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, 2004
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 filers 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 common stock held by
non-affiliates of the registrant as of March 11, 2005, based on a closing price
of $10.97 per share of Common Stock, was $205,646,988.

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 3, 2005, of the registrant's only issued and outstanding
class of common stock, its $.001 per share par value common stock, was
18,746,307.

DOCUMENTS INCORPORATED BY REFERENCE

The information set forth under Items 10, 11, 12, 13 and 14 of Part III of
this Report is incorporated by reference from the registrant's definitive proxy
statement for its 2005 annual meeting of stockholders that will be filed no
later than April 30, 2005.

PART I

ITEM 1. BUSINESS.

GENERAL

We are a Delaware-chartered bank holding company headquartered in
Birmingham, Alabama. We offer a broad range of banking and related services in
27 locations in Alabama and the eastern Florida panhandle through The Bank, our
principal subsidiary. We had assets of approximately $1.423 billion, loans of
approximately $936 million, deposits of approximately $1.067 billion and
stockholders' equity of approximately $101 million at December 31, 2004. Our
principal executive offices are located at 17 North 20th Street, Birmingham,
Alabama 35203, and our telephone number is (205) 327-3600.

We were founded in 1997. During the fall of 1998, we acquired four
financial institutions totaling $266 million in assets. As a result of these
acquisitions and our de novo branches in Birmingham and Decatur, we grew from
$69 million in assets and three branches as of September 30, 1997 to $441
million in assets ($630 million after giving effect to acquisitions completed in
1999 accounted for as poolings of interest) and 16 branches by December 31,
1998. We completed our initial public offering in December 1998.

Since 1999, we have focused on higher growth markets in Alabama and the
panhandle of Florida. In Alabama, we concentrated on the Huntsville and
Birmingham markets. We acquired BankersTrust of Alabama, Inc. ($35 million in
assets) in July 1999, moving us into the Huntsville, Alabama market. As of
December 31, 2004, approximately 13% of our loans and 9% of our deposits were
located in the Huntsville market and 34% of our loans and 19% of our deposits
were located in the Birmingham market.

In Florida, we acquired Emerald Coast Bancshares, Inc. ($92 million in
assets) in February 1999, both C&L Banking Corporation ($49 million in assets)
and C&L Bank of Blountstown ($56 million in assets) in June 1999, and CF
Bancshares, Inc. ($105 million in assets) in February 2002. In August 2003, we
sold our Emerald Coast branches for a $46.8 million deposit premium. As of
December 31, 2004, approximately 26% of our loans and 25% of our deposits were
located in Florida.

RECENT DEVELOPMENTS

On January 24, 2005, we entered into a series of agreements and
transactions under (or as a result of) which

- C. Stanley Bailey joined The Banc Corporation and The Bank as Chief
Executive Officer, bringing with him a team of four other highly
experienced bankers who have joined our senior management team;

- the new members of the management team, along with other investors,
purchased 925,636 shares of our common stock at $8.17 per share, the
current market price, in a private placement;

- James A. Taylor, our founding Chairman of the Board and Chief Executive
Officer, stepped down as Chief Executive Officer but continues to serve
as non-executive Chairman of the Board of The Banc Corporation, and James
A. Taylor, Jr. stepped down as President and Chief Operating Officer but
continues to serve as a director of The Banc Corporation; and

- agreed-upon separation payments and arrangements were made with Mr.
Taylor and Mr. Taylor, Jr. in connection with the termination of their
employment agreements, with such payments being primarily funded by the
proceeds of the simultaneous private placement of stock described above.

We believe that these recent developments will strengthen our management
team and better position The Banc Corporation and The Bank for future growth.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Recent Developments" and "Directors and Executive Officers of the
Registrant; Executive Compensation; Security Ownership of Certain Beneficial
Owners and Management; Certain Relationships and Related Transactions and
Principal Accounting Fees and Services."

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STRATEGY

Operations. We focus on small- to medium-sized businesses, as well as
professionals and individuals, emphasizing our local decision-making, effective
response time 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 loan
administration, policy oversight, credit review, audit, asset/liability
management, data processing, human resources 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.

Products and Services. The Bank provides a wide range of retail and small
business services, including noninterest-bearing and interest-bearing checking,
savings and money market accounts, certificates of deposit and individual
retirement accounts. In addition, The Bank offers an extensive array of real
estate, consumer, small business and commercial real estate loan products. Other
financial services include annuities, automated teller machines, debit cards,
credit-related life and disability insurance, safety deposit boxes, internet
banking, bill payment and telephone banking. The Bank attracts primary banking
relationships through the customer-oriented service environment created by The
Bank's personnel combined with competitive financial products.

Market Areas. Our primary markets are located in northern and central
Alabama and the eastern panhandle of Florida.

We are headquartered in Birmingham, Alabama. We also have branches in:

In addition to our branches, we operate a loan production office in
Montgomery, Alabama.

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. Over the past three-and-a-half years, The Bank has centralized
all loan files and all loan processing, and we have enhanced our internal audit
and loan review staffing. As a result of the corresponding increase in personnel
and the significant 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 our
primary wholly owned subsidiary, The Bank. That expansion will most likely
depend on internal growth and the opening of new branch offices in new and
existing markets. The Bank will also consider the strategic acquisition of other
financial institutions and branches that have relatively high earnings or that
we believe to have exceptional growth potential. Our ability to increase
profitability and grow internally depends primarily 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 primarily 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 identify lending and investment opportunities within such
markets.

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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
combination or series of business combinations that we might undertake may be
material to our business, financial condition or results of operations in terms
of assets acquired or liabilities assumed. 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, 2004 were $936
million, or 73.4% 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, money market 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, 2004, approximately 75.3% of
our loan portfolio consisted of loans that had variable interest rates or
matured within one year.

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 $768 million, or 82.0% of total
loans, at December 31, 2004. At that date, $251 million, or 26.8% of our total
loan portfolio, consisted of single-family mortgage loans. Nonresidential
mortgage loans include commercial and industrial loans. At December 31, 2004,
$268 million, or 28.6% 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, multi-family complexes and
office buildings and for owner-occupied properties (primarily light industrial
facilities and office buildings). These loans are underwritten with loan-to-
value ratios ranging, on average, 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.

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, 2004, $249 million, or 26.6% of our
total portfolio, consisted of such loans. Our construction lending is divided
into
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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. The
majority of land development loans consists 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 eligible accounts
receivable, inventory or equipment. We attempt to reduce our credit risk on
commercial loans by limiting the loan to value ratio to 80% on loans secured by
eligible accounts receivable, 50% on loans secured by inventory and 75% on loans
secured by equipment. Commercial and industrial loans constituted $132 million,
or 14.1% of our loan portfolio, at December 31, 2004. We also, from time to
time, make unsecured commercial loans.

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 $28 million, or 3.0% of our loan portfolio, at December 31,
2004. Consumer loans are underwritten based on the borrower's income, current
debt, credit history and collateral. Terms generally range from one to six years
on automobile 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 and an
independent, external loan review function, which also performs ongoing,
independent review of the risk management process, including underwriting,
documentation and collateral control. Regular reports are made to senior
management and the Board of Directors regarding credit quality as measured by
assigned risk ratings and other measures, including, but not limited to, the
level of past due percentages and nonperforming assets. The loan review function
is centralized and independent of the lending function.

DEPOSITS

Core deposits are our principal source of funds, constituting approximately
62.4% of our total deposits as of December 31, 2004. 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 approximately $401 million, or 38% of our deposits. Approximately
$204 million consist of wholesale, or "brokered", deposits.

Our other sources of funds consist primarily of advances from the Federal
Home Loan Bank ("FHLB"). These advances are secured by FHLB stock, agency
securities and a blanket lien on certain residential and commercial real estate
loans. We also have available unused federal funds lines of credit with regional
banks, subject to certain restrictions and collateral requirements.

Deposit rates are set periodically by our internal Asset/Liability
Management Committee, which includes certain members of senior management. We
believe our rates are competitive with those offered by

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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, as well as non-bank financial services companies. 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, 2004, we employed approximately 364 full-time equivalent
employees, primarily at The Bank. We believe that our employee relations have
been and continue to be good.

SUPERVISION AND REGULATION

We are a bank holding company, which means that we are subject to the
supervision, examination and reporting requirements of the Federal Reserve Board
and the Bank Holding Company Act ("BHCA"). 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 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 Banc Corporation owns all the stock of its subsidiary depository
institution, The Bank, an Alabama-chartered state bank and member of the Federal
Reserve System which is subject to regulation, supervision and examination by
the Federal Reserve Board and the Alabama Banking Department. The insurance
activities of The Bank's subsidiary TBNC Financial Management, Inc. are subject
to regulation, supervision and examination by the Alabama and Florida
Departments of Insurance.

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.

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 Alabama Banking Department for its payment of dividends if
the total

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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. Our ability and The Bank's ability to pay dividends
in the future is currently, and could be further, influenced by bank regulatory
policies and capital guidelines. Currently, both The Banc Corporation and The
Bank must obtain regulatory approval prior to paying dividends. The Federal
Reserve Board approved the timely payment of distributions on our trust
preferred securities in January, March, July and September 2004 and in January
and March 2005 and on our preferred stock in June and December 2004.

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.

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%. Our Total
Risk-Based Capital Ratio is 11.51% as of December 31, 2004. 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 and lease
loss reserves ("Tier 2 Capital"). The minimum guideline for Tier 1 Capital to
risk-based assets is 4%. Our Tier 1 Capital to risk-weighted assets is 10.05% at
December 31, 2004.

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 7.98% at December 31, 2004.

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The federal bank regulatory agencies' risk-based capital 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. As of December 31, 2004, both The Banc Corporation and
The Bank were "well capitalized". See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

Restrictions on Transactions with Affiliates and Insiders. 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. In addition, the Sarbanes-Oxley Act
of 2002 prohibits us from making loans to our directors or executive officers
except those made in compliance with the restrictions described above.

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. 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.

Our bank subsidiary was assessed a $1.0 million FDIC deposit insurance
premium in 2004. We currently expect this assessment to decline in future
periods.

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 when considering applications to establish
branches, merger applications, applications to engage in new activities 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 records 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. On October 26, 2001, President Bush signed into law 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 any foreign correspondent banking relationships. We have
adopted policies,

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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 regulations.

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 Real Estate
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 from, 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.
Some 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

We maintain an Internet website at www.thebankmybank.com. We make available
free of charge through our website various reports that we file with the
Securities and Exchange Commission, including our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to
these reports. These reports are made available as soon as reasonably
practicable after these reports 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.

CODE OF ETHICS

We have adopted a code of ethics that applies to all of our employees,
including our principal executive, financial and accounting officers. A copy of
our code of ethics is available on our website. We intend to disclose
information about any amendments to, or waivers from, our code of ethics that
are required to be disclosed under applicable Securities and Exchange Commission
regulations by providing appropriate information on our website. If at any time
our code of ethics is not available on our website, we will provide a copy of it
free of charge upon written request.

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 owned
the building, converted the building into

9

condominiums known as The Bank Condominiums. The Bank owns 11 condominium Units,
comprising 14 floors, and The Banc Corporation owns four Units. This space
includes a branch of The Bank, various administrative offices, operations
facilities and our headquarters. We have sold four Units and have leased or are
in the process of leasing seven Units. We intend to use the remaining space for
future expansion of The Bank.

We operate through facilities at 28 locations. We own 24 of these
facilities, lease four of these facilities and have one ground lease on a
facility we own. Rental expense on the leased properties totaled approximately
$286,000 in 2004.

ITEM 3. LEGAL PROCEEDINGS.

While we are a party to various legal proceedings arising in 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 and 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 business, our financial condition or our results of
operations.

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 11, 2005, there were approximately 882 record holders of our common stock.
The following table sets forth, for the calendar periods indicated, the range of
high and low reported sales prices:

On March 11, 2005, the last sale price for the common stock was $10.97 per
share.

DIVIDENDS

Holders of our common stock are entitled to receive dividends when, as and
if declared by our board of directors. 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, in turn, 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

10

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, preferred
stock, or our trust preferred securities. The Federal Reserve approved the
timely payment of distributions on our trust preferred securities in January,
March, July and September 2004 and January and March 2005 and the dividends on
our preferred stock for June and December, 2004.

We paid dividends on our preferred stock aggregating $3.53 per preferred
share in 2003 and $7.19 per preferred share in 2004. We do not currently pay
dividends on our common stock, but expect to evaluate our common stock dividend
policy from time to time as circumstances indicate, subject to applicable
regulatory restrictions. 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, 2004 and 2003 and for each
of the three years in the period ended December 31, 2004 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."

11

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

(1)- Common stock equivalents of 287,000 shares were not included in computing
diluted earnings per share for the year ended December 31, 2002 because
their effects were antidilutive.
(2)- Common stock equivalents of 775,000 shares were not included in computing
diluted earnings per share for the year ended December 31, 2004 because
their effects were antidilutive.
(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, adjusted
for FHLB prepayment penalties and the loss on sale of loans, by noninterest
income, adjusted for gain on sale of branches, plus net interest income on a
fully tax equivalent basis.

