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Actually, it's a reference to inbred people from Wilmington, IL. Though being that Alabama is in the South and most ignorant people think inbreeding is a southern only thing, I can see how some could think that.

Wilmington became famous for being a stop on U.S. Route 66, which followed the route of modern-day Illinois Route 53. A notable attraction for travelers along this route is the hammers or yellow hammers that live in brodies woods they once worked on the railroad using yellow hammers and set up residency in Wilmington. They bred within the family and became mutant from insest.
Watch out for those yellowhammers when in Wilmington!
by fr0sty_nugs September 11, 2009
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We call people from Wilmington Illinois Yellowhammers, because at one time the hillbillies there were inbreeding. When I asked a chick where she was from, and she said Wilmington. I asked does she have any bruncles (brother+uncle)
if you say hes my brother/uncle and you are from Willmington Illinois. You ARE a yellowhammer......

If you say Hi Bruncle Tom, and are from Wilmington Illinois, you ARE a yellowhammer

If you look at your teen daughter and think shes do-able, and you are from Wilmington Il, you ARE a yellowhammer
(if you are from elsewhere, you should be hung from a tree, including Wilmington Illinois)
by JoeMommamommaboo March 21, 2011
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Inbred people such as those depicted in the film "The Deliverance".
Look at those Yellow Hammers sodomizing canoe riders down by the river!
by Michelle Hammons September 07, 2004
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Inbred white trash. From the civil war term given to confederate soldiers from Alabama, whose state bird is the yellowhammer, a yellow-plumed woodpecker.
My friend took me to a zztop concert, which was of course crammed with yellowhammers.
by matt the brat February 16, 2005
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A light skinned female, usually of African American heritage. A synonym for yellow bone which itself is a variation of red bone
Here's an incident that got me sent to the slammer; I'm in the club rappin to this yellow hammer. This bitch was holdin', severely cut; so I'm rappin to her right, to see if she'll fuck.

Geto Boys/Willie D "Read These Nikes"
by BNitti April 19, 2006
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In rural Kentucky, after men went off to war and died in the 1940's, mothers needed to reproduce and so they had sex with their own sons, having inbreed children. These inbred children had multiple defects, and earned the nickname "Yellow Hammer"
Sandy-"Why does Cleetus have so many mental problems?" Duane-"Oh, you didn't hear? He's a yellow hammer."
by Menace5 August 24, 2009
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