BANC CORP - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003

OR

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

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 (IRS Employer
of Incorporation) Identification No.)

17 North 20th Street, Birmingham, Alabama 35203
-----------------------------------------------
(Address of Principal Executive Offices)

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

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

Yes X No
---------- ----------

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes X No
---------- ----------

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

Class Outstanding as of March 31, 2003
- ----------------------------- --------------------------------
Common stock, $.001 par value 17,611,349

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)

MARCH 31, DECEMBER 31,
2003 2002
---------- ------------
(UNAUDITED)

ASSETS
Cash and due from banks $ 34,605 $ 45,365
Interest bearing deposits in other banks 32,003 10,025
Federal funds sold 36,000 11,000
Investment securities available for sale 67,311 71,129
Investment securities held for sale (fair value of $1,937,000 in 2003 and
$1,867,000 in 2002) 1,996 1,996
Mortgage loans held for sale 15,459 764
Loans, net of unearned income 1,135,720 1,138,537
Less: Allowance for loan losses (28,679) (27,766)
---------- ----------
Net loans 1,107,041 1,110,771
---------- ----------
Premises and equipment, net 60,901 61,849
Accrued interest receivable 6,274 6,876
Stock in FHLB and Federal Reserve Bank 10,903 10,903
Other assets 73,555 75,136
---------- ----------
TOTAL ASSETS $1,446,048 $1,405,814
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing $ 111,296 $ 119,088
Interest-bearing 1,038,698 988,710
---------- ----------
TOTAL DEPOSITS 1,149,994 1,107,798

Advances from FHLB 173,550 173,750
Other borrowed funds 1,117 1,172
Long-term debt 2,083 --
Guaranteed preferred beneficial interests in our
subordinated debentures (trust preferred securities) 31,000 31,000
Accrued expenses and other liabilities 8,818 15,553
---------- ----------
TOTAL LIABILITIES 1,366,562 1,329,273

Stockholders' Equity
Preferred stock, par value $.001 per share; authorized 5,000,000 shares;
shares issued -0- -- --
Common stock, par value $.001 per share; authorized 25,000,000 shares; shares
issued 18,013,002 in 2003 and 18,009,002 in 2002; outstanding 17,611,349
in 2003 and 17,605,124 in 2002 18 18
Surplus 68,336 68,315
Retained Earnings 14,585 11,571
Accumulated other comprehensive income 386 550
Treasury stock, at cost (808) (808)
Unearned ESOP stock (2,135) (2,153)
Unearned restricted stock (896) (952)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 79,486 76,541
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,446,048 $1,405,814
========== ==========

See Notes to Condensed Consolidated Financial Statements.

THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

THREE MONTHS ENDED
MARCH 31,
--------------------------
2003 2002
--------- ---------

INTEREST INCOME
Interest and fees on loans $ 19,844 $ 20,835
Interest on investment securities
Taxable 718 648
Exempt from Federal income tax 92 94
Interest on federal funds sold 103 87
Interest and dividends on other investments 177 117
--------- ---------
Total interest income 20,934 21,781

INTEREST EXPENSE
Interest on deposits 6,754 7,622
Interest on other borrowed funds 2,186 2,120
Interest on guaranteed preferred beneficial interest in our
subordinated debentures (trust preferred securities) 617 647
--------- ---------
Total interest expense 9,557 10,389
--------- ---------
NET INTEREST INCOME 11,377 11,392

Provision for loan losses 1,200 1,115
--------- ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 10,177 10,277

NONINTEREST INCOME
Service charges and fees on deposits 1,623 1,196
Mortgage banking income 875 714
Gain on sale of securities 26 --
Gain on sale of branch 2,246 --
Other income 955 848
--------- ---------
TOTAL NONINTEREST INCOME 5,725 2,758

NONINTEREST EXPENSES
Salaries and employee benefits 6,318 5,552
Occupancy, furniture and equipment expense 2,089 1,804
Other 3,104 2,441
--------- ---------
TOTAL NONINTEREST EXPENSES 11,511 9,797
--------- ---------
Income before income taxes 4,391 3,238

INCOME TAX EXPENSE 1,377 1,052
--------- ---------
NET INCOME $ 3,014 $ 2,186
========= =========

BASIC NET INCOME PER SHARE $ 0.17 $ 0.15
========= =========

DILUTED NET INCOME PER SHARE $ 0.17 $ 0.15
========= =========

AVERAGE COMMON SHARES OUTSTANDING 17,450 14,583
AVERAGE COMMON SHARES OUTSTANDING, ASSUMING DILUTION 17,618 14,613

See Notes to Condensed Consolidated Financial Statements.

THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
(DOLLARS IN THOUSANDS)

THREE MONTHS ENDED
MARCH 31
--------------------------
2003 2002
--------- ---------

NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES $ (9,882) $ 4,080
--------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in interest bearing deposits in other banks (21,978) --
Net increase in federal funds sold (25,000) (1,500)
Proceeds from sales of securities available for sale 13,419 --
Proceeds from maturities of investment securities available for sale 8,331 18,475
Purchases of investment securities available for sale (18,411) (2,557)
Net increase in loans (13,277) (29,444)
Purchases of premises and equipment (654) (2,027)
Net cash paid in branch sale (31,949) --
Net cash paid in business combination -- (8,619)
--------- ---------
Net cash used by investing activities (89,519) (25,672)
========= =========

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit accounts 86,789 7,034
Net (decrease) increase in FHLB advances and other borrowed funds (255) 420
Proceeds received on long term debt 2,100 --
Payments made on long term debt (17) --
Proceeds from note payable -- 14,000
Principal payment on note payable -- (14,000)
Proceeds from sale of common stock 24 19,498
Purchase of treasury stock -- (24)
--------- ---------
Net cash provided by financing activities 88,641 26,928
--------- ---------
Net (decrease) increase in cash and due from banks (10,760) 5,336
Cash and due from banks at beginning of period 45,365 31,682
--------- ---------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 34,605 $ 37,018
========= =========

See Notes to Condensed Consolidated Financial Statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q, and, therefore, do
not include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. For a summary of significant
accounting policies that have been consistently followed, see Note 1 to the
Consolidated Financial Statements included in Form 10-K for the year ended
December 31, 2002. It is management's opinion that all adjustments, consisting
of only normal and recurring items necessary for a fair presentation, have been
included. Operating results for the three-month period ended March 31, 2003, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2003.

