisition to close in the third quarter of 2004 subject to regulatory approval, shareholder approval, and certain other conditions.

NOTE G – GOODWILL AND OTHER ACQUIRED INTANGIBLES

The changes in the carrying amounts of goodwill attributable to each of Alabama National’s operating segments for the three months ended March 31, 2004 are as follows (in thousands):

	Retail and Commercial Banking		Insurance Division
Balance, January 1, 2004	$	28,271	$	2,693
Acquired goodwill		91,705		—
Other goodwill adjustments		1,388		—
Balance, March 31, 2004	$	121,364	$	2,693

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

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

	As of March 31, 2004
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Value
Amortizing intangible assets
Core deposit intangibles	$	17,124	$	(4,751	)	$	12,373
Other customer intangibles		1,453		(499	)		954
Total amortizing intangible assets	$	18,577	$	(5,250	)	$	13,327
	As of December 31, 2003
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Value
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

Alabama National recognized $482,000 and $233,000 of other intangible amortization expense for the three months ended March 31, 2004 and 2003 respectively. Based upon recorded intangible assets as of March 31, 2004, aggregate amortization expense for the next five years is estimated to be $3,335,000, $2,934,000, $2,560,000, $1,912,000 and $1,278,000.

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.

	March 31, 2004			March 31, 2003
	(Amounts in thousands)
Service cost	$	—		$	—
Interest cost		92			92
Expected return on plan assets		(118	)		(109	)
Amortization of prior service cost		—			—
Amortization of transition asset		—			(1	)
Amortization of net loss		8			17
Net periodic benefit cost	$	(18	)	$	(1	)

11

As of March 31, 2004, Alabama National has not made any contributions to the defined benefit pension plan because the plan is fully funded and 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, 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 three months ended March 31, 2004.

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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.

Alabama National acquired Millennium Bank on June 19, 2003, Cypress Bank on February 20, 2004, and Indian River National Banking Company on February 27, 2004, using the purchase method of accounting. Accordingly, the results of operations for each of these banks is not included in the three month period ended March 31, 2003. The three month period ended March 31, 2004 includes Millennium for the entire period but only includes the results of operations of Cypress and Indian River 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 for the three month period ended March 31, 2004 (the “2004 three months”) was $11.3 million, compared to $9.5 million for the three months ended March 31, 2003 (the “2003 three months”). Net income per diluted common share for the 2004 three months and the 2003 three months was $0.80 and $0.75, respectively.

The annualized return on average assets for Alabama National was 1.08% and 1.16% for the 2004 three months and the 2003 three months, respectively. The annualized return on average stockholders’ equity was 13.10% and 16.21% for the 2004 three months and the 2003 three months, respectively. Each of the ratios has been negatively impacted by the recent acquisitions due to the amount of goodwill and other intangible assets recorded. Book value per share at March 31, 2004 was $27.76, an increase of $6.00 from year-end 2003, due primarily to the impact of the first quarter acquisitions. Alabama National declared cash dividends of $0.3125 per share on common shares during the 2004 three months, compared to $0.285 per share on common shares during the 2003 three months.

Net Income

Contributing to the increased net income for the 2004 three months was a $6.7 million increase in net interest income. Net interest income for the 2004 three months totaled $34.7 million, a 23.9% increase over the $28.0 million recorded in the 2003 three months. The increased net interest income was offset by a decrease in total noninterest income of $1.1 million or 5.9%. The income from the sale of mortgage loans and income from investment services experienced a fairly significant decrease from the 2003 three months, which were at record levels for Alabama National during 2003.

Average earning assets for the 2004 three months increased by approximately $779.5 million, as compared to the 2003 three months, as average interest-bearing liabilities increased $640.5 million. The average taxable equivalent rate earned on earning assets was 5.17% for the 2004 three months, compared to 5.72% for the 2003 three months. The average rate paid on interest-bearing liabilities was 1.73% for the 2004 three months, compared to 2.24% for the 2003 three months. The net interest margin for the 2004 three months was 3.62%, compared to 3.70% for the 2003 three months and 2003 fourth quarter. The net interest margin during the 2004 three months was negatively impacted by the prolonged low interest rate environment. As rates remain low the repricing opportunities for time deposits originated in higher interest rate environments continue to decrease, while rates on loans and leases have continued to decrease in the current low interest rate environment, with competition for loans remaining high. The yield earned on securities has continued to decline as securities with high coupon rates pay down or mature and new securities purchased have a lower yield. Despite the pressure on the net interest margin, Alabama National has experienced a growth in its net interest income due to continued earning asset growth and recent acquisitions.

The following table depicts, on a taxable equivalent basis for the 2004 and 2003 three 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 March 31,
	2004							2003
	Average Balance			Income/ Expense		Yield/ Cost		Average Balance			Income/ Expense		Yield/ Cost
Assets:
Earning assets:
Loans and leases (1)(2)(3)	$	2,869,524		$	40,309	5.65	%	$	2,264,444		$	34,586	6.19	%
Securities:
Taxable		877,729			8,297	3.80			720,745			7,964	4.48
Tax exempt (2)		42,676			694	6.54			32,158			562	7.09
Cash balances in other banks		5,478			11	0.81			10,525			35	1.35
Funds sold		50,783			133	1.05			38,492			124	1.31
Trading account securities		1,805			18	4.01			2,165			20	3.75
Total earning assets (2)		3,847,995			49,462	5.17			3,068,529			43,291	5.72
Cash and due from banks		69,186							88,342
Premises and equipment		79,857							73,273
Other assets		236,017							143,299
Allowance for loan losses		(39,156	)						(33,153	)
Total assets	$	4,193,899						$	3,340,290
Liabilities:
Interest-bearing liabilities:
Interest-bearing transaction accounts	$	605,349			1,109	0.74		$	499,012			1,312	1.07
Savings deposits		592,100			1,235	0.84			406,117			1,048	1.05
Time deposits		1,353,355			7,872	2.34			1,159,107			8,786	3.07
Funds purchased		385,256			997	1.04			288,195			759	1.07
Other short-term borrowings		72,410			294	1.63			106,749			556	2.11
Long-term debt		351,392			2,953	3.38			260,171			2,582	4.02
Total interest-bearing liabilities		3,359,862			14,460	1.73			2,719,351			15,043	2.24
Demand deposits		448,744							322,448
Accrued interest and other liabilities		38,118							60,225
Stockholders’ equity		347,175							238,266
Total liabilities and stockholders’ equity	$	4,193,899						$	3,340,290
Net interest spread						3.44	%						3.48	%
Net interest income/margin on a taxable equivalent basis					35,002	3.66	%					28,248	3.73	%
Tax equivalent adjustment (2)					332							261
Net interest income/margin				$	34,670	3.62	%				$	27,987	3.70	%

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

(2) Tax equivalent adjustments are based upon assumed tax rate of 34%, and do not reflect the disallowance for Federal income tax purposes of interest expense related to certain tax exempt assets.