12

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.

OVERVIEW

Our principal subsidiary is The Bank, an Alabama-chartered financial
institution headquartered in Birmingham, Alabama, which operates 26 banking
offices in Alabama and the eastern 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 unconsolidated special purpose entities formed solely to issue cumulative
trust preferred securities. MAMG is a real estate management company that
manages our headquarters, our branch facilities and certain other real estate
owned by the Bank.

During 1998 and 1999, we acquired several banking organizations, which
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.

In March 2003, we sold our branch in Roanoke, Alabama, which had assets of
approximately $9.8 million and liabilities of $44.7 million. We realized a $2.3
million pre-tax gain on the sale. In August 2003, we sold seven branches of the
Bank, serving the markets from Destin to Panama City, Florida for a $46.8
million deposit premium. These branches had assets of approximately $234 million
and liabilities of $209 million. We realized a $46.0 million pre-tax gain on the
sale. On February 6, 2004, we sold our Morris, Alabama branch, which had assets
of approximately $1.0 million and liabilities of $8.2 million, for a $739,000
pre-tax gain. Because of the impact of these sales on our interest-bearing
deposits and our loan portfolio, as well as the impact of the gains on sale on
our net income, there are variations in the comparability between 2004 and 2003
of our financial position and results of operations. Where appropriate, we have
tried to quantify these effects in the discussion that follows.

In January 2004, we transferred the majority of our nonperforming loans and
approximately $7 million of other problem loans to our special assets
department. Approximately $41.0 million in loans were transferred along with the
related allowance for loan loss of $9.8 million. As of December 31, 2004, the
balance of these loans totaled only $4.2 million. In September 2004 The Bank
sold approximately $32 million, before allowance for loan losses, of certain
nonperforming loans and other classified performing loans resulting in a pre-tax
loss of $2.3 million. Prior to the sale, approximately $6.9 million related to
these loans was recognized as a charge-off in September 2004 against the
allowance for loan losses. The $6.9 million in allowance for loan losses
associated with these loans had been provided in previous periods. Management is
pursuing appropriate collection efforts on the remaining loans.

Management reviews the adequacy of the allowance for loan losses on a
quarterly basis. 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. (See "Critical
Accounting Estimates" below)

13

For 2004 our provision for loan losses totaled $975,000 even though we
recorded net charge-offs of $13.6 million. Additional provision for loan losses
was not required because we had made allowances in previous periods to cover
these losses and we experienced significant recoveries, totaling $3.7 million,
during 2004. We also experienced a decline in classified loans during the year.

The primary source of our revenue is net interest income, which is the
difference between income earned on interest-earning assets, such as loans and
investments, and interest paid on interest-bearing liabilities, such as deposits
and borrowings. Our results of operations are also affected by the provision for
loan losses and other noninterest expenses such as salaries and benefits,
occupancy expenses and provision for income taxes. The effects of these
noninterest expenses are partially offset by noninterest sources of revenue such
as service charges and fees on deposit accounts and mortgage banking income. Our
volume of business is influenced by competition in our markets and overall
economic conditions including such factors as market interest rates, business
spending and consumer confidence.

During 2004, our net interest income decreased by 11.0% primarily due to a
decline in average interest-earning assets. The decline in our interest-earning
assets resulted primarily from a decline in the average volume of our loan
portfolio as a result of the sale of certain branches in 2003.

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 to
accounting principles generally accepted in the United States and to general
banking practices. Estimates and assumptions most significant to us are related
primarily to our allowance for loan losses, income taxes and goodwill impairment
are summarized in the following discussion and in the notes to the consolidated
financial statements.

Allowance for Loan Losses

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 or reductions be made to the allowance for
loan losses based on their judgments and estimates.

Income Taxes

Deferred tax assets and liabilities are determined based on temporary
differences between financial reporting and 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. These
calculations are based on many complex factors, including estimates of the
timing of reversals of temporary differences, the interpretation of federal and
state income tax laws, and a determination of the differences between the tax
and the financial reporting basis of assets and liabilities. Actual results
could differ significantly from the estimates and interpretations used in
determining the current and deferred income tax assets and liabilities.

Goodwill Impairment

Goodwill represents the excess of the cost of an acquisition over the fair
value of the net assets acquired. We test goodwill on an annual basis, or more
frequently if events or circumstances indicate that there may have been
impairment. The goodwill impairment test estimates the fair value of each
reporting unit, through discounted cash flow methodology, to determine the fair
value of our reporting units, which is then compared to the carrying amount. The
goodwill impairment test requires management to make judgments in determining
the assumptions used in the fair value calculations. Management believes
goodwill is not impaired
14

and is properly recorded in the financial statements; however future events
could cause management to adjust its assumptions regarding a particular
reporting unit.

RECENT DEVELOPMENTS

On January 24, 2005, we announced that we had entered into a series of
agreements setting forth

- The employment of C. Stanley Bailey as Chief Executive Officer and a
director of the corporation and chairman of our banking subsidiary, C.
Marvin Scott as President of the corporation and our banking subsidiary,
and Rick D. Gardner as Chief Operating Officer of the corporation and our
banking subsidiary;

- The purchase by Mr. Bailey, Mr. Scott and Mr. Gardner, along with other
investors, of 925,636 shares of common stock of the corporation at $8.17
per share in a private placement consummated simultaneously with the
employment of Mr. Bailey, Mr. Scott and Mr. Gardner; and

- Arrangements under which James A. Taylor would continue to serve as
Chairman of the Board of the corporation and James A. Taylor, Jr. would
continue to serve as a director of the corporation, but would cease to
serve as Chief Executive Officer and President, respectively, of the
corporation and as officers and directors of our banking subsidiary.

Our employment agreement with Mr. Taylor entitled him to certain payments
based on his current compensation upon the occurrence of specified
circumstances, and gave him the option to demand the discounted present value of
such payments in a lump sum. The transactions described above would have
triggered our obligations to make such payments to Mr. Taylor. On January 24,
2005, we entered into an agreement with Mr. Taylor pursuant to which, in lieu of
the payments to which he would have been entitled under his employment
agreement, we paid to Mr. Taylor $3,940,155 on January 24, 2005, and will pay
$3,152,124 on January 24, 2006, and $788,031 on January 24, 2007. The agreement
also provides for the provision of certain insurance benefits to Mr. Taylor, the
transfer of a "key man" life insurance policy to Mr. Taylor, and the maintenance
of such policy by us for five years (with the cost of maintaining such policy
included in the above amounts), in each case substantially as required by his
employment agreement. Our obligation to provide such payments and benefits to
Mr. Taylor is absolute and will survive the death or disability of Mr. Taylor.

Our employment agreement with Mr. Taylor, Jr. entitled him to certain
payments based on his current compensation upon the occurrence of specified
circumstances, and gave him the option to demand the discounted present value of
such payments in a lump sum. The transactions described above would have
triggered our obligations to make such payments to Mr. Taylor, Jr.. On January
24, 2005, we entered into an agreement with Mr. Taylor, Jr. pursuant to which,
in lieu of the payments to which he would have been entitled under his
employment agreement, we paid to Mr. Taylor, Jr., $1,382,872 on January 24,
2005. The agreement also provides for the provision of certain insurance
benefits to Mr. Taylor, Jr. and for the immediate vesting of his unvested
incentive awards and deferred compensation in each case substantially as
required by his employment agreement. Our obligation to provide such payments
and benefits to Mr. Taylor, Jr. is absolute and will survive the death or
disability of Mr. Taylor, Jr.

The new equity investment described above, which involved gross proceeds of
over $7.5 million to us, will be adequate to allow us to fulfill our cash
payment obligations, net of tax effect, to Mr. Taylor and Mr. Taylor, Jr., and
to pay certain other costs of the transactions. Accordingly, the transactions
will have a nominal effect on our regulatory capital position and our banking
subsidiary. In connection with the transaction, we expect to recognize after-tax
expenses of approximately $7.7 million or $0.41 per common share in the first
quarter of 2005.

Under Mr. Bailey's, Mr. Scott's and Mr. Gardner's respective employment
agreements, we are obligated to grant, and have granted as of January 24, 2005,
options to acquire 711,970 shares of common stock to Mr. Bailey, 355,985 shares
to Mr. Scott, and 355,985 shares to Mr. Gardner, for a total of 1,423,940 each
at an

15

exercise price of $8.17 per share. Such options have a ten-year term and vest
and become exercisable as follows:

- 50% on April 24, 2005;

- 20% on the later of (x) the date on which the average closing price per
share of our common stock over a 15-consecutive-trading-day period (the
"Market Value price" is at least $10 but less than $12, and (y) June 29,
2005 (the "Alternate Vesting Date");

- 15% on the later of (x) the date on which the Market Value price is at
least $12 but less than $14, and (y) the Alternate Vesting Date; and

- 15% on the later of (x) the date on which the Market Value price is at
least $14, and (y) the Alternate Vesting Date.

- To the extent not otherwise vested, on January 24, 2010.

In addition, on January 24, 2005, we entered into certain Employment
Agreement Standstill Agreements ("standstill agreements") with our chief
financial officer and general counsel ("executives"). The management changes
described above gave the executives the right to exercise certain provisions
under their employment agreements. Under the standstill agreements, the
executives have agreed to remain in their present positions and their employment
agreements remain in full force. We and the executives have agreed as part of
the standstill agreements to discuss any proposed changes in the executives'
continued employment relationship with us. At any time following the first
anniversary of the standstill agreements, if we and the executive have not
reached a new agreement, such executive may terminate his employment for any
reason and receive all rights, payments, privileges and benefits currently
provided for under his employment agreement. If both executives were to
terminate their employment after the first anniversary date, we would incur a
pre-tax expense in the quarter in which such termination occurred ranging from
$2.0 to $2.5 million.

RESULTS OF OPERATIONS

Year Ended December 31, 2004, Compared with Year Ended December 31, 2003

Our net income for the year ended December 31, 2004 was $1.2 million
compared to $17.5 million for the year ended December 31, 2003. Net income
available to common stockholders was $741,000 for the year ended December 31,
2004 compared to $17.3 million for the year ended December 31, 2003. Our basic
and diluted net income per common share was $.04 for the year ended December 31
2004 compared to $.99 (basic) and $.95 (diluted) per common share for the year
ended December 31, 2003. Our return on average assets was .09% in 2004 compared
to 1.29% in 2003. Our return on average stockholders' equity was 1.18% in 2004
compared to 19.08% in 2003. Our book value per common share at December 31, 2004
and 2003 was $5.31 and our tangible book value per common share at December 31,
2004 increased to $4.62 from $4.59 as of December 31, 2003. Average equity to
average assets increased to 7.78% in 2004 from 6.74% in 2003.

The decrease in net income for the year ended December 31, 2004 compared to
the year ended December 31, 2003 is the result of a decline in our net interest
margin and other noninterest income offset by a decline in the provision for
loan losses and other noninterest expenses. These variations, which are
primarily the result of the sale of our Emerald Coast branches, are more fully
discussed in the following paragraphs.

Net interest income is the difference between the income earned on
interest-earning assets and interest expensed on interest-bearing liabilities
used to support such assets. Net interest income decreased $4.7 million, or
11.0%, to $38.0 million for the year ended December 31, 2004, from $42.7 million
for the year ended December 31, 2003. This was due to a decrease in interest
income of $10.1 million, or 13.2%, offset by a decrease in total interest
expense of $5.4 million, or 16.0%. This decrease in total interest income was
primarily attributable to a $15.2 million, or 21.2%, decrease in interest income
on loans which is the result of a $169 million decline in the average volume of
our loan portfolio due to the sale of certain branches in 2003. This decrease
was offset by a $5.2 million, or 140.7%, increase in interest income on taxable
investment securities. Our average investment security portfolio increased
$110.4 million, or 118.1%.

16

The decline in total interest expense is primarily attributable to a
34-basis point decline in the average interest rates paid on interest-bearing
liabilities. The average rate paid on interest-bearing liabilities was 2.56% for
the year ended December 31, 2004 compared to 2.90% for the year ended December
31, 2003. This decline was due primarily to a decline in the average rates paid
on FHLB advances and time deposits. Our net interest spread and net interest
margin were 3.20% and 3.31%, respectively, for the year ended December 31, 2004,
compared to 3.35% and 3.50%, respectively, for the year ended December 31, 2003.

Our average interest-earning assets for the year ended December 31, 2004
decreased $71.4 million, or 5.8%, to $1.150 billion from $1.222 billion for the
year ended December 31, 2003. This decline in our average interest-earning
assets was due to the sale of our Emerald Coast branches in the third quarter of
2003. The ratio of our average interest-earning assets to average
interest-bearing liabilities was 104.9% and 105.8% for the years ended December
31, 2004 and 2003, respectively. Our average interest-bearing assets produced a
taxable equivalent yield of 5.76% for the year ended December 31, 2004 compared
to 6.25% for the year ended December 31, 2003. The 49-basis point decline in the
yield was partially offset by a 34-point basis decline in the average rate paid
on interest-bearing liabilities.