The statement of financial condition at December 31, 2002, has been derived from
the audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.

NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS

In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical
Corrections" (Statement 145). Statement 145 rescinds Statement 4, which
required all gains and losses from extinguishment of debt to be aggregated and,
if material, classified as an extraordinary item, net of related income tax
effect. Provisions of Statement 145 related to the rescission of Statement 4
were effective for financial statements issued by the Corporation after January
1, 2003. The adoption of the provisions of Statement 145 did not have a
material impact on the Corporation's financial condition or results of
operations.

On January 1, 2003, the Corporation adopted Statement of Financial Accounting
Standards No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities" (Statement 146). Statement 146 requires companies to recognize
costs associated with the exit or disposal of activities as they are incurred
rather than at the date a plan of disposal or commitment to exit is initiated.
Types of costs covered by Statement 146 include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, facility closing, or other exit or disposal activity.
Statement 146 will apply to all exit or disposal activities initiated after
December 31, 2002. The adoption of the provisions of Statement 146 did not
have a material impact on the Corporation's financial condition or results of
operations.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (Interpretation 45). Interpretation 45
requires certain guarantees to be recorded at fair value. In general,
Interpretation 45 applies to contracts or indemnification agreements that
contingently require the guarantor to make payments to the guaranteed party
based on changes in an underlying that is related to an asset, liability, or an
equity security of the guaranteed party. The initial recognition and
measurement provisions of Interpretation 45 are applicable on a prospective
basis to guarantees issued or modified after December 31, 2002. The Corporation
began recording a liability and an offsetting asset for the fair value of any
standby letters of credit issued by the Corporation beginning January 1, 2003.
The impact of this new accounting standard was not material to the financial
condition or results of operations of the Corporation. Interpretation 45 also
requires new disclosures, even when the likelihood of making any payments under
the guarantee is remote. These disclosure requirements were effective for
financial statements of interim or annual periods ending after December 15,
2002.

The Corporation, as part of its ongoing business operations, issues financial
guarantees in the form of financial and performance standby letters of credit.
Standby letters of credit are contingent commitments issued by the Corporation
generally to guarantee the performance of a customer to a third party. A
financial standby letter of credit is a commitment by the Corporation to
guarantee a customer's repayment of an outstanding loan or debt instrument. In
a performance standby letter of credit, the Corporation guarantees a customer's
performance under a contractual nonfinancial obligation for which it receives a
fee. The Corporation has recourse against the customer for any amount it is
required to pay to a third party under which it receives a fee. The Corporation
has recourse against the customer for any amount it is required to pay to a
third party under a standby letter of credit. Revenues are recognized ratably
over the life of the standby letter of credit. At March 31, 2003, the
Corporation had standby letters of credit outstanding with maturities ranging
from less than one year to three years. The maximum potential amount of future
payments the Corporation could be required to make under its standby letters of
credit at March 31, 2003 was $19.4 million and represents the Corporation's
maximum credit risk. At March 31, 2003, the Corporation had no significant
liabilities and receivables associated with standby letters of credit
agreements entered into subsequent to December 31, 2002 as a result of the
Corporation's adoption of Interpretation 45 at January 1, 2003. Standby letters
of credit agreements entered into prior to January 1, 2003, have a carrying
value of zero. The Corporation holds collateral to support standby letters of
credit when deemed necessary.

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 whether business enterprises must consolidate
the financial statements of entities known as "variable interest entities". A
variable interest entity is defined by Interpretation 46 to be a business entity
which has 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 at
the entity; and (2) The equity investors lack one or more of the following
essential characteristics of a controlling financial interest: (a) direct or
indirect ability to make decisions about the entity's activities through voting
rights 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 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 have
any ownership of a variable interest entity.

NOTE 3 - BUSINESS COMBINATION AND BRANCH SALE

On March 13, 2003, the Corporation's banking subsidiary sold its Roanoke,
Alabama branch, which had assets of approximately $9,800,000 and liabilities of
$44,672,000, pursuant to a Branch Sale Agreement, dated as of November 19, 2002,
for approximately $3,300,000. The Corporation realized a $2,246,000 gain on the
sale.

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 approximately $100,000,000.

The total cost of the acquisition was $15,636,000, which exceeded the fair
value of the net assets of CF Bancshares by $7,445,000. The total costs included
16,794 shares of common stock valued at $110,840. The value of common stock
issued was determined based on the average of the last 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, 2002. 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 consists of goodwill. The Corporation's condensed consolidated
statement of income for the three month period ended March 31, 2002 includes the
results of operations of CF Bancshares only for the period February 15, 2002, to
March 31, 2002.

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, 2002. 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).

Period Ended
March 31, 2002
--------------

Interest income $ 22,676
Interest expense 10,816
--------
Net interest income 11,860
Provision for loan losses 1,932
Noninterest income 2,928
Noninterest expense 11,033
--------
Income before income taxes 1,823
Income tax expense 612
--------
Net income $ 1,211
========

Basic and diluted net income per common share $ .08
========

NOTE 4 - 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
region 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
policies used by each reportable segment are the same as those discussed in Note
1 to the Consolidated Financial Statements included in the Form 10-K for the
year ended December 31, 2002. All costs have been allocated to the reportable
segments. Therefore, combined amounts agree to the consolidated totals (in
thousands).

