BANC CORP - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ____________ TO ____________

COMMISSION FILE NUMBER 0-25033

THE BANC CORPORATION
(Exact Name of Registrant as Specified in Its Charter)

DELAWARE 63-1201350
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
17 NORTH 20TH STREET 35203
BIRMINGHAM, ALABAMA (Zip Code)
(Address of Principal Executive Offices)

(205) 327-3600
(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.001 PER SHARE
(Titles of Class)

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 if disclosure of delinquent files pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

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

The aggregate market value of the voting and nonvoting common stock held by
non-affiliates of the registrant as of June 28, 2002, the last business day of
the most recently completed second fiscal quarter, based on the last reported
sales price on the Nasdaq National Market System of Common Stock was
$118,319,000.

Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date: the number of shares
outstanding as of March 28, 2003, of the registrant's only issued and
outstanding class of stock, its $.001 per share par value common stock, was
17,872,146.

DOCUMENTS INCORPORATED BY REFERENCE

The information set forth under Items 10, 11, 12 and 13 of Part III of this
Report is incorporated by reference from the registrant's definitive proxy
statement for its 2003 annual meeting of stockholders that will be filed no
later than April 30, 2003.
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PART I

ITEM 1. BUSINESS.

GENERAL

We are a Delaware-chartered financial holding company headquartered in
Birmingham, Alabama. We offer a broad range of banking and related services in
35 locations in Alabama and the Florida panhandle through The Bank, our
principal subsidiary. Seven of The Bank branches between Destin and Panama City,
Florida operate as Emerald Coast Bank, a division of The Bank. We had assets of
approximately $1.41 billion, loans of approximately $1.14 billion, deposits of
approximately $1.11 billion and stockholders' equity of approximately $76.5
million at December 31, 2002. Our principal executive offices are located at 17
North 20th Street, Birmingham, Alabama 35203, and our telephone number is (205)
327-3600.

RECENT DEVELOPMENTS

Bristol, Florida Bank Group Situation. In January of 2003, our internal
risk management function identified certain loans that had been extended upon
the authorization and direction of the now former president of our Bristol,
Florida bank group which consists of branches in Altha, Bristol and Blountstown,
Florida. These loans exceeded that former employee's loan authority and were
approved or otherwise extended in violation of The Bank's lending policies and
procedures. It also appears that these loans were deliberately hidden from The
Bank's management through direct manipulation of The Bank's loan files and other
actions of the former employee. Based on our review of the loan documentation,
including collateral and borrower financial information, we charged off
approximately $26.0 million of these loans and provided an additional $9.5
million to our allowance for loan and lease losses as a result of these loans.
We are "adequately" capitalized for regulatory purposes. (For a further
explanation of the regulatory capital requirements and our position relative to
those requirements, please see Item 7 "Management's Discussion and Analysis of
Financial Condition and Results Of Operations -- Financial
Condition -- Regulatory Capital," and Note 15 to our consolidated financial
statements set forth in Item 8 herein.)

The amount of our provision for loan losses was determined after a thorough
loan review and consultation with The Bank's federal and state regulators. We
believe that we will not need to make any additional provision related to these
loans; however, no assurance can be given that any additional classifications or
provision will not be required in the future. As a result of this review and the
acts of our former employee, we have restated our quarterly financial statements
for the periods ended June 30, 2002 and September 30, 2002. The reasons for, and
the results of, this restatement are described in Note 21 of the Consolidated
Financial Statements set forth in Item 8 herein. Although the Bristol, Florida
bank group loan problems resulted from a former employee's intentional
circumvention of our existing internal controls, and although we discovered
these problems as a result of the peer review system we implemented in the
fourth quarter of 2002, we and our independent auditors are nonetheless treating
those circumstances as reflecting material weaknesses in our internal controls
with respect to the monitoring of loan risk ratings, the timely review of the
loan portfolio by our loan review function, the monitoring of past due loans and
the monitoring of loan approval and a loan officer's ability to originate loans
in excess of authorized lending limits. These concerns are being addressed in
part by the actions we instituted during the fourth quarter of 2002. Going
forward, we intend to centralize the loan operations of all of our branch groups
in order to provide an enhanced degree of centralized supervision, monitoring
and accountability. We believe that we will have this centralization completed
within the next twelve months. We have disclosed and discussed these issues and
responses with our Audit Committee and independent auditors. For a further
discussion please see Item 14 "Controls and Procedures."

We are vigorously working with legal counsel and regulatory and federal
authorities to pursue all available remedies and avenues for collection. We
anticipate making fidelity bond claims in an undetermined amount stemming from
the unauthorized loan activity.

Roanoke Branch Sale. On March 13, 2003, The Bank sold its Roanoke branch,
including all loans and deposits, pursuant to a Branch Sale Agreement, dated
November 19, 2002, for gross proceeds of approximately $3.3 million.

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STRATEGY

Operations. The Bank targets individuals and local and regional businesses
that prefer prompt, local decision-making and personalized service. As a result,
we conduct our business on a decentralized basis with respect to deposit
gathering and most credit decisions, emphasizing local knowledge and authority
to make these decisions. We supplement this decentralized management approach
with centralized risk management, policy oversight, credit review, audit,
asset/liability management and risk management systems. We implement these
standardized administrative and operational policies at each of our locations
while retaining local management and advisory directors to capitalize on their
knowledge of the local community. We believe this strategy enables The Bank to
generate high yielding loans and to attract and retain low cost core deposits
that provide a large portion of our funding requirements. Core deposits
comprised approximately 73.5% of our total deposits at December 31, 2002.

Products and Services. We focus on commercial, consumer, residential
mortgage and real estate construction lending to customers in our local markets.
Our retail loan products include mortgage banking services, home equity lines of
credit, consumer loans, including automobile loans, and loans secured by
certificates of deposit and savings accounts. Our commercial loan products
include working capital lines of credit, term loans for both real estate and
equipment, letters of credit and SBA loans. We also offer a variety of deposit
programs to individuals and to businesses and other organizations, including a
variety of personal checking, savings, money market and NOW accounts, as well as
business checking and savings accounts, investment sweep accounts and credit
line sweep accounts. In addition, we offer individual retirement accounts and
investment services, safe deposit and night depository facilities and additional
services such as commercial cash management services, internet banking, bill
payment services and the sale of traveler's checks, money orders and cashier's
checks.

The Bank increased its brokerage, investment and insurance product business
lines during 2002 and plans to offer life, health and long-term care insurance
and annuity products during 2003.

Market Areas. Our primary markets are located throughout the northern half
of Alabama and the panhandle of Florida.

We are headquartered in Birmingham, Alabama. We also have branches in
Albertville, Andalusia, Boaz, Childersburg, Decatur, Frisco City, Gadsden,
Guntersville, Huntsville, Kinston, Madison, Monroeville, Morris, Mt. Olive, Opp,
Rainbow City, Samson, Sylacauga and Warrior, Alabama. We operate a loan
production office in Decatur, Alabama. Along Florida's gulf coast and in the
panhandle region, we have branches in Altha, Apalachicola, Blountstown, Bristol,
Carrabelle, Destin (2), Mexico Beach, Panama City, Panama City Beach (2), Port
Saint Joe, Santa Rosa Beach and Seagrove.

Growth. Since our inception, we have grown through acquisitions, internal
growth and branching. Following each of our acquisitions, we have expended
substantial managerial, operating, financial and other resources to integrate
these entities. In addition, we have typically maintained the acquired entity's
management and staff. As a result of this increase in personnel and the
corresponding investment in infrastructure and systems, our efficiency ratio has
been above average for our peer group.

Our future growth depends primarily on the expansion of the business of The
Bank through internal growth and the opening of new branch offices in new and
existing markets. We will also consider the strategic acquisition of other
financial institutions and branches with relatively high earnings or exceptional
growth potential. Our ability to increase profitability and grow internally
depends significantly on our ability to attract and retain low cost and core
deposits coupled with the continued opportunity to generate high yielding,
quality loans. Our ability to grow profitably through the opening or acquisition
of new branches will depend on, among other things, our ability to identify
profitable, growing markets and branch locations within such markets, attract
necessary deposits to operate such branches profitably and locate lending and
investment opportunities within such markets.

We periodically evaluate business combination opportunities and conduct
discussions, due diligence activities and negotiations in connection with those
opportunities. As a result, business combination transactions involving cash,
debt or equity securities might occur from time to time. Any future business

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combination or series of business combinations that we might undertake may be
material, in terms of assets acquired or liabilities assumed, to our financial
condition. Any future acquisition is subject to approval by the appropriate bank
regulatory agencies. See "Supervision and Regulation."

LENDING ACTIVITIES

General. We offer various lending services, including real estate,
consumer and commercial loans, primarily to individuals and businesses and other
organizations that are located in or conduct a substantial portion of their
business in our market areas. Our total loans at December 31, 2002 were
approximately $1.14 billion, or 91.5% of total earning assets. The interest
rates we charge on loans vary with the risk, maturity and amount of the loan and
are subject to competitive pressures, market interest rates, availability of
funds and government regulations. We do not have any foreign loans or loans for
highly leveraged transactions.

The lending activities of The Bank are subject to the written underwriting
standards and loan origination procedures established by The Bank's board of
directors and management. Loan originations are obtained from a variety of
sources, including referrals, existing customers, walk-in customers and
advertising. Loan applications are initially processed by loan officers who have
approval authority up to designated limits.

We use generally recognized loan underwriting criteria, and attempt to
minimize loan losses through various means. In particular, on larger credits, we
generally rely on the cash flow of a debtor as the primary source of repayment
and secondarily on the value of the underlying collateral. In addition, we
attempt to utilize shorter loan terms in order to reduce the risk of a decline
in the value of such collateral. As of December 31, 2002, approximately 65% of
our loan portfolio consisted of loans that had variable interest rates or
matured within one year. Additionally, The Bank generally does not lend without
personal signatures or guarantees unless approved by the Chairman of the Board
of Directors.

We address repayment risks by adhering to internal credit policies and
procedures that include officer and customer lending limits, a multi-layered
loan approval process that includes senior management of The Bank and The Banc
Corporation for larger loans, periodic documentation examination and follow-up
procedures for any exceptions to credit policies. The level in our loan approval
process at which a loan is approved depends on the size of the borrower's
overall credit relationship with The Bank.

LOAN PORTFOLIO

Real Estate Loans. Loans secured by real estate are a significant
component of our loan portfolio, constituting $841 million, or 73.8% of total
loans at December 31, 2002. Our largest real estate loan category is
nonresidential real estate mortgage loans, typically structured with fixed or
adjustable interest rates, based on market conditions. Nonresidential mortgage
loans include commercial, industrial and raw land loans. At December 31, 2002,
$355 million, or 31.2% of our total loan portfolio consisted of these loans. Our
commercial real estate loans primarily provide financing for income producing
properties such as shopping centers, apartments and office buildings and for
owner occupied properties (primarily light industrial facilities, office
buildings and farm or timber land). These loans are underwritten with
loan-to-value ratios ranging from 65% to 85% based upon the type of property
being financed and the financial strength of the borrower. For owner-occupied
commercial buildings, we underwrite the financial capability of the owner, with
an 85% maximum loan-to-value ratio. For income producing improved real estate,
we underwrite the strength of the leases, especially those of any anchor
tenants, with minimum debt service coverage of 1.2:1 and an 85% maximum
loan-to-value ratio. While evaluation of collateral is an essential part of the
underwriting process for these loans, repayment ability is determined from
analysis of the borrower's earnings and cash flow. Terms are typically three to
five years and may have payments through the date of maturity based on a 15 to
30-year amortization schedule.

At December 31, 2002, $273 million, or 23.9% of our total loan portfolio
consisted of single family mortgage loans. Fixed rate loans usually have terms
of three to five years or less, with payments through the date of maturity based
on a 15 to 30-year amortization schedule. Adjustable rate loans generally have a
term of 15 years. We typically charge an origination fee on these loans.

We make loans to finance the construction of and improvements to
single-family and multi-family housing and commercial structures as well as
loans for land development. At December 31, 2002,

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$213 million, or 18.7% of our total portfolio consisted of these loans. Our
construction lending is divided into three general categories: owner occupied
commercial buildings; income producing improved real estate; and single-family
residential construction. For construction loans related to income producing
properties, the underwriting criteria are the same as outlined in the preceding
paragraph. For single family residential construction, we underwrite the
financial strength and reputation of the builder, factoring in the general state
of the economy and interest rates and the location of the home, with an 85%
maximum loan-to-value ratio. Construction loans usually have a term of twelve
months and generally require personal guarantees. The majority of land
development loans consist of loans to convert raw land into residential
subdivisions.

Commercial and Industrial Loans. We make loans for commercial purposes in
various lines of business. These loans are typically made on terms up to five
years at fixed or variable rates and are secured by accounts receivable,
inventory or, in the case of equipment loans, the financed equipment. We attempt
to reduce our credit risk on commercial loans by limiting the loan to value
ratio to 85% on loans secured by accounts receivable, 50% on loans secured by
inventory and 75% on loans secured by equipment. We also, from time to time,
make unsecured commercial loans. Commercial and industrial loans constituted
$213 million, or 18.7% of our loan portfolio at December 31, 2002.

Consumer Loans. Our consumer portfolio includes installment loans to
individuals in our market areas and consists primarily of loans to purchase
automobiles, recreational vehicles, mobile homes and consumer goods. Consumer
loans constituted $86 million, or 7.5% of our loan portfolio at December 31,
2002. Consumer loans are underwritten based on the borrower's income, current
debt, credit history and collateral. Terms generally range from four to five
years on automobile and mobile home loans and one to three years on other
consumer loans.

CREDIT REVIEW AND PROCEDURES

There are credit risks associated with making any loan. These include
repayment risks, risks resulting from uncertainties in the future value of
collateral, risks resulting from changes in economic and industry conditions and
risks inherent in dealing with individual borrowers. In particular, longer
maturities increase the risk that economic conditions will change and adversely
affect collectibility.

We have a loan review process designed to promote early identification of
credit quality problems. We employ a risk rating system that assigns to each
loan a rating that corresponds to the perceived credit risk. Risk ratings are
subject to independent review by a centralized loan review department, which
also performs ongoing, independent reviews of the risk management process
including underwriting, documentation and collateral control. Regular reports
are made to senior management and the Board of Directors of The Bank regarding
credit quality as measured by assigned risk ratings and other measures,
including, but not limited to, the level of past due percentages and
non-performing assets. The loan review function is centralized and independent
of the lending function. We also use a peer review system in which loans in one
of our banks are reviewed by lenders from our other banks along with loan review
and credit administration executives. Review results are reported to the Audit
Committee of our board of directors as well as to our independent auditors.

DEPOSITS

Core deposits are our principal source of funds, constituting approximately
73.5% of our total deposits as of December 31, 2002. Core deposits consist of
demand deposits, interest-bearing transaction accounts, savings deposits and
certificates of deposit (excluding certificates of deposits over $100,000).
Transaction accounts include checking, money market and NOW accounts that
provide The Bank with a source of fee income and cross-marketing opportunities,
as well as a low-cost source of funds. Time and savings accounts also provide a
relatively stable and low-cost source of funding. The largest source of funds
for The Bank is certificates of deposit. Certificates of deposit in excess of
$100,000 are held primarily by customers in our market areas.

Deposit rates are set periodically by the Asset Liability Management
Committee, which includes senior management of The Bank and The Banc
Corporation. We believe our rates are competitive with those offered

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by competing institutions in our market areas; however, we focus on customer
service, not high rates, to attract and retain deposits.

COMPETITION

The banking industry is highly competitive, and our profitability depends
principally upon our ability to compete in our market areas. In our market
areas, we face competition from both super-regional banks and smaller community
banks. We encounter strong competition both in making loans and attracting
deposits. Competition among financial institutions is based upon interest rates
offered on deposit accounts, interest rates charged on loans and other credit
and service charges. Customers also consider the quality and scope of the
services rendered, the convenience of banking facilities and, in the case of
loans to commercial borrowers, relative lending limits. Customers may also take
into account the fact that other banks offer different services. Many of the
large super-regional banks against which we compete have significantly greater
lending limits and may offer additional products; however, we believe we have
been able to compete effectively with other financial institutions, regardless
of their size, by emphasizing customer service and by providing a wide array of
services. In addition, most of our non-bank competitors are not subject to the
same extensive federal regulations that govern bank holding companies and
federally insured banks. See "Supervision and Regulation." Competition may
further intensify if additional financial services companies enter markets in
which we conduct business.

EMPLOYEES

As of December 31, 2002, we employed approximately 460 individuals,
primarily at The Bank. We believe that our employee relations have been and
continue to be good.

SUPERVISION AND REGULATION

We are a financial holding company under the Gramm-Leach-Bliley Act
("GLBA"). We are subject to the supervision, examination and reporting
requirements of the Federal Reserve Board, the Bank Holding Company Act ("BHCA")
and the GLBA. The BHCA and other federal laws subject bank holding companies to
particular restrictions on the types of activities in which they may engage and
to a range of supervisory requirements and activities, including regulatory
enforcement actions for violations of laws and regulations.

The supervision and regulation of bank holding companies and their
subsidiaries are intended primarily for the protection of depositors, the
deposit insurance funds of the Federal Deposit Insurance Corporation (the
"FDIC") and the banking system as a whole, not for the protection of bank
holding company stockholders or creditors. The banking agencies have broad
enforcement power over bank holding companies and banks, including the power to
impose substantial fines and other penalties for violation of laws and
regulations. The following description summarizes some of the laws to which we
are subject. References herein to applicable statutes and regulations are brief
summaries thereof, do not purport to be complete and are qualified in their
entirety by reference to such statutes and regulations.