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 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 an eight-point scale with loan officers 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 function and senior management.
Based on the assigned risk ratings, the criticized and classified loans in the
portfolio are 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. 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 with 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 specific
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 $975,000 for the year ended December 31,
2004 compared to $21.0 million in 2003. This decline in provision is the result
of several factors, including the collection of certain classified loans
totaling approximately $6.0 million in the first quarter of 2004; significant
recoveries of charged-off loans totaling $3.7 million for 2004; adjustments to
the risk factors related to 1-4 family residential loans in the second quarter
of 2004; and a $101 million net increase in real estate construction loans,which
carry a lower historical loss allocation. In addition, approximately 25% of our
net loan growth for the year is related to a single credit with a very low risk
rating that was originated in the second quarter and is fully secured by
marketable securities. Also, nonperforming loans decreased significantly to .79%
of loans at December 31, 2004 from 3.74% at December 31, 2003. During 2004, we
had net charged-off loans totaling $13.6 million compared to net charged-off
loans of $23.5 million for 2003. Approximately $6.9 million of loans charged off
or partially charged off in the third quarter of 2004 were included as part of
the loan sale in September 2004. The net amount of charged-off loans for 2004
was covered by specific and standard allocations of allowance for loan losses
which had been provided in previous periods. The ratio of net charged-off loans
to average loans was 1.52% for 2004 compared to 2.21% for 2003. The allowance
for loan losses

17

totaled $12.5 million, or 1.34% of loans, net of unearned income, at December
31, 2004 compared to $25.2 million, or 2.94% of loans, net of unearned income,
at December 31, 2003. See "Financial Condition -- Allowance for Loan Losses" for
additional discussion.

Noninterest income decreased $51.6 million, or 82.1%, to $11.3 million in
2004, from $62.9 million in 2003. This decrease is primarily due to the gains on
sales of branches of $48.3 million in 2003 and was partially offset by a
$739,000 gain we realized on the sale of our Morris branch during 2004. Income
from mortgage banking operations for the year ended December 31, 2004 decreased
$2.4 million, or 58.8%, to $1.7 million in 2004 from $4.1 million in 2003.
Income from customer service charges and fees decreased $610,000, or 10.5%, to
$5.2 million in 2004 from $5.8 million in 2003. Other noninterest income was
$3.7 million, a decrease of $423,000, or 10.2%, from $4.2 million in 2003. The
decline in service charges is related to the decline in deposit accounts, which
resulted from the sale of certain branches during 2003. The decline in mortgage
banking income is the result of the lessening demand for refinancing that
occurred in 2004 and the sale of the Emerald Coast branches.

We realized net losses on the sale or write-down of investment securities
of $74,000 in 2004 compared to net gains of $588,000 in 2003. During the fourth
quarter of 2004, we realized an "other-than-temporary" non-cash, non-operating
impairment charge of $507,000 related to certain Fannie Mae ("FNMA") and Freddie
Mac ("FHLMC") preferred stock that we carry in our available-for-sale investment
portfolio. The net effect of this impairment charge after tax is $320,000, or
$.02 per common share. Because any unrealized losses on securities carried in
the available-for-sale portfolio are recorded as other comprehensive losses
approximately $250,000 of this loss, net of tax effect, had been charged to
stockholders' equity in previous periods. These securities are high-yielding
investment grade securities that are widely held by other financial institutions
but in light of recent events at these agencies management has determined that
these unrealized market losses are other-than-temporary under generally accepted
accounting principles.

Noninterest expense decreased $10.0 million, or 17.3%, to $47.9 million in
2004 from $57.9 million in 2003. Salaries and employee benefits decreased $6.0
million, or 20.3%, to $23.5 million in 2004 compared to $29.5 million in 2003
primarily due to the sale of certain branches during 2003. All other noninterest
expenses decreased $3.7 million, or 14.6%, to $22.2 million from $25.9 million
in 2003, primarily due to the sale of certain branches during 2003. During 2004,
we incurred approximately $5.9 million in certain expenses which included $2.0
million related to increased foreclosure and repossession activity, $747,000 in
valuation write-downs, $220,000 in net losses on sales of foreclosed property,
$1.2 million in legal fees, $827,000 in audit and accounting fees and $1.0
million in FDIC premiums. Management does not expect these expenses to be at
these levels in the future. We currently expect our FDIC premiums for the period
ending December 31, 2005 to be approximately $480,000.

Our income tax benefit was $796,000 in 2004 and our income tax expense was
$9.2 million in 2003. The primary difference in the effective tax rate and the
federal statutory rate of 34% for 2004 is due primarily to certain tax-exempt
income and the recognition of rehabilitation tax credits of $725,000 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 carry back 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, 2003, Compared with Year Ended December 31, 2002

Our net income for the year ended December 31, 2003 was $17.5 million
compared to a net loss of $(18.4) million for the year ended December 31, 2002.
Our basic net income per common share was $.99 and diluted net income per common
share was $.95 for the year ended December, 31 2003 compared to a net loss
18

per common share of $(1.09) per share for the year ended December 31, 2002. Our
return on average assets was 1.29% in 2003 compared to (1.36)% in 2002. Our
return on average stockholders' equity increased to 19.08% in 2003 from (19.89)%
in 2002. Our book value per common share at December 31, 2003 increased to $5.31
from $4.35 as of December 31, 2002 and our tangible book value per common share
at December 31, 2003 increased to $4.59 from $3.59 as of December 31, 2002.
Average equity to average assets decreased to 6.74% in 2003 from 6.83% in 2002.

The growth in our net income for the year ended December 31, 2003 compared
to the year ended December 31, 2002 is the result of a $48.3 million gain on the
sale of branches and a decrease in loan loss provision, which was partially
offset by an increase in noninterest expenses. Provision for loan losses
decreased $30.9 million, or 59.6% from $51.9 million for the year ended December
31, 2002 to $21.0 million for the year ended December 31, 2003. Noninterest
income, exclusive of the branch sales and the settlement of certain litigation,
increased $551,000, or 3.9% from $14.0 million for the year ended December 31,
2002 to $14.6 million for the year ended December 31, 2003. Noninterest expense,
exclusive of prepayment penalty on FHLB advances, increased $12.7 million, or
29.8%, from $42.7 million for the year ended December 31, 2002 to $55.4 million
for the year ended December 31, 2003.

Net interest income decreased $5.3 million, or 11.1%, to $42.7 million for
the year ended December 31, 2003 from $48.0 million for the year ended December
31, 2002. This was due to a decrease in interest income of $12.3 million, or
13.9%, offset by a decrease in total interest expense of $7.0 million, or 17.3%.
This decrease in total interest income was primarily attributable to a $13.0
million, or 15.4%, decrease in interest income on loans as a result of declining
market interest rates, significant charged-off loans and a high level of
nonperforming loans.

The decline in total interest expense is primarily attributable to a
63-basis point decline in the average interest rates paid on interest-bearing
liabilities. The average rate paid on interest-bearing liabilities was 2.90% for
the year ended December 31, 2003 compared to 3.53% for the year ended December
2002. Our net interest spread and net interest margin were 3.35% and 3.50%,
respectively, for the year ended December 31, 2003 compared to 3.70% and 3.93%,
respectively, for the year ended December 31, 2002.

Our average interest-earning assets for the year ended December 31, 2003
decreased $5.0 million, or 0.4%, to $1.222 billion from $1.227 billion for the
year ended December 31, 2002. This decline in our average interest-earning
assets was due to the sale of our Emerald Coast branches in the third quarter of
2003. The ratio of our average interest-earning assets to average
interest-bearing liabilities was 105.8% and 107.0% for the years ended December
31, 2003 and 2002, respectively. Our average interest-bearing assets produced a
taxable equivalent yield of 6.25% for the year ended December 31, 2003 compared
to 7.23% for the year ended December 31, 2002. The 98-basis point decline in the
yield was partially offset by a 63-point basis decline in the average rate paid
on interest-bearing liabilities.

The provision for loan losses was $21.0 million for the year ended December
31, 2003 compared to $51.9 million in 2002. During 2003, $16.4 million, or
78.1%, of the provision for loan losses was attributable to four of our bank
groups: the Bristol bank group's provision was $8.2 million; the Albertville
bank's group's provision was $2.1 million; the Andalusia bank group's provision
was $4.3 million and the Huntsville bank group's provision was $1.8 million. In
the third and fourth quarters of 2003, approximately $13.2 million (before
writedowns) in Bristol relationships filed Chapter 11 bankruptcy. This resulted
in increased charge-offs and additional provision for loan losses in these
quarters. Net charge-offs decreased $14.2 million, from $37.7 million in 2002 to
$23.5 million in 2003. Net charge-offs, as a percentage of the provision for
loan losses, were 111.9% in 2003 compared to 72.7% in 2002. During 2003, $20.0
million of charged-off loans, or 81.6% of total charged-off loans were
attributable to the same four bank groups: the Bristol bank group contributed
approximately $12.1 million to total charge-offs during 2003; the Albertville
bank group contributed approximately $3.2 million; the Andalusia bank group
contributed approximately $2.1 million and the Huntsville bank group contributed
approximately $2.6 million. After provisions and charge-offs, the allowance for
loan losses was 2.94% of loans, net of unearned income, at December 31, 2003
compared to 2.44% at December 31, 2002. See "Financial Condition -- Allowance
for Loan Losses" for additional discussion.

19

Non-interest income increased $47.7 million, or 315.6%, to $62.8 million in
2003, from $15.1 million in 2002. This increase includes gains on sales of
branches of $48.3 million in 2003. Income from mortgage banking operations for
the year ended December 31, 2003 increased $781,000, or 24%, to $4.0 million in
2003, from $3.3 million in 2002. Income from customer service charges and fees
remained constant at $5.8 million in 2003 and 2002. Other non-interest income
was $4.2 million, a decrease of $157,000, or 3.6%, from $4.3 million in 2002.

Noninterest expense increased $15.2 million, or 35.8%, to $57.9 million in
2003 from $42.7 million in 2002. Salaries and employee benefits increased $6.0
million, or 25.4%, to $29.5 million in 2003 compared to $23.5 million in 2002.
In addition to normal merit raises, the increase in salaries and benefits
related primarily to the accrual of employee bonuses of $1.9 million and a $1.9
million liability adjustment related to certain deferred compensation plans (See
Note 12 to the consolidated financial statements).

All other noninterest expenses increased $9.3 million, or 48%, to $28.5
million from $19.2 million in 2002. Other noninterest expenses increased during
2003 primarily as a result of a prepayment penalty on FHLB advances, an increase
in our FDIC premiums, a loss on the sale of our former Huntsville and Port St.
Joe branch buildings, one-time expenses related to the relocation of our data
processing center to our corporate headquarters, an increase in professional
fees and losses on other real estate. Our bank subsidiary was assessed a
$725,000 quarterly FDIC deposit insurance premium for the third quarter of 2003
which increased to $880,000 during the fourth quarter of 2003. Our assessment
for the first quarter of 2004 was lowered to $417,000.

In connection with the sale of our Emerald Coast branches our full-time
equivalent ("FTE") employee count went down by approximately 66. We instituted
other staff reductions of approximately 50 FTE employees that were completed
during the fourth quarter of 2003, reducing the overall staff from 443 FTE
employees at June 30, 2003 to 376 FTE employees as of December 31, 2003. The
staff reductions were in the areas of tellers, processors and other
administrative support. During this same period, we increased staff in the
centralized risk management areas of Loan Administration Services, Internal
Audit, Special Assets, Compliance and Security.

Our income tax expense was $9.2 million in 2003 and our income tax benefit
was $(13.0) million in 2002, resulting in effective tax rates of 34.4% and
(41.3)%, respectively. The primary difference in the effective tax rate and the
federal statutory rate of 35% for 2003 is due primarily to certain tax-exempt
income and the recognition of a rehabilitation tax credit of $960,000 generated
from the restoration of our headquarters, the John A. Hand Building. 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.

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.

20

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

21

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, 2004 and 2003.

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

(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 moderate 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 composed of our head of
asset/liability management and other senior officers, 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

22

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. This 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.

One of the primary goals of our committee is to effectively manage the
duration of our assets and liabilities so that the respective durations are
matched as closely as possible. These duration adjustments 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, caps and floors. The recent rate cycle
has included rates at a 50-year low. This in turn has caused many managers to
allow liquidity to increase, and thus decrease earnings, or alternatively, to
manage to management's expectation for earnings and duration over the term of
the cycle. We chose the latter and sought to maximize investment earnings during
this cycle while managing our 1-4 family residential portfolio to achieve
maximum earnings in a rising rate cycle with a shorter average maturity than
many of our peers. Our current strategy is to hedge externally through the use
of non-core deposits and other liabilities that have priced favorably to typical
core related deposits. Going forward, our focus will return to core funding as
interest rates are expected to rise.

During the next twelve months, approximately $101 million more
interest-earning assets than interest-bearing liabilities can reprice 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, 2004, was
1.14%, indicating an asset-sensitive position. For the period ending December
31, 2004, 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 9.5%, or approximately $4.4 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 14.1%, or approximately $6.6 million. The effect
on net interest income produced by these scenarios is within our asset and
liability management policy in the rising rate scenario, but outside our asset
liability policy in the falling rate scenario. Our policy allows the level of
interest rate sensitivity to affect net interest income plus or minus 10%.
However, we do not expect rates to decline 200 basis points in the next twelve
months.