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(3) Fees in the amount of $1.7 million and $1.3 million are included in interest and fees on loans for the three months ended March 31, 2004 and 2003, respectively.

Alabama National’s net interest income increased during the 2004 three months to $34.7 million, an increase of $6.7 million over the 2003 three months. 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. The following table sets forth, on a taxable equivalent basis, the effect which varying levels of earning assets and interest-bearing liabilities and the applicable rates had on changes in net interest income for the 2004 three months compared to the 2003 three months. For the purposes of this table, 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 March 31,
	2004 Compared to 2003 Variance Due to
	Volume			Yield/Rate			Total
Earning assets:
Loans and leases	$	22,751		$	(17,028	)	$	5,723
Securities:
Taxable		5,973			(5,640	)		333
Tax exempt		393			(261	)		132
Cash balances in other banks		(13	)		(11	)		(24	)
Funds sold		129			(120	)		9
Trading account securities		(9	)		7			(2	)
Total interest income		29,224			(23,053	)		6,171
Interest-bearing liabilities:
Interest-bearing transaction accounts		1,263			(1,466	)		(203	)
Savings and money market deposits		1,317			(1,130	)		187
Time deposits		6,618			(7,532	)		(914	)
Funds purchased		379			(141	)		238
Other short-term borrowings		(153	)		(109	)		(262	)
Long-term debt		2,545			(2,174	)		371
Total interest expense		11,969			(12,552	)		(583	)
Net interest income on a taxable equivalent basis	$	17,255		$	(10,501	)		6,754
Taxable equivalent adjustment								(71	)
Net interest income							$	6,683

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 loss inherent 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 $1.2 million for the 2004 three months, compared to $1.1 million recorded in the 2003 three months. The allowance for loan and lease losses as a percentage of outstanding loans and leases, net of unearned income, was 1.35% at March 31, 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 three months was $17.6 million, compared to $18.7 million for the 2003 three months, a decrease of 5.9%. 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 origination and sale of mortgage loans and income on bank owned life insurance. Service charges on deposits were $3.8 million in the 2004 three months, compared to $3.3 million in the 2003 three months, an increase of 14.7%. Excluding the impact of acquisitions since the 2003 three months, service charge income increased by $106,000, or 3.2%. Revenue from the investment division totaled $3.9 million in the 2004 three months, a decrease of $1.3 million, or 24.3%, as compared to $5.2 million recorded in the 2003 three months. Because Cypress, Indian River, and Millennium are not in this business, these mergers did not impact investment services revenue. The revenue recorded by the investment division in the 2003 three months was near record levels 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 three months due to increased liquidity of community banks resulting from decreased loan demand and increased cash flow from their existing securities portfolio. Although the activity for this division has moderated as interest rates have remained low, the investment department continues to add new customers and expand its market area. The securities brokerage and trust division recorded revenue of $4.1 million during each of the 2004 and 2003 three months. Fees generated from the origination and sale of mortgages decreased to $2.5 million for the 2004 three months, from $3.3 million in the 2003 three months, representing a 23.8% decrease. The revenue recorded during the 2003 three months was near record levels due to falling interest rates and the impact on mortgage refinancing activity. Since mortgage rates have recently shown modest increases, refinance activity has slowed and revenue from refinancing has decreased. Other noninterest income for the 2004 three months increased to $1.6 million, compared to $1.3 million recorded for the 2003 three months.

Noninterest expense was $34.2 million for the 2004 three months, compared to $31.5 million for the 2003 three months, an increase of 8.5%. 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 $17.7 million for the 2004 three months, compared to $15.3 million for the 2003 three months. Excluding the acquisitions since the 2003 three months, salaries and employee benefits increased $0.9 million, or 6.0%. Contributing

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to the increase in salaries and employee benefits were general staffing increases concurrent with expansion of offices and business lines, increases in health insurance costs, and merit compensation increases. Commission based compensation was $4.8 million for the 2004 three months, compared to $5.6 million for the 2003 three months. This decrease 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. Net occupancy expenses increased $285,000, or 8.9%, during the 2004 three months. All of this increase is attributable to the recent acquisitions. Other noninterest expense increased to $7.7 million in the 2004 three months, compared with $7.2 million in the 2003 three months.

Income tax expense was $5.6 million for the 2004 three months, compared to $4.6 million for the 2003 three months. The effective tax rates for the 2004 three months and 2003 three months were 33.1% and 32.7%, respectively. These effective tax rates are impacted by items of income and expense that are not subject to federal or state taxation. The effective tax rate for the 2004 three months is higher due to higher pre-tax income without a corresponding increase in income items not subject to federal or state taxation.

Earning Assets

Loans and leases comprised the largest single category of Alabama National’s earning assets on March 31, 2004. Loans and leases, net of unearned income, were $3.14 billion, or 63.4% of total assets at March 31, 2004, compared to $2.66 billion, or 69.6% of total assets at December 31, 2003. Loans and leases increased $477.5 million, or 18.0%, during the 2004 three months. Excluding the Cypress and Indian River acquisitions, loans and leases grew $109.7 million, or 4.1% 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)

	March 31, 2004					December 31, 2003
	Amount			Percent of Total		Amount			Percent of Total
Commercial, financial and agricultural	$	302,878		9.65	%	$	265,923		9.99	%
Real estate:
Construction		638,765		20.34			530,024		19.91
Mortgage - residential		836,974		26.65			676,658		25.42
Mortgage - commercial		947,481		30.18			814,904		30.61
Mortgage - other		11,999		.38			9,412		.35
Consumer		87,227		2.78			74,137		2.78
Lease financing receivables		75,379		2.40			77,857		2.92
Securities brokerage margin loans		16,913		.54			15,407		.58
Other		222,205		7.08			198,036		7.44
Total gross loans and leases		3,139,821		100.00	%		2,662,358		100.00	%
Unearned income		(2,883	)				(2,918	)
Total loans and leases, net of unearned income		3,136,938					2,659,440
Allowance for loan and lease losses		(42,392	)				(36,562	)
Total net loans and leases	$	3,094,546				$	2,622,878

The carrying value of investment securities increased $146.6 million in the 2004 three months. During the 2004 three months, Alabama National purchased $148.8 million of investment securities, received $27.9 million from maturities, including principal paydowns of mortgage backed securities, and acquired $25.8 million of investment securities in connection with 2004 first quarter acquisitions.