The Bank, an Alabama state chartered bank and member of the Federal Reserve
System, is subject to the regulation, supervision and examination by the Federal
Reserve Board and the Alabama Banking Department.

Gramm-Leach-Bliley Act. The GLBA became law on November 12, 1999, and key
provisions affecting bank holding companies became effective March 11, 2000. The
GLBA enables bank holding companies to acquire insurance companies and
securities firms and effectively repeals depression-era laws which prohibited
the affiliation of banks and these other financial services entities under a
single holding company. Certain qualified bank holding companies and other types
of financial service entities may elect to become financial holding companies
under the new law. Financial holding companies are permitted to engage in
activities considered financial in nature, as defined in the GLBA, and may
engage in a broader range of activities than bank holding companies or banks.
The GLBA will enable financial holding companies to offer a wide variety of
financial services, or services incident to financial services, including
banking, securities underwriting, merchant banking and insurance (both
underwriting and agency services). The new financial services
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authorized by the GLBA also may be engaged in by a "financial subsidiary" of a
national or state bank, with the exception of insurance or annuity underwriting,
insurance company portfolio investments, real estate investment and development,
and merchant banking, all of which must be conducted under the financial holding
company.

To become a financial holding company, a bank holding company must provide
notice to the Federal Reserve Board of its desire to become a financial holding
company, and certify to the Federal Reserve Board that each of its bank
subsidiaries is "well-capitalized," "well-managed" and has at least a
"satisfactory" rating under the CRA. These requirements are also necessary to
maintain financial holding company status. On February 12, 2000, we filed our
election to become a financial holding company with the Federal Reserve Board.
Our election was effective as of March 13, 2000.

Regulatory Restrictions on Dividends. Various federal and state statutory
provisions limit the amount of dividends The Bank can pay to us without
regulatory approval. Approval of the Federal Reserve Board is required for
payment of any dividend by a state chartered bank that is a member of the
Federal Reserve System if the total of all dividends declared by the bank in any
calendar year would exceed the total of its net profits (as defined by
regulatory agencies) for that year combined with its retained net profits for
the preceding two years. In addition, a state member bank may not pay a dividend
in an amount greater than its net profits. State member banks may also be
subject to similar restrictions imposed by the laws of the states in which they
are chartered.

Under Alabama law, a bank may not pay a dividend in excess of 90% of its
net earnings until the bank's surplus is equal to at least 20% of its capital.
The Bank is also required by Alabama law to obtain the prior approval of the
Superintendent of the State Banking Department of Alabama for its payment of
dividends if the total of all dividends declared by The Bank in any calendar
year will exceed the total of (1) The Bank's net earnings (as defined by
statute) for that year, plus (2) its retained net earnings for the preceding two
years, less any required transfers to surplus. In addition, no dividends may be
paid from The Bank's surplus without the prior written approval of the
Superintendent.

In addition, federal bank regulatory authorities have authority to prohibit
the payment of dividends by bank holding companies if their actions constitute
unsafe or unsound practices. The Federal Reserve Board has issued a policy
statement on the payment of cash dividends by bank holding companies, which
expresses the Federal Reserve Board's view that a bank holding company
experiencing earnings weaknesses should not pay cash dividends that exceed its
net income or that could only be funded in ways that weaken the bank holding
company's financial health, such as by borrowing. Our ability and The Bank's
ability to pay dividends in the future is currently, and could be further,
affected by bank regulatory policies and capital guidelines. Currently, we must
obtain regulatory approval prior to paying dividends on our common stock or our
trust preferred securities. The Federal Reserve approved the timely payment of
our semi-annual distribution on our trust preferred securities in March 2003.

Source of Strength. Under Federal Reserve Board policy, a bank holding
company is expected to act as a source of financial strength to its banking
subsidiaries and commit resources to their support. This support may be required
by the Federal Reserve Board at times when, absent this policy, a bank holding
company may not be inclined to provide it. A bank holding company, in certain
circumstances, could be required to guarantee the capital plan of an
undercapitalized banking subsidiary. In addition, any capital loans by a bank
holding company to any of its depository institution subsidiaries are
subordinate in right of payment to deposits and to certain other indebtedness of
the banks.

Under the Federal Deposit Insurance Act ("FDIA"), an FDIC-insured
depository institution can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC in connection with (1) the
default of a commonly controlled FDIC-insured depository institution or (2) any
assistance provided by the FDIC to any commonly controlled FDIC-insured
depository institution "in danger of default." "Default" is defined generally as
the appointment of a conservator or receiver and "in danger of default" is
defined generally as the existence of certain conditions indicating that a
default is likely to occur in the absence of regulatory assistance. The FDIC's
claim for damages is superior to claims of stockholders of the insured

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depository institution or its holding company but is subordinate to claims of
depositors, secured creditors and holders of subordinated debt (other than
affiliates) of the commonly controlled insured depository institution.

Safe and Sound Banking Practices. Bank holding companies are not permitted
to engage in unsafe or unsound banking practices. The Federal Reserve Board has
broad authority to prohibit activities of bank holding companies and their
non-banking subsidiaries which represent unsafe or unsound banking practices or
which constitute violations of laws or regulations, and can assess civil money
penalties for certain activities conducted on a knowing and reckless basis, if
those activities caused a substantial loss to a depository institution. The
penalties can be as high as $1,000,000 for each day the activity continues.

Capital Adequacy Requirements. We are required to comply with the capital
adequacy standards established by the Federal Reserve Board, and The Bank is
subject to additional requirements of the FDIC and the Alabama Banking
Department. The Federal Reserve Board has adopted two basic measures of capital
adequacy for bank holding companies: a risk-based measure and a leverage
measure. All applicable capital standards must be satisfied for a bank holding
company to be in compliance.

The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items are
assigned to risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance-sheet items.

The minimum guideline for the ratio (the "Total Risk-Based Capital Ratio")
of total capital ("Total Capital") to risk-weighted assets (including certain
off-balance-sheet items, such as standby letters of credit) is 8%. At least half
of Total Capital must comprise common stock, minority interests in the equity
accounts of consolidated subsidiaries, noncumulative perpetual preferred stock,
and a limited amount of cumulative perpetual preferred stock, less goodwill and
certain other intangible assets ("Tier 1 Capital"). The remainder may consist of
subordinated debt, other preferred stock and a limited amount of loan loss
reserves ("Tier 2 Capital").

In addition, the Federal Reserve Board has established minimum leverage
ratio guidelines for bank holding companies. These guidelines provide for a
minimum ratio (the "Leverage Ratio") of Tier 1 Capital to average assets, less
goodwill and certain other intangible assets, of 3% for bank holding companies
that meet certain specified criteria, including having the highest regulatory
rating. All other bank holding companies generally are required to maintain a
Leverage Ratio of at least 3%, plus an additional cushion of 100 to 200 basis
points. Our Leverage Ratio was 5.67% at December 31, 2002. The guidelines also
provide that bank holding companies experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels without significant reliance on intangible
assets. Furthermore, the Federal Reserve Board has indicated that it will
consider a tangible Tier 1 Capital Leverage Ratio (deducting all intangibles)
and other indicia of capital strength in evaluating proposals for expansion or
new activities.

The federal bank regulatory agencies' risk-based and leverage ratios are
minimum supervisory ratios generally applicable to banking organizations that
meet certain specified criteria, assuming that they have the highest regulatory
rating. Banking organizations not meeting these criteria are expected to operate
with capital positions well above the minimum ratios. The federal and state bank
regulatory agencies may set capital requirements for a particular banking
organization that are higher than the minimum ratios when circumstances warrant.

The Bank was in compliance with the applicable minimum capital requirements
as of December 31, 2002. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Failure to meet capital guidelines could
subject The Bank to a variety of enforcement remedies by federal bank regulatory
agencies, including termination of deposit insurance by the FDIC, and to certain
restrictions on business.

As of December 31, 2002, both The Banc Corporation and The Bank were
"adequately capitalized."

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Branching. The BHCA, as amended by the interstate banking provisions of
the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act"), repealed the prior statutory restrictions on
interstate banking so that The Banc Corporation may acquire a bank located in
any other state, and any bank holding company located outside Alabama may
lawfully acquire any Alabama-based bank regardless of state law to the contrary,
in either case subject to certain deposit-percentage minimums, aging
requirements and other restrictions. In addition, the Interstate Banking Act
generally provided that after June 1, 1997, national and state-chartered banks
may branch interstate through acquisitions of banks in other states.

Alabama and other states have laws relating specifically to acquisitions of
banks, bank holding companies and other types of financial institutions. Alabama
law sets five years as the minimum age of banks which may be acquired by an out
of state institution.

Restrictions on Transactions With Affiliates and Insiders. Transactions
between The Bank and its affiliates, including The Banc Corporation, are subject
to Sections 23A and 23B of the Federal Reserve Act and, as of April 1, 2003,
Regulation W which implements Sections 23A and 23B. In general, Section 23A
imposes limits on the amount of such transactions and also requires certain
levels of collateral for loans to affiliated parties. It also limits the amount
of advances to third parties which are collateralized by the securities or
obligations of The Banc Corporation or any of its subsidiaries. Section 23B of
the Federal Reserve Act generally requires that certain transactions between a
bank and its respective affiliates be on terms substantially the same, or at
least as favorable to such bank, as those prevailing at the time for comparable
transactions with or involving other nonaffiliated persons.

The restrictions on loans to directors, executive officers, principal
stockholders and their related interests (collectively referred to herein as
"insiders") contained in the Federal Reserve Act and Regulation O apply to all
federally insured institutions and their subsidiaries and holding companies.
These restrictions include limits on loans to one borrower and conditions that
must be met before such a loan can be made. There is also an aggregate
limitation on all loans to insiders and their related interests. These loans
cannot exceed the institution's total unimpaired capital and surplus, and the
FDIC may determine that a lesser amount is appropriate. Insiders are subject to
enforcement actions for knowingly accepting loans in violation of applicable
restrictions. State banking laws also have similar provisions.

FDIC Insurance Assessments. Pursuant to FDICIA, the FDIC adopted a
risk-based assessment system for insured depository institutions that takes into
account the risks attributable to different categories and concentrations of
assets and liabilities. The system assigns an institution to one of three
capital categories: (1) well capitalized; (2) adequately capitalized; and (3)
undercapitalized. These three categories are substantially similar to the prompt
corrective action categories described above, with the "undercapitalized"
category including institutions that are undercapitalized, significantly
undercapitalized, and critically undercapitalized for prompt corrective action
purposes. An institution is also assigned by the FDIC to one of three
supervisory subgroups within each capital group. The supervisory subgroup to
which an institution is assigned is based on a supervisory evaluation provided
to the FDIC by the institution's primary federal regulator and information which
the FDIC determines to be relevant to the institution's financial condition and
the risk posed to the deposit insurance funds (which may include, if applicable,
information provided by the institution's state supervisor). An institution's
insurance assessment rate is then determined based on the capital category and
supervisory category to which it is assigned. Under the risk-based assessment
system, there are nine assessment risk classifications (i.e., combinations of
capital groups and supervisory subgroups) to which different assessment rates
are applied.

Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe and unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC.

Community Reinvestment Act. The Bank is subject to the CRA. The CRA and
the regulations issued thereunder are intended to encourage banks to help meet
the credit needs of their service area, including low and moderate income
neighborhoods, consistent with the safe and sound operations of the banks. These
regulations also provide for regulatory assessment of a bank's record in meeting
the needs of its service area
9

when considering applications to establish branches, merger applications and
applications to acquire the assets and assume the liabilities of another bank.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") requires federal banking agencies to make public a rating of a bank's
performance under the CRA. In the case of a bank holding company, the CRA
performance record of the banks involved in the transaction are reviewed by
federal banking agencies in connection with the filing of an application to
acquire ownership or control of shares or assets of a bank or thrift or to merge
with any other bank holding company. An unsatisfactory record can substantially
delay or block the transaction. The Bank has a satisfactory CRA rating from
federal banking agencies.

USA Patriot Act. The Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the
"USA Patriot Act"). The USA Patriot Act strengthened the ability of the U.S.
government to detect and prosecute international money laundering and the
financing of terrorism. Among its provisions, the USA Patriot Act requires that
regulated financial institutions, including state member banks: (i) establish an
anti-money laundering program that includes training and audit components; (ii)
comply with regulations regarding the verification of the identity of any person
seeking to open an account; (iii) take additional required precautions with
non-U.S. owned accounts; and (iv) perform certain verification and certificate
of money laundering risk for their foreign correspondent banking relationships.
We have adopted policies, procedures and controls to address compliance with the
requirements of the USA Patriot Act under the existing regulations and will
continue to revise and update our policies, procedures and controls to reflect
changes required by the USA Patriot Act and implementing regulation.

Consumer Laws and Regulations. In addition to the laws and regulations
discussed herein, The Bank is also subject to certain consumer laws and
regulations that are designed to protect consumers in transactions with banks.
While the list set forth herein is not exhaustive, these laws and regulations
include the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds
Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity
Act, the Fair Housing Act, the Fair Credit Reporting Act and the Settlement
Procedures Act among others. These laws and regulations mandate certain
disclosure requirements and regulate the manner in which financial institutions
must deal with customers when taking deposits, making loans to or engaging in
other types of transactions with such customers.

INSTABILITY OF REGULATORY STRUCTURE

Various bills are routinely introduced in the United States Congress and
state legislatures with respect to the regulation of financial institutions.
Certain of these proposals, if adopted, could significantly change the
regulation of banks and the financial services industry. We cannot predict
whether any of these proposals will be adopted or, if adopted, how these
proposals would affect us.

EFFECT ON ECONOMIC ENVIRONMENT

The policies of regulatory authorities, especially the monetary policy of
the Federal Reserve Board, have a significant effect on the operating results of
bank holding companies and their subsidiaries. Among the means available to the
Federal Reserve Board to affect the money supply are open market operations in
U.S. Government securities, changes in the discount rate on member bank
borrowings and changes in reserve requirements against member bank deposits.
These means are used in varying combinations to influence overall growth and
distribution of bank loans, investments and deposits, and their use may affect
interest rates charged on loans or paid for deposits.

Federal Reserve Board monetary policies have materially affected the
operating results of commercial banks in the past and are expected to continue
to do so in the future. The nature of future monetary policies and the effect of
such policies on our business and earnings cannot be predicted.

AVAILABLE INFORMATION

The Banc Corporation maintains an Internet website at
www.thebankmybank.com. The Banc Corporation makes available free of charge
through its website various reports that it files with the Securities and
Exchange Commission including its annual reports on Form 10-K, quarterly reports
on Form 10-Q, current
10

reports on Form 8-K, and amendments to these reports. These reports are made
available as soon as reasonably practicable after they are filed with, or
furnished to the Securities and Exchange Commission. From our home page at
www.thebankmybank.com, go to and click on "Investor Relations" to access these
reports.

ITEM 2. PROPERTIES.

Our headquarters are located at 17 North 20th Street, Birmingham, Alabama.
As of December 21, 1999, The Banc Corporation and The Bank, who jointly own the
building, converted the building into condominiums known as The Bank
Condominiums. The Bank owns the Bank unit, which consists of four floors of the
building, including a branch of The Bank and our headquarters and Units 4-5 and
Units 7-14 of the Bank Condominiums. We have sold or leased six Units, and we
intend to use most of the remaining space for future expansion of The Bank. We
will relocate our operations and data processing center to the fourth and fifth
floors and centralize our risk management department on the sixth floor of our
headquarters building during 2003. We may sell or lease any remaining
condominium units for commercial or residential use.

We operate through 36 office facilities, including our current operations
center. We own 32 of these facilities, lease four facilities and have two ground
leases on facilities we own. Rental expense on the leased properties totaled
approximately $125,000 in 2002 which includes three months of rental expense on
Emerald Coast Bank, a Division of The Bank, branches purchased by The Bank in
March 2002.

ITEM 3. LEGAL PROCEEDINGS.

While we are a party to various legal proceedings arising from the ordinary
course of our business, we believe that there are no proceedings threatened or
pending against us at this time that will individually, or in the aggregate,
materially or adversely affect our business, financial condition or results of
operations. We believe that we have strong claims and defenses in each lawsuit
in which we are involved. While we believe that we will prevail in each lawsuit,
there can be no assurance that the outcome of the pending, or any future,
litigation, either individually or in the aggregate, will not have a material
adverse effect on our financial condition or our results of operations.

11

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.

MARKET FOR COMMON STOCK

Our common stock trades on Nasdaq under the ticker symbol "TBNC". As of
March 27, 2003, there were approximately 934 record holders of our common stock.
The following table sets forth, for the calendar periods indicated, the range of
high and low closing sales prices:

On December 31, 2002, the last sale price for the common stock was $7.76
per share.

DIVIDENDS

Holders of our common stock are entitled to receive dividends when, as and
if declared by our board of directors. Prior to October 29, 2002, when our Board
of Directors approved a quarterly cash dividend of $.02 per share or $.08 per
share annually, we had not paid dividends. Our first quarterly dividend of $.02
per share was paid on November 25, 2002. We derive cash available to pay
dividends primarily, if not entirely, from dividends paid to us by our
subsidiaries. There are certain restrictions that limit The Bank's ability to
pay dividends to us and our ability to pay dividends. Our ability to pay
dividends to our stockholders will depend on our earnings and financial
condition, liquidity and capital requirements, the general economic and
regulatory climate, our ability to service any equity or debt obligations senior
to our common stock and other factors deemed relevant by our board of directors.
Currently, we must obtain regulatory approval prior to paying dividends on our
common stock or our trust preferred securities. The Federal Reserve approved the
timely payment of our semi-annual distribution on our trust preferred securities
in March 2003. The restrictions that may limit our ability to pay dividends are
discussed in this Report in Item 1 under the heading "Supervision and
Regulation -- Regulatory Restrictions on Dividends."