Alabama Florida
Region Region Combined
--------- -------- ----------

Three months ended March 31, 2003
Net interest income $ 6,089 $ 5,288 $ 11,377
Provision for loan losses 1,106 94 1,200
Noninterest income 4,823 902 5,725
Noninterest expense(1) 7,659 3,852 11,511
Income tax expense 686 691 1,377
Net income 1,461 1,553 3,014
Total assets 945,876 500,172 1,446,048

Three months ended March 31, 2002
Net interest income $ 6,463 $ 4,929 $ 11,392
Provision for loan losses 630 485 1,115
Noninterest income 2,204 554 2,758
Noninterest expense(1) 6,749 3,048 9,797
Income tax expense 458 594 1,052
Net income 830 1,356 2,186
Total assets 876,269 452,466 1,328,735

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

NOTE 5 - NET INCOME PER SHARE

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

Three Months Ended
March 31
-------------------------
2003 2002
------- -------

Numerator:
For basic and diluted, net income $ 3,014 $ 2,186
======= =======
Denominator:
For basic, weighted average common shares outstanding 17,450 14,583
Effect of dilutive stock options 168 30
------- -------
Average diluted common shares outstanding 17,618 14,613
======= =======
Basic and diluted net income per share $ .17 $ .15
======= =======

NOTE 6 - COMPREHENSIVE INCOME

Total comprehensive income was $2,850,000 and $2,265,000 for the three-month
periods ended March 31, 2003, and 2002, respectively. Total comprehensive income
consists of net income and the unrealized gain or loss on the Corporation's
available for sale securities portfolio arising during the period.

NOTE 7 - INCOME TAXES

The primary difference between the effective tax rate and the federal statutory
rate in 2003 and 2002 is due to certain tax-exempt income.

NOTE 8 - GUARANTEED PREFERRED BENEFICIAL INTEREST IN THE CORPORATION'S
SUBORDINATED DEBENTURES (TRUST PREFERRED SECURITIES)

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.

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% 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 March 31, 2003, the interest rate on these securities had
repriced to 5.10%.

The Corporation has fully and unconditionally guaranteed all obligations of TBC
Capital II and TBC Capital III on a subordinated basis with respect to the
preferred securities. 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 the Corporation. The preferred
securities of TBC Capital II and TBC Capital III and the subordinated debentures
of the Corporation each have 30-year lives. However, the 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.

NOTE 9 - STOCKHOLDERS' EQUITY

In September of 2000, the Corporation's board of directors approved a stock
buyback plan in an amount not to exceed $10,000,000. As of March 31, 2003, there
were 136,856 shares held in treasury at a cost of $808,000.

During March 2002, the Corporation received $19.3 million in proceeds, net of
$1.8 million underwriting discount and other costs, from the sale of 3,450,000
shares of common stock in a secondary offering priced at $6.125 per share. The
Corporation used $14.0 million of these proceeds to repay debt incurred in the
acquisition of CF Bancshares.

On April 24, 2002, the Corporation issued 157,500 shares of restricted common
stock to certain directors and key employees. Under the Restricted Stock
Agreements, the stock may not be sold or assigned in any manner until such
shares have vested. During this restricted period, the participant is eligible
to receive dividends and exercise voting privileges. The restricted stock has a
corresponding vesting period with one-third vesting in the third, fourth and
fifth years. The restricted stock was issued at a cost $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 March 31, 2003, the
Corporation has recognized $37,000 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 March 31, 2003,
the ESOP has been leveraged with 273,400 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 Corporation finalized a $2.1 million promissory note to
reimburse the Corporation for the funds used to leverage the ESOP. The
unreleased shares and a guarantee of the Corporation will secure the promissory
note, which has been classified as long-term debt on the Corporation's statement
of financial condition. As the Corporation repays the debt, 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. 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 March 31, 2003 was $15,000.
The ESOP shares as of March 31, 2003 were as follows:

March 31,
2003
----------

Allocated shares 6,378
Estimated shares committed to be released 2,225
Unreleased shares 264,797
----------
Total ESOP shares 273,400
==========
Fair value of unreleased shares $1,305,449
==========

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 determines
the terms of the restricted stock and options granted.

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.

The Corporation has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (Statement 123) which allows an entity to continue to measure
compensation costs for those plans using the intrinsic value-based method of
accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees." The Corporation has elected to follow APB Opinion 25 and related
interpretations in accounting for its employee stock options. Accordingly,
compensation cost for fixed and variable stock-based awards is measured by the
excess, if any, of the fair market price of the underlying stock over the
amount the individual is required to pay. Compensation cost for fixed awards is
measured at the grant date, while compensation cost for variable awards is
estimated until both the number of shares an individual is entitled to receive
and the exercise or purchase price are known (measurement date). No
option-based employee compensation cost is reflected in net income, as all
options granted had an exercise price equal to the market value of the
underlying common stock on the date of grant. The pro forma information below
was determined as if the Corporation had accounted for its employee stock
options under the fair value method of Statement 123. For purposes of pro forma
disclosures, the estimated fair value of the options is amortized to expense
over the options' vesting period. The Corporation's pro forma information
follows (in thousands except earnings per share information):

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

ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

Basis of Presentation

The following is a discussion and analysis of our March 31, 2003 consolidated
financial condition and results of operations for the three-month periods ended
March 31, 2003 (first quarter of 2003) and 2002 (first quarter of 2002). All
significant intercompany accounts and transactions have been eliminated. Our
accounting and reporting policies conform to generally accepted accounting
principles.

This information should be read in conjunction with our unaudited condensed
consolidated financial statements and related notes appearing elsewhere in this
report and the audited consolidated financial statements and related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", appearing in our Annual Report on Form 10-K for the year ended
December 31, 2002.