The carrying value of securities available for sale increased $184.6 million in the 2004 three months. The first quarter acquisitions account for $242.3 million of the increase during the 2004 three months. During the 2004 three months, purchases of available for sale securities totaled $272.2 million and maturities, calls, and sales of available for sale securities totaled $337.5 million. The change in unrealized gains on available for sale securities totaled $5.1 million, net of income taxes, during the 2004 three months.

Trading account securities, which had a balance of zero and $109,000 at March 31, 2004 and December 31, 2003, respectively, 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 $40.6 million at March 31, 2004 and $16.5 million at December 31, 2003.

Deposits and Other Funding Sources

Deposits increased $707.4 million from December 31, 2003, to $3.46 billion at March 31, 2004. Excluding the first quarter acquisitions, deposits increased $112.5 million, or 4.1% compared with December 31, 2003 balances. Deposits continue to increase due to recent branch expansions, successful business development efforts by the Company and an overall growth in the economies in the markets served by Alabama National. At March 31, 2004, deposits included $162.0 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 $431.6 million at March 31, 2004, an increase of $73.2 million from December 31, 2003. Short-term borrowings at March 31, 2004 totaled $67.7 million, including a note payable to a third party bank of $6.6 million and advances from the Federal Home Loan Bank (“FHLB”) totaling $61.1 million.

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Alabama National’s short-term borrowings at March 31, 2004 and December 31, 2003 are summarized as follows:

SHORT-TERM BORROWINGS

(Amounts in thousands)

	March 31, 2004		December 31, 2003
Note payable to third party bank under secured master note agreement; rate varies with LIBOR and was 1.84% and 1.89125% at March 31, 2004 and December 31, 2003, respectively; collateralized by the Company’s stock in subsidiary banks. Matures on May 31, 2004.	$	6,650	$	1,650
FHLB open ended notes payable; rate varies daily based on the FHLB Daily Rate Credit interest price and was 1.25% and 1.15% at March 31, 2004 and December 31, 2003, respectively; collateralized by FHLB stock and certain first real estate mortgages.		50,950		24,500
FHLB borrowings due at various maturities ranging from July 30, 2004 through December 4, 2004 at March 31, 2004; at December 31, 2003, maturities ranged from February 2, 2004 to December 4, 2004; bearing interest at fixed rates ranging from 1.79% to 6.44% and 1.79% to 5.715% at March 31, 2004 and December 31, 2003, respectively; collateralized by FHLB stock and certain first real estate mortgages.		10,143		15,000
Total short-term borrowings	$	67,743	$	41,150

Alabama National’s long-term debt at March 31, 2004 and December 31, 2003 is summarized as follows:

LONG-TERM DEBT

(Amounts in thousands)

	March 31, 2004		December 31, 2003
FHLB borrowings due at various maturities ranging from November 10, 2005 through November 7, 2012 at March 31, 2004; maturities ranged from November 10, 2005 to October 23, 2012 at December 31, 2003; bearing interest at fixed rates ranging from 1.09% to 6.00% at March 31, 2004 and December 31, 2003; convertible to a variable rate at the option of the FHLB at dates ranging from April 7, 2004 to November 7, 2007; collateralized by FHLB stock, certain first real estate mortgages.	$	303,346	$	258,000
FHLB borrowing due September 12, 2006; rate varies quarterly with LIBOR and was 0.46% and 0.52% at March 31, 2004 and December 31, 2003, respectively; on September 12, 2004 the advance will convert to a fixed rate of 2.54%; convertible at the option of the FHLB on September 12, 2004 to a variable rate advance; collateralized by FHLB stock and certain first real estate mortgages.		28,000		28,000
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 4.15% to 4.71% and 4.2125% to 4.77% at March 31, 2004 and December 31, 2003, respectively.		53,610		46,393
Capital leases payable		28		34
Total long-term debt	$	384,984	$	332,427

On April 7^th the FHLB did not exercise their option to convert a $10.0 million advance but on May 5^th the FHLB did notify Alabama National that a $30.0 million advance would convert to a floating rate advance. Alabama National will have the option to repay the advance or select a different type of advance at each quarterly interest payment date.

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Asset Quality

Nonperforming loans are comprised of loans past due 90 days or more and still accruing interest, loans accounted for on a nonaccrual basis and loans in which the terms have been restructured to provide a reduction or deferral of interest or principal because of a deterioration in the financial position of the borrower. At March 31, 2004, Alabama National had no loans past due 90 days or more and still accruing interest. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions and collection efforts that the borrower’s financial condition is such that the collection of interest is doubtful. It is Alabama National’s policy to place a delinquent loan on nonaccrual status when it becomes 90 days or more past due. When a loan is placed on nonaccrual status, all interest that is accrued on the loan 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.

At March 31, 2004, nonperforming assets totaled $9.6 million, compared to $10.5 million at year-end 2003. Nonperforming assets as a percentage of period-end loans plus other real estate were 0.31% at March 31, 2004, compared to 0.40% at December 31, 2003. The decrease in nonperforming assets is primarily attributable to a $1.2 million reduction in nonaccrual loans, $1.0 million of which was charged off. The following table presents Alabama National’s nonperforming assets for the dates indicated.