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. We expect 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, our 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 help us to
match the effective maturities of the assets and liabilities.

The primary derivative instrument we use is the interest rate swap. An
interest rate swap allows one party to swap a fixed rate to another party for a
floating rate or vice-versa. The amount of the swap is based on a "notional
amount." We most commonly use swap transactions in concert with issuing
long-term, fixed rate, callable certificates of deposit. The CD's call features
allow flexibility in liquidity management. The swaps convert the CD's to
relatively low-cost, floating rate funding.

As of December 31, 2004, we had outstanding interest rate swaps with a
notional amount of $36.5 million. These consisted of nine interest rate swaps to
hedge the fair value of fixed-rate, callable consumer certificates of deposits.
These hedges were deemed by our management to be structured as a perfect hedge
and as such were treated with the short-cut method of accounting under SFAS
Statement No. 133.
23

We attempt to manage the one-year gap position as close to even as
possible. This helps us to avoid wide variances in the event 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 accounts, interest-bearing transaction accounts, money
market accounts and NOW accounts. The rates paid on these accounts are typically
not related directly to market interest rates, and management exercises some
discretion in 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 the 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 earnings capacity. The greater the
EVE, the greater our earnings capacity. The following table sets forth our EVE
as of December 31, 2004:

The above table is based on a prime rate of 5.25% 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 and federal funds lines. 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.

We have entered into certain contractual obligations and commercial
commitments in the normal course of business that involve elements of credit
risk, interest rate risk and liquidity risk.

24

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 9 to the Consolidated Financial Statements.
(4) See Note 8 to the Consolidated Financial Statements
(5) See Note 10 to the Consolidated Financial Statements.
(6) See Note 24 to the Consolidated Financial Statements.

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

(1) See Note 15 to the Consolidated Financial Statements.

In addition, the FHLB has issued for our banking subsidiary's benefit a
$20,000,000 irrevocable letter of credit in favor of the Chief Financial Officer
of the State of Florida to secure certain deposits of the State of Florida. The
letter of credit expires January 6, 2006 upon sixty days' prior notice;
otherwise, it automatically extends for a successive one-year term.

FINANCIAL CONDITION

Our total assets were $1.423 billion at December 31, 2004, an increase of
$251 million, or 21.5% from $1.172 billion as of December 31, 2003. Our average
total assets for 2004 were $1.297 billion, which was supported by average total
liabilities of $1.196 billion and average total stockholders' equity of $101
million.

Loans, net of unearned income. Our loans, net of unearned income, totaled
$935 million at December 31, 2004, an increase of 9.1%, or $78 million from $857
million at December 31, 2003. Mortgage loans held for sale totaled $8.1 million
at December 31, 2004, an increase of $1.7 million from $6.4 million at December
31, 2003. Average loans, including mortgage loans held for sale, totaled $894
million for 2004 compared to $1.063 billion for 2003. The decrease in average
loan volume from 2003 to 2004 is attributable to the sale of certain branches in
2003. Loans, net of unearned income, comprised 73.4% of interest-earning assets
at December 31, 2004, compared to 83.6% at December 31, 2003. Mortgage loans
held for sale

25

comprised .64% of interest-earning assets at December 31, 2004, compared to .62%
at December 31, 2003. The average yield of the loan portfolio was 6.28%, 6.71%
and 7.50% for the years ended December 31, 2004, 2003 and 2002, respectively.
The decline in average yield is primarily the result of a general decline in
market rates.

The following table details the distribution of our loan portfolio by
category for the periods presented:

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, 2004. 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

26

Allowance for Loan Losses. We maintain an allowance for loan losses within
a range 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 and approval procedures, sets limits on credit
concentration and enforces regulatory requirements. In addition, we have engaged
Credit Risk Management, LLC, an independent loan review firm, to supplement our
existing independent loan review function.

Loan portfolio concentration risk is reduced through concentration limits
for borrowers, collateral types and geographic 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 an eight-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 function and senior
management. Based on the assigned risk ratings, the criticized and classified
loans in the portfolio are segregated into the following regulatory
classifications: Special Mention, Substandard, Doubtful or Loss. Generally,
regulatory reserve percentages (5%, Special Mention; 15%, Substandard; 50%,
Doubtful; 100% Loss) are applied to these categories to estimate the amount of
loan loss allowance required, adjusted for previously mentioned risk factors.

Pursuant to SFAS Statement No. 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 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 we
continue to expect that all amounts due will ultimately be collected. 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 our loan
review function, which also performs ongoing, independent review of the risk
management process. The risk management process includes underwriting,
documentation and collateral control. Loan review 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 our
entire bank. This department provides standardized oversight for compliance with
loan approval authorities and bank lending policies and procedures, as well as
centralized supervision, monitoring and accessibility.

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

27

ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

The allowance as a percentage of loans, net of unearned income, at December
31, 2004 was 1.34% compared to 2.94% as of December 31, 2003. The allowance for
loan losses as a percentage of loans, net of unearned income, declined primarily
due to $6.9 million of loans charged off or partially charged off in the third
quarter of 2004 that were included as part of the loan sale. The allowance
related to these loans had been provided for in previous periods. Net
charge-offs decreased $9.9 million, from $23.5 million in 2003 to $13.6 million
in 2004. Net charge-offs of commercial loans decreased $4.1 million, from $10.3
million in 2003 to $6.2 million in 2004. Net charge-offs of real estate loans
decreased $3.5 million, from $9.9 million in 2003 to $6.4 million in 2004. Net
charge-offs of consumer loans decreased $1.5 million, from $2.8 million in 2003
to $1.3 million in 2004. Net charge-offs as a percentage of the allowance for
loan losses were 108.47% in 2004, up from 93.21% in 2003.

The allowance for loan losses as a percentage of nonperforming loans
increased to 169.36% at December 31, 2004 from 78.59% at December 31, 2003 due
to a decrease in nonperforming loans of $24.6 million which is primarily due to
the third quarter loan sale. Approximately $2.0 million in allowance for loan
losses has been allocated to nonperforming loans as of December 31, 2004. As of
December 31, 2004, nonperforming loans totaled $7.4 million, which $4.7 million,
or 63.5%, was loans secured by real estate compared to $19.7 million, or 61.6%,
as of December 31, 2003. Of the $2.0 million in allowance for loan losses
allocated to nonperforming loans, $1.1 million is attributable to these real
estate loans, with the remaining $892,000 allocated to remaining nonperforming
loans, which consist primarily of commercial loans. (See "Nonperforming Loans").

28

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

29

Nonperforming Assets. Nonperforming assets decreased $25.6 million, to
$12.4 million as of December 31, 2004 from $38.0 million as of December 31,
2003, primarily due to the third quarter loan sale. As a percentage of net
loans, nonperforming assets decreased from 4.41% at December 31, 2003 to 1.32%
at December 31, 2004. The following table represents our nonperforming assets
for the dates shown.

NONPERFORMING ASSETS

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 non-
accrual 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.

In January of 2004, we transferred the majority of our nonperforming loans
and approximately $7.0 million of other problem loans to our special assets
department. Approximately $41.0 million in loans were transferred with the
related allowance for loan loss of $9.8 million. As of December 31, 2004, the
balance of these loans totaled only $4.2 million. In September 2004 our banking
subsidiary sold approximately $32 million, before allowance for loan losses, in
certain nonperforming loans and other classified, performing loans, resulting in
a pre-tax loss of $2.3 million. Prior to the sale, approximately $6.9 million
related to these

30

loans was recognized as a charge-off in September 2004 against the allowance for
loan losses. The $6.9 million in allowance for loan losses associated with these
loans had been provided in previous periods.

Impaired Loans. At December 31, 2004, our recorded investment in impaired
loans under FAS 114 totaled $5.1 million, a decrease of $20.3 million from $25.4
million at December 31, 2003. Of this $20.3 million decrease, $17.6 million was
attributable to third quarter loan sale. $2.2 million, or 43% of our impaired
loans, are in the special assets group along with $884,000 in allocated
allowance for loan losses. A significant portion of the remaining $2.9 million
is concentrated in three of our banking groups (Albertville -- $764,000,
Bristol -- $587,000, and Andalusia -- $660,000), with approximately $801,000
specifically allocated to these loans, providing 39% coverage. We have
approximately $125,000 in commitments to loan additional funds to the borrowers
whose loans are impaired. $2.8 million, or 54%, of the $5.1 million in impaired
loans are secured by real estate.

The following is a summary of impaired loans and the specifically allocated
allowance for loan losses by category as of December 31, 2004 and 2003:

Potential Problem Loans. In addition to nonperforming loans, management
has identified $2.4 million in potential problem loans as of December 31, 2004.
Potential problem loans decreased $300,000 from $2.7 million as of December 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. Overall,
$1.7 million, or 72%, is secured by real estate, of which $548,000 is secured by
1-4 family residential real estate. Our special assets group is involved in many
of these loans, and management is working closely with these customers to
prevent these loans from migrating into nonperforming status. We have allocated
$277,000 in allowance for loan losses to absorb potential losses on these loans.

Investment Securities. The investment securities portfolio comprised 22.8%
of our total interest-earning assets as of December 31, 2004. Total securities
averaged $207.9 million in 2004, compared to $97.6 million in 2003 and $63.3
million in 2002. The investment securities portfolio produced average taxable
equivalent yields of 4.38%, 4.08% and 5.45% for the years ended December 31,
2004, 2003 and 2002, respectively. At December 31, 2004, our investment
securities portfolio had an amortized cost of $290.1 million and an estimated
fair value of $288.3 million.

During 2004 we had sufficient capital to support some leveraging strategies
to produce income, minimize duration risk and produce liquidity for future loan
demand. Using a target yield of 4.0% to achieve our goals and expecting a
slow-rising interest rate environment, we believed the risk was manageable. (See
"Market Risk -- Interest Rate Sensitivity.") As noted above, our investment
portfolio had dropped significantly in average yield from 5.45% in 2002 to a low
of 4.08% in 2003.

Our leverage strategies included the use of repurchase agreements and
brokered funding. The average rate for 2004 on our repurchase agreements was
2.11% and the average rate on our brokered deposits was 2.40%. Our investment
portfolio produced an average yield of 4.38% for 2004 and had a weighted average
yield of 4.62% as of December 31, 2004.

31

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

INVESTMENT PORTFOLIO

The following table shows the scheduled maturities and average yields of
securities held at December 31, 2004.

MATURITY DISTRIBUTION OF INVESTMENT SECURITIES

Short-term liquid assets. Our short-term liquid assets (cash and due from
banks, interest-bearing deposits in other banks and federal funds sold)
increased $2.4 million, or 5.5%, to $45.9 million at December 31, 2004 from
$43.5 million at December 31, 2003. At December 31, 2004, our short-term liquid
assets comprised 3.2% of total assets, compared to 3.7% at December 31, 2003. We
continually monitor our liquidity position and will increase or decrease our
short-term liquid assets as necessary.

Deposits. Noninterest-bearing deposits totaled $89.5 million at December
31, 2004, an increase of 3.9%, or $3.4 million from $86.1 million at December
31, 2003. Noninterest-bearing deposits comprised 8.39% of total deposits at
December 31, 2004, compared to 9.67% at December 31, 2003. $65.2 million, or
72.8% of total noninterest-bearing deposits, were in our Alabama branches while
$24.3 million, or 27.2%, were in our Florida branches.

Interest-bearing deposits totaled $978 million at December 31, 2004, an
increase of 21.6%, or $174 million, from $804 million at December 31, 2003.
Interest-bearing deposits averaged $882 million in 2004 compared to $951 million
in 2003, a decrease of $69 million, or 7.2%. The decline in our average
interest-bearing deposits is due to the sale of certain branches in 2003.

The average rate paid on all interest-bearing deposits during 2004 was
2.18% compared to 2.35% in 2003. Of total interest-bearing deposits, $741
million, or 75.8%, were in the Alabama branches while $237 million, or 24.2%,
were in the Florida branches.

32

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

AVERAGE DEPOSITS

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 62.4% of our total deposits at
December 31, 2004 compared to 67.7% at December 31, 2003. We anticipate that
such deposits will continue to be our primary source of funding in the future.
Our loan-to-deposit ratio was 87.6% at December 31, 2004, compared to 96.3% at
December 31, 2003. The maturity distribution of our time deposits over $100,000
at December 31, 2004 is shown in the following table.

MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE

Approximately 19.4% of our time deposits over $100,000 had scheduled
maturities within three months of December 31, 2004. We believe customers who
hold a large denomination certificate of deposit tend to be extremely sensitive
to interest rate levels, making these deposits a less reliable source of funding
for liquidity planning purposes than core deposits.

Borrowed Funds. During 2004, average borrowed funds increased $11.2
million, or 6.5%, to $183.1 million, from $171.9 million during 2003, which
increased $19.3 million, or 12.6%, from $152.6 million during 2002. The average
rate paid on borrowed funds during 2004, 2003 and 2002 was 3.47%, 5.00%, and
5.65%, 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.