ITEM 6. SELECTED FINANCIAL DATA.

The following table sets forth selected financial data from our
consolidated financial statements and should be read in conjunction with our
consolidated financial statements including the related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
selected historical financial data as of December 31, 2002 and 2001 and for each
of the three years ended December 31, 2002 is derived from our audited
consolidated financial statements and related notes included in this Form 10-K.
See "Item 8. The Banc Corporation and Subsidiaries Consolidated Financial
Statements."

12

- ---------------

(1) Trust preferred securities have been reclassified as long-term debt in the
December 31, 2001 and 2000, statements of financial condition to conform to
the December 31, 2002 presentation.
(2) Distributions on the trust preferred securities have been reclassified as
interest expense in the statements of income for the periods December 31,
2001 and 2000, respectively to conform to the December 31, 2002
presentation.
(3) Net interest income divided by average earning assets.
(4) Calculated on a tax equivalent basis.
(5) Yield on average interest-earning assets less rate on average interest
bearing liabilities.
(6) Efficiency ratio is calculated by dividing noninterest expense by
noninterest income plus net interest income on a fully tax equivalent basis.

13

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

GENERAL

The following is a narrative discussion and analysis of significant changes
in our results of operations and financial condition. This discussion should be
read in conjunction with the consolidated financial statements and selected
financial data included elsewhere in this document.

Our principal subsidiary is The Bank, a financial institution organized and
existing under the laws of Alabama and headquartered in Birmingham, Alabama
which operates 35 banking offices throughout Alabama and the panhandle of
Florida. Other subsidiaries include TBC Capital Statutory Trust II ("TBC Capital
II"), a Connecticut statutory trust, TBC Capital Statutory Trust III ("TBC
Capital III"), a Delaware business trust, and Morris Avenue Management Group,
Inc. ("MAMG"), an Alabama corporation, all of which are wholly owned. TBC
Capital II and TBC Capital III are consolidated special purpose entities formed
solely to issue cumulative trust preferred securities. MAMG is a real estate
management company that manages our real properties.

The acquisition of other banking organizations during 1998 and 1999
contributed significantly to our early development. During the fourth quarter of
1998, Commerce Bank of Alabama, Inc. and the banking subsidiaries of Commercial
Bancshares of Roanoke, Inc., City National Corporation and First Citizens
Bancorp, Inc. were merged with and into The Bank. Emerald Coast Bank became our
subsidiary in February 1999, as a result of our merger with Emerald Coast
Bancshares, Inc. C&L Bank became our subsidiary in June 1999 as a result of our
acquisitions of C&L Bank of Blountstown and C&L Banking Corporation and its bank
subsidiary, C&L Bank of Bristol. The banking subsidiary of BankersTrust of
Alabama, Inc., was merged into The Bank in July 1999. The Bank also acquired
three new branches in Southeast Alabama in November of 1999. In June 2000,
Emerald Coast Bank and C&L Bank merged into The Bank. During March 2002,
Citizens Federal Savings Bank of Port St. Joe, the banking subsidiary of CF
Bancshares, Inc., was merged into The Bank in connection with our acquisition of
CF Bancshares, Inc.

CRITICAL ACCOUNTING ESTIMATES

In preparing financial information, management is required to make
significant estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses for the periods shown. The accounting
principles we follow and the methods of applying these principles conform with
accounting principles generally accepted in the United States and general
banking practices. Estimates and assumptions most significant to us are related
primarily to our allowance for loan losses and are summarized in the following
discussion and notes to the consolidated financial statements.

Management's determination of the adequacy of the allowance for loan
losses, which is based on the factors and risk identification procedures
discussed in the following pages, requires the use of judgments and estimates
that may change in the future. Changes in the factors used by management to
determine the adequacy of the allowance or the availability of new information
could cause the allowance for loan losses to be increased or decreased in future
periods. In addition, bank regulatory agencies, as part of their examination
process, may require that additions be made to the allowance for loan losses
based on their judgments and estimates.

RECENT DEVELOPMENTS

Bristol, Florida Bank Group Situation. In January of 2003, our internal
risk management function identified certain loans that had been extended upon
the authorization and direction of the now former president of our Bristol,
Florida bank group which consists of branches in Altha, Bristol and Blountstown,
Florida. These loans exceeded that former employee's loan authority and were
approved or otherwise extended in violation of The Bank's lending policies and
procedures. It also appears that these loans were deliberately hidden from The
Bank's management through direct manipulation of The Bank's loan files and other
actions of the former employee. Based on our review of the loan documentation,
including collateral and borrower financial information, we charged off
approximately $26.0 million of these loans and provided an additional

14

$9.5 million to our allowance for loan and lease losses. We are "adequately"
capitalized for regulatory purposes. (For a further explanation of the
regulatory capital requirements and our position relative to those requirements,
please see Item 7 "Management's Discussion and Analysis of Financial Condition
and Results Of Operations -- Financial Condition -- Regulatory Capital," herein
and Note 15 to our consolidated financial statements set forth in Item 8
herein.)

The amount of our provision for loan losses was determined after a thorough
loan review and consultation with The Bank's federal and state regulators. We
believe that we will not need to make any additional provision related to these
loans; however, no assurance can be given that any additional classifications or
provision will not be required in the future. As a result of this review and the
acts of our former employee, we have restated our quarterly financial statements
for the periods ended June 30, 2002 and September 30, 2002. The reasons for, and
the results of, this restatement are described in Note 21 the Consolidated
Financial Statements set forth in Item 8 herein. Although the Bristol, Florida
bank group loan problems resulted from a former employee's intentional
circumvention of our existing internal controls, and although we discovered
these problems as a result of the peer review system we implemented in the
fourth quarter of 2002, we and our independent auditors are nonetheless treating
those circumstances as reflecting material weaknesses in our internal controls
with respect to the monitoring of loan risk ratings, the timely review of the
loan portfolio by our loan review function, the monitoring of past due loans and
the monitoring of loan approval and a loan officer's ability to originate loans
in excess of authorized lending limits. These concerns are being addressed in
part by the actions we instituted during the fourth quarter of 2002. Going
forward, we intend to centralize the loan operations of all of our branch groups
in order to provide an enhanced degree of centralized supervision, monitoring
and accountability. We believe that we will have this centralization completed
within the next twelve months. We have disclosed and discussed these issues and
responses with our Audit Committee and independent auditors. For a further
discussion please see Item 14 "Controls and Procedures."

We are vigorously working with legal counsel and regulatory and federal
authorities to pursue all available remedies and avenues for collection. We
anticipate making fidelity bond claims in an undetermined amount stemming from
the unauthorized loan activity.

Roanoke Branch Sale. On March 13, 2003, The Bank sold its Roanoke branch,
including all loans and deposits, pursuant to a Branch Sale Agreement, dated
November 19, 2002, for gross proceeds of approximately $3.3 million.

RESULTS OF OPERATIONS

Year Ended December 31, 2002, Compared With Year Ended December 31, 2001

During the year ended December 31, 2002, we incurred a net loss of $(18.4)
million compared to net income of $2.7 million in the year ended December 31,
2001. This loss was due to a $51.9 million provision for loan losses, of which
$36.2 million related to Bristol. Our return on average assets in 2002 was
(1.36)%, compared to 0.23% in 2001. Return on average equity was (19.89)% in
2002 compared to 3.53% in 2001. Average equity to average assets increased to
6.83% in 2002 from 6.62% in 2001.

Net interest income increased $8.2 million, or 20.6% to $48.0 million for
the year ended December 31, 2002, from $39.8 million for the year ended December
31, 2001. This was due to a decrease in interest expense of $10.1 million, or
20.0% offset by a decrease in interest income of $1.9 million, or 2.1%. This
decrease in interest expense was primarily attributable to an $11.2 million, or
27.8% decrease in interest expense on deposits. Average interest-bearing
liabilities increased $178.6 million, while the average interest rate decreased
from 5.23% in 2001 to 3.53% in 2002.

Our net interest spread and net interest margin increased to 3.70% and
3.94%, respectively, in 2002, from 3.43% and 3.83% in 2001. During 2002, the
average interest rate earned on interest-earning assets decreased due to the
decline in interest rates during the year. However, this was offset by an
increase in the volume of average loans and a decrease in interest rates paid on
interest-bearing liabilities. The ratio of average interest-earning assets to
average interest-bearing liabilities was 107.05% and 108.26% for 2002 and 2001,
respectively.

15

The average rate paid on our interest bearing liabilities was 3.53% compared to
the average yield on our loan portfolio of 7.50% during the year.

The provision for loan losses represents the amount determined by
management necessary to maintain the allowance for loan losses at a level
capable of absorbing inherent losses in the loan portfolio. Management reviews
the adequacy of the allowance for loan losses on a quarterly basis. The
allowance for loan losses is established based on risk ratings assigned by loan
officers. Loans are risk rated using a seven point scale, and loan officers are
responsible for the timely reporting of changes in the risk ratings. This
process and the assigned risk ratings are subject to review by our internal Loan
Review Department. Based on the assigned risk ratings, the loan portfolio is
segregated into the regulatory classifications of: Special Mention, Substandard,
Doubtful or Loss. Generally, recommended regulatory reserve percentages are
applied to these categories to estimate the amount of loan loss allowance
required. Impaired loans are reviewed specifically and separately under
Statement of Financial Accounting Standards ("SFAS") Statement No. 114 to
determine the appropriate reserve allocation. Management compares the investment
in an impaired loan against the present value of expected future cash flow
discounted at the loan's effective interest rate, the loan's observable market
price or the fair value of the collateral, if the loan is collateral dependent,
to determine the appropriate reserve allowance. Reserve percentages assigned to
non-rated loans are based on historical charge-off experience adjusted for other
risk factors. To evaluate the overall adequacy of the allowance to absorb losses
inherent in our loan portfolio, management considers historical loss experience
based on volume and types of loans, trends in classifications, volume and trends
in delinquencies and non-accruals, economic conditions and other pertinent
information. Based on future evaluations, additional provisions for loan losses
may be necessary to maintain the allowance for loan losses at an appropriate
level. See "Financial Condition -- Allowance for Loan Losses" for additional
discussion.

The provision for loan losses was $51.9 million for the year ended December
31, 2002 compared to $7.5 million in 2001. During 2002, the Bristol bank group's
provision for loan loss was $36.2 million; the Albertville bank's provision for
loan losses was $3.4 million and the Huntsville bank's provision for loan losses
was $7.2 million. Net charge-offs increased $33.8 million from $3.9 million in
2001 to $37.7 million in 2002. Net charge-offs, as a percentage of the provision
for loan losses, were 72.7% in 2002, compared to 51.9% in 2001. The Bristol bank
group contributed approximately $26.2 million to total charge-offs during 2002;
the Albertville bank contributed approximately $2.3 million and the Huntsville
bank contributed approximately $5.1 million. After provisions and charge-offs
the allowance for loan losses was 2.44% of loans, net of unearned income, at
December 31, 2002 compared to 1.26% at December 31, 2001. See "Financial
Condition -- Allowance for Loan Losses" for additional discussion.

Noninterest income increased $5.3 million, or 54.7% to $15.1 million in
2002, from $9.8 million in 2001. Income from mortgage banking operations for the
year ended December 31, 2002 increased $1.6 million, or 92.2% to $3.3 million in
2002, from $1.7 million in 2001. Income from customer service charges and fees
increased $1.7 million, or 42.6% to $5.8 million from $4.1 million in 2001. We
also received $1.1 million related to the settlement of litigation. Other
noninterest income was $4.3 million, an increase of $1.7 million, or 66.1% from
$2.6 million in 2001. The increase in other noninterest income was primarily due
to an increase of $565,000 in the cash surrender value of life insurance
policies and gains on the sale of loans of $321,000.

Noninterest expense increased $4.2 million, or 10.8% to $42.7 million in
2002 from $38.5 million in 2001. Salaries and employee benefits increased $4.0
million, or 20.8% to $23.5 million in 2002 compared to $19.5 million in 2001.
The increase in salaries and benefits primarily resulted from the increased
salary expense associated with the acquisition of CF Bancshares, Inc. and the
addition of personnel in the administration and operation areas, specifically,
loan review, risk management, internal audit and credit administration. All
other noninterest expenses increased $128,000, or 0.7% to $19.2 million,
compared to $19.1 million in 2001. This increase in other noninterest expenses
consists primarily of a $396,000 increase in occupancy and equipment expenses
offset by a $268,000 decrease in other operating expenses. Occupancy expenses
increased during 2002 as a result of increased depreciation and maintenance
related to our acquisition of CF Bancshares, Inc. During 2001, other operating
expenses included goodwill amortization of $562,000. In accordance with FASB
Statement No. 142, "Goodwill and Other Intangible Assets," no amortization of
goodwill was recorded in 2002.
16

Our income tax benefit was $(13.0) million in 2002 and our income tax
expense was $966,000 in 2001, resulting in effective tax rates of (41.3%) and
26.4%, respectively. The primary difference in the effective tax rate and the
federal statutory rate of 34% for 2002 is due primarily to certain tax-exempt
income and for 2001 from the recognition of a rehabilitation tax credit of
$522,000, respectively, generated from the restoration of our headquarters, the
John A. Hand building.

Our determination of the realization of deferred tax assets is based
partially on taxable income in prior carryback years and upon management's
judgment of various future events and uncertainties, including future reversals
of existing taxable temporary differences, the timing and amount of future
income earned by our subsidiaries and the implementation of various tax planning
strategies to maximize realization of the deferred tax assets. A portion of the
amount of the deferred tax asset that can be realized in any year is subject to
certain statutory federal income tax limitations. We believe that our
subsidiaries will be able to generate sufficient operating earnings to realize
the deferred tax benefits. We evaluate quarterly the realizability of the
deferred tax assets and, if necessary, adjust any valuation allowance
accordingly.

Year Ended December 31, 2001, Compared With Year Ended December 31, 2000

Our net income decreased $1.7 million, or 38.3% to $ 2.7 million in the
year ended December 31, 2001, from $4.4 million in the year ended December 31,
2000. This decrease was due primarily to increases in our provision for loan
losses and noninterest expenses which were offset by increases in net interest
income and noninterest income. Our return on average assets in 2001 was 0.23%,
compared to 0.48% in 2000. Return on average equity was 3.53% in 2001 compared
to 6.03% in 2000. Average equity to average assets was 6.62% in 2001 compared to
7.92% in 2000.

Net interest income increased $5.2 million, or 15.1% to $39.8 million for
the year ended December 31, 2001, from $34.6 million for the year ended December
31, 2000 due to an increase in interest income of $15.3 million, or 20.4%,
offset by an increase in interest expense of $10.1 million, or 25.0%. These
increases in net interest income and interest income were primarily attributable
to a $203.6 million, or 28.7% increase in average loans to $914.0 million during
2001, from $710.4 million during 2000. The growth in the loan portfolio was
primarily attributable to increases in real estate construction and mortgage
loans generated in the Birmingham, Alabama and Florida markets. This increase
was offset by a $224.3 million, or 30.2% increase in average interest-bearing
liabilities to $966.5 million during 2001, from $742.2 million during 2000.

Our net interest spread and net interest margin were 3.43% and 3.83%,
respectively, in 2001, compared to 3.80% and 4.29% in 2000. During 2001, the
average interest rate earned on interest-earning assets decreased due to the
decline in interest rates during the year. This, combined with an increase in
the volume of higher cost sources of funds, such as certificates of deposit and
Federal Home Loan Bank ("FHLB") borrowings, resulted in the decrease in our net
interest margin and spread during the year. These funds were utilized to meet
strong loan demand, which accounted for the increase in average interest-earning
assets during 2001. The ratio of average interest-earning assets to average
interest-bearing liabilities was 108.26% and 109.80% for 2001 and 2000,
respectively. The average rate paid on time deposits and FHLB advances were
5.91% and 5.82%, respectively, during the year which was higher than interest
rates paid on other sources of deposit funding; however, these funds were
utilized to meet increased loan demand. The average yield of our loan portfolio
was 9.10% during the year.

The provision for loan losses was $7.5 million for the year ended December
31, 2001 compared to $5.0 million in 2000. Net charge-offs decreased $200,000,
or 4.9% from $4.1 million in 2000 to $3.9 million in 2001. The ratio of net
charge-offs to average loans averaged 0.60% for the five year period ended
December 31, 2001, with a ratio of 0.42% in 2001 and 0.57% in 2000. Net
charge-offs, as a percentage of the provision for loan losses, were 51.88% in
2001, compared to 81.98% in 2000. After provisions and charge-offs the allowance
for loan losses was 1.26% of loans, net of unearned income at December 31, 2001,
compared to 1.11% at December 31, 2000. The allowance for loan losses was
increased based on management's assessment of historical loss experience, volume
and types of loans, trends in classifications, volume and trends in
delinquencies and non-accruals, national and local economic conditions and other
pertinent information. See "Financial Condition -- Allowance for Loan Losses"
for additional discussion.

17

Noninterest income increased $2.0 million, or 24.9% to $9.8 million in
2001, from $7.8 million in 2000, primarily as the result of investment
securities gains which totaled $1.4 million in 2001 compared to $131,000 in
2000. During the third quarter of 2001, we entered into and settled an interest
rate swap that was not designated as a hedging instrument. A gain of
approximately $610,000 was realized and recognized currently in earnings as
investment securities gains. We did not enter into any other derivative
transactions during the year. Income from mortgage banking operations for the
year ended December 31, 2001 remained level compared to 2000 at $1.7 million.
Income from customer service charges and fees increased to $4.1 million from
$4.0 million in 2000. Other noninterest income was $2.6 million, an increase of
$545,000, or 26.6% from $2.1 million in 2000. The increase in other noninterest
income was primarily due to an increase in rental income of $180,000 and gains
on the sale of real estate of $141,000.