NONPERFORMING ASSETS

(Amounts in thousands, except percentages)

	March 31, 2004			December 31, 2003
Nonaccrual loans	$	8,578		$	9,817
Restructured loans		—			—
Loans past due 90 days or more and still accruing		—			—
Total nonperforming loans		8,578			9,817
Other real estate owned		1,008			699
Total nonperforming assets	$	9,586		$	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		494.19			372.44
Allowance for loan losses to period-end nonperforming assets		442.23			347.68
Net charge-offs to average loans		0.13			0.12
Nonperforming assets to period-end loans and other real estate owned		0.31			0.40
Nonperforming loans to period-end loans		0.27			0.37

Net loan charge-offs (loan charge-offs less recoveries) for the 2004 three months totaled $939,000 or 0.13% (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 March 31, 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 March 31,
	2004		2003
Allowance for loan and lease losses at beginning of period	$	36,562	$	32,704
Charge-offs:
Commercial, financial and agricultural		1,089		396
Real estate—mortgage		61		704
Consumer		179		304
Total charge-offs		1,329		1,404
Recoveries:
Commercial, financial and agricultural		80		104
Real estate—mortgage		49		97
Consumer		261		655
Total recoveries		390		856
Net charge-offs		939		548
Provision for loan and lease losses		1,228		1,091
Additions to allowance through acquisitions		5,541		—
Allowance for loan and lease losses at end of period	$	42,392	$	33,247

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 March 31, 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.

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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 March 31, 2004, assuming relevant assets and liabilities are collected and paid, respectively, based upon historical experience rather than their stated maturities.

INTEREST SENSITIVITY ANALYSIS

(Amounts in thousands, except ratios)

	March 31, 2004
	Zero Through Three Months			After Three Through Twelve Months			One Through Three Years			Greater Than Three Years			Total
Assets:
Earning assets:
Loans (1)	$	1,918,064		$	443,251		$	462,471		$	331,930		$	3,155,716
Securities (2)		315,858			242,325			395,797			165,930			1,119,910
Trading securities		—			—			—			—			—
Interest-bearing deposits in other banks		32,844			—			—			—			32,844
Funds sold		40,619			—			—			—			40,619
Total interest-earning assets	$	2,307,385		$	685,576		$	858,268		$	497,860		$	4,349,089
Liabilities:
Interest-bearing liabilities:
Interest-bearing deposits:
Demand deposits	$	427,157		$	—		$	—		$	286,753		$	713,910
Savings and money market deposits		372,810			—			—			357,584			730,394
Time deposits (3)		485,060			612,843			237,607			115,527			1,451,037
Funds purchased		431,555			—			—			—			431,555
Short-term borrowings (4)		68,373			—			—			—			68,373
Long-term debt		250,638			68,000			27,000			39,346			384,984
Total interest-bearing liabilities	$	2,035,593		$	680,843		$	264,607		$	799,210		$	3,780,253
Period gap	$	271,792		$	4,733		$	593,661		$	(301,350	)
Cumulative gap	$	271,792		$	276,525		$	870,186		$	568,836		$	568,836
Ratio of cumulative gap to total earning assets		6.25	%		6.36	%		20.01	%		13.08	%

(1) Excludes nonaccrual loans of $8.6 million.

(2) Excludes available for sale equity securities of $21.7 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 $0.6 million.

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 through three years. It is only in the greater than three years period that Alabama National is liability sensitive, although it remains asset sensitive on a cumulative basis throughout all periods. 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 impacted 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 March 31, 2004, mortgage backed securities with a carrying value of $752.0 million, or 15.2% of total assets and essentially every loan and lease, net of unearned income, (totaling $3.09 billion, or 62.6% 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

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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 $3.46 billion, or 70.0%, of total assets at March 31, 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 reduce, 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.

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. Due to the current low interest rate environment, Alabama National has elected to model interest rate decreases of 25 and 50 basis points. (This would equate to federal funds rates of 0.75% and 0.50%, respectively.) The current rates paid on interest-bearing accounts cannot decrease below zero, yet rates earned on loans can experience a decrease in the falling rate scenarios, and the interest rate spread would therefore compress. As noted above, however, management does not anticipate having the ability to reduce liability costs as successfully if it were to experience a rate cut of a greater magnitude. 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 March 31, 2004				As of December 31, 2003
	Net Interest Income Amount		Change from Income Amount		Net Interest Income Amount		Change from Income Amount
+200 basis points	$	179,309	5.35	%	$	150,671	8.72	%
+100 basis points		174,377	2.46			144,794	4.48
0 basis points		170,197	—			138,592	—
-25 basis points		169,846	(0.21	)		137,755	(0.60	)
-50 basis points		169,656	(0.32	)		136,300	(1.65	)

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

Alabama National’s level of asset sensitivity as indicated in this simulation model has decreased slightly from levels reported at December 31, 2003. This slight decrease in asset sensitivity was largely caused by the merger with Indian River, which has a lower loan to deposit ratio and a higher proportion of its earning assets in securities. Because a majority of these securities are fixed rate, they reduce the asset sensitivity as their coupon rates do not fluctuate in a changing rate environment.

Liquidity and Capital Adequacy

Alabama National’s net loan and lease to deposit ratio was 90.6% at March 31, 2004, compared to 96.6% at year-end 2003. This ratio reduced from December 31, 2003 levels in part due to the Indian River acquisition, which has a lower loan to deposit ratio than the company as a whole. Alabama National’s liquid assets as a percentage of total deposits was 6.6% at March 31, 2004, compared to 5.4% at year-end 2003. At March 31, 2004, Alabama National had unused federal funds lines of approximately $194.6 million, unused lines at the Federal Home Loan Bank of $869.6 million and an unused credit line with a third party bank of $23.3 million. Alabama National also has access to approximately $59.7 million via a credit facility with the Federal Reserve Bank of Atlanta. At March 31, 2004 and year-end 2003 there were no outstanding borrowings under this credit facility. Management analyzes the level of off-balance sheet assets such as unfunded loan commitments and outstanding letters of credit as they relate to the levels of cash, cash equivalents, liquid investments, and available funds lines in an attempt to minimize the possibility that a potential liquidity shortfall will exist. Based on this analysis, management believes that Alabama National has adequate liquidity to meet short-term operating requirements. However, no assurances can be given in this regard.