33

Borrowed funds as of December 31, 2004 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, 2004 and 2003:

Certain advances are subject to call by the FHLB as follows: 2005 -- $73.3
million and 2006 -- $25.0 million. The $73.3 million in FHLB advances subject to
call during 2005 carry a weighted average interest rate of 5.02%. The actual
interest rates range from 1.44% to 7.26% and are both fixed and variable. 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 $232.6 million at December 31, 2004. We have
remaining approximately $15.1 million in unused lines of credit with the FHLB
subject to the availability of qualified collateral.

As of December 31, 2004 we had borrowed $2.3 million under a $10 million
line of credit with a regional bank. The note is secured by real estate and
stock of The Bank. The note is due in October 2005 and interest is payable at
30-day LIBOR plus 2.50%.

As of December 31, 2004, we had entered into security repurchase agreements
totaling $49.5 million. The average volume of repurchase agreements during 2004
was $24.8 million and carried an average interest rate of 2.11%. The average
rate of outstanding repurchase agreements as of December 31, 2004 is 2.49%.

We have available approximately $30.0 million in unused federal funds lines
of credit with regional banks, subject to certain restrictions and collateral
requirements.

Junior subordinated debentures. We have sponsored two trusts, TBC Capital
Statutory Trust II ("TBC Capital II") and TBC Capital Statutory Trust III ("TBC
Capital III"), of which we own 100% of the common securities. The trusts were
formed for the purpose of issuing mandatory redeemable trust preferred
securities to third-party investors and investing the proceeds from the sale of
such trust preferred securities solely in our junior subordinated debt
securities (the debentures). The debentures held by each trust are the sole
assets of that trust. Distributions on the trust preferred securities issued by
each trust are payable semi-annually at a rate per annum equal to the interest
rate being earned by the trust on the debentures held by that trust. The trust
preferred securities are subject to mandatory redemption, in whole or in part,
upon repayment of the debentures. We have entered into agreements which, taken
collectively, fully and unconditionally guarantee the trust preferred securities
subject to the terms of each of the guarantees. The debentures held by the TBC
Capital II and TBC Capital III capital trusts are first redeemable, at a
premium, in whole or in part, by us on September 7, 2010 and July 25, 2006,
respectively.

As a result of applying the provisions of FIN 46, governing when an equity
interest should be consolidated, we were required to deconsolidate these
subsidiary trusts from our financial statements in the fourth quarter of 2003.
The deconsolidation of the net assets and results of operations of the trusts
had virtually no impact on our financial statements or liquidity position, since
we continue to be obligated to repay the debentures held by the trusts and
guarantee repayment of the trust preferred securities issued by the trusts.

34

The consolidated debt obligation related to the trusts increased from
$31,000,000 to $31,959,000 upon deconsolidation, with the difference
representing our common ownership interest in the trusts.

The trust preferred securities held by the trusts qualify as Tier 1 capital
under Federal Reserve Board guidelines.

Consolidated debt obligations related to the trusts follow:

As of December 31, 2004 and December 31, 2003, the interest rate on the
$16,495,000 subordinated debentures was 5.74% and 4.90%, respectively.

Currently, we 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 distributions on our trust preferred securities in
January, March, July and September 2004 and January and March 2005.

Stockholders' Equity. Stockholders' equity increased $417,000 during 2004
to $100.5 million at December 31, 2004 from $100.1 million at December 31, 2003.
The increase in stockholders' equity resulted primarily from net income of $1.2
million for the year ended December 31, 2004 offset by an increase in
accumulated other comprehensive loss of $914,000 and preferred stock dividends
of $446,000. As of December 31, 2004, we had 18,025,932 shares of common stock
issued and 17,749,846 outstanding. As of December 31, 2004, there were 58,014
shares held in treasury at a total cost of $390,000.

On April 1, 2002, we 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 participants are 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 $7.00 per share, or $1,120,000,
and classified as a contra-equity account, "Unearned restricted stock", in
stockholders' equity. During 2003, 15,000 shares of this restricted common stock
were forfeited. The number of restricted shares outstanding as of December 31,
2004 was 142,500 and the remaining amount in the unearned restricted stock
account was $449,000. This balance is being amortized as expense as the stock is
earned during the restricted period. The amounts 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 periods ended December 31, 2004 and 2003, the
Corporation has recognized $199,000 and $181,000 in restricted stock expense.

We adopted a leveraged employee stock ownership plan (the "ESOP") effective
May 15, 2002 that covers all eligible employees who are at least 21 years old
and have completed a year of service. As of December 31, 2004, the ESOP has been
leveraged with 273,400 shares of our common stock purchased in the open market
and classified as a contra-equity account, "Unearned ESOP stock," in
stockholders' equity.

On January 29, 2003, the ESOP trustees finalized a $2.1 million promissory
note to reimburse us for the funds used to leverage the ESOP. The unreleased
shares and our guarantee secure the promissory note, which has been classified
as notes payable on our statement of financial condition. As the debt is repaid,
shares are released from collateral based on the proportion of debt service.
Principal payments on the debt are $17,500 per month for 120 months. The
interest rate is adjusted to the Wall Street Journal prime rate.

35

Released shares are allocated to each eligible employee at the end of a plan
year based on the ratio of the employee's eligible compensation to total
compensation. We recognize compensation expense during a 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 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 periods ended December 31, 2004, 2003 and 2002 was $189,000, $152,000 and
$51,000, respectively. The ESOP shares as of December 31, 2004 were as follows:

Regulatory Capital. The table below represents our and our wholly owned
banking subsidiary's actual regulatory and minimum regulatory capital
requirements at December 31, 2004 (dollars in thousands):

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,

36

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 in 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 7A. 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.

37

THE BANC CORPORATION AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

CONTENTS

Report of Independent Registered Public Accounting Firm as
of December 31, 2004 and for the year then ended.......... 39
Report of Independent Registered Public Accounting Firm as
of December 31, 2003 and 2002 and for each of the two
years in the period ended December 31, 2003............... 40
Consolidated Statements of Financial Condition.............. 41
Consolidated Statements of Operations....................... 42
Consolidated Statements of Changes in Stockholders'
Equity.................................................... 43
Consolidated Statements of Cash Flows....................... 44
Notes to Consolidated Financial Statements.................. 45

38

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders of The Banc Corporation:

We have audited the accompanying consolidated statement of financial
condition of The Banc Corporation, and Subsidiaries (Corporation), as of
December 31, 2004 and the related consolidated statements of operations, changes
in stockholders' equity, and cash flows for the year then ended. 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 audit.

We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (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
audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Corporation as of December 31, 2004, and the results of their consolidated
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.

/s/ Carr, Riggs & Ingram, LLC

Montgomery, Alabama
March 15, 2005

39

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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, 2003 and 2002, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for each of the two years in the
period ended December 31, 2003. 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, 2003 and 2002, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States.

/s/ ERNST & YOUNG LLP

Birmingham, Alabama
March 15, 2004

40

THE BANC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

See accompanying notes.

41

THE BANC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes.

42

THE BANC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

See accompanying notes.
43

THE BANC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes.

44

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004

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 in 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 consolidated subsidiaries. (See "Recent Accounting Pronouncements"
concerning FIN 46.) 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 16 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.

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, 2004 was
approximately $381,000.

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.

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

45

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

gains and losses, net of deferred taxes, on securities available for sale are
excluded from earnings and reported in accumulated other comprehensive (loss)
income 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. The Corporation defers certain
nonrefundable loan origination and commitment fees and the direct costs of
originating or acquiring loans. The net deferred amount is amortized over the
estimated lives of the related loans as an adjustment to yield. Interest income
with respect to loans is accrued on the principal amount outstanding, except for
loans classified nonaccrual.

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 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. Impaired loans and other nonaccrual loans are returned to
accrual status if the loan is brought contractually current as to both principal
and interest and repayment ability is demonstrated, or if the loan is in the
process of collection and no loss is anticipated.

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
possible 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 an eight-point scale, and loan
officers are responsible for the timely reporting of changes in the risk
ratings. This process, and the assigned risk ratings, is 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.

46

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. The carrying value of these loans is
adjusted for any origination fees and cost incurred to originate these loans.
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 gain or loss resulting
there from is reflected in the statement of operations.

The Corporation reviews any long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable.

Intangible Assets

At December 31, 2004 and 2003, goodwill, net of accumulated amortization,
totaled $10,336,000. The Corporation adopted SFAS No. 142, Goodwill and Other
Intangible Assets ("SFAS 142"), on January 1, 2002. SFAS 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 SFAS 142.

The Corporation has determined that its reporting units for purposes of
this testing are the operating branches which are included as part of its
reportable segments: the Alabama Region and the Florida Region. Goodwill was
allocated to each reporting unit based on locations of past acquisitions.

The first step in testing requires that the fair value of each reporting
unit be determined. If the carrying amount of any reporting unit exceeds its
fair value, goodwill impairment may be indicated.

The Corporation performed a transitional impairment test of goodwill as of
January 1, 2002 using discounted cash flow methodology to determine the fair
value of its reporting units which was compared to the carrying amount. The fair
value exceeded the carrying amount and no impairment existed.

The Corporation performs the annual impairment test as of December 31. As
of December 31, 2004 and 2003, it was determined no impairment existed.

47

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

At December 31, 2004 and 2003, the Corporation also had $2,040,000 and
$2,326,000, respectively, of core deposit intangibles from the CF Bancshares
acquisition, which is being amortized over ten years. Amortization expense was
$286,000, $286,000 and $247,000, respectively, for the years ended December 31,
2004, 2003 and 2002. Aggregate amortization expense for the years ending
December 31, 2005 through December 31, 2009 is estimated to be $1,430,000, or
$286,000 per year.

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 and the
cost of maintaining and operating other real estate are included in other
expense. Other real estate totaled $4,906,000 and $5,806,000 at December 31,
2004 and 2003, respectively.

Security Repurchase Agreements

Securities sold under agreements to repurchase are generally accounted for
as collateralized financing transactions and are recorded at the amounts at
which the securities were sold plus accrued interest. Securities, generally U.S.
government and Federal agency securities, pledged as collateral under these
financing arrangements cannot be sold or repledged by the secured party.

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

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

Stock-Based Compensation

SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 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

48

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

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.

SFAS 123 requires the disclosure of pro forma net income and earnings per
share (see Note 11) 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. See "Recent Accounting Pronouncements" regarding SFAS No. 123R,
Share-Based Payment.

Derivative Financial Instruments and Hedging Activities

SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities
("SFAS 133"), 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 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, as to 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 2004, 2003 and 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 $36,500,000 and $11,000,000 fixed-rate
certificates of deposit as of December 31, 2004 and 2003, respectively to a
LIBOR floating rate. These derivative instruments have been designated as fair
value hedges and are included in other assets or other liabilities on the
statement of financial condition. For the years ended December 31, 2004, 2003
and 2002, there was no ineffectiveness recorded to earnings related to these
fair value hedges.

49

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

Recent Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment ("SFAS
123R"), which is a revision of SFAS 123 and supersedes Opinion 25. The new
standard, which will be effective for the Corporation in the third quarter of
2005, requires companies to recognize an expense in the statement of operations
for the grant-date fair value of stock options and other equity-based
compensation issued to employees, but expresses no preference for a type of
valuation method. This expense will be recognized over the period during which
an employee is required to provide service in exchange for the award. SFAS 123R
carries forward prior guidance on accounting for awards to non-employees. If an
equity award is modified after grant date, incremental compensation cost will be
recognized in an amount equal to the excess of the fair value of the modified
award over the fair value of the original award immediately prior to the
modification. The Corporation is evaluating the impact on the Corporation's
results of operations from adopting SFAS 123R, but expects it to be comparable
to the pro forma effects of applying the original SFAS 123 (see Note 11).

In March 2004, the Emerging Issues Task Force ("EITF") reached a final
consensus on Issue No. 03-1, The Meaning of Other-Than-Temporary and Its
Application to Certain Investments. The issue applies to debt and equity
securities within the scope of SFAS No. 115, Accounting for Certain Investments
in Debt and Equity Securities ("SFAS 115"), and equity securities that are not
subject to the scope of SFAS No. 115 and not accounted for under the equity
method of accounting (i.e., cost method investments). Issue 03-1 outlines a
three-step model for assessing other-than-temporary impairment. The model
involves first determining whether an investment is impaired, then evaluating
whether the impairment is other-than-temporary, and if it is, recognizing an
impairment loss equal to the difference between the investment's cost and its
fair value. The model was to be applied prospectively to all current and future
investments in interim or annual reporting periods beginning after June 15,
2004. However, in September 2004 the FASB staff issued FASB Staff Position
("FSP") EITF Issue 03-1-4, which delayed the effective date for the measurement
and recognition guidance contained in Issue 03-01. The guidance for analyzing
securities for impairment will be effective with the final issuance of FSP EITF
Issue 03-1-a. The disclosure guidance of Issue 03-1 remains effective and
required quantitative and qualitative disclosures for investments accounted for
under SFAS No. 115 for the first annual reporting period ending after December
15, 2003. In addition, disclosures related to cost method investments are
effective for annual reporting periods ending after June 15, 2004. Comparative
information for the periods prior to the period of initial application is not
required.