Noninterest expense increased $6.4 million, or 19.9% to $38.5 million in
2001 from $32.1 million in 2000. Salaries and employee benefits increased $3.4
million, or 20.8% to $19.5 million in 2001 compared to $16.1 million in 2000.
The increase in salaries and benefits primarily resulted from the addition of
personnel in the administration and operation areas, specifically, loan review,
internal audit and credit administration. All other noninterest expenses
increased $3.0 million, or 18.9% to $19.0 million, compared to $16.0 million in
2000. This increase in other noninterest expenses consists primarily of a
$971,000 increase in occupancy and equipment expenses, a $936,000 charge related
to fraud and litigation settlement, a $295,000 charge related to the data
processing conversion of the Florida operations and a $474,000 charge related to
obsolete furniture and equipment. Occupancy expenses increased during 2001 as a
result of increased depreciation and maintenance related to our headquarters and
The Bank's operations center. During 2001 and 2000, other operating expenses
included goodwill amortization of $562,000 per year. In accordance with SFAS
Statement No. 142, "Goodwill and Other Intangible Assets," no amortization of
goodwill will be recorded in future periods.

Our income tax expense was $966,000 and $996,000 in 2001 and 2000,
respectively, resulting in effective tax rates of 26.4% and 18.6%, respectively.
The primary difference in the effective tax rate and the federal statutory rate
(34%) for 2001 and 2000 arose from the recognition of a rehabilitation tax
credit of $522,000 and $1.3 million, respectively, generated from the
restoration of our headquarters, the John A. Hand building.

NET INTEREST INCOME

The largest component of our net income is net interest income, which is
the difference between the income earned on interest-earning assets and interest
paid on deposits and borrowings. Net interest income is determined by the rates
earned on our interest earning assets, rates paid on our interest-bearing
liabilities, the relative amounts of interest-earning assets and
interest-bearing liabilities, the degree of mismatch and the maturity and
repricing characteristics of our interest-earning assets and interest-bearing
liabilities. Net interest income divided by average interest-earning assets
represents our net interest margin.

Average Balances, Income, Expenses and Rates. The following tables depict,
on a tax-equivalent basis for the periods indicated, certain information related
to our average balance sheet and our average yields on

18

assets and average costs of liabilities. Such yields are derived by dividing
income or expense by the average balance of the corresponding assets or
liabilities. Average balances have been derived from daily averages.

- ---------------

(1) Nonaccrual loans are included in loans, net of unearned income. No
adjustment has been made for these loans in the calculation of yields.
(2) Interest income and yields are presented on a fully taxable equivalent basis
using a tax rate of 34 percent.

19

Analysis of Changes in Net Interest Income. The following table sets
forth, on a taxable equivalent basis, the effect which the varying levels of
interest-earning assets and interest-bearing liabilities and the applicable
rates have had on changes in net interest income for the years ended December
31, 2002 and 2001.

- ---------------

(1) The changes in net interest income due to both rate and volume have been
allocated to rate and volume changes in proportion to the relationship of
the absolute dollar amounts of the changes in each.

MARKET RISK -- INTEREST RATE SENSITIVITY

Market risk is the risk of loss arising from adverse changes in the fair
value of financial instruments due to a change in interest rates, exchange rates
and equity prices. Our primary market risk is interest rate risk.

We evaluate interest rate sensitivity risk and then formulate guidelines
regarding asset generation and repricing, funding sources and pricing and
off-balance sheet commitments in order to decrease interest rate sensitivity
risk. We use computer simulations to measure the net interest income effect of
various interest rate scenarios. The modeling reflects interest rate changes and
the related impact on net interest income over specified periods of time.

The primary objective of asset/liability management is to manage interest
rate risk and achieve reasonable stability in net interest income throughout
interest rate cycles. This is achieved by maintaining the proper balance of
interest rate sensitive earning assets and interest rate sensitive liabilities.
In general, management's strategy is to match asset and liability balances
within maturity categories to limit our exposure to earnings variations and
variations in the value of assets and liabilities as interest rates change over
time. Our asset and liability management strategy is formulated and monitored by
our Asset/Liability Management Committee, which is comprised of our head of
asset/liability management, other senior officers and certain directors, in
accordance with policies approved by the board of directors. Our internal
Asset/Liability Committee meets weekly to review, among other things, the
sensitivity of our assets and liabilities to interest rate changes, the book and
market values of assets and liabilities, unrealized gains and losses, including
those attributable to purchase and sale activity, and maturities of investments
and borrowings. The committee also approves and establishes pricing and funding
decisions with respect to overall asset and liability composition and reports
regularly to the full board of directors of The Bank.

20

One of the primary goals of the committee is to effectively manage the
duration of our assets and liabilities so that the respective durations are
matched as closely as possible. This duration adjustment can be accomplished
either internally by restructuring our balance sheet, or externally by adjusting
the duration of our assets or liabilities through the use of interest rate
contracts, such as interest rate swaps, corridors, caps and floors. Our current
strategy is to hedge internally through the use of core deposit accounts, which
are not as rate sensitive as other deposit instruments, and FHLB advances,
together with an emphasis on investing in shorter-term or adjustable rate assets
which are more responsive to changes in interest rates, such as adjustable rate
U.S. Government agency mortgage-backed securities, short-term U.S. Government
agency securities and commercial business, real estate and consumer loans.

During the next twelve months, approximately $4.8 million more
interest-bearing assets than interest-earning liabilities can be repriced to
current market rates. As a result, the one-year cumulative gap (the ratio of
rate sensitive assets to rate sensitive liabilities) at December 31, 2002, was
100.55%, indicating an asset sensitive position. For the period ending December
31, 2003, our interest rate risk model, which relies on management's growth
assumptions, indicates that projected net interest income will increase on an
annual basis by 5.64%, or approximately $3.09 million, assuming an instantaneous
increase in interest rates of 200 basis points. Assuming an instantaneous
decrease of 200 basis points, projected net interest income is expected to
decrease on an annual basis by 5.44%, or approximately $2.97 million. The effect
on net interest income produced by these scenarios is within our asset and
liability management policy, which allows the level of interest rate sensitivity
to affect net interest income plus or minus 10 percent (+/-10%).

Our board has authorized the Asset/Liability Management Committee to
utilize financial futures, forward sales, options and interest rate swaps, caps
and floors, and other instruments, to the extent necessary, in accordance with
Federal Reserve Board regulations and our internal policy. It is expected that
financial futures, forward sales and options will be primarily used in hedging
mortgage banking products, and interest rate swaps, caps and floors will be used
as macro hedges against our securities, loan portfolios and our liabilities.

We recognize that positions for hedging purposes are primarily a function
of three main areas of risk exposure: (1) mismatches between assets and
liabilities; (2) prepayment and other option-type risks embedded in our assets,
liabilities and off-balance sheet instruments; and (3) the mismatched
commitments for mortgages and funding sources. We will engage in only the
following types of hedges: (1) those which synthetically alter the maturities or
repricing characteristics of assets or liabilities to reduce imbalances; (2)
those which enable us to transfer the interest rate risk exposure involved in
our daily business activities; and (3) those which serve to alter the market
risk inherent in our investment portfolio or liabilities and thus matching the
effective maturities of the assets and liabilities.

The primary derivative instrument used by us to manage interest rate risk
is the interest rate swap. An interest rate swap allows one party to swap a
fixed rate for a floating rate or vice-versa. The amount of the swap is based on
a "notional amount." We most commonly use swap transactions involving callable
certificate of deposit issuance, in which we enter into a swap along the same
terms as a certificate of deposit ("CD"). These transactions, in some cases, are
more beneficial than single maturity issuance, because they allow us to obtain a
liquidity hedge (by retaining the right to call the CD), as well as to obtain
relatively low-rate funding. We can enter into callable interest rate swaps in
conjunction with callable CD issuance, provided the terms of the swap are
substantially the same as the terms of the CD.

As of December 31, 2002, we had outstanding interest rate swaps with a
notional amount of $10 million. This was comprised of two interest rate swaps to
hedge the fair value of fixed-rate consumer certificates of deposits. These
hedges were deemed to be structured as a perfect hedge by our management and as
such were treated with the short-cut method of accounting under SFAS Statement
No. 133.

We attempt to manage the one-year gap position as close to even as
possible. This ensures us of avoiding wide variances in case of a rapid change
in our interest rate environment. Also, certain products that are classified as
being rate sensitive do not reprice on a contractual basis. These products
include regular savings, interest-bearing transaction accounts, money market and
NOW accounts. The rates paid on these accounts are typically not related
directly to market interest rates, and management exercises some discretion in
21

adjusting these rates as market rates change. In the event of a rapid shift in
interest rates, management would attempt to take certain actions to mitigate the
negative impact to net interest income. These actions include but are not
limited to, restructuring of interest-earning assets, seeking alternative
funding sources and entering into interest rate swap agreements.

Although interest rate sensitivity gap is a useful measurement that
contributes to effective asset and liability management, it is difficult to
predict the effect of changing interest rates based solely on that measure. As a
result, the committee also regularly reviews interest rate risk by forecasting
the impact of alternative interest rate environments on our economic value of
equity ("EVE"). EVE is defined as the net present value of our balance sheet's
cash flows or the residual value of future cash flows. While EVE does not
represent actual market liquidation or replacement value, it is a useful tool
for estimating our balance sheet's existing earning capacity. The greater the
EVE, the greater our earnings capacity. The following table sets forth our EVE
as of December 31, 2002:

The above table is based on a prime rate of 4.25% and assumes an
instantaneous uniform change in interest rates at all maturities.

LIQUIDITY

The goal of liquidity management is to provide adequate funds to meet
changes in loan demand or any potential unexpected deposit withdrawals.
Additionally, management strives to maximize our earnings by investing our
excess funds in securities and other securitized loan assets with maturities
matching our offsetting liabilities. See the "Selected Loan Maturity and
Interest Rate Sensitivity" and "Maturity Distribution of Investment Securities".

Historically, we have maintained a high loan-to-deposit ratio. To meet our
short-term liquidity needs, we maintain core deposits and have borrowing
capacity through the FHLB, federal funds lines and a line of credit with a
regional bank. Long-term liquidity needs are met primarily through these
sources, the repayment of loans, sales of loans and the maturity or sale of
investment securities, including short-term investments.

22

We have entered into certain contractual obligations and commercial
commitments which arise in the normal course of business and involve elements of
credit risk, interest rate risk and liquidity risk. The following tables
summarize these relationships by contractual cash obligations and commercial
commitments:

- ---------------

(1) See Note 7 to the Consolidated Financial Statements.
(2) See Note 5 to the Consolidated Financial Statements.
(3) See Note 8 to the Consolidated Financial Statements.

- ---------------

(1) See Note 13 to the Consolidated Financial Statements.

FINANCIAL CONDITION

Our total assets were $1.41 billion at December 31, 2002, an increase of
$199 million, or 16.5% from $1.21 billion as of December 31, 2001. The increase
in total assets primarily related to an increase in net loans of $139 million,
cash surrender value of life insurance of $16.1 million, deferred tax benefit of
$9.1 million and premises and equipment of $14.0 million. The increase in total
assets was funded primarily by an increase in customer deposits and borrowings
from the FHLB. The acquisition of CF Bancshares, Inc. on February 15, 2002 added
approximately $100 million in total assets, approximately $88 million in total
loans and approximately $77 million in total deposits.

Loans. Loans are the largest category of interest-earning assets and
typically provide higher yields than other types of interest-earning assets.
Loans involve inherent credit and liquidity risks which management attempts to
control and mitigate. At December 31, 2002, total loans net of unearned income
were $1.14 billion, an increase of $139.4 million from $999.2 million at
December 31, 2001. This compares to increases of $191.0 million during 2001 from
$808.2 million at December 31, 2000 and $175.4 million during

23

2000 from $632.8 million at December 31, 1999. The average yield of the loan
portfolio was 7.50%, 9.10% and 9.64% for the years ended December 31, 2002, 2001
and 2000, respectively.

DISTRIBUTION OF LOANS BY CATEGORY

The repayment of loans as they mature is a source of liquidity for us. The
following table sets forth our loans by category maturing within specified
intervals at December 31, 2002. The information presented is based on the
contractual maturities of the individual loans, including loans which may be
subject to renewal at their contractual maturity. Renewal of such loans is
subject to review and credit approval, as well as modification of terms upon
their maturity. Consequently, management believes this treatment presents fairly
the maturity and repricing of the loan portfolio.

SELECTED LOAN MATURITY AND INTEREST RATE SENSITIVITY

Allowance for Loan Losses. We maintain an allowance for loan losses at a
level we believe is adequate to absorb estimated losses inherent in the loan
portfolio. We prepare a quarterly analysis to assess the risk in the loan
portfolio and to determine the adequacy of the allowance for loan losses.
Generally, we estimate the allowance using specific reserves for impaired loans,
and other factors, such as historical loss experience based

24

on volume and types of loans, trends in classifications, volume and trends in
delinquencies and non-accruals, national and local economic conditions and other
pertinent information. The level of allowance for loan losses to net loans will
vary depending on the quarterly analysis.

We manage and control risk in the loan portfolio through adherence to
credit standards established by the board of directors and implemented by senior
management. These standards are set forth in a formal loan policy, which
establishes loan underwriting/approval procedures, sets limits on credit
concentration and enforces regulatory requirements. In addition, we have
implemented a peer review system to supplement our existing independent loan
review function. We believe that this system will help us to improve our timely
review of the loan portfolio.

Loan portfolio concentration risk is reduced through concentration limits
for borrowers and collateral types and through geographical diversification.
Concentration risk is measured and reported to senior management and the board
of directors on a regular basis.

The allowance for loan loss calculation is segregated into various segments
that include classified loans, loans with specific allocations and pass rated
loans. A pass rated loan is generally characterized by a very low to average
risk of default and in which management perceives there is a minimal risk of
loss. Loans are rated using a seven point scale with the loan officer having the
primary responsibility for assigning risk ratings and for the timely reporting
of changes in the risk ratings. These processes, and the assigned risk ratings,
are subject to review by our internal Loan Review Department and senior
management. Based on the assigned risk ratings, the loan portfolio is segregated
into the following regulatory classifications: Special Mention, Substandard,
Doubtful or Loss. Generally, regulatory reserve percentages are applied to these
categories to estimate the amount of loan loss allowance, adjusted for
previously mentioned risk factors.

Pursuant to SFAS Statement No. 114, impaired loans are specifically
reviewed loans for which it is probable that the we will be unable to collect
all amounts due according to the terms of the loan agreement. Impairment is
measured by comparing the recorded investment in the loan with the present value
of expected future cash flows discounted at the loan's effective interest rate,
at the loan's observable market price or the fair value of the collateral if the
loan is collateral dependent. A valuation allowance is provided to the extent
that the measure of the impaired loans is less than the recorded investment. A
loan is not considered impaired during a period of delay in payment if the
ultimate collectibility of all amounts due is expected. Larger groups of
homogenous loans such as consumer installment and residential real estate
mortgage loans are collectively evaluated for impairment.

Reserve percentages assigned to pass rated homogeneous loans are based on
historical charge-off experience adjusted for current trends in the portfolio
and other risk factors.

As stated above, risk ratings are subject to independent review by the Loan
Review Department, which also performs ongoing, independent review of the risk
management process, which includes underwriting, documentation and collateral
control. The Loan Review Department is centralized and independent of the
lending function. The loan review results are reported to the Audit Committee of
the board of directors and senior management. We have also established a
centralized loan administration services department to serve all of our bank
locations, thereby providing standardized oversight for compliance approval
authorities and bank lending policies and procedures as well as centralized
supervision, monitoring and accessibility. In addition, this department will
enhance the monitoring of loan risk ratings as well as the monitoring of a loan
officer's ability to originate loans.

We historically have allocated our allowance for loan losses to specific
loan categories. Although the allowance is allocated, it is available to absorb
losses in the entire loan portfolio. This allocation is made for

25

estimation purposes only and is not necessarily indicative of the allocation
between categories in which future losses may occur.

ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

The allowance as a percentage of loans, net of unearned income, at December
31, 2002 was 2.44%, and the average of the allowance as a percentage of loans
for the five-year period ended December 31, 2002 was 1.59%. The allowance for
loan losses as a percentage of non-performing loans increased to 143.12% at
December 31, 2002 from 100.99% at December 31, 2001.

Net charge-offs increased $33.8 million from $3.9 million in 2001 to $37.7
million in 2002. The Bristol bank group contributed approximately $26.2 million
to total charge-offs during 2002; the Albertville bank contributed approximately
$2.3 million and the Huntsville bank contributed approximately $5.1 million
which was primarily comprised of five relationships. Net charge-offs of
commercial loans increased $22.8 million from $2.3 million in 2001 to $25.1
million in 2002. Net charge-offs of real estate loans increased $10.3 million
from $290,000 in 2001 to $10.6 million in 2002. Net charge-offs of consumer
loans increased $900,000 from $1.2 million in 2001 to $2.1 million in 2002. Net
charge-offs as a percentage of the provision for loan losses were 72.69% in
2002, up from 51.88% in 2001. Net charge-offs as a percentage of the allowance
for loan losses were 135.74% in 2002, up from 30.82% in 2001.

26

The following table summarizes certain information with respect to our
allowance for loan losses and the composition of charge-offs and recoveries for
the periods indicated.

SUMMARY OF LOAN LOSS EXPERIENCE

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(1) The Bank had an approximately $5.0 million commercial loan to a single bank
customer which became non-performing during 2000. The loan was well secured
and no loss was anticipated. The current balance at December 31, 2002 is
approximately $500,000 and no losses have been incurred.