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Alabama National’s stockholders’ equity increased by $147.0 from December 31, 2003, to $426.6 million at March 31, 2004. This increase was attributable to the following components (in thousands):

Net income	$	11,307
Dividends		(4,800	)
Issuance of stock for option exercises and other stock based compensation		611
Issuance of stock in purchase business combinations		134,430
Additional paid in capital related to stock based compensation		544
Change in unrealized gain or loss on securities available for sale, net of deferred taxes		4,906
Net increase	$	146,998

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 March 31, 2004. Under the capital guidelines of their regulators, Alabama National and the Banks are currently required to maintain a minimum risk-based total capital ratio of 8%, with at least 4% being Tier 1 capital. Tier 1 capital consists of common stockholders’ equity, qualifying perpetual preferred stock, and minority interests in equity accounts of consolidated subsidiaries, less goodwill. In addition, Alabama National and the Banks must maintain a minimum Tier 1 leverage ratio (Tier 1 capital to total assets) of at least 3%, but this minimum ratio is increased by 100 to 200 basis points for other than the highest rated institutions. The following table sets forth the risk-based and leverage ratios of Alabama National and each subsidiary bank at March 31, 2004:

	Tier 1 Risk Based		Total Risk Based		Tier 1 Leverage
Alabama National BanCorporation	9.52	%	10.72	%	8.17	%
National Bank of Commerce of Birmingham	9.41		10.50		7.20
Alabama Exchange Bank	14.57		15.82		7.33
Bank of Dadeville	12.71		13.96		7.17
Citizens & Peoples Bank, N.A.	9.50		10.76		7.20
Community Bank of Naples, N.A.	9.67		10.92		7.93
First American Bank	9.83		11.08		8.05
First Citizens Bank	13.25		14.33		6.44
First Gulf Bank	9.03		10.28		6.71
Georgia State Bank	9.86		10.94		6.69
Public Bank	10.55		11.72		7.58
Peoples State Bank	10.64		11.90		7.18
Millennium Bank	10.56		11.78		7.62
Cypress Bank	9.52		10.77		7.16
Indian River National Bank	10.22		11.42		6.13
Required minimums	4.00		8.00		4.00

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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 March 31, 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 were no significant changes in Alabama National’s internal controls over financial reporting during the quarter ended March 31, 2004 that have materially affected, or are reasonably likely to materially affect, Alabama National’s internal controls over financial reporting.

PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K.

(a)	Exhibits.
		Exhibit 3.1 – Restated Certificate of Incorporation (filed as an Exhibit to Alabama National’s Quarterly Report on Form 10-Q for the quarter ended March 31, 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 10.1 – Alabama National BanCorporation Performance Share and Deferral Plan for Non-Employee Directors of Affiliate 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 32.1 – Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b)	Reports on Form 8-K.
		Form 8-K to report 2003 Fourth Quarter Earnings, furnished on January 21, 2004.
		Form 8-K to report the acquisition of Indian River Banking Company, filed on March 5, 2004.

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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: May 10, 2004	/s/ John H. Holcomb, III
	John H. Holcomb, III, its Chairman and Chief Executive Officer
Date: May 10, 2004	/s/ William E. Matthews, V.
	William E. Matthews, V., its Executive Vice President and Chief Financial Officer

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EX-10.1

Exhibit 10.1

ALABAMA NATIONAL BANCORPORATION

PERFORMANCE SHARE AND DEFERRAL PLAN

FOR NON-EMPLOYEE DIRECTORS OF

AFFILIATE BANKS

1. PURPOSES

The purposes of the Alabama National BanCorporation Performance Share and Deferral Plan for Non-Employee Directors of Affiliate Banks (the “Plan”) are to provide long-term incentives and rewards to Non-Employee Directors of the Affiliates (as defined below) of Alabama National BanCorporation (the “Company”), to assist the Company in attracting and retaining Non-Employee Directors with experience and/or ability on a basis competitive with industry practices and to associate the interests of such individuals with those of the Company’s stockholders. The Plan permits the Company to make awards in shares of Company Common Stock (as defined below).

2. EFFECTIVE DATE

The Plan is effective as of the date it is approved by the shareholders of the Company.

3. ELIGIBILITY

All non-employee members of the board of directors of the Company’s Affiliates (“Non-Employee Directors”) shall be eligible to participate in the Plan. The Committee, in its sole discretion, shall from time to time designate those Non-Employee Directors who are to receive awards hereunder and thereby become participants in the Plan. For purposes of the Plan, “Affiliate” shall mean any entity, as may from time to time be designated by the Committee, that is a subsidiary corporation of the Company (within the meaning of Section 424 of the Internal Revenue Code (the “Code”)), and each other entity directly or indirectly controlling or controlled by or under common control with the Company. For purposes of this definition, “control” means the power to direct the management and policies of such entity, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have meaning correlative to the foregoing.

4. ADMINISTRATION OF THE PLAN

The Plan shall be administered by the Compensation Committee (the “Committee”) of the Board of Directors of the Company (the “Board”). The Committee shall have all the powers vested in it by the terms of this Plan and by the Board, such powers to include exclusive authority (within the limitations described herein) to select the Non-Employee Directors to be granted awards under the Plan, to determine the series and/or class of stock in respect of which any awards will be granted, to determine the type, size and terms of awards to be made to each Non-Employee Director selected, to determine the time when awards will be granted, when they will vest, when they may be exercised and when they will be paid, to amend awards previously granted and to establish objectives and conditions, if any, for earning awards and whether awards will be paid after the end of the award period. The Committee shall have full power and authority to administer and interpret the Plan and to adopt such rules, regulations, agreements, guidelines and instruments for the administration of the Plan and for the conduct of its business as the Committee deems necessary or advisable and to interpret same. The Committee’s interpretation of the Plan, and all actions taken and determinations made by the Committee pursuant to the powers vested in it hereunder or by the Board, shall be conclusive and binding on all parties concerned, including the Company, its Affiliates, stockholders, any participants in the Plan and any other employee or director of the Company or any of its Affiliates.

5. AWARDS

(a) TYPES. Awards under the Plan shall be made with reference to shares of the Company’s Common Stock, par value $1.00 per share (“Common Stock”) and will include performance shares that the Committee determines to be consistent with the objectives and limitations of the Plan. The Committee may provide for the

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issuance of shares of Common Stock as a stock award for no consideration other than services rendered or, to the extent permitted by applicable state law, to be rendered. In the event of an award under which shares of Common Stock are or may in the future be issued for any other type of consideration, the amount of such consideration shall be equal or greater than the amount (such as the par value of such shares) required to be received by the Company in order to assure compliance with applicable state law.

(b) PERFORMANCE GOALS. The Committee shall establish performance goals to be achieved within such performance periods as may be selected by it in its sole discretion, using such measures of the performance of the Company and/or any one or more of its Affiliates as it may select, for purposes of the granting, vesting, payment or other entitlement to awards under the Plan.