In December 2003, the American Institute of Certified Public Accountants
issued Statement of Position 03-3 ("SOP 03-3"), Accounting for Certain Loans or
Debt Securities Acquired in a Transfer. SOP 03-3 addresses accounting for
differences between contractual cash flows and cash flows expected to be
collected from an investor's initial investment in loans or debt securities
(loans) acquired in a transfer if those differences are attributable, at least
in part, to credit quality. It includes such loans acquired in purchase business
combinations and applies to all nongovernmental entities. SOP 03-3 does not
apply to loans originated by the entity. SOP 03-3 limits the yield that may be
accepted (accretable yield) to the excess of the investor's estimate of
undiscounted expected principal, interest, and other cash flows (cash flows
expected at acquisition to be collected) over the investor's initial investment
in the loan. SOP 03-3 requires that the excess of contractual cash flows over
cash flows expected to be collected (nonaccretable difference) not be recognized
as an adjustment of yield, loss accrual, or valuation allowance. SOP 03-3
prohibits investors from displaying accretable yield and nonaccretable
difference in the statement of condition. Subsequent increases in cash flows
expected to be collected generally should be recognized prospectively through
adjustment of the loan's yield over its remaining life.

Decreases in cash flows expected to be collected should be recognized as
impairment. SOP 03-3 prohibits "carrying over" or creation of valuation
allowances in the initial accounting of all loans acquired in a transfer that
are within the scope of SOP 03-3. The prohibition of the valuation allowance
carryover applies to the

50

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

purchase of an individual loan, a pool of loans, a group of loans, and loans
acquired in a purchase business combination. SOP 03-3 is effective for loans
acquired in fiscal years beginning after December 15, 2004. The changes required
by SOP 03-3 are not expected to have a material impact on results of operations,
financial position or liquidity of the Corporation.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires certain
guarantees to be recorded at fair value. In general, FIN 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 FIN 45 are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002. On
January 1, 2003, 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. FIN 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 the
Corporation 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 December 31, 2004, the Corporation had standby letters of credit
outstanding with maturities ranging from less than one year to four years. The
maximum potential amount of future payments the Corporation could be required to
make under its standby letters of credit at December 31, 2004 was $24.4 million,
which represents the Corporation's maximum credit risk. At December 31, 2004,
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 FIN 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" (FIN 46). FIN 46
addresses whether business enterprises must consolidate the financial statements
of entities known as "variable interest entities". A variable interest entity is
defined by FIN 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.

In previous financial statements, the Corporation had consolidated two
trusts through which it had issued trust preferred securities ("TPS") and
reported the TPS as "guaranteed preferred beneficial interests in the
Corporation's subordinated debentures" in the statements of financial condition.
In December 2003, the

51

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

FASB issued a revision to FIN 46 to clarify certain provisions, which affected
the accounting for TPS. As a result of the provisions in revised FIN 46, the
trusts have been deconsolidated, with the Corporation accounting for its
investment in the trusts as assets, its subordinated debentures as debt, and the
interest paid thereon as interest expense. The Corporation had always classified
the TPS as debt and the dividends as interest but eliminated its common stock
investment and dividends received from the trust. FIN 46 permits and encourages
restatement of prior period results, and accordingly, all financial statements
presented have been adjusted to give effect to the revised provisions of FIN 46.
While these changes had no effect on previously reported net interest margin,
net income or earnings per share, they increased total interest income and
interest expense, as well as total assets and total liabilities. (See Note 10)

In March 2004, the Securities and Exchange Commission issued Staff
Accounting Bulletin 105, "Application of Accounting Principles to Loan
Commitments" ("SAB 105"), which addresses certain issues regarding the
accounting for and disclosure of loan commitments relating to the origination of
mortgage loans that will be held for resale. Such commitments are considered
derivatives under the provisions of SFAS No. 133, as amended by SFAS No. 149,
Amendment to Statement 133 on Derivatives Instruments and Hedging Activities,
and are therefore required to be recorded at fair value. SAB 105 stipulates that
in recording those commitments no consideration should be given to any expected
future cash flows related to the associated servicing of the future loan. SAB
105 further stipulates that no other internally-developed intangible assets,
such as customer relationship intangibles, should be recorded as part of the
loan commitment derivative. SAB 105 requires disclosure of accounting policies
for loan commitment derivatives, including methods and assumptions used to
estimate fair value and any associated economic hedging strategies. The
provisions of SAB 105 were effective for loan commitment derivatives that were
entered into after March 31, 2004. The provisions of SAB 105 did not have a
material impact on results of operations, financial position, or liquidity of
the Corporation.

2. INVESTMENT SECURITIES

The amounts at which investment securities are carried and their
approximate fair values at December 31, 2004 are as follows:

52

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. INVESTMENT SECURITIES -- (CONTINUED)

The amounts at which investment securities are carried and their
approximate fair values at December 31, 2003 are as follows:

Securities with an amortized cost of $131,090,000 and $79,797,000 at
December 31, 2004 and 2003, respectively, were pledged to secure United States
government deposits and other public funds and for other purposes as required or
permitted by law.

The following table presents the age of gross unrealized losses and fair
value by investment category.

Management does not believe any of the above individual unrealized loss as
of December 31, 2004 represents an other-than-temporary impairment. The
unrealized losses relate primarily to sixty-seven securities issued by the
Federal Home Loan Bank ("FHLB"), Fannie Mae ("FNMA") and Freddie Mac ("FHLMC"),
a corporate bond and one trust preferred security. These unrealized losses are
primarily attributable to changes in interest rates. The Corporation has both
the intent and ability to hold the securities contained in the previous table
for a time necessary to recover the amortized cost.

During the fourth quarter of 2004, the Corporation realized an
other-than-temporary non-cash, non-operating impairment charge of $507,000
related to certain FNMA and FHLMC preferred stock that is carried in the
Corporation's available-for-sale investment portfolio. The net effect of this
impairment charge after tax is $320,000, or $.02 per common share. These
securities are high-yielding investment grade securities that are widely held by
other financial institutions but in light of recent events at these agencies,
management has determined that these unrealized market losses are
other-than-temporary under generally accepted accounting principles.

53

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, 2004, 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 2004, 2003 and 2002 were $598,000, $791,000 and $629,000, respectively, and
gross realized losses for the same periods were $672,000, $277,000 and $2,000,
respectively.

In 2003, the Corporation realized a gain of $74,000 on the sale of a
security classified as held-to-maturity. The security had a net carrying value
of $1,996,000.

The components of other comprehensive income (loss) for the years ended
December 31, 2004, 2003 and 2002 are as follows:

54

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. LOANS

At December 31, 2004 and 2003 the composition of the loan portfolio was as
follows:

At December 31, 2004 and 2003, the Corporation's recorded investment in
loans considered to be impaired under SFAS No. 114 was $5,130,000 and
$25,400,000, respectively. At December 31, 2004 and 2003, there was
approximately $1,995,000 and $7,700,000, respectively in the allowance for loan
losses specifically allocated to impaired loans. The average recorded investment
in impaired loans during 2004, 2003 and 2002 was approximately $17,752,000,
$28,318,000 and $16,175,000, respectively. Interest income recognized on loans
considered impaired totaled approximately $66,000, $87,000 and $575,000 for the
years ended December 31, 2004, 2003 and 2002, respectively.

The Corporation had approximately $125,000 of commitments to loan
additional funds to the borrowers whose loans were impaired at December 31,
2004.

In September 2004 the Corporation's banking subsidiary sold approximately
$32,000,000, before allowance for loan losses, in certain nonperforming loans
and other classified, performing loans, resulting in a pre-tax loss of
$2,293,000. Prior to the sale, approximately $6,868,000 related to these loans
was recognized as a charge-off in September 2004 against the allowance for loan
losses. The $6,868,000 in allowance for loan losses associated with these loans
had been provided in previous periods.

4. ALLOWANCE FOR LOAN LOSSES

A summary of the allowance for loan losses for the years ended December 31,
2004, 2003 and 2002 follows:

55

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. PREMISES AND EQUIPMENT

Components of premises and equipment at December 31, 2004 and 2003 are as
follows:

Depreciation expense for the years ended December 31, 2004, 2003 and 2002
was $3,374,000, $3,519,000 and $3,305,000, respectively.

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

Rental expense relating to operating leases amounted to approximately
$387,000, $388,000 and $766,000 for the years ended December 31, 2004, 2003 and
2002, respectively.

6. DEPOSITS

The following schedule details interest expense on deposits:

56

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. DEPOSITS -- (CONTINUED)

At December 31, 2004, the scheduled maturities of time deposits are as
follows (in thousands):

2005........................................................ $393,135
2006........................................................ 162,978
2007........................................................ 45,385
2008........................................................ 14,883
2009........................................................ 9,635
2010 and thereafter......................................... 28,108
--------
$654,124
========

7. ADVANCES FROM FEDERAL HOME LOAN BANK

The following is a summary, by year of maturity, of advances from the FHLB
as of December 31, 2004 and 2003 (in thousands):

The above schedule is by contractual maturity. Call dates for the above are
as follows: 2005, $73,340,000 and 2006, $25,000,000.

The advances are secured by a blanket lien on certain residential and
commercial real estate loans all with a carrying value of approximately
$232,611,000 at December 31, 2004. The Corporation has available approximately
$12,000,000 in unused advances under the blanket lien subject to the
availability of qualifying collateral.

The Corporation's banking subsidiary repaid approximately $33,600,000 in
FHLB borrowings in December 2003 that carried an average interest rate of 6.33%
and incurred a prepayment penalty of $2,532,000.00

The FHLB has issued for the benefit of the Corporation's banking subsidiary
a $20,000,000 irrevocable letter of credit in favor of the Chief Financial
Officer of the State of Florida to secure certain deposits of the State of
Florida. The letter of credit expires January 6, 2006 upon sixty days' prior
notice; otherwise, it shall automatically extend for a successive one-year term.

57

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. FEDERAL FUNDS BORROWED AND SECURITY REPURCHASE AGREEMENTS

Detail of Federal funds borrowed and security repurchase agreements follows
(in thousands):

9. NOTES PAYABLE

The following is a summary of notes payable as of December 31, 2004 and
2003 (in thousands):

58

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. NOTES PAYABLE -- (CONTINUED)

Maturities of notes payable for the five years subsequent to December 31,
2004 are as follows (in thousands):

2005........................................................ $2,460
2006........................................................ 210
2007........................................................ 210
2008........................................................ 210
2009........................................................ 210
Thereafter.................................................. 665
------
Total..................................................... $3,965
======

10. JUNIOR SUBORDINATED DEBENTURES OWED TO UNCONSOLIDATED SUBSIDIARY TRUSTS

The Corporation has sponsored two trusts, TBC Capital Statutory Trust II
("TBC Capital II") and TBC Capital Statutory Trust III ("TBC Capital III"), of
which 100% of the common equity is owned by the Corporation. The trusts were
formed for the purpose of issuing Corporation-obligated mandatorily redeemable
trust preferred securities to third-party investors and investing the proceeds
from the sale of such trust preferred securities solely in junior subordinated
debt securities of the Corporation (the debentures). The debentures held by each
trust are the sole assets of that trust. Distributions on the trust preferred
securities issued by each trust are payable semi-annually at a rate per annum
equal to the interest rate being earned by the trust on the debentures held by
that trust. The trust preferred securities are subject to mandatory redemption,
in whole or in part, upon repayment of the debentures. The Corporation has
entered into agreements which, taken collectively, fully and unconditionally
guarantee the trust preferred securities subject to the terms of each of the
guarantees. The debentures held by the TBC Capital II and TBC Capital III
capital trusts are first redeemable, in whole or in part, by the Corporation on
September 7, 2010 and July 25, 2006, respectively.

In the fourth quarter of 2003, as a result of applying the provisions of
FIN 46, governing when an equity interest should be consolidated, the
Corporation was required to deconsolidate these subsidiary trusts from its
financial statements. The deconsolidation of the net assets and results of
operations of the trusts had virtually no impact on the Corporation's financial
statements or liquidity position since the Corporation continues to be obligated
to repay the debentures held by the trusts and guarantees repayment of the trust
preferred securities issued by the trusts. The consolidated debt obligation
related to the trusts increased from $31,000,000 to $31,959,000 upon
deconsolidation with the difference representing the Corporation's common
ownership interest in the trusts.

The trust preferred securities held by the trusts qualify as Tier 1 capital
for the Corporation under Federal Reserve Board guidelines.

59

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. JUNIOR SUBORDINATED DEBENTURES OWED TO UNCONSOLIDATED SUBSIDIARY
TRUSTS -- (CONTINUED)

Consolidated debt obligations related to these subsidiary trusts are as
follows (in thousands):

As of December 31, 2004 and 2003, the interest rate on the $16,495,000
subordinated debenture was 5.74% and 4.90%, respectively.

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 the Corporation's semi-annual distribution on the
Corporation's trust preferred securities in January, March, July and September
2004 and January and March 2005.