Nonperforming Loans. Nonperforming loans increased $7.0 million to $19.4
million as of December 31, 2002 from $12.4 million as of December 31, 2001. As a
percent of net loans, nonperforming loans increased

27

from 1.24% at December 31, 2001 to 1.70% at December 31, 2002. The following
table represents our nonperforming loans for the dates indicated.

NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS

The following is a summary of nonperforming loans by category for the dates
shown:

A delinquent loan is placed on nonaccrual status when it becomes 90 days or
more past due and management believes, after considering economic and business
conditions and collection efforts, that the borrower's financial condition is
such that the collection of interest is doubtful. When a loan is placed on
nonaccrual status, all interest which has been accrued on the loan but remains
unpaid is reversed and deducted from earnings as a reduction of reported
interest income. No additional interest income 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
write-down or charge-off of the principal balance of the loan to the allowance
for loan losses.

Due to the amount of loans that were charged off and placed on non-accrual
during 2002, interest income on loans will decrease, affecting our net income in
2003. Net charge offs increased to $37.7 million in 2002 from $3.9 million in
2001. Non-accrual loans increased to $17.2 million at December 31, 2002 from
$7.9 million at December 31, 2001. We expect to have some recoveries from the
charged off loans and are working with our customers whose loans have been
placed on non-accrual to either move their relationship to another financial
institution or return their loan to a performing status. We are vigorously
working with legal counsel and regulatory and federal authorities to pursue all
available remedies and avenues for collection. We anticipate making fidelity
bond claims in an undetermined amount stemming from the unauthorized loan
activity. Classified assets increased significantly during 2002 primarily as a
result of the Bristol, Florida situation discussed previously. Approximately 88%
of the increase in classified assets is from the Bristol, Florida loan
portfolio. The remaining 12% of the increase is centered primarily in the
Huntsville and Albertville, Alabama banks.

Impaired Loans. At December 31, 2002, our recorded investment in impaired
loans totaled $26.4 million, an increase of $16.3 million from $10.1 million at
December 31, 2001. The increase in the amount of impaired loans is attributable
to several commercial and commercial real estate loans in the Bristol, Florida
loan portfolio. Based on management's current understanding of the financial
condition of the borrowers, we
28

believe that many of these loans will be repaid other than according to their
original terms. As of December 31, 2002, we considered $14.8 million of the
Bristol bank group's loans impaired under SFAS Statement No. 114; $3.1 million
of the Albertville bank's loans were impaired and $5.0 million of the Huntsville
bank's loans were impaired. At December 31, 2002 and 2001, there were
approximately $9.3 million and $3.1 million in allowance for loan losses
specifically allocated to impaired loans. We have approximately $224,000 in
commitments to loan additional funds to the borrowers whose loans are impaired.

The following is a summary of impaired loans and the specifically allocated
allowance for loan losses by category as of December 31, 2002:

Potential Problem Loans. In addition to impaired loans, management has
identified $6.4 million in potential problem loans as of December 31, 2002. Of
the $6.4 million in potential problem loans, $2.3 million or 36% is attributable
to the Bristol, Florida group. Potential problem loans are loans where known
information about possible credit problems of the borrowers causes management to
have doubts as to the ability of such borrowers to comply with the present
repayment terms and may result in disclosure of such loans as nonperforming in
future periods. Of the total, $2.9 million, or 45% is secured by 1-4 family
residential real estate and $1.5 million or 23% is secured by commercial real
estate. As of December 31, 2002, The Bank has allocated $1.2 million in loan
loss reserve to absorb potential losses on these accounts.

Investment Securities. The investment securities portfolio comprised 5.74%
of our total interest-earning assets as of December 31, 2002. Total securities
averaged $63.3 million in 2002, compared to $90.5 million in 2001 and $81.0
million in 2000. The investment securities portfolio produced average tax
equivalent yields of 5.45%, 6.03% and 6.71% for the years ended December 31,
2002, 2001 and 2000, respectively. At December 31, 2002, our investment
securities portfolio had an amortized cost of $72.2 million and an estimated
fair value of $73.0 million.

The following table sets forth the amortized costs of the securities we
held at the dates indicated.

INVESTMENT PORTFOLIO

29

The following table shows the scheduled maturities and average yields of
securities held at December 31, 2002.

MATURITY DISTRIBUTION OF INVESTMENT SECURITIES

Short-Term Investments. Short-term investments as of December 31, 2002
consisted of federal funds sold of $11.0 million compared to $20.0 million as of
December 31, 2001. Federal funds sold averaged $21.0 million during 2002,
compared to $31.4 million in 2001 and $14.6 million in 2000 and produced average
yields of 1.66%, 4.17% and 6.36%, respectively. Federal funds are a primary
source of our liquidity and are generally invested on an overnight basis. In
addition to federal funds sold, we will also invest in short-term commercial
paper. As of December 31, 2002, we did not hold any commercial paper.

In addition to liquidity management, we also utilize short-term investments
when the level of funds committed to lending and investment portfolios changes,
or the level of deposit generation changes.

Deposits. During 2002, average total deposits increased $157.5 million, or
17.3% to $1.07 billion, from $910.3 million in 2001. During 2001, average total
deposits increased $167.5 million, or 22.6% from $742.8 million in 2000, which
increased $145.6 million, or 24.4% from $597.2 million in 1999. Deposit growth
has been generated primarily through internal growth in our various markets. We
also acquired approximately $77 million in deposits in our acquisition of CF
Bancshares, Inc.

The following table sets forth our average deposits by category for the
periods indicated.

AVERAGE DEPOSITS

Noninterest-bearing deposits totaled $119.1 million at December 31, 2002,
an increase of 25.9%, or $24.5 million from $94.6 million at December 31, 2001.
Of the $24.5 million increase in noninterest-bearing deposits, 30.2%, or $7.4
million were generated in branches located in the Alabama region, the other
69.8%, or $17.1 million were generated in branches in the Florida region.
Noninterest-bearing deposits comprised 10.7% of total deposits at December 31,
2002, compared to 9.9% at December 31, 2001.

Interest-bearing deposits totaled $988.7 million at December 31, 2002, an
increase of 15.3%, or $131.1 million from $857.6 million at December 31, 2001.
Of the $131.1 million increase in interest-bearing

30

deposits, 8.2%, or $10.8 million were generated in branches located in the
Alabama region, the other 91.8%, or $120.3 million were generated in branches in
the Florida region

During 2002, average interest-bearing deposits increased $152.1 million, or
18.8% to $961.5 million, from $809.4 million in 2001, compared to an increase
during 2001 of $158.0 million, or 24.2% from $651.4 million in 2000, which
increased $135.7 million, or 26.3% from $515.7 million in 1999. Interest-bearing
deposits comprised 89.3% of total deposits at December 31, 2002, compared to
90.1% at December 31, 2001 and carried an average rate of 3.04%, 5.01% and 5.37%
for the years ended December 31, 2002, 2001 and 2000, respectively.

Deposits, particularly core deposits, have historically been our primary
source of funding and have enabled us to meet successfully both our short-term
and long-term liquidity needs. Our core deposits, which exclude our time
deposits greater than $100,000, represent 73.5% of our total deposits at
December 31, 2002 compared to 72.8% at December 31, 2001. We anticipate that
such deposits will continue to be our primary source of funding in the future.
Our loan-to-deposit ratio was 102.8% at December 31, 2002, compared to 104.9% at
December 31, 2001. The maturity distribution of our time deposits over $100,000
at December 31, 2002 is shown in the following table.

MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE

Approximately 16.6% of our time deposits over $100,000 had scheduled
maturities within three months of December 31, 2002. We believe customers who
hold a large denomination certificate of deposit tend to be extremely sensitive
to interest rate levels, making these deposits less reliable source of funding
for liquidity planning purposes than core deposits.

Borrowed Funds. During 2002, average borrowed funds increased $17.8
million, or 13.2% to $152.6 million, from $134.8 million during 2001, which
increased $49.0 million, or 57.1% from $85.8 million during 2000. The average
rate paid on borrowed funds during 2002, 2001 and 2000 was 5.65%, 5.82% and
5.78%, respectively. Because of a relatively high loan-to-deposit ratio, the
existence and stability of these funding sources are important to our
maintenance of short-term and long-term liquidity.

Borrowed funds as of December 31, 2002 consist primarily of advances from
the FHLB. The following is a summary, by year of contractual maturity, of
advances from the FHLB as of December 31, 2002 and 2001:

Certain advances are subject to call by the FHLB as follows: 2003, $149.8
million; 2004, $2.0 million; and 2005, $3.0 million. The $149.8 million in FHLB
advances subject to call during 2003 carry a weighted average

31

interest rate of 4.90% ranging from 1.16% to 7.07%. We do not expect the FHLB to
call these advances considering the current interest rate environment.

The advances are secured by FHLB stock, agency securities and a blanket
lien on certain residential and commercial real estate loans, all with a
carrying value of approximately $541.5 million at December 31, 2002. We have
remaining approximately $96 million in unused lines of credit with the FHLB
subject to the availability of qualified collateral.

As of December 31, 2002, we had available a $15 million line of credit with
a regional bank. Interest is one and three-quarters (1.75%) percentage points in
excess of the applicable LIBOR Index Rate, and the line matures May 1, 2005. The
loan agreement contains various covenants pertaining to the maintenance of
regulatory capital, specified levels of classified assets and the amount of
stockholders' equity. At December 31, 2002, we were in breach of the classified
assets covenant of that loan agreement. As a result, the lending bank must
consent to each advance under the line of credit. As of December 31, 2002 and
2001, there were no outstanding balances on this line.

We also have available approximately $30 million in unused federal funds
lines of credit with regional banks, subject to certain restrictions and
collateral requirements.

Guaranteed Preferred Beneficial Interest in our Subordinated
Debentures. On September 7, 2000, TBC Capital II, a Connecticut statutory trust
established by us, received $15,000,000 in proceeds in exchange for $15,000,000
principal amount of TBC Capital II's 10.6% cumulative trust preferred securities
in a pooled trust preferred private placement. TBC Capital II used the proceeds
to purchase an equal principal amount of 10.6% subordinated debentures.

On July 16, 2001, TBC Capital III, a Delaware business trust established by
us, received $16,000,000 in proceeds in exchange for $16,000,000 principal
amount of TBC Capital III's variable rate cumulative trust preferred securities
in a pooled trust preferred private placement. TBC Capital III used the proceeds
to purchase an equal principal amount of our variable rate subordinated
debentures. The stated interest rate is the six-month LIBOR plus 375 basis
points. The interest rate on the securities reprices every six months and has a
12.5% per annum ceiling for the first ten years. As of the date of issuance, the
interest rate on the securities was 7.57%. As of December 31, 2002, the interest
rate on the securities was 5.61%.

We have fully and unconditionally guaranteed all obligations of TBC Capital
II and TBC Capital III on a subordinated basis with respect to the preferred
securities. We account for TBC Capital II and TBC Capital III as minority
interests. Subject to certain limitations, the preferred securities qualify as
Tier 1 capital and are presented in the Consolidated Statement of Financial
Condition as "Guaranteed preferred beneficial interests in our subordinated
debentures." The sole assets of TBC Capital II and TBC Capital III are the
subordinated debentures issued by us. Both the preferred securities of TBC
Capital II and TBC Capital III and our subordinated debentures each have 30-year
lives. However, The Banc Corporation, and TBC Capital II and TBC Capital III
have call options with a premium after five years through ten years and call
options at par, after ten years, subject to regulatory approval, or earlier
depending upon certain changes in tax or investment company laws, or regulatory
capital requirements.

A portion of the proceeds from the offerings was used to repay borrowings
under our line of credit with the balance to be used for general corporate
purposes including additional capital investment in our bank subsidiary.

Stockholder's Equity. Stockholder's equity decreased $400,000 during 2002
to $76.5 million at December 31, 2002 from $76.9 million at December 31, 2001.
The decrease in stockholders' equity during 2002 primarily consisted of a net
loss of approximately $18.4 million arising from increased net charge-offs and
loan loss provisions related mainly to the Bristol, Florida loan portfolio
offset by a secondary common stock offering completed during the first quarter
of 2002 resulting in net proceeds of $19.3 million. Stockholders' equity was
also decreased by certain restricted stock and employee stock ownership plan
transactions as described in the following paragraphs. In September of 2000, our
board of directors approved a stock repurchase plan in an amount not to exceed
$10,000,000. Since September of 2000, 200,274 shares of common stock were

32

repurchased, of which 63,418 shares were reissued during 2001 and 2002. As of
December 31, 2002, there were 136,856 shares held in treasury at a total cost of
$808,000.

On April 1, 2002, we issued 157,500 shares of restricted common stock to
certain directors and key employees under our Second Amended and Restated 1998
Stock Incentive Plan. Under the Restricted Stock Agreements, the stock may not
be sold or assigned in any manner for a five-year period that began on April 1,
2002. During this restricted period, the participant is eligible to receive
dividends and exercise voting privileges. The restricted stock also has a
corresponding vesting period with one-third vesting at the end of each of the
third, fourth and fifth year. The restricted stock was issued at a total value
of $1,120,000 and is classified as a contra-equity account, "Unearned restricted
stock," in stockholders' equity. The $1,120,000 is being amortized as expense as
the stock is earned during the restricted period. For the period ended December
31, 2002, we have recognized $168,000 in restricted stock expense.

We adopted a leveraged employee stock ownership plan (the "ESOP") effective
May 15, 2002 that covers all eligible employees that have attained the age of
twenty-one and have completed a year of service. As of December 31, 2002, the
ESOP has been internally leveraged with 273,400 shares of our common stock
purchased in the open market and classified as a contra-equity account,
"Unearned ESOP shares", in stockholders' equity.

On January 29, 2003, the ESOP trustees finalized a $2.1 million promissory
note to reimburse us for funds used to leverage the ESOP. The unreleased shares
and our guaranty secure the promissory note, which will be classified as
long-term debt on our consolidated statement of financial condition. As the ESOP
repays the debt, with our monthly contributions, shares are released from
collateral based on the proportion of debt service. Released shares are
allocated to eligible employees at the end of the plan year based on the
employee's eligible compensation to total compensation. We recognize
compensation expense as the shares are earned and committed to be released
during the period. As shares are committed to be released and compensation
expense is recognized, the shares become outstanding for basic and diluted
earnings per share computations. The amount of compensation expense we report is
equal to the average fair value of the shares earned and committed to be
released during the period. Compensation expense that we recognized during the
period ended December 31, 2002 was $52,000. The ESOP shares as of December 31,
2002 were as follows:

Regulatory Capital. The table below represents our and our subsidiary's
actual regulatory and minimum regulatory capital requirements at December 31,
2002 (dollars in thousands):

33

IMPACT OF INFLATION

Unlike most industrial companies, our assets and liabilities are primarily
monetary in nature. Therefore, interest rates have a more significant effect on
our performance than do the effects of changes in the general rate of inflation
and changes in prices. In addition, interest rates do not necessarily move in
the same direction or in the same magnitude as the prices of goods and services.
We seek to manage the relationships between interest sensitive assets and
liabilities in order to protect against wide interest rate fluctuations,
including those resulting from inflation.

FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor
for forward-looking statements made by us or on our behalf. Some of the
disclosures in this Annual Report on Form 10-K, including any statements
preceded by, followed by or which include the words "may," "could," "should,"
"will," "would," "hope," "might," "believe," "expect," "anticipate," "estimate,"
"intend," "plan," "assume" or similar expressions constitute forward-looking
statements.

These forward-looking statements, implicitly and explicitly, include the
assumptions underlying the statements and other information with respect to our
beliefs, plans, objectives, goals, expectations, anticipations, estimates,
intentions, financial condition, results of operations, future performance and
business, including our expectations and estimates with respect to our revenues,
expenses, earnings, return on equity, return on assets, efficiency ratio, asset
quality, the adequacy of our allowance for loan losses and other financial data
and capital and performance ratios.

Although we believe that the expectations reflected in our forward-looking
statements are reasonable, these statements involve risks and uncertainties
which are subject to change based on various important factors (some of which
are beyond our control). The following factors, among others, could cause our
financial performance to differ materially from our goals, plans, objectives,
intentions, expectations and other forward-looking statements: (1) the strength
of the United States economy in general and the strength of the regional and
local economies in which we conduct operations; (2) the effects of, and changes
in, trade, monetary and fiscal policies and laws, including interest rate
policies of the Board of Governors of the Federal Reserve System; (3) inflation,
interest rate, market and monetary fluctuations; (4) our ability to successfully
integrate the assets, liabilities, customers, systems and management we acquire
or merge into our operations; (5) our timely development of new products and
services to a changing environment, including the features, pricing and quality
compared to the products and services of our competitors; (6) the willingness of
users to substitute competitors' products and services for our products and
services; (7) the impact of changes in financial services policies, laws and
regulations, including laws, regulations and policies concerning taxes, banking,
securities and insurance, and the application thereof by regulatory bodies; (8)
our ability to resolve any legal proceeding on acceptable terms and its effect
on our financial condition or results of operations; (9) technological changes;
(10) changes in consumer spending and savings habits; and (11) regulatory, legal
or judicial proceedings.

If one or more of the factors affecting our forward-looking information and
statements proves incorrect, then our actual results, performance or
achievements could differ materially from those expressed in, or implied by,
forward-looking information and statements contained in this annual report.
Therefore, we caution you not to place undue reliance on our forward-looking
information and statements.

We do not intend to update our forward-looking information and statements,
whether written or oral, to reflect change. All forward-looking statements
attributable to us are expressly qualified by these cautionary statements.

ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.

Please refer to "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Market Risk -- Interest Rate
Sensitivity," which is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Consolidated financial statements of The Banc Corporation meeting the
requirements of Regulation S-X are filed on the succeeding pages of this Item 8
of this Annual Report on Form 10-K.