Financial Overview

Total assets were $1.446 billion at March 31, 2003, an increase of $40 million,
or 2.9% from $1.406 billion as of December 31, 2002. Total loans, net of
unearned income, were $1.136 billion at March 31, 2003, a decrease of $3
million, or .3% from $1.139 billion as of December 31, 2002. Total deposits were
$1.150 billion at March 31, 2003, an increase of $42 million, or 3.8% from
$1.108 billion as of December 31, 2002. Total stockholders' equity was $80
million at March 31, 2003, an increase of $3 million, or 3.9% from $77 million
as of December 31, 2002.

Results of Operations

Our net income increased $828,000, or 37.9% to $3.0 million for the first
quarter of 2003 from $2.2 million for the first quarter of 2002. Basic and
diluted net income per share was $.17 and $.15, respectively, for the first
quarter of 2003 and 2002, based on average weighted shares outstanding for the
respective periods. Return on average assets, on an annualized basis, was .85%
for the first quarter of 2003 compared to .69% for the first quarter of 2002.
Return on average stockholders' equity, on an annualized basis, was 15.85% for
the first quarter of 2003 compared to 11.23% for the first quarter of 2002. Book
value per share at March 31, 2003 was $4.51 compared to $4.35 as of December 31,
2002. Tangible book value per share at March 31, 2003 was $3.78 compared to
$3.59 as of December 31, 2002.

Net interest income is the difference between the income earned on
interest-earning assets and interest paid on interest-bearing liabilities used
to support such assets. Net interest income remained level at $11.4 million for
the first quarter of 2003 and the first quarter of 2002. Net interest income
remained level primarily due to an $847,000, or 3.9% decrease in total interest
income offset by an $832,000, or 8.0% decrease in total interest expense. The
decline in total interest income is primarily due to a decline in our yield on
loans. The yield on our loan portfolio declined primarily as a result of
declining market interest rates, significant charged off loans in 2002 and an
increase in nonperforming loans.

The decline in total interest expense is primarily attributable to a 74 basis
point decline in the average interest rate paid on interest-bearing liabilities.
The average rate paid on interest-bearing liabilities was 3.12% for the first
quarter of 2003 compared to 3.86% for the first quarter of 2002. Our net
interest spread and net interest margin were 3.52% and 3.61%, respectively, for
the first quarter of 2003, compared to 3.76% and 3.99% for the first quarter of
2002.

Average interest-earning assets for the first quarter of 2003 increased $120
million, or 10.4% to $1.282 billion from $1.162 billion in the first quarter of
2002. This growth in average interest-earning assets was primarily

funded by a $150 million, or 13.7% increase in average interest-bearing
liabilities to $1.241 billion for the first quarter of 2003 from $1.091 billion
for the first quarter of 2002. The ratio of average interest-earning assets to
average interest-bearing liabilities was 103.30% and 106.45% for the first
quarters of 2003 and 2002, respectively. Average interest-bearing assets
produced a tax equivalent yield of 6.64% for the first quarter of 2003 compared
to 7.62% for the first quarter of 2002. The 98 basis point decline in the yield
was partially offset by a 74 basis point decline in the average rate paid on
interest-bearing liabilities.

Average Balances, Income, Expense and Rates. The following table depicts, on a
tax-equivalent basis for the periods indicated, certain information related to
our average balance sheet and average yields on assets and average costs of
liabilities. Average yields are calculated by dividing income or expense by the
average balance of the corresponding assets or liabilities. Average balances
have been calculated on a daily basis.

THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------------------------------
2003 2002
-------------------------------------- ---------------------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
---------- --------- ------ ---------- --------- ------
(Dollars in thousands)

ASSETS
Interest-earning assets:
Loans, net of unearned
income(1)................. $1,142,333 $ 19,844 7.05% $1,072,233 $ 20,835 7.88%
Investment securities
Taxable................... 57,982 718 5.02 51,715 648 5.08
Tax-exempt(2)............. 7,966 139 7.10 7,614 142 7.56
---------- --------- ---------- ---------
Total investment
securities.......... 65,948 857 5.27 59,329 790 5.40
Federal funds sold........ 35,555 103 1.17 20,839 87 1.69
Other investments......... 38,598 177 1.86 9,510 117 4.99
---------- --------- ---------- ---------
Total interest-earning
assets.............. 1,282,434 20,981 6.64 1,161,911 21,829 7.62
Noninterest-earning assets:
Cash and due from banks..... 36,402 36,278
Premises and equipment...... 61,025 50,662
Accrued interest and other
assets.................... 80,920 41,652
Allowance for loan losses... (27,965) (13,282)
---------- ----------
Total assets.......... $1,432,816 $1,277,221
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

Interest-bearing liabilities:
Demand deposits............. $ 288,826 694 0.97 $ 271,781 946 1.41
Savings deposits............ 35,928 41 0.46 38,304 57 0.60
Time deposits............... 710,900 6,019 3.43 599,476 6,619 4.48
Other borrowings............ 174,807 2,186 5.07 150,926 2,120 5.70
Guaranteed preferred
beneficial interest in our
subordinated debentures 31,000 617 8.07 31,000 647 8.46
---------- --------- ---------- ---------
Total interest-bearing
liabilities......... 1,241,461 9,557 3.12 1,091,487 10,389 3.86
Noninterest-bearing liabilities:
Demand deposits............. 105,802 98,400
Accrued interest and other
liabilities............... 8,432 8,419
Stockholders' equity........ 77,121 78,915
---------- ----------
Total liabilities and
stockholders' equity $1,432,816 $1,277,221
========== ==========
Net interest income/net interest
spread...................... 11,424 3.52% 11,440 3.76%
===== =====
Net yield on earning assets... 3.61% 3.99%
===== =====
Taxable equivalent adjustment:
Investment securities(2).... 47 48
--------- ---------
Net interest income... $ 11,377 $ 11,392
========= =========

(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.