11. 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 2,500,000 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.

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.

60

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

A further summary about options outstanding at December 31, 2004 is as
follows:

As of December 31, 2004 there were approximately 702,991 shares of the
Corporation's common stock available for future grants. See Note
24 -- "Subsequent Event" for discussion of a subsequent event relating to the
granting of additional stock options.

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 recognized no compensation cost for
stock-based employee compensation awards for the years ended December 31, 2004,
2003 and 2002. If the Corporation had recognized compensation cost in accordance
with SFAS No. 123, net income (loss) 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 the years indicated:

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 $7.00
per share, or $1,120,000, and

61

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

classified as a contra-equity account, "Unearned restricted stock", in
stockholders' equity. During 2003, 15,000 shares of this restricted common stock
were forfeited. Restricted shares outstanding as of December 31, 2004 were
142,500 and the remaining amount in the unearned restricted stock account is
$449,000. This balance is being amortized as expense as the stock is earned
during the restricted period. The amounts 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 years ended December 31, 2004, 2003 and 2002, the
Corporation has recognized $199,000, $181,000 and $168,000, respectively, in
restricted stock expense.

The Corporation adopted a leveraged employee stock ownership plan (the
"ESOP") effective May 15, 2002 that covers all eligible employees who are at
least 21 years old and have completed a year of service. As of December 31,
2004, 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 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 has been classified as notes payable on the Corporation's statement of
financial condition. As the debt is repaid, shares are released from collateral
based on the proportion of debt service. Principal payments on the debt are
$17,500 per month for 120 months. The interest rate is adjusted to the Wall
Street Journal prime rate. Interest expense incurred on the debt in 2004 and
2003 totaled $74,000 and $78,000, respectively. Total contributions to the plan
during 2004, 2003 and 2002 totaled $300,000, $254,000 and $51,000, respectively.
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 December 31, 2004, 2003 and
2002 was $189,000, $152,000 and $51,000. The ESOP shares as of December 31,
2004, 2003 and 2002 were as follows:

12. 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 $298,000, $347,000 and $255,000 in 2004, 2003 and 2002, respectively.

In September 2003 the federal bank regulatory agencies published a formal
position regarding the accounting treatment for certain indexed retirement plans
sponsored by banks. The Corporation has such

62

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. RETIREMENT PLANS -- (CONTINUED)

nonqualified plans that were established for the benefit of certain directors
and executive officers by the Corporation in the years 1998, 1999 and 2002.
Generally, the plans provide a retirement benefit that is divided into a primary
and secondary benefit. The primary benefit represents the cumulative amount of
excess earnings over the amount of estimated opportunity cost from a related
life insurance asset through the participants' retirement date. This amount will
be paid to the participant in equal installments ranging from 10-15 years. The
secondary benefit results from the continuing excess earnings on the life
insurance assets, if any, over the opportunity cost and will be paid to the
participant after retirement for periods ranging from 10 years to life.

In accordance with APB Opinion No. 12, as amended by FASB Statement No.
106, the secondary benefit represents a postretirement benefit that should be
estimated and accrued over the participant's service period until the
participant reaches full eligibility. In periods prior to September 30, 2003,
the Corporation has only accrued the estimated primary benefit liability in its
financial statements. The secondary benefit was not accrued because the benefit
is not guaranteed and there is a high degree of uncertainty regarding the
ultimate health of the participant, future performance of the insurance policies
and the Corporation's opportunity rates.

The Corporation has estimated and accrued the present value of the future
benefits that are expected to be paid. As of September 30, 2003, and for the
three-month period then ended, the Corporation accrued an additional deferred
compensation liability of approximately $1.9 million before tax and $1.2 million
after tax related to the fiscal years 1998 through 2002. This amount was
considered by management and the Corporation's audit committee to be immaterial
to the current and prior period financial statements; therefore, no restatement
of prior periods was necessary.

In addition to these plans, the Corporation has other nonqualified
retirement plans that were assumed in various acquisitions. Certain executive
officer plans were amended in 2004 to provide a defined benefit based on current
projections in lieu of the variable benefit described above. All of the
Corporation's nonqualified retirement plans had an unfunded projected benefit of
approximately $19,600,000 as of December 31, 2004 and an accrued liability of
$5,793,000 and $5,333,000 as of December 31, 2004 and 2003, respectively, that
is included in accrued expenses and other liabilities in the statement of
condition.

In connection with the plans, the Corporation has purchased single premium
life insurance policies with cash surrender values of approximately $14,400,000
and $13,900,000 at December 31, 2004 and 2003, respectively. Compensation
expense related to these plans totaled $687,000, $3,502,000 and $669,000 for
2004, 2003 and 2002, respectively.

13. INCOME TAXES

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

63

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. INCOME TAXES -- (CONTINUED)

Significant components of the Corporation's deferred tax assets and
liabilities as of December 31, 2004 and 2003 are as follows (in thousands):

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

The Corporation has net operating loss carryforwards of approximately
$3,181,000 in Florida, which can be carried forward 20 years, and $8,799,000 in
Alabama, which can be carried forward five years.

64

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. INCOME TAXES -- (CONTINUED)

The Corporation has available at December 31, 2004 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 (in
thousands):

Year of expiration:
2018...................................................... $ 298
2019...................................................... 738
2020...................................................... 1,261
2021...................................................... 522
2022...................................................... 384
2023...................................................... 960
2024...................................................... 725
------
$4,888
======

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, 2004. The Corporation is required to reduce its tax basis in the
John A. Hand Building by the amount of the credit.

Applicable income tax (benefit) expense of ($27,000), $217,000 and $232,000
on securities (losses) gains for the years ended December 31, 2004, 2003 and
2002, respectively, is included in income taxes.

14. 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, 2004 and 2003 were $14,500,000 and $13,978,000,
respectively. Activity during the year ended December 31, 2004 is summarized as
follows (in thousands):

At December 31, 2004, the deposits of such related parties in the
subsidiary banks amounted to approximately $7,141,000.

In July 1998, prior to its acquisition by the Corporation, Emerald Coast
Bancshares, Inc. sold the land and building of its main office building and two
branch offices to an entity under the control of certain members of Emerald
Coast Bancshares' Board of Directors for their fair value of approximately
$3,794,700. The sales were accounted for under a sale-leaseback arrangement.
Rental expense under these operating leases amounted to approximately $175,000
in 2002.

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

During 2004, 2003 and 2002, the Corporation received from an affiliated
company $180,000 in rental income and, through its real estate management
subsidiary, $124,000, $128,000 and $105,000, respectively, in

65

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. RELATED PARTY TRANSACTIONS -- (CONTINUED)

personnel and management related fees. As of December 31, 2004 and 2003,
approximately $44,000 and $59,000, respectively, in receivables were due from
the affiliated company. These respective receivables have been paid in full
subsequent to December 31, 2004 and 2003 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 The Bank's 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. The loan was paid in full during
the second quarter of 2004.

An insurance agency owned by one of the Corporation's directors received
commissions of approximately $180,400, $138,981, and $92,315 from the sale of
insurance to the Corporation during 2004, 2003 and 2002, respectively.

The Corporation believes that all of the foregoing transactions were made
on terms and conditions reflective of arms' length transactions

15. 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 by 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 2004, 2003 and 2002, the Corporation settled various litigation
matters. 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.

16. BUSINESS COMBINATIONS AND BRANCH SALES

On February 6, 2004, the Corporation's banking subsidiary sold its Morris,
Alabama branch, which had assets of approximately $1,037,000 and liabilities of
$8,217,000. The Corporation realized a $739,000 pre-tax gain on the sale.

On August 29, 2003, the Corporation's banking subsidiary sold seven
branches of the Bank, known as the Emerald Coast branches of The Bank, serving
the markets from Destin to Panama City, Florida for a $46,800,000 deposit
premium. These branches had assets of approximately $234,000,000 and liabilities
of $209,000,000. The Corporation realized a $46,018,000 pre-tax gain on the
sale.

66

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. BUSINESS COMBINATIONS AND BRANCH SALES -- (CONTINUED)

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. The Corporation realized a $2,246,000 pre-tax gain on the sale.

On February 15, 2002, the Corporation acquired 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 from Mexico Beach to Apalachicola. As a
result of this acquisition, the Corporation expanded its market in the panhandle
of Florida and increased its assets in Florida to approximately $100,000,000.

The total cost of the CF Bancshares 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 16,449 shares of Corporation common stock valued at
$109,000. The value of common stock issued was determined based on the average
of the last sales price for the 20 consecutive trading days ending three days
prior to the special meeting of CF Bancshares shareholders held on November 28,
2001. 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
consolidated financial statements for the year ended December 31, 2002 include
the results of operations of CF Bancshares only for the period February 15, 2002
to December 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).

17. REGULATORY RESTRICTIONS

A source of funds available to the Corporation is the payment of dividends
by its subsidiary. Currently, the Corporation and its subsidiary must obtain
regulatory approval prior to paying any dividends on our common stock, preferred
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

67

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17. REGULATORY RESTRICTIONS -- (CONTINUED)

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 1 capital (as defined in
the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December 31,
2004 and 2003 that the Corporation and its subsidiary meet all capital adequacy
requirements to which they are subject.

As of December 31, 2004 and 2003, the most recent notification from the
subsidiary's primary regulators categorized the subsidiary as "well capitalized"
under the regulatory framework for prompt corrective action. The table below
represents our and our subsidiary's regulatory and minimum regulatory capital
requirements at December 31, 2004 and 2003 (dollars in thousands):

68

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

18. 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. 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 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.

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.

Federal funds borrowed and security repurchase agreements. The carrying
amount of federal funds borrowed and security repurchase agreements approximate
their fair values.

Notes payable. The carrying amount of notes payable approximates its fair
values.

Subordinated debentures. Rates currently available to the Corporation for
preferred offerings with similar terms and maturities are used to estimate fair
value.

Interest rate swaps. Fair values for interest rate swaps are based on
quoted market prices.

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.

69

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

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

19. OTHER NONINTEREST EXPENSE

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

20. 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 15, 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

70

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

20. 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.

21. NET INCOME (LOSS) PER COMMON SHARE

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

Basic net income (loss) per common share is calculated by dividing net
income (loss), less dividend requirements on outstanding convertible preferred
stock, by the weighted-average number of common shares outstanding for the
period.

Diluted net income (loss) per common share takes into consideration the pro
forma dilution assuming outstanding convertible preferred stock and certain
unvested restricted stock and unexercised stock option awards were converted or
exercised into common shares. Options on 248,000 shares of common stock and the
effect of 775,000 convertible preferred stock were not included in computing
diluted net income (loss) per share for the years ended December 31, 2002 and
2004, respectively, because their effects were anti-dilutive.

71

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

22. PARENT COMPANY

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

72

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

22. PARENT COMPANY -- (CONTINUED)

73

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

23. SELECTED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

A summary of the unaudited results of operations for each quarter of 2004
and 2003 follows (in thousands, except per share data):

24. SUBSEQUENT EVENT

On January 24, 2005, the Corporation announced that it had entered into a
series of agreements setting forth:

- The employment of C. Stanley Bailey as Chief Executive Officer and a
director of the Corporation and its banking subsidiary, C. Marvin Scott
as President of the Corporation and its banking subsidiary, and Rick D.
Gardner as Chief Operating Officer of the Corporation and its banking
subsidiary;

- The purchase by Mr. Bailey, Mr. Scott and Mr. Gardner, along with other
investors, of 925,636 shares of common stock of the Corporation at $8.17
per share in a private placement consummated simultaneously with the
employment of Mr. Bailey, Mr. Scott and Mr. Gardner; and

- Arrangements under which James A. Taylor would continue to serve as
Chairman of the Board of the Corporation and James A. Taylor, Jr. would
continue to serve as a director of the Corporation, but would cease to
serve as Chief Executive Officer and President, respectively, of the
Corporation and as officers and directors of its banking subsidiary.

The Corporation's employment agreement with Mr. Taylor entitled him to
certain payments based on his current compensation upon the occurrence of
specified circumstances, and gave him the option to demand the discounted
present value of such payments in a lump sum. The transactions described above
would have triggered the Corporation's obligations to make such payments to Mr.
Taylor. On January 24, 2005, the Corporation entered into an agreement with Mr.
Taylor pursuant to which, in lieu of the payments to which he would have been
entitled under his employment agreement, the Corporation paid to Mr. Taylor
$3,940,155 on

74

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

24. SUBSEQUENT EVENT -- (CONTINUED)

January 24, 2005, $3,152,124 on January 24, 2006, and $788,031 on January 24,
2007. The agreement also provides for the provision of certain insurance
benefits to Mr. Taylor, the transfer of a "key man" life insurance policy to Mr.
Taylor, and the maintenance of such policy by the Corporation for five years
(with the cost of maintaining such policy included in the above amounts), in
each case substantially as required by his employment agreement. The
Corporation's obligation to provide such payments and benefits to Mr. Taylor is
absolute and will survive the death or disability of Mr. Taylor.