34

THE BANC CORPORATION AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

CONTENTS

Report of Independent Auditors.............................. 36
Consolidated Statements of Financial Condition.............. 37
Consolidated Statements of Operations....................... 38
Consolidated Statements of Changes in Stockholders'
Equity.................................................... 39
Consolidated Statements of Cash Flows....................... 40
Notes to Consolidated Financial Statements.................. 41

35

REPORT OF INDEPENDENT AUDITORS

Board of Directors
The Banc Corporation

We have audited the accompanying consolidated statements of financial
condition of The Banc Corporation and Subsidiaries (Corporation) as of December
31, 2002 and 2001, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 2002. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Banc
Corporation and Subsidiaries at December 31, 2002 and 2001, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States.

As discussed in Note 1 to the consolidated financial statements, in 2002
the Corporation changed its method of accounting for goodwill.

/s/ Ernst & Young LLP

Birmingham, Alabama
April 3, 2003

36

THE BANC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

See accompanying notes.

37

THE BANC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes.

38

THE BANC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

See accompanying notes.

39

THE BANC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes.

40

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Banc Corporation ("Corporation"), through its subsidiaries, provides a
full range of banking and bank-related services to individual and corporate
customers across Alabama and the panhandle of Florida. The accounting and
reporting policies of the Corporation conform with generally accepted accounting
principles and to general practice within the banking industry. The following
summarizes the most significant of these policies.

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements and notes to
consolidated financial statements include the accounts of the Corporation and
its wholly-owned subsidiaries. All significant intercompany transactions or
balances have been eliminated in consolidation.

On February 15, 2002, the Corporation acquired CF Bancshares, Inc. and its
bank subsidiary Citizens Federal Savings Bank of Port Saint Joe ("CF
Bancshares") in a business combination accounted for as a purchase. As such, the
Corporation's consolidated financial statements include the results of
operations of CF Bancshares only from its date of acquisition. See Note 14 for
more disclosure regarding the Corporation's business combinations.

Certain amounts in prior year financial statements have been reclassified
to conform to the current year presentation. The guaranteed preferred beneficial
interests in the Corporation's subordinated debentures (trust preferred
securities) have been reclassified as long-term debt and the related
distributions have been reclassified as interest expense. These trust preferred
securities were previously classified as minority interest in the consolidated
statement of financial condition with the associated distributions classified as
noninterest expense in the consolidated statement of operations.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

For the purpose of presentation in the statements of cash flows, cash and
cash equivalents are defined as those amounts included in the statements of
financial condition caption "Cash and Due from Banks."

The Corporation's banking subsidiary is required to maintain minimum
average reserve balances by the Federal Reserve Bank, which is based on a
percentage of deposits. The amount of the reserves at December 31, 2002 was
approximately $1,341,000.

Investment Securities

Investment securities are classified as either held to maturity, available
for sale or trading at the time of purchase. The Corporation defines held to
maturity securities as debt securities which management has the positive intent
and ability to hold to maturity.

Held to maturity securities are reported at cost, adjusted for amortization
of premiums and accretion of discounts that are recognized in interest income
using the effective yield method.

41

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Securities available for sale are reported at fair value and consist of
bonds, notes, debentures, and certain equity securities not classified as
trading securities nor as securities to be held to maturity. Unrealized holding
gains and losses, net of deferred taxes, on securities available for sale are
excluded from earnings and reported in accumulated other comprehensive income
(loss) within stockholders' equity.

Gains and losses on the sale of securities available for sale are
determined using the specific-identification method.

Loans and Allowance for Loan Losses

Loans are stated at the amount of unpaid principal, reduced by unearned
income and an allowance for loan losses. Interest income with respect to loans
is accrued on the principal amount outstanding, except for interest on certain
consumer loans which is recognized over the term of the loan using a method,
which approximates a level yield.

Accrual of interest is discontinued on loans, which are past due greater
than ninety days unless the loan is well secured and in the process of
collection. "Well secured," means that the debt must be secured by collateral
having sufficient realizable value to discharge the debt, including accrued
interest, in full. "In the process of collection," means that collection of the
debt is proceeding in due course either through legal action or other collection
effort that is reasonably expected to result in repayment of the debt in full
within a reasonable period of time, usually within one hundred eighty days of
the date the loan became past due. Any unpaid interest previously accrued on
these loans placed on nonaccrual is reversed from income. Interest payments
received on these loans are applied as a reduction of the loan principal
balance.

Under the provisions of Statement of Financial Accounting Standards
("SFAS") No. 114, "Accounting for Creditors for Impairment of a Loan", impaired
loans are specifically reviewed loans for which it is probable that the
Corporation will be unable to collect all amounts due according to the terms of
the loan agreement. Impairment is measured by comparing the recorded investment
in the loan with the present value of expected future cash flows discounted at
the loan's effective interest rate, at the loans observable market price, or the
fair value of the collateral if the loan is collateral dependent. A valuation
allowance is provided to the extent that the measure of the impaired loans is
less than the recorded investment. A loan is not considered impaired during a
period of delay in payment if the ultimate collectibility of all amounts due is
expected. Larger groups of homogenous loans such as consumer installment and
residential real estate mortgage loans are collectively evaluated for
impairment. Payments received on impaired loans for which the ultimate
collectibility of principal is uncertain are generally applied first as
principal reductions.

The allowance for loan loss is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes the collectibility of principal is unlikely. The
allowance is the amount that management believes will be adequate to absorb
probable losses on existing loans.

Management reviews the adequacy of the allowance on a quarterly basis. The
allowance for classified loans is established based on risk ratings assigned by
loan officers. Loans are risk rated using a seven point scale, and loan officers
are responsible for the timely reporting of changes in the risk ratings. This
process, and the assigned risk ratings, are subject to review by the
Corporation's internal loan review function. Based on the assigned risk ratings,
the loan portfolio is segregated into the regulatory classifications of: Special
Mention, Substandard, Doubtful or Loss. Generally, recommended regulatory
reserve percentages are applied to these categories to estimate the amount of
loan loss unless the loan has been specifically reviewed for impairment. Reserve
percentages assigned to homogeneous and non-rated loans are based on historical
charge-off experience adjusted for other risk factors.

42

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Significant problem credits are individually reviewed by management.
Generally, these loans are commercial or real estate construction loans selected
for review based on their balance, assigned risk rating, payment history, and
other risk factors at the time of management's review. Losses are estimated on
each loan based on management's review. These individually reviewed credits are
excluded from the classified loan loss calculation discussed above.

To evaluate the overall adequacy of the allowance to absorb losses inherent
in the Corporation's loan portfolio, the Corporation considers general economic
conditions, geographic concentrations, and changes in the nature and volume of
the loan portfolio.

Mortgage Loans Held for Sale

Mortgage loans held for sale are carried at the lower of cost or market,
determined on a net aggregate basis. Differences between the carrying amount of
mortgage loans held for sale and the amounts received upon sale are credited or
charged to income at the time the proceeds of the sale are collected. The fair
values are based on quoted market prices of similar loans, adjusted for
differences in loan characteristics.

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed over the estimated service lives of the
assets using straight-line and accelerated methods, generally using five to
forty years for premises and five to ten years for furniture and equipment.

Expenditures for maintenance and repairs are charged to operations as
incurred; expenditures for renewals and betterments are capitalized and written
off by depreciation charges. Property retired or sold is removed from the asset
and related accumulated depreciation accounts and any profit or loss resulting
therefrom is reflected in the statement of income.

Intangible Assets

At December 31, 2002 and 2001, goodwill, net of accumulated amortization,
totaled $10,672,000 and $6,086,000, respectively. The Corporation adopted
Financial Accounting Standards Board ("FASB") Statement 142 on January 1, 2002.
Statement 142 requires goodwill and intangible assets with indefinite useful
lives to no longer be amortized but instead tested for impairment at least
annually in accordance with the provisions of Statement 142.

At December 31, 2002, the Corporation also had $2,612,000 of core deposit
intangibles from the CF Bancshares acquisition, which is being amortized over
ten years. (See Recent Accounting Pronouncements)

Other Real Estate

Other real estate, acquired through partial or total satisfaction of loans,
is carried at the lower of cost or fair value, less estimated selling expenses,
in other assets. At the date of acquisition, any difference between the fair
value and book value of the asset is charged to the allowance for loan losses.
Subsequent gains or losses on the sale or losses from the valuation of other
real estate are included in other expense. Other real estate totaled $2,360,000
and $3,608,000 at December 31, 2002 and 2001, respectively.

Income Taxes

The consolidated financial statements are prepared on the accrual basis.
The Corporation accounts for income taxes using the liability method pursuant to
SFAS No. 109, Accounting for Income Taxes. Under this method, deferred tax
assets and liabilities are determined based on differences between financial
reporting and
43

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

tax bases of assets and liabilities and are measured using the enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to reverse.

Off Balance Sheet Financial Instruments

In the ordinary course of business the Corporation has entered into off
balance sheet financial instruments consisting of commitments to extend credit,
commitments under credit card arrangements and commercial letters of credit and
standby letters of credit. Such financial instruments are recorded in the
financial statements when they become payable.

Per Share Amounts

Earnings per share computations are based on the weighted average number of
shares outstanding during the periods presented.

Diluted earnings per share computations are based on the weighted average
number of shares outstanding during the period, plus the dilutive effect of
stock options and restricted stock awards.

Stock-Based Compensation

SFAS No. 123, Accounting for Stock-Based Compensation (Statement 123)
establishes a "fair value" based method of accounting for stock-based
compensation plans and allows entities to adopt that method of accounting for
their employee stock compensation plans. However, it also allows an entity to
continue to measure compensation cost for those plans using the intrinsic value
based method of accounting prescribed by the Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees (Opinion 25). The
Corporation has elected to follow Opinion 25 and related interpretations in
accounting for its employee stock options. Under Opinion 25, because the
exercise price of the Corporation's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.

Statement 123 requires the disclosure of pro forma net income and earnings
per share determined as if the Corporation had accounted for its employee stock
options under the fair value method of that statement. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model. Option valuation models require the input of subjective assumptions.
Because these assumptions are subjective, the effects of applying Statement 123
for pro forma disclosures are not likely to be representative of the effects on
reported net income for future years (see Note 9).

Derivative Financial Instruments and Hedging Activities

SFAS Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, requires companies to recognize all of their derivative instruments
as either assets or liabilities in the statement of financial position at fair
value.

Derivative financial instruments that qualify under SFAS 133 in a hedging
relationship are designated, based on the exposure being hedged, as either fair
value or cash flow hedges. Fair value hedge relationships mitigate exposure to
the change in fair value of an asset, liability or firm commitment. Under the
fair value hedging model, gains or losses attributable to the change in fair
value of the derivative instrument, as well as the gains and losses attributable
to the change in fair value of the hedged item, are recognized in earnings in
the period in which the change in fair value occurs.

Cash flow hedge relationships mitigate exposure to the variability of
future cash flows or other forecasted transactions. Under the cash flow hedging
model, the effective portion of the gain or loss related to the
44

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

derivative instrument is recognized as a component of other comprehensive
income. The ineffective portion of the gain or loss related to the derivative
instrument, if any, is recognized in earnings during the period of change.
Amounts recorded in other comprehensive income are amortized to earnings in the
period or periods during which the hedged item impacts earnings. For derivative
financial instruments not designated as a fair value or cash flow hedges, gains
and losses related to the change in fair value are recognized in earnings during
the period of change in fair value.

The Corporation formally documents all hedging relationships between
hedging instruments and the hedged item, as well as its risk management
objective and strategy for entering various hedge transactions. The Corporation
performs an assessment, at inception and on an ongoing basis, of whether the
hedging relationship has been highly effective in offsetting changes in fair
values or cash flows of hedged items and whether they are expected to continue
to be highly effective in the future.

During 2002, the Corporation entered into interest-rate swap agreements to
manage interest-rate risk exposure. The interest-rate swap agreements utilized
by the Corporation effectively modify the Corporation's exposure to interest
risk by converting $10,000,000 fixed-rate certificates of deposit to a LIBOR
floating rate. These derivative instruments are included in other assets or
other liabilities on the statement of financial condition. For the year ended
December 31, 2002, there was no ineffectiveness recorded to earnings related to
these fair value hedges.

Recent Accounting Pronouncements

In July 2001, the SFAS issued Statement No. 141, "Business Combinations"
(Statement 141), and Statement No. 142, "Goodwill and Other Intangible Assets"
(Statement 142). Statement 141 requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001. Statement
141 also specifies the criteria for intangible assets acquired in a purchase
method business combination to be recognized and reported apart from goodwill.
Statement 142 requires goodwill and intangible assets with indefinite useful
lives to no longer be amortized but instead tested for impairment at least
annually in accordance with the provisions of Statement 142. Statement 142
requires intangible assets with definite useful lives to be amortized over their
respective estimated useful lives to their estimated residual values and
reviewed for impairment in accordance with the SFAS Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" (Statement 121).

The Corporation adopted the provisions of Statement 141 in 2001 and the
provisions of Statement 142 on January 1, 2002. Any goodwill and any intangible
assets determined to have an indefinite useful life that are acquired in a
purchase business combination completed after June 30, 2001, are not to be
amortized (See Note 14) but are to be evaluated for impairment in accordance
with the appropriate pre-Statement 142 accounting literature. Goodwill and
intangible assets acquired in business combinations completed before July 1,
2001 were to continue to be amortized until the adoption of Statement 142.

Statement 141 required, upon adoption of Statement 142, that the
Corporation evaluate its existing intangible assets and goodwill that were
acquired in previous purchase business combinations and make any necessary
reclassifications to conform to the new criteria in Statement 141. Upon adoption
of Statement 142, the Corporation is required to reassess the useful lives and
residual values of all intangible assets acquired in purchase business
combinations and make any necessary amortization period adjustments by the end
of the first interim period after adoption. In addition, to the extent an
intangible asset is identified as having an indefinite useful life, the
Corporation is required to test the intangible asset for impairment in
accordance with the provisions of Statement 142 within the first interim period.
Any impairment loss will be measured as of the date of adoption and recognized
as the cumulative effect of a change in accounting principle in the first
interim period.

45

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Due to the Bristol Florida bank group situation the Corporation reassessed
the residual value of the goodwill in the Florida segment and determined that
there is no impairment loss.

On October 3, 2001, the FASB issued Statement of Financial Accounting
Statement 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
(Statement 144). Statement 144 supersedes Statement 121 and provides a single
accounting model for long-lived assets to be disposed of. Although retaining
many of the fundamental recognition and measurement provisions of Statement 121,
the new rules significantly change the criteria that would have to be met to
classify an asset as held-for-sale. Statement 144 also supersedes the provisions
of APB Opinion 30 with regard to reporting the effects of a disposal of a
segment of a business and will require expected future operating losses from
discontinued operations to be displayed in discontinued operations in the
period(s) in which the losses are incurred (rather than as of the measurement
date as presently required by APB 30). In addition, more dispositions will
qualify for discontinued operations treatment in the statement of income. This
statement was effective for the Corporation in January 2002 and did not have a
material impact on its financial condition or results of operations.

In October of 2002, the FASB released statement, SFAS No. 147,
"Acquisitions of Certain Financial Institutions," (Statement 147) amending
Statements No. 72 and 144 and FASB Interpretation No. 9 allowing financial
institutions meeting certain criteria to reclassify unidentifiable intangible
asset balances to goodwill and cease amortization beginning as of January 1,
2002. Except for transactions between two or more mutual enterprises, this
Statement removes acquisitions of financial institutions from the scope of both
Statement 72 and Interpretation 9 and requires that those transactions be
accounted for in accordance with Statements No. 141, and No. 142. In addition,
Statement 147 amends Statement No. 144, to include in its scope long-term
customer-relationship intangible assets of financial institutions such as
depositor- and borrower-relationship intangible assets and credit cardholder
intangible assets. Consequently, those intangible assets are subject to the same
undiscounted cash flow recoverability test and impairment loss recognition and
measurement provisions that Statement 144 requires for other long-lived assets
that are held and used.

This Statement is effective for acquisitions which occur after September
30, 2002; the transition provisions for previously recognized unidentifiable
intangibles are effective after September 30, 2002 with earlier application
permitted. As such, the Corporation has reclassified to goodwill approximately
$5.1 million in unidentifiable intangible assets which arose from a business
combination in North Alabama. Amortization expense of $113,000, net after-tax,
has been reversed from the third quarter 2002 income statement. The after-tax
effect of the reversal is not considered material to previously issued financial
statements.

At December 31, 2002, the Corporation had unamortized goodwill in the
amount of $10,672,000, which is subject to the provisions of Statements 141 and
142. The adoption of Statement 142 and 147 resulted in the loss before tax
benefit of approximately $562,000 and a decrease in net loss of approximately
$393,000, or approximately $.02 per share in 2002. During the first quarter of
2002, the Corporation performed the first of the required impairment tests of
goodwill and intangible assets with indefinite lives. No impairment was noted.

46

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

The following table sets forth the reconcilement of net (loss) income and
(loss) earnings per share excluding goodwill amortization for the twelve-month
period ended December 31, 2002 compared to the twelve-month period ended
December 31, 2001 (in thousands, except per share data):

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51 (Interpretation 46).
Interpretation 46 addresses consolidation by business enterprises of variable
interest entities which have one or both of the following characteristics: (1)
the equity investment at risk is not sufficient to permit the entity to finance
its activities without additional support from other parties, which is provided
through other interests that will absorb some or all of the expected losses of
the entity. (2) the equity investors lack one or more of the following essential
characteristics of a controlling financial interest: (a) the direct or indirect
ability to make decisions about the entity's activities through voting rights;
and/or similar rights, (b) the obligation to absorb the expected losses of the
entity if they occur, which makes it possible for the entity to finance its
activities, or (c) the right to receive the expected residual returns of the
entity if they occur, which is the compensation for the risk of absorbing
expected losses. Interpretation 46 does not require consolidation by transferors
to qualifying special purpose entities. Interpretation 46 applies immediately to
variable interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that date. It
applies in the first fiscal year or interim period beginning after June 15,
2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The Corporation does not
expect Interpretation 46 to have any impact on its financial position or results
of operation.