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
three months ended March 31, 2003 and 2002.

THREE MONTHS ENDED MARCH 31 (1)
2003 VS 2002
----------------------------------
CHANGES DUE TO
INCREASE ------------------
(DECREASE) RATE VOLUME
---------- ---- ------
(Dollars in thousands)

Increase (decrease) in:
Income from interest-earning assets:
Interest and fees on loans................. $ (991) $(2,292) $ 1,301
Interest on securities:
Taxable............................... 70 (8) 78
Tax-exempt............................ (3) (9) 6
Interest on federal funds.................. 16 (32) 48
Interest on other investments.............. 60 (112) 172
-------- ------- -------
Total interest income................. (848) (2,453) 1,605
-------- ------- -------
Expense from interest-bearing liabilities:
Interest on demand deposits................... (252) (309) 57
Interest on savings deposits.................. (16) (13) (3)
Interest on time deposits..................... (600) (1,708) 1,108
Interest on other borrowings.................. 66 (249) 315
Interest on guaranteed preferred beneficial
interest in our subordinated debentures..... (30) (30) --
-------- ------- -------
Total interest expense................ (832) (2,309) 1,477
-------- ------- -------
Net interest income................... $ (16) $ (144) $ 128
======== ======= ========

- ----------

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

Noninterest income. Noninterest income increased $3.0 million, or 107.6% to $5.7
million for the first quarter of 2003 from $2.7 million for the first quarter of
2002, primarily due to a gain on the sale of our Roanoke branch of $2.2 million.
Service charges on deposits increased $427,000, or 35.7% to $1.6 million in the
first quarter of 2003 from $1.2 million in the first quarter of 2002. Mortgage
banking income increased $161,000, or 22.5% to $875,000 in the first quarter of
2003 from $714,000 in the first quarter of 2002.

Noninterest expense. Noninterest expense increased $1.7 million, or 17.5% to
$11.5 million for first quarter of 2003 from $9.8 million for the first quarter
of 2002. Because of the increase in noninterest income, our efficiency ratio
improved to 67.1% during the first quarter of 2003 compared to 69.0% during the
first quarter of 2002 and 67.3% for the year 2002. Salaries and benefits
increased $766,000, or 13.8% to $6.3 million for the first quarter of 2003 from
$5.6 million for the first quarter of 2002. The increase in salaries and
benefits primarily resulted from the addition of risk management personnel and
general raises to personnel salaries and wages. All other noninterest expenses
increased $948,000, or 22.3% to $5.2 million for the first quarter of 2003 from
$4.2 million for the first quarter of 2002. The increase in other noninterest
expenses is primarily due to increases in professional fees, advertising,
insurance and travel cost.

Income tax expense. Income tax expense was $1.4 million for the first quarter of
2003, compared to $1.1 million for the first quarter of 2002. The primary
difference in the effective rate and the federal statutory rate (34%) for the
first quarter of 2003 and 2002 is due to certain tax-exempt income from
investments and insurance policies.

Provision for Loan Losses. 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 on a quarterly basis. The allowance for
classified loans is established based on risk ratings assigned by loan officers.
Loans are risk rated using an eight-point scale, with the loan officers having
the primary responsibility for assigning the risk ratings and 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 following
regulatory classifications: 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 flows discounted at the loan's
effective interest rate, the loans 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 nonaccruals, economic conditions, and other pertinent
information. Based on future evaluations, additional provision 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 $1.2 million for the first quarter of 2003
compared to $1.1 million for the first quarter of 2002. During the first quarter
of 2003, we had net charged-off loans totaling $195,000 compared to net
charged-off loans of $875,000 in the first quarter of 2002. The ratio of net
charged-off loans to the provision for loan losses was 16.3% in the first
quarter of 2003 compared to 78.5% for the first quarter of 2002 and 72.7% for
the year 2002. The annualized ratio of net charged-off loans to average loans
was .07% in the first quarter of 2003 compared to .33% for the first quarter of
2002 and 3.35% for the year 2002. The allowance for loan losses totaled $28.7
million, or 2.53% of loans, net of unearned income at March 31, 2003, compared
to $27.8 million, or 2.44% of loans, net of unearned income at December 31,
2002. See "Financial Condition - Allowance for Loan Losses" for additional
discussion.

Financial Condition

Total assets were $1.446 billion at March 31, 2003, an increase of $40 million,
or 2.9% from $1.406 billion as of December 31, 2002. Average total assets for
the first quarter of 2003 were $1.433 billion, which was supported by average
total liabilities of $1.356 billion and average total stockholders' equity of
$77 million.

Short-term liquid assets. Short-term liquid assets (cash and due from banks,
interest-bearing deposits in other banks and federal funds sold) increased $36.2
million, or 54.6%, to $102.6 million at March 31, 2003 from $66.4 million at
December 31, 2002. This increase resulted primarily from excess funds invested
in federal funds sold and interest-bearing deposits at the FHLB. These excess
funds were attributable primarily to an increase in deposits. These deposits
were invested in short-term liquid assets primarily to improve our liquidity
position. At March 31, 2003, short-term liquid assets comprised 7.1% of total
assets compared to 4.7% at December 31, 2002. We continually monitor our
liquidity position and will increase or decrease our short-term liquid assets as
necessary.