(c) RULES AND POLICIES. The Committee may adopt from time to time written rules and policies implementing the Plan. Such rules and policies may include, but need not be limited to, the type, size and term of awards to be made to participants and the conditions for the payment of such awards. The Committee shall determine, in its sole discretion, the extent to which rules and policies that it may adopt in the future shall be subject to the approval of the Company stockholders and/or limitations on the Committee’s authority to amend such rules or policies.

6. SHARES OF STOCK SUBJECT TO THE PLAN

The shares of Common Stock that may be delivered or purchased or used for reference purposes under the Plan shall not exceed an aggregate of 25,000 shares. Shares of Common Stock issued under the Plan may be either authorized but unissued shares, shares held in the Company’s treasury or shares purchased on the open market. Any shares subject to an award which for any reason expire or are terminated unpaid shall again be available for issuance under the Plan.

7. PAYMENT OF AWARDS

Subject to Section 10 below, the Committee shall determine the extent to which awards shall be payable in cash, shares of Common Stock or any combination thereof or in any other form. The Committee may determine that all or a portion of a payment to a participant under the Plan, whether it is to be made in cash, shares of Common Stock or a combination thereof or any other form, shall be available for deferral at a participant’s election. In the event that the Committee determines that any payment may be deferred by a participant, the deferral and distributions shall be made in accordance with Section 10 below.

8. VESTING

The Committee may determine that all or a portion of an award or a payment to a participant under the Plan, whether it is to be made in cash, shares of Common Stock or a combination thereof or any other form, or the right of a participant to exercise an award under the Plan, shall be vested at such times and upon such terms as may be selected by it in its sole discretion.

9. DILUTION AND OTHER ADJUSTMENT

In the event of any change in the outstanding shares of Common Stock by reason of any split, stock dividend, recapitalization, merger, consolidation, spin-off, reorganization, combination or exchange of shares or other similar corporate change or any other change affecting the Common Stock, such equitable adjustments, if any, may be made in the Plan and the awards thereunder as the Committee, in its sole discretion determines are necessary or appropriate, including, if necessary, any adjustments in the number, kind or character of shares that may be subject to existing or future awards under the Plan (including by substitution of shares of another corporation including, without limitation, any successor of the Company), adjustments in the exercise, purchase or base price of an outstanding award and any adjustments in the maximum numbers of shares referred to in Section 6 of the Plan. All such adjustments shall be conclusive and binding for all purposes of the Plan.

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10. DEFERRAL OF AWARD PAYMENTS

(a) DEFERRAL OF COMPENSATION.

(1) INITIAL ELECTIONS. To the extent allowed by the Committee, a participant may elect to have all or a portion of the performance share awards otherwise payable to him or her deferred (“Deferrable Compensation”) by executing a form prescribed by the Committee and by delivering such election form to the Committee. With respect to an award that is granted and may be earned in the same calendar year as the grant, the participant’s election to defer must be made within thirty (30) days after the date of the grant of the award and prior to any payment of the award; with respect to all other awards, the election to defer must be made within thirty (30) days prior to the calendar year in which an award may be earned (or such other time and subject to such other conditions as the Committee shall determine). In making such initial election hereunder, a participant shall specify when the deferred amounts will be paid, or begin to be paid, and shall also specify the form of payment of the Deferrable Compensation in either (A) a single lump-sum payment in Common Stock, or (B) monthly, quarterly, semi-annual or annual installments in Common Stock, but such installments not to exceed ten (10) years (the “Payout Period”).

(2) SUBSEQUENT ELECTIONS. Subsequent to the initial election by a participant with respect to the timing/form of payment described in Section 10(a)(1) above and at least twelve (12) months prior to the date an award is to be paid, the Committee, in its sole discretion, may authorize a participant to make a one-time election to extend the form or timing of payment beyond that originally elected by the participant pursuant to Section 10(a)(1) so long as the payment period does not exceed the form of payment methods described in Section 10(a)(1) above. Such subsequent election to extend the form or timing of payment beyond that originally elected by the participant shall not become effective until twelve (12) months after the date such election is extended by the Committee (“12-Month Waiting Period”). If the date an award is to be paid occurs prior to the expiration of the 12-Month Waiting Period, any payments made to the participant during the 12-Month Waiting Period shall be paid in accordance with the participant’s payment election made pursuant to Section 10(a)(1).

The amount of Deferrable Compensation deferred shall also be paid or distributed to the participants in accordance with the provisions of Section 10(d) or Section 10(e) below.

(b) DEFERRED COMPENSATION ACCOUNT. The Company shall establish a deferred compensation account (the “Account”) for each participant that defers hereunder. Allocations to such Accounts shall be made in accordance with (c) below.

(c) ALLOCATIONS TO ACCOUNTS.

(1) As of the date payments of Deferrable Compensation otherwise would be made to the participant, the amount due the participant shall be credited to such participant’s Account as a stock equivalent as hereinafter provided.

(2) A stock equivalent shall be equal to the number of full and fractional shares of the Common Stock that could be purchased with the dollar amount of Deferrable Compensation using the Average Closing Price (as defined below) of the Common Stock for the twenty (20) trading days ending on the day preceding the date the Account is so credited. The “Average Closing Price” of the Common Stock means the average of the daily closing prices for a share of the Common Stock for the applicable twenty (20) trading days on the Composite Tape for the New York Stock Exchange D Listed Stocks, or, if the Common Stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), on which the Common Stock is listed, or, if the Common Stock is not listed on any such Exchange, the average of the daily closing bid quotations with respect to a share of the Common Stock for such twenty (20) trading days on the National Association of Securities Dealers, Inc. Automated Quotations Systems or any system then in use, or, if no such quotations are available, the fair market value of a share of the Common Stock as determined by the Committee.

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(3) Such participant’s Account also shall be credited as of the payment date for each dividend declared by the Company on the Common Stock with additional stock equivalents computed as follows:

(i) with respect to dividends paid in cash, the total amount of the cash dividend shall be multiplied by the number of stock equivalents in the Account and the product thereof shall be divided by the Average Closing Price of the Common Stock for the twenty (20) trading days ending on the day preceding the dividend payment date;

(ii) with respect to dividends paid in property (other than Common Stock), the Committee shall determine the fair market value of the property at the time of distribution of the dividend, and the number of stock equivalents attributable to such dividend shall then be computed in accordance with paragraph (i) above; and

(iii) with respect to dividends paid in Common Stock, the total number of shares of Common Stock paid in said dividend for each share held by a shareholder of the Company shall be multiplied by the number of stock equivalents in the Account.