47

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. INVESTMENT SECURITIES

The amounts at which investment securities are carried and their
approximate fair values at December 31, 2002 and 2001 are as follows:

Securities with an amortized cost of $41,953,000 and $62,744,000 at
December 31, 2002 and 2001, respectively, were pledged to secure United States
government deposits and other public funds and for other purposes as required or
permitted by law.

The transition provisions of SFAS No. 133 provide that at the date of
initial application (January 1, 2001), debt securities categorized as
held-to-maturity may be transferred into the available-for-sale category without
calling into question the Corporation's intent to hold other debt securities
until maturity. As such, on January 1, 2001, the Corporation transferred debt
securities with a carrying value of $4,389,000 and a market value of $4,317,000
to the available-for-sale category and the $72,000 unrealized loss on the
transfer was recorded in other comprehensive income.

48

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. INVESTMENT SECURITIES -- (CONTINUED)

The amortized cost and estimated fair values of investment securities at
December 31, 2002, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.

Gross realized gains on sales of investment securities available for sale
in 2002, 2001 and 2000 were $629,000, $1,461,000 and $169,000, respectively, and
gross realized losses for the same periods were $2,000, $78,000 and $38,000,
respectively.

The components of other comprehensive income for the years ended December
31, 2002 and 2001 are as follows:

49

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. LOANS

At December 31, 2002 and 2001, the composition of the loan portfolio was as
follows:

At December 31, 2002 and 2001, the Corporation's recorded investment in
loans considered to be impaired under SFAS No. 114 was $26,400,000 and
$10,100,000, respectively. At December 31, 2002 and 2001, there were
approximately $9,300,000 and $3,100,000, respectively, in the allowance for loan
losses specifically allocated to impaired loans. The average recorded investment
in impaired loans during 2002, 2001 and 2000 was approximately $16,175,000,
$12,500,000 and $15,100,000, respectively. Interest income recognized on loans
considered impaired totaled approximately $575,000, $385,000 and $857,000 for
the years ended December 31, 2002, 2001 and 2000, respectively.

The Corporation had approximately $224,000 of commitments to loan
additional funds to the borrowers whose loans were impaired at December 31,
2002.

4. ALLOWANCE FOR LOAN LOSSES

A summary of the allowance for loan losses for the years ended December 31,
2002, 2001 and 2000 follows:

50

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. PREMISES AND EQUIPMENT

Components of premises and equipment at December 31, 2002 and 2001 are as
follows:

Depreciation expense for the years ended December 31, 2002, 2001 and 2000
was $3,305,000, $3,017,000 and $2,598,000, respectively.

Future minimum lease payments under the operating leases are summarized as
follows:

Rental expense relating to operating leases amounted to approximately
$766,000, $918,000 and $757,003 for the years ended December 31, 2002, 2001 and
2000, respectively.

6. DEPOSITS

The following schedule details interest expense on deposits:

51

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. DEPOSITS -- (CONTINUED)

At December 31, 2002, the scheduled maturities of time deposits are as
follows (in thousands):

2003........................................................ $512,762
2004........................................................ 69,295
2005........................................................ 31,813
2006........................................................ 12,589
2007 and thereafter......................................... 41,124
--------
$667,583
========

7. BORROWED FUNDS

The following is a summary, by year of maturity, of advances from the
Federal Home Loan Bank ("FHLB") as of December 31, 2002 and 2001 (in thousands):

The above schedule is by contractual maturity. Call dates for the above are
as follows: 2003, $149,840,000; 2004, $2,000,000; and 2005, $3,000,000.

The advances are secured by a blanket lien on certain residential and
commercial real estate loans all with a carrying value of approximately
$541,459,000 at December 31, 2002.

As of December 31, 2002 the Corporation had available a $15,000,000 line of
credit with a regional bank. Interest is one and three-quarters (1.75%)
percentage points in excess of the applicable LIBOR Index Rate and the line
matures May 1, 2005. The loan agreement contains various covenants pertaining to
the maintenance of regulatory capital, specified levels of classified assets and
the amount of stockholders' equity. At December 31, 2002, the Corporation was in
breach of the classified assets covenant of that agreement. As a result, the
lending bank must consent to each advance under the line of credit. As of
December 31, 2002 and 2001, there were no outstanding balances on this line.

8. GUARANTEED PREFERRED BENEFICIAL INTEREST IN THE CORPORATION'S SUBORDINATED
DEBENTURES

On September 7, 2000, TBC Capital Statutory Trust II ("TBC Capital II"), a
Connecticut statutory trust established by the Corporation, received $15,000,000
in proceeds in exchange for $15,000,000 principal amount of TBC Capital II's
10.6% cumulative trust preferred securities in a pooled trust preferred private
placement. The proceeds were used to purchase an equal principal amount of 10.6%
subordinated debentures of the Corporation.

52

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. GUARANTEED PREFERRED BENEFICIAL INTEREST IN THE CORPORATION'S SUBORDINATED
DEBENTURES -- (CONTINUED)

On July 16, 2001, TBC Capital Statutory Trust III ("TBC Capital III"), a
Delaware business trust established by the Corporation, received $16,000,000 in
proceeds in exchange for $16,000,000 principal amount of TBC Capital III's
variable rate cumulative trust preferred securities in a pooled trust preferred
private placement. The proceeds were used to purchase an equal principal amount
of variable rate subordinated debentures of the Corporation. The stated interest
rate is the six-month LIBOR plus 375 basis points. The interest rate on the
securities reprices every six months and has a 12% annum ceiling for the first
ten years. As of December 31, 2002 and 2001, the interest rate on the securities
was 5.61% and 7.57%, respectively.

The Corporation has fully and unconditionally guaranteed all obligations of
TBC Capital II and III on a subordinated basis with respect to the preferred
securities. The Corporation accounts for TBC Capital II and III as minority
interests. Subject to certain limitations, the preferred securities qualify as
Tier 1 capital and are presented in the Consolidated Statement of Financial
Condition as "Guaranteed preferred beneficial interests in the Corporation's
subordinated debentures." The sole assets of TBC Capital II and III are the
subordinated debentures issued by the Corporation. Both the preferred securities
of TBC Capital II and III and the subordinated debentures of the Corporation
each have 30-year lives. However, both the Corporation and TBC Capital II and
III have call options, with a premium after five years through ten years and
call options at par after ten years, subject to regulatory approval, or earlier
depending upon certain changes in tax or investment company laws, or regulatory
capital requirements. Currently, the Corporation must obtain regulatory approval
prior to paying any dividends on these trust preferred securities. The Federal
Reserve approved the timely payment of our semi-annual distribution on our trust
preferred securities in March 2003.

A portion of the proceeds from the offering were used to repay borrowings
under the Corporation's line of credit with the balance to be used for general
corporate purposes including additional capital investment in the Corporation's
bank subsidiary.

9. CASH AND STOCK INCENTIVE PLANS

The Corporation has established a stock incentive plan for directors and
certain key employees that provide for the granting of restricted stock and
incentive and nonqualified options to purchase up to 1,500,000 shares of the
Corporation's common stock. The compensation committee of the Board of Directors
determines the terms of the restricted stock and options granted.

53

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. CASH AND STOCK INCENTIVE PLANS -- (CONTINUED)

All options granted have a maximum term of ten years from the grant date,
and the option price per share of options granted cannot be less than the fair
market value of the Corporation's common stock on the grant date. All options
granted under this plan vest 20% on the grant date and an additional 20%
annually on the anniversary of the grant date.

On December 31, 2001, the Corporation cancelled previously issued stock
options totaling 566,000. The most recent option grant date prior to the
cancellation was June 19, 2001, the Corporation's normal timing for grants. The
Corporation's first grant date after December 31, 2001 was July 31, 2002.

A further summary about options outstanding at December 31, 2002 is as
follows:

As of December 31, 2002, there were no shares of the Corporation's common
stock available for future grants.

The Corporation recognizes compensation cost for stock-based employee
compensation awards in accordance with APB Opinion No. 25, Accounting for Stock
Issued to Employees. The Corporation

54

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. CASH AND STOCK INCENTIVE PLANS -- (CONTINUED)

recognized no compensation cost for stock-based employee compensation awards for
the years ended December 31, 2002, 2001 and 2000. If the Corporation had
recognized compensation cost in accordance with SFAS No. 123, net income and
earnings per share would have been reduced as follows (amounts in thousands,
except per share data):

The fair value of the options granted was based upon the Black-Scholes
pricing model. The Corporation used the following weighted-average assumptions
for:

On April 1, 2002, the Corporation issued 157,500 shares of restricted
common stock to certain directors and key employees pursuant to the Second
Amended and Restated 1998 Stock Incentive Plan. Under the Restricted Stock
Agreements, the stock may not be sold or assigned in any manner for a five-year
period that began on April 1, 2002. During this restricted period, the
participant is eligible to receive dividends and exercise voting privileges. The
restricted stock also has a corresponding vesting period with one-third vesting
in the third, fourth and fifth years. The restricted stock was issued at a total
value of $1,120,000, and is classified as a contra-equity account, "Unearned
restricted stock", in stockholders' equity. The $1,120,000 is being amortized as
expense as the stock is earned during the restricted period. The amount of
restricted shares are included in the diluted earnings per share calculation,
using the treasury stock method, until the shares vest. Once vested, the shares
become outstanding for basic earnings per share. For the period ended December
31, 2002, the Corporation has recognized $168,000 in restricted stock expense.

The Corporation adopted a leveraged employee stock ownership plan (the
"ESOP") effective May 15, 2002 that covers all eligible employees that have
attained the age of twenty-one and have completed a year of service. As of
December 31, 2002, the ESOP has been internally leveraged with 267,022 shares of
the Corporation's common stock purchased in the open market and classified as a
contra-equity account, "Unearned ESOP shares," in stockholders' equity.

On January 29, 2003, the ESOP trustees finalized a $2,100,000 promissory
note to reimburse the Corporation for the funds used to leverage the ESOP. The
unreleased shares and a guarantee of the Corporation secure the promissory note,
which will be classified as long-term debt on the Corporation's statement of
financial condition. As the ESOP repays the debt, with monthly contributions
from the Corporation, shares are released from collateral based on the
proportion of debt service. Released shares are allocated to eligible employees
at the end of the plan year based on the employee's eligible compensation to

55

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. CASH AND STOCK INCENTIVE PLANS -- (CONTINUED)

total compensation. The Corporation recognizes compensation expense during the
period as the shares are earned and committed to be released. As shares are
committed to be released and compensation expense is recognized, the shares
become outstanding for basic and diluted earnings per share computations. The
amount of compensation expense reported by the Corporation is equal to the
average fair value of the shares earned and committed to be released during the
period. Compensation expense that the Corporation recognized during the period
ended December 31, 2002 was $52,000. The ESOP shares as of December 31, 2002
were as follows:

10. RETIREMENT PLANS

The Corporation sponsors a profit-sharing plan that permits participants to
make contributions by salary reduction pursuant to Section 401(k) of the
Internal Revenue Code. This plan covers substantially all employees who meet
certain age and length of service requirements. The Corporation matches
contributions at its discretion. The Corporation's contributions to the plan
were $255,000, $243,000 and $108,000 in 2002, 2001 and 2000, respectively.

The Corporation has nonqualified benefit plans that are designed to provide
retirement and death benefits to certain executive officers and directors. The
benefit amounts are based on the excess amount earned on single premium life
insurance policies owned by the Corporation. Under the plan, the Corporation
recovers both its investment and opportunity costs before allocating any
benefits to the participants. Benefit payments to participants are not
guaranteed since they are dependent on the excess earnings generated by the life
insurance policies. Payments under these plans are scheduled to begin in 2003
for some participants who will reach retirement age. In connection with the
plans, the Corporation has purchased single premium life insurance policies with
cash surrender values of approximately $15,006,000 and $13,704,000 at December
31, 2002 and 2001, respectively. Compensation expense related to these plans
totaled $669,000, $378,000 and $401,000 for 2002, 2001 and 2000, respectively.

11. INCOME TAXES

The components of the income tax (benefit) expense are as follows (in
thousands):

56

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. INCOME TAXES -- (CONTINUED)

Significant components of the Corporation's deferred tax assets and
liabilities as of December 31, 2002 and 2001 are as follows (in thousands):

The effective tax rate differs from the expected tax using statutory rate
of 34%. Reconciliation between the expected tax and the actual income tax
(benefit) expense follows (in thousands):

The Corporation has net operating loss carryforwards for two states of
approximately $4,600,000 in Alabama and $7,600,000 in Florida which can be
carried forward eight years and twenty years, respectively.

The Corporation has available at December 31, 2002 unused rehabilitation
tax credits that can be carried forward and utilized against future Federal
income tax liability. Unused credits and expiration dates are as follows:

Year of expiration:
2018...................................................... $1,734
2019...................................................... 738
2020...................................................... 1,255
2021...................................................... 522
2022...................................................... 384
------
$4,633
======

57

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. INCOME TAXES -- (CONTINUED)

This credit was established as a result of the restoration and enhancement
of the John A. Hand building, which is designated as an historical structure and
serves as the corporate headquarters for the Corporation. This credit is equal
to 20% of certain qualified expenditures incurred by the Corporation prior to
December 31, 2002. The Corporation is required to reduce its tax basis in the
John A. Hand building by the amount of the credit.

Applicable income tax expense of $232,000, $525,000 and $50,000 on
securities gains for the years ended December 31, 2002, 2001 and 2000,
respectively, is included in income taxes.

12. RELATED PARTY TRANSACTIONS

The Corporation has entered into transactions with its directors, executive
officers, significant stockholders and their affiliates (related parties). Such
transactions were made in the ordinary course of business on substantially the
same terms and conditions, including interest rates and collateral, as those
prevailing at the same time for comparable transactions with other customers,
and did not, in the opinion of management, involve more than normal credit risk
or present other unfavorable features. The aggregate amount of loans to such
related parties at December 31, 2002 and 2001 were $12,739,000 and $14,888,000,
respectively. Activity during the year ended December 31, 2002 is summarized as
follows (in thousands):

At December 31, 2002, the deposits of such related parties in the
subsidiary banks amounted to approximately $2,845,000.

In July 1998, prior to its acquisition by the Corporation, Emerald Coast
Bancshares, Inc. sold the land and building of its main office and two branch
offices to an entity under the control of certain members of Emerald Coast
Bancshares' Board of Directors for the fair value of approximately $3,794,700.
The sales were accounted for under a sale-leaseback arrangement. The deferred
gain on the sales amounted to $87,000 and is being amortized into income over
the lease terms. At December 31, 2001, the deferred gain amounted to
approximately $27,000. Terms of the leases are described Note 5. Rental expense
under these operating leases amounted to approximately $175,000 in 2002 and
$473,000 in 2001 and 2000, respectively.

In June 2002, The Bank purchased these properties for their fair value of
approximately $3,892,200.

The Corporation sold commercial real estate to certain directors realizing
gains of $305,000 and $161,000 in 2001 and 2000, respectively. The Corporation
received consideration of $650,000 and $250,000 in 2001 and 2000, respectively,
for the commercial real estate sales.

During 2002, the Corporation, through its real estate management
subsidiary, received from an affiliated company $180,000 in rental income and
$105,000 in personnel and management related fees. As of December 31, 2002 and
2001, approximately $156,000 and $112,000, respectively in receivables were due
from the affiliated company. These respective receivables have been paid in full
subsequent to December 31, 2002 and 2001 in the normal course of business.

On September 27, 2002, The Bank sold an undivided 87.5% ownership interest
in a $4 million loan that was held in our portfolio to an entity controlled by a
director of the Corporation for $3.5 million. The sale was nonrecourse and no
gain or loss was recognized.

58

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. COMMITMENTS AND CONTINGENCIES

The consolidated financial statements do not reflect the Corporation's
various commitments and contingent liabilities which arise in the normal course
of business and which involve elements of credit risk, interest rate risk and
liquidity risk. These commitments and contingent liabilities are commitments to
extend credit and standby letters of credit. The following is a summary of the
Corporation's maximum exposure to credit loss for loan commitments and standby
letters of credit (in thousands):

Commitments to extend credit and standby letters of credit all include
exposure to some credit loss in the event of nonperformance of the customer. The
Corporation's credit policies and procedures for credit commitments and
financial guarantees are the same as those for extension of credit that are
recorded in the consolidated statement of financial condition. Because these
instruments have fixed maturity dates, and because many of them expire without
being drawn upon, they do not generally present any significant liquidity risk
to the Corporation.

During 2001, 2002 and subsequent to year-end, the Corporation settled
various litigation matters. Additionally, Preston Peete v. The Bank et al Case
No. CV-00-804, Circuit Court of Morgan County, Alabama, was tried to a jury
verdict on November 16, 2001, resulting in a judgment against The Bank for
approximately $211,000 in compensatory damages and $422,000 in punitive damages
and a judgment in favor of The Bank against Mr. Peete in the amount of $105,000.
The net amount awarded to Mr. Peete totaled approximately $528,000. The
Corporation adequately provided for estimated loss exposure from these
settlements and judgments in the 2001 consolidated financial statements.

The Corporation is also a defendant or co-defendant in various lawsuits
incidental to the banking business. Management, after consultation with legal
counsel, believes that liabilities, if any, arising from such litigation and
claims will not result in a material adverse effect on the consolidated
financial statements of the Corporation.