Investment Securities. Total investment securities decreased $3.8 million, or
5.2% to $69.3 million at March 31, 2003, from $73.1 million at December 31,
2002. Mortgage-backed securities, which comprised 58.0% of the total investment
portfolio at March 31, 2003, increased $7.0 million, or 21.1%, to $40.2 million
from $33.2 million at December 31, 2002. Investments in U.S. agency securities,
which comprised 7.9% of the total investment portfolio at March 31, 2003,
decreased $11.4 million, or 67.5%, to $5.5 million from $16.9 million at
December 31, 2002. The reduction in our agency securities allowed us to reinvest
in mortgage-backed securities which enhanced our repricing opportunities. The
total investment portfolio at March 31, 2003 comprised 5.3% of all
interest-earning assets compared to 5.8% at December 31, 2002 and produced an
average tax equivalent yield of 5.3% for the first quarter of 2003 compared to
5.4% for the first quarter of 2002.

Loans. Loans, net of unearned income, totaled $1.136 billion at March 31, 2003,
a decrease of .3%, or $2.8 million from $1.139 billion at December 31, 2002.
Mortgage loans held for sale totaled $15.5 million at March 31, 2003, an
increase of $14.7 million from $764,000 at December 31, 2002. Average loans,
including mortgage loans held for sale, totaled $1.142 billion for the first
quarter of 2003 compared to $1.072 billion for the first quarter of 2002. Loans,
net of unearned income, comprised 87.4% of interest-earning assets at March 31,
2003, compared to 91.5% at December 31, 2002. Mortgage loans held for sale
comprised 1.2% of interest-earning assets at March 31, 2003, compared to .1% at
December 31, 2002. The loan portfolio produced an average yield of 7.1% for the
first quarter of 2003, compared to 7.9% for the first quarter of 2002. This
decline in yield was substantially offset by a 74 basis point decline in the
average cost of the funds that support the loan portfolio. The following table
details the distribution of the loan portfolio by category as of March 31, 2003
and December 31, 2002:

DISTRIBUTION OF LOANS BY CATEGORY

MARCH 31, 2003 DECEMBER 31, 2002
-------------------- --------------------
PERCENT PERCENT
OF OF
AMOUNT TOTAL AMOUNT TOTAL
---------- ------- ---------- -------

Commercial and industrial......................... $ 181,347 16.0% $ 213,210 18.7%
Real estate -- construction and land development.. 222,711 19.6 212,818 18.7
Real estate -- mortgage
Single-family.................................. 264,028 23.2 272,899 23.9
Commercial..................................... 346,050 30.4 317,359 27.8
Other.......................................... 40,807 3.6 38,220 3.4
Consumer.......................................... 72,819 6.4 79,398 7.0
Other............................................. 9,279 .8 5,931 .5
---------- ------ ---------- ------
Total loans............................. 1,137,041 100.0% 1,139,835 100.0%
====== ======
Unearned income................................... (1,321) (1,298)
Allowance for loan losses......................... (28,679) (27,766)
---------- ----------
Net loans............................... $1,107,041 $1,110,771
========== ==========

Deposits. Noninterest-bearing deposits totaled $111.3 million at March 31,
2003, a decrease of 6.5%, or $7.8 million from $119.1 million at December 31,
2002. Noninterest-bearing deposits comprised 9.7% of total deposits at March 31,
2003, compared to 10.8% at December 31, 2002. Of total noninterest-bearing
deposits $69.4 million, or 62.4% were in the Alabama branches while $41.9
million, or 37.6% were in the Florida branches.

Interest-bearing deposits totaled $1.039 billion at March 31, 2003, an increase
of 5.1%, or $50.0 million from $989 million at December 31, 2002.
Interest-bearing deposits averaged $1.036 billion for the first quarter of 2003
compared to $909.6 million for the first quarter of 2002. The average rate paid
on all interest-bearing deposits during the first quarter of 2003 was 2.6%
compared to 3.4% for the first quarter of 2002. Of total interest-bearing
deposits, $644.8 million, or 62.1% were in the Alabama branches while $393.9
million, or 37.9% were in the Florida branches.

Borrowings. Advances from the Federal Home Loan Bank ("FHLB") totaled $174.0
million at March 31, 2003 and December 31, 2002. Borrowings from the FHLB were
used primarily to fund growth in the loan portfolio and have a weighted average
rate of approximately 5.1%. The advances are secured by FHLB stock, agency
securities and a blanket lien on certain residential real estate loans and
commercial loans.

Guaranteed Preferred Beneficial Interests in Our Subordinated Debentures. On
September 7, 2000, TBC Capital Statutory Trust II ("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 our 10.6% subordinated debentures.

On July 16, 2002, TBC Capital Statutory Trust III ("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% annum ceiling for the first ten years.
As of the date of issuance, the interest rate on the securities was 7.57%. As of
March 31, 2003, the interest rate is 5.10%.

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. 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 our
subordinated debentures. The preferred securities of TBC Capital II and TBC
Capital III and our subordinated debentures each have 30-year lives. However,
we, 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.

Accrued Expenses and Other Liabilities. Accrued expenses and other liabilities
decreased $6.7 million from $15.6 million at December 31, 2002 to $8.8 million
at March 31, 2003. This decline is primarily due to the repurchase of $5.3
million in loans sold with recourse during 2002.

Allowance for Loan Losses. We maintain an allowance for loan losses within a
range that 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 on volume and types
of loans, trends in classifications, volume and trends in delinquencies and
non-accruals, 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, set limits on credit
concentration and enforces regulatory requirements. In addition, we have
implemented a peer review system to supplement our existing independent loan
review functions. 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 quarterly 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 the internal loan review function 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, adjusted for previously
mentioned risk factors.

Pursuant to SFAS 114, impaired loans are specifically reviewed loans for which
it is probable that 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 loans observable
market price or at 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. Indeed, this department will enhance the monitoring of loan
risk ratings as well as the monitoring of a loan officer's ability to originate
loans.