(d) DISTRIBUTION OF DEFERRED COMPENSATION.

(1) Except as otherwise provided herein, at each participant’s election, the balance in such participant’s Account that has been deferred shall be paid out to the participant commencing on the date which the participant has specified pursuant to Section 10(a).

If installments were elected, the amount of each installment shall be determined as of the first day of the period in which payment is to be made by dividing the then balance in the Account by the then remaining number of payment dates in the Payout Period. The lump sum or first periodic installment shall be paid by the Company as promptly as is convenient, but not more than sixty (60) days following the date specified by the participant.

(2) In the event a participant ceases to be a Non-Employee Director of the Company (other than after a Change in Control) prior to the distribution of the entire balance in such participant’s Account, the balance in the Account shall be payable in a lump sum in Common Stock by the Company as promptly as is convenient following the participant’s cessation of such Non-Employee Director status, regardless of any deferral election made by the participant.

(3) In the event of the death of a participant prior to distribution of the entire balance in such participant’s Account, regardless of any deferral election made by the participant, the balance in the Account shall be payable in a lump sum by the Company as promptly as is convenient following the participant’s death to:

(i) the surviving beneficiary (or surviving beneficiaries) in such proportions as the participant may have designated by notice in writing to the Company unrevoked by a later notice in writing to the Company or, in the absence of an unrevoked notice;

(ii) the beneficiary (or beneficiaries) in such proportions as the participant may have designated by will or, if no beneficiary is designated, the legal representative of the participant’s estate.

(4) In the event a participant becomes disabled, the payment commencement date and/or payment schedule with respect to a balance in such participant’s Account may be accelerated by the Committee, in its sole discretion, regardless of any deferral election made by the participant.

(5) The provisions of the Plan shall apply to and be binding upon the beneficiaries, distributees and personal representatives and any other successors-in-interest of the participant.

(6) Distributions of stock equivalents in the Account shall be made in whole shares of Common Stock, and fractional shares shall be paid in cash in an amount equal to the number of fractional shares multiplied by the Average Closing Price of the Common Stock for the twenty (20) trading days ending on the day preceding the date of distribution.

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(e) ACCELERATION OF DISTRIBUTION DUE TO CHANGE IN CONTROL. In the event that the provisions of Section 12 apply, Section 12 shall apply to any awards that have been deferred and distributions shall occur as promptly as is convenient in accordance with Section 12(a).

11. AMENDMENTS AND TERMINATION

(a) AMENDMENTS. The Committee may at any time terminate or from time to time amend the Plan in whole or in part, but no such action shall adversely affect any rights or obligations with respect to any awards theretofore made under the Plan.

The Committee may amend outstanding agreements evidencing awards under the Plan at any time and in its sole discretion in the event that the amendment does not adversely affect the participant; if the amendment would adversely affect the participant, the amendment may only be made with the consent of the participant.

(b) TERMINATION. Unless the Plan shall theretofore have been terminated as above provided, the Plan (but not the awards theretofore granted under the Plan) shall terminate on and no awards shall be granted ten (10) years after the effective date of the Plan, as set forth in Section 2 above.

12. CHANGE IN CONTROL.

(a) ACCELERATED VESTING/ACCELERATED DISTRIBUTION FOR DEFERRALS. Except to the extent an award agreement provides for a different result (in which case the award agreement will govern and this Section 12 of the Plan shall not be applicable), notwithstanding anything elsewhere in the Plan or any rules adopted by the Committee pursuant to the Plan to the contrary, if a Triggering Event (as defined in Section 12(b)(2) below) shall occur within the 12-month period beginning with a Change in Control of the Company, then, effective immediately prior to such Triggering Event, each outstanding award of performance shares shall become immediately and fully vested, all performance or other conditions related to the payment of or rights under the award shall lapse, and, with respect to awards that have not been deferred, payment shall be over the time period specified in the award agreement and, with respect to awards that have been deferred, payment shall be in accordance with the participant’s election made pursuant to Section 10(a); however, all distributions under this Section 12 shall be made in cash (rather than Common Stock) in an amount equal to the number of stock equivalents to be distributed multiplied by the greater of (i) the Average Closing Price of the Common Stock for the twenty (20) trading days ending on the day preceding the date on which the right to such distribution arose; (ii) the Average Closing Price of the Common Stock for the twenty (20) trading days ending on the day preceding the date of the Change in Control; or (iii) the highest price per share of Common Stock in the transaction or series of transactions constituting the Change in Control.

(b) DEFINITIONS. For purposes of Section 10(e) and this Section 12, the following terms shall have the meanings set forth below.

(1) CHANGE IN CONTROL. A “Change in Control” shall mean (i) acquisition by any person (within the meaning of Section 12(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of 50% or more of Common Stock then outstanding; or (ii) the consummation of (A) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Common Stock are converted into cash, securities or other property, other than a merger of the Company in which the holders of Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger as they had in Common Stock immediately prior to the merger, or (B) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company, including, without limitation, any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all, of the assets of the Company.

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(2) TRIGGERING EVENT. For purposes hereof, the term “Triggering Event” shall mean (i) the termination of Non-Employee Director status of a participant by the Company or an Affiliate (or any successor thereof) other than on account of death, permanent and total disability or Cause, or (ii) any failure by the Company (or a successor entity) to assume, replace, convert or otherwise continue any award in connection with the Change in Control (or another corporate transaction or other change affecting the Common Stock) on the same terms and conditions as applied immediately prior to such transaction, except for equitable adjustments to reflect the changes in Common Stock pursuant to Section 9 hereof.

(3) CAUSE. For purposes hereof, the term “Cause” shall mean a determination by the Committee that a participant (i) has been convicted of, or entered a plea of NOLO CONTENDERE to, a crime that constitutes a felony under federal or state law, (ii) has engaged in willful gross misconduct in the performance of his or her duties to the Company or an Affiliate or (iii) has committed a material breach of any written agreement with the Company or any Affiliate (or a successor entity) with respect to confidentiality, noncompetition, nonsolicitation or similar restrictive covenant. A termination on account of Cause shall be communicated by written notice to the participant, and shall be deemed to occur on the date such notice is delivered to the participant.