14. MERGERS AND ACQUISITIONS

On February 15, 2002, the Corporation acquired one-hundred percent (100%)
of the outstanding common shares of CF Bancshares, Inc. ("CF Bancshares") in a
business combination accounted for as a purchase. CF Bancshares was a unitary
thrift holding company operating in the panhandle of Florida. As a result of
this acquisition, the Corporation expanded its market in the panhandle of
Florida and increased its assets in Florida by approximately $100,000,000.

The total cost of the acquisition was $15,636,000, which included 16,449
shares of common stock valued at $108,563. The value of common stock issued was
determined based on the average of the closing sales price for the twenty (20)
consecutive trading days ending three days prior to the special meeting of CF
Bancshares shareholders held on November 28, 2001. The purchase price exceeded
the fair value of the net assets of CF Bancshares by $7,445,000. Of this amount,
approximately $2,900,000 consisted of a core deposit intangible which is being
amortized over a ten-year period on the straight-line basis. The remaining
$4,545,000 is goodwill (See Note 1). The Corporation's consolidated financial
statements include the results of operations of CF Bancshares only for the
period February 15, 2002 to December 31, 2002.

59

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. MERGERS AND ACQUISITIONS -- (CONTINUED)

The following unaudited summary information presents the consolidated
results of operations of the Corporation on a pro forma basis, as if CF
Bancshares had been acquired on January 1, 2001. The pro forma summary does not
necessarily reflect the results of operations that would have occurred if the
acquisition had occurred as of the beginning of the period presented, or the
results that may occur in the future (in thousands, except per share data).

15. REGULATORY RESTRICTIONS

A source of funds available to the Corporation is the payment of dividends
by its subsidiary. Banking regulations limit the amount of dividends that may be
paid without prior approval of the subsidiary's regulatory agency. As of
December 31, 2002, there are no retained earnings available to be paid as
dividends by the subsidiary without prior approval by the subsidiary's
regulatory agency. Currently, we must obtain regulatory approval prior to paying
dividends on our common stock or our trust preferred securities.

The Corporation and its subsidiary are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the Corporation's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Corporation and its subsidiary must meet specific capital guidelines
that involve quantitative measures of the Corporation's and its subsidiary's
assets, liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Corporation's and its subsidiary's capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and its subsidiary to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier I capital (as defined in
the regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes, as of December 31,
2002 and 2001 that the Corporation and its subsidiary meet all capital adequacy
requirements to which they are subject.

The most recent notification from the Federal Reserve Bank stated that as
of September 30, 2002, the Corporation and its subsidiary met or exceeded all
requirements necessary to be deemed "well capitalized" under the regulatory
framework for prompt corrective action. To be categorized as "well capitalized"
the Corporation and its subsidiary must maintain minimum total risk-based, Tier
I risk-based and Tier I leverage

60

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15. REGULATORY RESTRICTIONS -- (CONTINUED)

ratios as set forth in the table below. Since that notification the Corporation
has incurred significant credit losses and restated its results for the second
and third quarters of 2002 (Note 21). The Corporation would continue to be
categorized as "well-capitalized" for the second and third quarters and the
subsidiary would be categorized as "adequately capitalized" for the second and
third quarters. The Corporation and its subsidiary are "adequately capitalized"
at December 31, 2002.

16. FAIR VALUES OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used by the Corporation in
estimating fair values of financial instruments as disclosed herein:

Cash and short-term instruments. The carrying amounts of cash and
short-term instruments, including interest bearing deposits in other banks,
federal funds sold and short-term commercial paper, approximate their fair
value.

Securities available for sale and securities held to maturity. Fair values
for securities are based on quoted market prices. The carrying values of stock
in FHLB and Federal Reserve Bank approximate fair values.

Mortgage loans held for sale. The carrying amounts of mortgage loans held
for sale approximate their fair value.

Net loans. Fair values for variable-rate loans that reprice frequently and
have no significant change in credit risk are based on carrying values. Fair
values for all other loans are estimated using discounted cash flow analyses
using interest rates currently being offered for loans with similar terms to
borrowers of similar credit

61

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. FAIR VALUES OF FINANCIAL INSTRUMENTS -- (CONTINUED)

quality. Fair values for impaired loans are estimated using discounted cash flow
analyses or underlying collateral values, where applicable.

Accrued interest receivable. The carrying amounts of accrued interest
receivable approximate their fair values.

Derivative instruments. The fair value of derivatives utilized by the
Corporation for interest rate risk management purposes is obtained from dealer
quotes. These values represent the estimated amount the Corporation would
receive or pay to terminate the contracts or agreements.

Deposits. The fair values disclosed for demand deposits are, by
definition, equal to the amount payable on demand at the reporting date (that
is, their carrying amounts). The carrying amounts of variable-rate, fixed-term
money market accounts and certificates of deposit ("CDs") approximate their fair
values at the reporting date. Fair values for fixed-rate CDs are estimated using
a discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly maturities
on time deposits.

Advances from FHLB. Rates currently available to the Corporation for debt
with similar terms and remaining maturities are used to estimate fair value of
existing debt.

Note payable and other borrowed funds. The carrying amounts of note
payable and other borrowed funds approximate their fair values.

Guaranteed preferred beneficial interest in the Corporation's subordinated
debentures. Rates currently available to the Corporation for preferred
offerings with similar terms and maturities are used to estimate fair value.

Limitations. Fair value estimates are made at a specific point of time and
are based on relevant market information which is continuously changing. Because
no quoted market prices exist for a significant portion of the Corporation's
financial instruments, fair values for such instruments are based on
management's assumptions with respect to future economic conditions, estimated
discount rates, estimates of the amount and timing of future cash flows,
expected loss experience, and other factors. These estimates are subjective in
nature involving uncertainties and matters of significant judgment; therefore,
they cannot be determined with precision. Changes in the assumptions could
significantly affect the estimates.

62

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. FAIR VALUES OF FINANCIAL INSTRUMENTS -- (CONTINUED)

The estimated fair values of the Corporation's financial instruments are as
follows:

17. OTHER NONINTEREST EXPENSE

Other noninterest expense consisted of the following (in thousands):

18. CONCENTRATIONS OF CREDIT RISK

All of the Corporation's loans, commitments and standby letters of credit
have been granted to customers in the Corporation's market area. The
concentrations of credit by type of loan or commitment are set forth in Notes 3
and 13, respectively.

The Corporation maintains cash balances and federal funds sold at several
financial institutions. Cash balances at each institution are insured by the
Federal Deposit Insurance Corporation (the "FDIC") up to $100,000. At various
times throughout the year cash balances held at these institutions will exceed
federally

63

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

18. CONCENTRATIONS OF CREDIT RISK -- (CONTINUED)

insured limits. The Bank's management monitors these institutions on a quarterly
basis in order to determine that the institutions meet "well-capitalized"
guidelines as established by the FDIC.

19. NET (LOSS) INCOME PER SHARE

The following table sets forth the computation of basic net (loss) income
per common share and diluted net (loss) income per common share (in thousands,
except per share amounts):

Options on 248,000 shares of common stock were not included in computing
diluted net income per share for the year ended December 31, 2002 because their
effects were antidilutive.

20. PARENT COMPANY

The condensed financial information for The Banc Corporation (Parent
Company only) is presented as follows (in thousands):

64

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

20. PARENT COMPANY -- (CONTINUED)

65

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

20. PARENT COMPANY -- (CONTINUED)

21. SELECTED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

On February 6, 2003, the Corporation announced it had identified certain
loans extended upon the authorization of the now former president of The Bank's
Bristol, Florida bank group. These loans exceeded the former employee's loan
authority and were approved or otherwise extended in violation of The Bank's
lending policies and procedures. Upon discovering these violations, the
Corporation, assisted by outside counsel, along with federal and state banking
regulators conducted an extensive review of the loan portfolio at the Bristol
bank group.

Based on this review, it was determined that certain loan documents had
been improperly executed during the second quarter of 2002. It was also
determined that certain problem loans had been sold during the second and third
quarters of 2002 by the former employee and simultaneously a full recourse
agreement was

66

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

21. SELECTED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) -- (CONTINUED)

executed that was concealed from any other members of the Corporation's
management. The loans were sold for their carrying value and no gain or loss was
recorded. In addition, loan payments had been made through additional extensions
of credit in order to conceal problems that existed in the loan portfolio as of
that time. As a result, the Corporation has restated its quarterly financial
statements for the three and six month periods ended June 30, 2002 and for the
three and nine month periods ended September 30, 2002.

The loans for which documents were improperly executed have been reflected
as charge-offs as of the date they were executed, and all interest which accrued
on them has been reversed and additional provision for loan losses has been made
for the amounts charged off. The loans which were erroneously reported as sold
have been recorded on the condensed consolidated statements of condition as of
June 30 and September 30, 2002 and additional provision for loan losses has been
made for these loans based on the risk ratings assigned as of these dates. Loans
for which material payments had been made through additional extensions of
credit have been risk rated appropriately and additional provision for loan
losses has been made for these loans on the risk ratings assigned. In addition,
any interest capitalized into principal through extensions of credit to
borrowers determined not to be creditworthy has been reversed.

As a result of the restatement, the Corporation had a net loss for the
three months ended June 30, 2002 of $(5,807,000) or $(.33) per share compared to
net income of $2,502,000 or $.14 per share as previously reported and net income
for the three months ended September 30, 2002 of $2,073,000 or $.12 per share
compared to net income of $2,550,000 or $.15 per share as previously reported.

A summary of the effects of the restatement on the Corporation's
consolidated statement of condition and statements of operations follows:

67

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

21. SELECTED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) -- (CONTINUED)

A summary of the unaudited results of operations for each quarter of 2002
and 2001 follows (in thousands, except per share data):

22. SUBSEQUENT EVENT (UNAUDITED)

On March 13, 2003, the Corporation's banking subsidiary sold its Roanoke
branch, which had assets of $9,800,000 and liabilities of $44,672,000, pursuant
to a Branch Sale Agreement, dated as of November 19, 2002, for approximately
$3.3 million. The Corporation realized a gain on the sale of approximately $2.3
million.

Subsequent to year end, the Corporation contributed certain floors it owned
in the Corporation's headquarters with a book value of $2,500,000 to The Bank as
a capital contribution.

23. SEGMENT REPORTING

The Corporation has two reportable segments, the Alabama Region and the
Florida Region. The Alabama Region consists of operations located throughout the
state of Alabama. The Florida Region consists of operations located in the
panhandle of Florida. The Corporation's reportable segments are managed as
separate business units because they are located in different geographic areas.
Both segments derive revenues from the delivery of financial services. These
services include commercial loans, mortgage loans, consumer loans, deposit
accounts and other financial services.

The Corporation evaluates performance and allocates resources based on
profit or loss from operations. There are no material intersegment sales or
transfers. Net interest revenue is used as the basis for performance evaluation
rather than its components, total interest revenue and total interest expense.
The accounting

68

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

23. SEGMENT REPORTING -- (CONTINUED)

policies used by each reportable segment are the same as those discussed in Note
1. All costs have been allocated to the reportable segments. Therefore, combined
segment amounts agree to the consolidated totals.

- ---------------

(1) Noninterest expense for the Alabama region includes all expenses for the
holding company, which have not been prorated to the Florida region.

69

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

ITEMS 10, 11, 12 AND 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT,
EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT; AND CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS.

The information set forth under the captions "Directors and Executive
Officers of the Registrant," "Election of Directors," "Committees of the
Company's Board of Directors and Meeting Attendance," "Executive Compensation
and Other Information," "Security Ownership of Certain Beneficial Owners and
Management," and "Certain Relationships and Related Transactions" included in
The Banc Corporation's definitive proxy statement to be filed no later than
April 30, 2003, in connection with The Banc Corporation's 2003 Annual Meeting of
Stockholders is incorporated herein by reference.

ITEM 14. CONTROLS AND PROCEDURES.

CEO AND CFO CERTIFICATION

Appearing immediately following the Signatures section of this report are
Certifications of our Chief Executive Officer ("CEO") and our Chief Financial
Officer ("CFO"). The Certifications are required to be made by Rule 13a-14 of
the Securities Exchange Act of 1934, as amended. This Item contains the
information about the evaluation that is referred to in the Certifications, and
the information set forth below in this Item 14 should be read in conjunction
with the Certifications for a more complete understanding of the Certifications.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to our management, including our CEO and CFO, as appropriate, to
allow timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management recognized that
any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives.

Within 90 days prior to the filing of this annual report, we conducted an
evaluation (the "Evaluation") of the effectiveness of the design and operation
of our disclosure controls and procedures under the supervision and with the
participation of our management, including our CEO and CFO. Based upon the
Evaluation, our CEO and CFO have concluded that, subject to the limitations
noted below, our disclosure controls and procedures are effective to ensure that
material information relating to The Banc Corporation and its subsidiaries is
made known to management, including the CEO and CFO, particularly during the
period when our periodic reports are being prepared.

CHANGES IN INTERNAL CONTROLS

Prior to the discovery of the Bristol, Florida bank group situation, which
ultimately caused us to restate our financial statements for the second and
third quarters of 2002, we were in the process of enhancing our internal
controls for financial reporting. In the fourth quarter of 2002, we instituted a
peer review system to supplement our existing independent loan review function;
we increased our loan review staffing; and we established a centralized loan
administration services department to serve all of our bank locations, thereby
providing standardized oversight for compliance approval authorities and bank
lending policies and procedures. We also hired additional personnel for our
credit risk management department.

70

Although the Bristol, Florida bank group loan problems resulted from a
former employee's intentional circumvention of our existing internal controls,
and although we discovered these problems as a result of the peer review system
we implemented in the fourth quarter of 2002, we and our independent auditors
are nonetheless treating those circumstances as reflecting material weaknesses
in our internal controls with respect to the monitoring of loan risk ratings,
the timely review of the loan portfolio by our loan review function, the
monitoring of past due loans and the monitoring of loan approval and a loan
officer's ability to originate loans in excess of authorized lending limits.

These concerns are being addressed in part by the actions we instituted
during the fourth quarter of 2002. Going forward, we intend to centralize the
loan operations of all of our branch groups in order to provide an enhanced
degree of centralized supervision, monitoring and accountability. We believe
that we will have this centralization completed within the next twelve months.

We have disclosed and discussed these issues and responses with our Audit
Committee and independent auditors.

71

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) Financial Statements, Financial Schedules and Exhibits.

(l) The consolidated financial statements of The Banc Corporation and its
subsidiaries filed as a part of this Annual Report on Form 10-K are
listed in Item 8 of this Annual Report on Form 10-K, which is hereby
incorporated by reference herein.

(2) All schedules to the consolidated financial statements of The Banc
Corporation and its subsidiaries have been omitted because they are not
required under the related instructions or are inapplicable, or because
the required information has been provided in the consolidated
financial statements or the notes thereto.

(3) The exhibits required by Regulation S-K are set forth in the following
list and are filed either by incorporation by reference from previous
filings with the Securities and Exchange Commission or by attachment to
this Annual Report on Form 10-K as indicated below.

(b) Reports on Form 8-K.

On October 24, 2002, The Banc Corporation filed a current report on Form
8-K, dated October 24, 2002, under Item 9 Regulation FD disclosure announcing
earnings and the creation of its risk management department.

(c) Exhibits.

The exhibits required to be filed with this Annual Report on Form 10-K
pursuant to Item 601, of Regulation S-K are listed under "Exhibits" in Part IV,
Item 15(a) (3) of this Annual Report on Form 10-K, and are hereby incorporated
herein by reference.

(d) Financial Statement Schedules.

The Financial Statement Schedules required to be filed with this Annual
Report on Form 10-K are listed under "Financial Statement Schedules" in Part IV,
Item 15(a) (2) of this Annual Report on Form 10-K, and are hereby incorporated
herein by reference.

74

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

THE BANC CORPORATION

By: /s/ JAMES A. TAYLOR
------------------------------------
James A. Taylor
Chairman of the Board and
Chief Executive Officer

April 14, 2003

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James A. Taylor, Jr. and David R. Carter, and
each of them, the true and lawful agents and attorneys-in-fact with full power
and authority in either of said agents and attorneys-in-fact, acting singly, to
sign for the undersigned as Director or an officer of the Corporation, or as
both, the Corporation's 2002 Annual Report on Form 10-K to be filed with the
Securities and Exchange Commission, Washington, D.C. under the Securities
Exchange Act of 1934, and to sign any amendment or amendments to such Annual
Report, including an Annual Report pursuant to 11-K to be filed as an amendment
to the Form 10-K; hereby ratifying and confirming all acts taken by such agents
and attorneys-in-fact as herein authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.

76

CERTIFICATIONS

I, James A. Taylor, certify that:

1. I have reviewed this annual report on Form 10-K of The Banc Corporation;

2. Based on my knowledge, this annual 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 annual
report;

3. Based on my knowledge, the financial statements and other financial
information included in this annual 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 annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) Designed such disclosure controls and procedures 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 annual report is being
prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

By: /s/ JAMES A. TAYLOR
------------------------------------
James A. Taylor
Chairman and Chief Executive Officer

Date: April 14, 2003

77

CERTIFICATIONS

I, David R. Carter, certify that:

1. I have reviewed this annual report on Form 10-K of The Banc Corporation;

2. Based on my knowledge, this annual 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 annual
report;

3. Based on my knowledge, the financial statements and other financial
information included in this annual 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 annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) Designed such disclosure controls and procedures 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 annual report is being
prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

By: /s/ DAVID R. CARTER
------------------------------------
David R. Carter
Executive Vice President and
Chief Financial Officer

Date April 14, 2003

78

EXHIBIT INDEX