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

THREE-MONTH
PERIOD ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
2003 2002
------------ ------------
(Dollars in thousands)

Allowance for loan losses at beginning of period.. $ 27,766 $ 12,546
Allowance of (branch sold) acquired bank.......... (92) 1,058
Charge-offs:
Commercial and industrial....................... 112 25,162
Real estate -- construction and land development -- 1,704
Real estate -- mortgage
Single-family............................... 5 2,608
Commercial.................................. -- 6,140
Other....................................... -- 141
Consumer........................................ 148 2,343
---------- ----------
Total charge-offs....................... 265 38,098
Recoveries:
Commercial and industrial....................... 19 94
Real estate -- construction and land development 3 14
Real estate -- mortgage
Single-family............................... 1 23
Commercial.................................. -- --
Other....................................... 7 38
Consumer........................................ 40 239
---------- ----------
Total recoveries........................ 70 408
---------- ----------
Net charge-offs................................... 195 37,690
Provision for loan losses 1,200 51,852
---------- ----------
Allowance for loan losses at end of period........ $ 28,679 $ 27,766
========== ==========
Loans at end of period, net of unearned income.... $1,135,720 $1,138,537
Average loans, net of unearned income............. 1,142,333 1,124,977
Ratio of ending allowance to ending loans......... 2.53% 2.44%
Ratio of net charge-offs to average loans (1)..... .07% 3.35%
Net charge-offs as a percentage of:
Provision for loan losses....................... 16.25% 72.69%
Allowance for loan losses (1)................... 2.76% 135.74%
Allowance for loan losses as a percentage
of nonperforming loans..................... 86.38% 105.00%

(1) Annualized.

The allowance for loan losses as a percentage of loans, net of unearned income,
at March 31, 2003 was 2.53% compared to 2.44% as of December 31, 2002. The
allowance for loan losses as a percentage of nonperforming loans decreased to
86.4% at March 31, 2003 from 105.0% at December 31, 2002 due to an increase in
nonperforming loans of $6.8 million. The increase in nonperforming loans
primarily resulted from the amount of potential problem loans (See "Potential
Problem Loans" section) migrating to a nonperforming status during the current
quarter. This migration of potential problem loans did not have a significant
effect on the allowance for loan losses at March 31, 2003 because approximately
$1.2 million of allowance had been allocated to these loans at December 31,
2002.

Net charge-offs were $195,000 for the first quarter of 2003. Net charge-offs to
average loans on an annualized basis totaled .07% for the first quarter of 2002.
Net commercial loan charge-offs totaled $93,000, or 47.7% of total net
charge-off loans for the first quarter of 2003 compared to 66.5% of total net
charge-off loans for the year 2002. Net consumer loan charge-offs totaled
$108,000, or 55.4% of total net charge-off loans for the first quarter of 2003
compared with 5.6% of total net charge-off loans for the year 2002.

Nonperforming Loans. Nonperforming loans increased $6.8 million to $33.2 million
as of March 31, 2003 from $26.4 million as of December 31, 2002. As a percentage
of net loans, nonperforming loans increased from 2.32% at December 31, 2002 to
2.92% at March 31, 2003. The increase in nonperforming loans resulted primarily
from the amount of potential problem loans (see "Potential Problem Loans"
section) reported at December 31, 2002 migrating to a nonperforming status. The
following table represents our nonperforming loans for the dates indicated.

NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS

MARCH 31, DECEMBER 31,
2003 2002
--------- ------------
(Dollars in thousands)

Nonaccrual.................................................. $ 32,506 $ 24,715
Past due (contractually past due 90 days or more)........... 694 1,729
Restructured................................................ -- --
-------- --------
$ 33,200 $ 26,444
======== ========
Nonperforming loans as a percent of loans................... 2.92% 2.32%
======== ========

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

MARCH 31, DECEMBER 31,
2003 2002
--------- ------------
(Dollars in thousands)

Commercial and industrial......................... $ 11,972 $ 9,661
Real estate-- construction and land development... 2,922 2,226
Real estate-- mortgages
Single-family................................ 5,289 3,672
Commercial................................... 10,080 8,434
Other........................................ 825 888
Consumer.......................................... 2,051 1,548
Other............................................. 61 15
-------- --------
Total nonperforming loans............... $ 33,200 $ 26,444
======== ========

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 during the
current period but remains unpaid is reversed and deducted from earnings as a
reduction of reported interest income; any prior period accrued and unpaid
interest is reversed and charged against the allowance for loan losses. 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, which may
necessitate additional charges to earnings.

Impaired Loans. At March 31, 2003, the recorded investment in impaired loans
totaled $33.2 million with approximately $11.0 million in allowance for loan
losses specifically allocated to impaired loans. This represents an increase of
$6.8 million from $26.4 million at December 31, 2002. A significant portion of
our impaired loans are centered in three of our bank groups; Bristol bank $19.8
million, Albertville bank $3.5 million and Hunstville bank $5.2 million. The
increase in impaired loans resulted primarily from the amount of potential
problem loans (see "Potential Problem Loans" section) reported at December 31,
2002 migrating to a nonperforming status during the first quarter. Any estimated
losses related to these potential problem loans had been adequately provided at
December 31, 2002. We have approximately $337,000 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 March 31, 2003:

OUTSTANDING SPECIFIC
BALANCE ALLOWANCE
----------- ---------
(Dollars in thousands)

Commercial and industrial......................... $ 13,445 $ 5,078
Real estate -- construction and land development.. 2,933 595
Real estate -- mortgages
Commercial................................... 16,123 5,178
Other........................................ 676 108
Other............................................. 2 1
-------- --------
Total................................... $ 33,179 $ 10,960
======== ========

In addition to impaired loans, management has identified $7.4 million in
potential problem loans as of March 31, 2003. 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 $7.4 million in potential problem loans
at March 31, 2003, $3.8 million or 51% is attributable to the Bristol, Florida
group and $1.3 million or 18% is concentrated in the forest products industry in
Bristol. Overall, 25% of these potential problem loans are secured by 1-4 family
residential real estate and 34% of these potential problem loans are secured by
commercial real estate. Management will work closely with these customers in an
attempt to prevent these loans from migrating into nonperforming status. The
bank has allocated $774,000 in loan loss reserve to absorb potential losses on
these accounts.