(c) EXCISE TAX LIMIT. In the event that the vesting of the awards together with all other payments and the value of any benefit received or to be received by the participant would result in all or a portion of such payment being subject to excise tax under Section 4999 of the Code, then the participant’s payment shall be either (A) the full payment or (B) such lesser amount that would result in no portion of the payment being subject to excise tax under Section 4999 of the Code (the “Excise Tax”), whichever of the foregoing amounts, taking into account the applicable federal, state, and local employment taxes, income taxes, and the Excise Tax, results in the receipt by the participant, on an after-tax basis, of the greatest amount of the payment notwithstanding that all or some portion of the payment may be taxable under Section 4999 of the Code. All determinations required to be made under this Section 12(c) shall be made by an accounting firm chosen by the Committee (the “Accounting Firm”). The Company shall cause the Accounting Firm to provide detailed supporting calculations of its determinations to the Company and participant. All fees and expenses of the Accounting Firm shall be borne solely by the Company. The Accounting Firm’s determinations must be made with substantial authority (within the meaning of Section 6662 of the Code).

13. GOVERNING LAW AND CONFLICT OF LAWS

The validity and construction of the Plan and any agreements entered into thereunder shall be governed by the laws of the State of Alabama.

14. AUTHORIZED PAYMENTS

Notwithstanding any other provisions of the Plan, if any amounts payable under the Plan are found in a “determination” (within the meaning of Section 1313(a) of the Code) to have been includible in the gross income of a participant prior to payment of such amounts hereunder, such amounts shall be paid to such participant as soon as practicable after the Committee is advised of such determination. For purposes of this Section, the Committee shall be entitled to rely on an affidavit by a participant and a copy of the determination to conclude that a determination described herein has occurred.

15. MISCELLANEOUS PROVISIONS

(a) RIGHTS AS STOCKHOLDER. A participant under the Plan shall have no rights as a holder of Common Stock with respect to awards hereunder, unless and until certificates for shares of such stock are issued to the participant.

(b) ASSIGNMENT OR TRANSFER. No award under this Plan shall be transferable by the participant or shall be subject in any manner to alienation, sale, transfer, assignment, pledge, encumbrance or charge (other than by or to the Company), except (i) by will or the laws of descent and distribution (with all references herein

6

to the rights or duties of holders or participants to be deemed to include the beneficiaries or legal representatives of the holder or participant unless the context otherwise expressly requires); or (ii) subject to the prior approval of the Committee, for transfers to “family members” (as defined below), charitable institutions or such other persons or entities approved by the Committee (subject to such limitations as the Committee in its discretion may impose, if necessary, to comply with applicable securities laws), in each case subject to the condition that the Committee be satisfied that such transfer is being made by the participant for estate planning, tax planning or donative purposes and no consideration (other than nominal consideration or interests in a family partnership, family corporation or other family-related entity) is received by the participant therefor. Except as provided above, during the lifetime of a participant, awards hereunder are payable only to the participant.

For purposes hereof, a “family member” shall mean any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the participant’s household (other than a tenant or employee), a trust in which these persons have more than fifty percent of the beneficial interest, a foundation in which these persons (or the participant) control the management of assets, and any other entity in which these persons (or the participant) own more than fifty percent of the voting interests.

(c) AGREEMENTS. All awards granted under the Plan shall be evidenced by agreements in such form and containing such terms and conditions (not inconsistent with the Plan) as the Committee shall adopt.

(d) COMPLIANCE WITH LEGAL REGULATIONS. During the term of the Plan and the term of any awards granted under the Plan, the Company shall at all times reserve and keep available such number of shares as may be issuable under the Plan, and will seek to obtain from any regulatory body having jurisdiction, any requisite authority required in the opinion of counsel for the Company to grant shares of Common Stock and transfer, issue or sell such number of shares of Common Stock as shall be sufficient to satisfy the requirements of any award.

(e) WITHHOLDING TAXES. The Company shall have the right to deduct from all awards hereunder paid in cash any federal, state, local or foreign taxes required by law to be withheld with respect to such awards and, with respect to awards paid in Common Stock, to require the payment (through withholding from the participant’s salary or otherwise) of any such taxes.

(f) NO RIGHTS TO AWARD. No person shall have any right to be granted an award under the Plan. Neither the Plan nor any action taken hereunder shall be construed as giving any participant any right to be retained in the employ of the Company or any of its Affiliates, or shall interfere with or restrict in any way the rights of the Company or any of its Affiliates, which are hereby reserved, to discharge the Non-Employee Director at any time for any reason whatsoever, with or without good cause, subject to any agreement to the contrary.

(g) COSTS AND EXPENSES. The costs and expenses of administering the Plan shall be borne by the Company and not charged to any award or to any participant receiving an award.

(h) NATURE OF THE PLAN. The Company is under no obligation (1) to transfer amounts credited to a participant’s Account to any trust or escrow account or (2) to secure any amount credited to a participant’s Account by any specific assets of the Company or its Affiliates or any other asset in which the Company or its Affiliates has an interest. The Plan shall not be construed to require the Company or its Affiliates to fund any of the benefits provided hereunder nor to establish a trust for such purpose. The Company or its Affiliates may make such arrangements as it desires to provide for the payment of benefits, including, but not limited to, the establishment of a rabbi trust or such other equivalent arrangement as the Company may decide. No such arrangement shall change the nature of the obligation of the Company or its Affiliates or the rights of the participants as provided herein. Neither a participant nor his or her beneficiary, estate or personal representative shall have any rights against the Company or its Affiliates with respect to any portion of an Account or any trust, escrow account or other arrangement established in connection with the Plan except as a general unsecured creditor.

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EX-31.1

Exhibit 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John H. Holcomb, III, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Alabama National BanCorporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 10, 2004

/s/ John H. Holcomb, III

John H. Holcomb, III

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, William E. Matthews, V, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Alabama National BanCorporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 10, 2004

/s/ William E. Matthews, V

William E. Matthews, V

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Alabama National BanCorporation (“Alabama National”) on Form 10-Q for the period ended March 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), John H. Holcomb, III, Chief Executive Officer of Alabama National, and William E. Matthews, V, Chief Financial Officer of Alabama National, each hereby certifies, pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Alabama National.

Dated: May 10, 2004

/s/ John H. Holcomb, III

John H. Holcomb, III

Chief Executive Officer

/s/ William E. Matthews, V

William E. Matthews, V

Chief Financial Officer