Stockholders Equity. At March 31, 2003, total stockholders' equity was $79.5
million, an increase of $3.0 million from $76.5 million at December 31, 2002.
The increase in stockholders' equity resulted primarily from net income of $3.0
million for the first quarter of 2003. As of March 31, 2003 we had 18,013,002
shares of common stock issued and 17,611,349 outstanding. In September of 2000,
our board of directors approved a stock buyback plan in an amount not to exceed
$10,000,000. As of March 31, 2003, there were 136,856 shares held in treasury at
a cost of $808,000.

On April 24, 2002, we issued 157,500 shares of restricted common stock to
certain directors and key employees. Under the Restricted Stock Agreements, the
stock may not be sold or assigned in any manner until such shares have vested.
During the restricted period, the participant is eligible to receive dividends
and exercise voting privileges. The restricted stock has a corresponding vesting
period with one-third vesting in the third, fourth and fifth years. The
restricted stock was issued at a cost $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 March 31, 2003, we recognized $37,000 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 March 31, 2003, the ESOP
has been leveraged with 273,400 shares of our'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, we finalized a $2.1 million promissory note to reimburse
funds used to leverage the ESOP. The unreleased shares and our guarantee will
secure the promissory note, which has been classified as long-term debt on our
statement of financial condition. As we repay the debt, 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 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 we reported is equal to
the average fair value of the shares earned and committed to be released during
the period. We recognized compensation expense during the period ended March 31,
2003 of $15,000. The ESOP shares as of March 31, 2003 were as follows:

March 31,
2003
----------

Allocated shares 6,378
Estimated shares committed to be released 2,225
Unreleased shares 264,797
----------
Total ESOP shares 273,400
----------
Fair value of unreleased shares $1,305,449
==========

Regulatory Capital. The table below represents our and our subsidiary's
regulatory and minimum regulatory capital requirements at March 31, 2003
(dollars in thousands):

FOR CAPITAL
ADEQUACY TO BE WELL
ACTUAL PURPOSES CAPITALIZED
----------------- --------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ----- ------- ----- -------- ------

Total Risk-Based Capital
Corporation $106,027 9.09% $93,351 8.00% $116,688 10.00%
The Bank 99,845 8.69 91,901 8.00 114,876 10.00

Tier 1 Risk-Based Capital
Corporation 80,417 6.89 46,675 4.00 70,013 6.00
The Bank 85,284 7.42 45,950 4.00 68,926 6.00

Leverage Capital
Corporation 80,417 5.69 56,561 4.00 70,701 5.00
The Bank 85,284 6.13 55,678 4.00 69,598 5.00

Liquidity

Our principal sources of funds are deposits, principal and interest payments on
loans, federal funds sold and maturities and sales of investment securities. In
addition to these sources of liquidity, we have access to purchased funds from
several regional financial institutions and may borrow from a regional financial
institution under a line of credit, and from the Federal Home Loan Bank under a
blanket floating lien on certain commercial loans and residential real estate
loans. While scheduled loan repayments and maturing investments are relatively
predictable, interest rates, general economic conditions and competition
primarily influence deposit flows and early loan payments. Management places
constant emphasis on the maintenance of adequate liquidity to meet conditions
that might reasonably be expected to occur.

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 Quarterly Report on Form 10-Q, 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: the strength of
the United States economy in general and the strength of the regional and local
economies in which we conduct operations; 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; inflation, interest rate,
market and monetary fluctuations; our ability to successfully integrate the
assets, liabilities, customers, systems and management we acquire or merge into
our operations; 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; the willingness of users to
substitute competitors' products and services for our products and services; 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; our ability to
resolve any legal proceeding on acceptable terms and its effect on our financial
condition or results of operations; technological changes; changes in consumer
spending and savings habits; and 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 prospectus.
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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

The information set forth under the caption "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations-Market Risk-Interest
Rate Sensitivity" included in our Annual Report on Form 10-K for the year ended
December 31, 2002, is hereby incorporated herein by reference.

ITEM 4. 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 4 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 quarterly 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 (that was
disclosed and described in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2002) 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
also established a centralized loan administration services department to serve
all of our bank locations, thereby providing standardized oversight for
compliance with approval authorities and bank lending policies and procedures.
We also hired additional personnel for our credit risk management department.

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.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

While we are a party to various legal proceedings arising in the ordinary course
of business, we believe that there are no proceedings threatened or pending
against us at this time that will individually, or in the aggregate, materially
adversely effect 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.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None

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

None

ITEM 5. OTHER INFORMATION.

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibit:

None

(b) Report on Form 8-K:

We filed Current Report on Form 8-K dated February 7, 2003 pursuant to
Item 9 Regulation FD Disclosure of Form 8-K containing as an Exhibit a
press release dated February 6, 2003.

SIGNATURE

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

The Banc Corporation
(Registrant)

Date: May 15, 2003 By: /s/ James A. Taylor, Jr.
------------------------------------------
James A. Taylor, Jr.
President and Chief Operating Officer

Date: May 15, 2003 By: /s/ David R. Carter
------------------------------------------
David R. Carter
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)

CERTIFICATIONS

I, James A. Taylor, certify that:

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

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

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

c) Presented in this quarterly 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 functions):

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 quarterly 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.

Date: May 15, 2003

By: /s/ James A. Taylor
---------------------------------
James A. Taylor
Chief Executive Officer

CERTIFICATIONS

I, David R. Carter, certify that:

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

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

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

c. Presented in this quarterly 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 functions):

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 quarterly 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.

Date: May 15, 2003

By: /s/ David R. Carter
------------------------------
David R. Carter
Chief Financial Officer