The Corporation's employment agreement with Mr. Taylor, Jr. entitled him to
certain payments based on his current compensation upon the occurrence of
specified circumstances, and gave him the option to demand the discounted
present value of such payments in a lump sum. The transactions described above
would have triggered the Corporation's obligations to make such payments to Mr.
Taylor, Jr. On January 24, 2005, the Corporation entered into an agreement with
Mr. Taylor, Jr. pursuant to which, in lieu of the payments to which he would
have been entitled under his employment agreement, the Corporation paid to Mr.
Taylor, Jr., $1,382,872 on January 24, 2005. The agreement also provides for the
provision of certain insurance benefits to Mr. Taylor, Jr. and for the immediate
vesting of his unvested incentive awards and deferred compensation in each case
substantially as required by his employment agreement. The Corporation's
obligation to provide such payments and benefits to Mr. Taylor, Jr. is absolute
and will survive the death or disability of Mr. Taylor, Jr.

The new equity investment described above, which involved gross proceeds of
over $7.5 million to the Corporation, will be adequate to allow the Corporation
to fulfill its cash payment obligations, net of tax effect, to Mr. Taylor and
Mr. Taylor, Jr., and to pay certain other costs of the transactions.
Accordingly, the transactions will have a nominal effect on the regulatory
capital position of the Corporation and its banking subsidiary. In connection
with the transaction, the Corporation expects to recognize after-tax expenses of
approximately $7.7 million, or $0.41 per share, in the first quarter of 2005.

Under Mr. Bailey's, Mr. Scott's and Mr. Gardner's respective employment
agreements, the Corporation is obligated to grant, and has granted as of January
24, 2005, options to acquire 711,970 shares of common stock to Mr. Bailey,
355,985 shares to Mr. Scott, and 355,985 shares to Mr. Gardner, for a total of
1,423,940 each at an exercise price of $8.17 per share. Such options have a
ten-year term and vest and become exercisable as follows:

- 50% on April 24, 2005;

- 20% on the later of (x) the date on which the average closing price per
share of the Corporation's common stock over a 15-consecutive-trading-day
period (the "Market Value price" is at least $10 but less than $12, and
(y) June 29, 2005 (the "Alternate Vesting Date");

- 15% on the later of (x) the date on which the Market Value price is at
least $12 but less than $14, and (y) the Alternate Vesting Date; and

- 15% on the later of (x) the date on which the Market Value price is at
least $14, and (y) the Alternate Vesting Date.

- To the extent not otherwise vested, on January 24, 2010.

In addition, on January 24, 2005, the Corporation entered into certain
Employment Agreement Standstill Agreements ("standstill agreements") with its
chief financial officer and general counsel ("executives"). The management
changes described above gave the executives the right to exercise certain
provisions under their employment agreements. Under the standstill agreements,
the executives have agreed to remain in their present positions and their
employment agreements remain in full force. The Corporation and the executives
have agreed as part of the standstill agreements to discuss any proposed changes
in the executives' continued

75

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

24. SUBSEQUENT EVENT -- (CONTINUED)

employment relationship with the Corporation. At any time following the first
anniversary of the standstill agreements, if an executive and the Corporation
have not reached a new agreement, such executive may terminate his employment
for any reason and receive all rights, payments, privileges and benefits
currently provided for under his employment agreement. If both executives were
to terminate their employment after the first anniversary date, the Corporation
would incur a pre-tax expense in the quarter in which such termination occurred
ranging from $2.0 to $2.5 million.

25. 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 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.

76

THE BANC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

25. SEGMENT REPORTING -- (CONTINUED)

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

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

26. PREFERRED STOCK

In May 2003, the Corporation received $6,193,000 in proceeds, net of
issuance costs, from the sale of 62,000 shares of Series A Convertible Preferred
Stock. Dividends accrue on the liquidation value of $100 per share at the rate
of six-month LIBOR plus 5.75 not to exceed 12.5%. Dividends are noncumulative
and reset semi-annually on June 1 and December 1. Each share of Series A
Convertible Preferred Stock is convertible at any time beginning June 1, 2008.
Such shares shall be convertible into the number of shares of common stock which
result from dividing the conversion price at the time of conversion into the
liquidation value. The initial conversion price is $8.00 per share. From the
date of issuance the Corporation can redeem the preferred stock at the following
prices stated as a percentage of the liquidation value: 2003 -- 105%;
2004 -- 104%; 2005 -- 103%; 2006 -- 102%; 2007 -- 101%; 2008 and
thereafter -- 100%.

77

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

Our audit committee engaged Carr, Riggs & Ingram, LLC, to serve as
independent auditors with respect to our fiscal year ended December 31, 2004.
Carr, Riggs & Ingram, LLC, replaced Ernst & Young LLP, which had previously
served as our independent auditors. See Item 4.01 in our Current Report on Form
8-K/A, dated June 14, 2004, which is incorporated herein by reference. This
change in independent auditors did not involve any disagreement of a type
described in Item 304(a)(1)(iv) or any reportable event of a type described in
Item 304(a)(1)(v) of Regulation S-K.

ITEM 9A. 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.

We conducted an evaluation (the "Evaluation") as of the end of the period
covered by this annual report 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

There were no changes in our internal control over financial reporting
identified in connection with the Evaluation during the fourth quarter that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting, subject to the completion of our assessment of
such internal control described below.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Section 404 of the Sarbanes-Oxley Act of 2002 requires public companies, in
their annual reports on Form 10-K, to provide reports on their management's
assessment of such companies' internal control over financial reporting and for
such companies' independent registered public accountants to attest to such
reports by management. This is our first annual report to which such new
requirements apply. In November 2004, the Securities and Exchange Commission
issued an exemptive order providing for a 45-day extension for the filing of
such reports and attestations by eligible issuers. We have elected to utilize
the additional time provided by the SEC, and accordingly, have not included such
report and attestation in this annual report. We will file our management's
report and attestation in an amendment to this annual report within the 45-day
extension period. During the past year, we have spent considerable time and
resources in evaluating and testing our internal control over financial
reporting, and at this time we are not aware of any material weaknesses in our
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internal control over financial reporting and related disclosures. However, no
assurance can be given that a material weakness will not be discovered between
the date we filed this annual report and the date we file the above-described
amendment.

ITEM 9B. OTHER INFORMATION.

None.

PART III

ITEMS 10, 11, 12, 13 AND 14. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT; EXECUTIVE COMPENSATION; SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT; CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS; AND PRINCIPAL ACCOUNTING FEES AND
SERVICES.

The information set forth under the captions "Incumbent Directors and
Executive Officers," "Election of Directors," "Certain Information Concerning
the Board of Directors and Its Committees," "Director Attendance," "Director
Compensation," "Executive Compensation and Other Information," "Security
Ownership of Certain Beneficial Owners and Management," "Certain Transactions
and Relationships" and "Proposal Number Two -- Ratification of Independent
Auditors -- Audit Fees," "-- Audit Related Fees," "-- Tax Fees," and "-- All
Other Fees" included in The Banc Corporation's definitive proxy statement to be
filed no later than April 30, 2005, in connection with The Banc Corporation's
2005 Annual Meeting of Stockholders is incorporated herein by reference.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

(a) Financial Statements and Financial Schedules.

(l) The consolidated financial statements of The Banc Corporation and its
subsidiaries filed as a part of this Annual Report on Form l0-K are
listed in Item 8 of this Annual Report on Form l0-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.

(b) Exhibits.

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.

(3)-l -- Restated Certificate of Incorporation of The Banc
Corporation, filed as Exhibit(3)-l to the Corporation's
Registration Statement on Form S-4 (Registration No.
333-58493), is hereby incorporated herein by reference.
(3)-2 -- Bylaws of The Banc Corporation, filed as Exhibit(3)-2 to The
Banc Corporation's Registration Statement on Form S-4
(Registration No. 333-58493), is hereby incorporated herein
by reference.

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(4)-1 -- Amended and Restated Declaration of Trust, dated as of
September 7, 2000, by and among State Street Bank and Trust
Company of Connecticut, National Association, as
Institutional Trustee, The Banc Corporation, as Sponsor,
David R. Carter and James A. Taylor, Jr., as Administrators,
filed as Exhibit(4)-l to The Banc Corporation's Annual
Report on Form l0-K for the year ended December 3l, 2000, is
hereby incorporated herein by reference.
(4)-2 -- Guarantee Agreement, dated as of September 7, 2000, by and
between The Banc Corporation and State Street Bank and Trust
Company of Connecticut, National Association, filed as
Exhibit(4)-2 to The Banc Corporation's Annual Report on Form
10-K for the year ended December 31, 2000, is hereby
incorporated herein by reference.
(4)-3 -- Indenture, dated as of September 7, 2000, by and among The
Banc Corporation as issuer and State Street Bank and Trust
Company of Connecticut, National Association, as Trustee,
filed as Exhibit(4)-3 to The Banc Corporation's Annual
Report on Form 10-K for the year ended December 31, 2000, is
hereby incorporated herein by reference.
(4)-4 -- Placement Agreement, dated as of August 31, 2000, by and
among The Banc Corporation, TBC Capital Statutory Trust II,
Keefe Bruyette & Woods, Inc., and First Tennessee Capital
Markets, filed as Exhibit(4)-4 to The Banc Corporation's
Annual Report on Form 10-K for the year ended December 31,
2000, is hereby incorporated herein by reference.
(4)-5 -- Amended and Restated Declaration of Trust, dated as of July
16, 2001, by and among The Banc Corporation, The Bank of New
York, David R. Carter, and James A. Taylor, Jr. filed as
Exhibit(4)-5 to The Banc Corporation's Registration
Statement on Form S-4 (Registration No. 333-69734) is hereby
incorporated herein by reference.
(4)-6 -- Guarantee Agreement, dated as of July 16, 2001, by The Banc
Corporation and The Bank of New York filed as Exhibit(4)-6
to The Banc Corporation's Registration Statement on Form S-4
(Registration No. 333-69734) is hereby incorporated herein
by reference.
(4)-7 -- Indenture, dated as of July 16, 2001, by The Banc
Corporation and The Bank of New York filed as Exhibit(4)-7
to The Banc Corporation's Registration Statement on Form S-4
(Registration No. 333-69734) is hereby incorporated herein
by reference.
(4)-8 -- Placement Agreement, dated as of June 28, 2001, among TBC
Capital Statutory Trust III, and The Banc Corporation and
Sandler O'Neill & Partners, L.P. filed as Exhibit(4)-8 to
The Banc Corporation's Registration Statement on Form S-4
(Registration No. 333-69734) is hereby incorporated herein
by reference.
(4)-9 -- Stock Purchase Agreement, dated January 24, 2005, between
The Banc Corporation and the investors named therein, filed
as Exhibit 4-1 to The Banc Corporation's Current Report on
Form 8-K dated January 24, 2004, is hereby incorporated
herein by reference.
(4)-10 -- Registration Rights Agreement, dated January 24, 2005,
between The Banc corporation and the investors named
therein, filed as Exhibit 4-2 to The Banc Corporation's
Current Report on Form 8-K dated January 24, 2004, is hereby
incorporated herein by reference.
(10)-1 -- Third Amended and Restated 1998 Stock Incentive Plan of The
Banc Corporation.
(10)-2 -- Commerce Bank of Alabama Incentive Stock Compensation Plan,
filed as Exhibit(4)-3 to The Banc Corporation's Registration
Statement on Form S-8, dated February 22, 1999 (Registration
No. 333-72747), is hereby incorporated herein by reference.
(10)-3 -- The Banc Corporation 401(k) Plan, filed as Exhibit(4)-2 to
The Banc Corporation's Registration Statement on Form S-8,
dated January 21, 1999 (Registration No. 333-7953), is
hereby incorporated herein by reference.
(10)-4 -- Employment Agreement by and between The Banc Corporation and
James A. Taylor, filed as Exhibit (10)-1 to The Banc
Corporation's Quarterly Report on Form 10-Q for quarter
ended March 31, 2002 is hereby incorporated herein by
reference.

80

(10)-5 -- Deferred Compensation Agreement by and between The Banc
Corporation and James A. Taylor, filed as Exhibit (10)-2 to
The Banc Corporation's Registration Statement on Form S-l
(Registration No. 333-67011), is hereby incorporated herein
by reference.
(10)-6 -- Employment Agreement, dated as of September 19, 2000, by and
between The Banc Corporation and James A. Taylor, Jr., filed
as Exhibit (10)-8 to The Banc Corporation's Annual Report on
Form 10-K for the year ended December 31, 2001, is hereby
incorporated herein by reference.
(10)-7 -- Employment Agreement, dated as of January 1, 1999, by and
between The Bank and Marie Swift filed as Exhibit (10)-9 to
The Banc Corporation's Annual Report on Form 10-K for the
year ended December 31, 1998, is hereby incorporated herein
by reference.
(10)-8 -- Form of Deferred Compensation Agreement by and between The
Banc Corporation and the individuals listed on Schedule A
attached thereto filed as Exhibit (10)-11 to The Banc
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1999, is hereby incorporated herein by
reference.
(10)-9 -- Form of Deferred Compensation Agreement by and between The
Bank and the individuals listed on Schedule A attached
thereto filed as Exhibit (10)-11 to The Banc Corporation's
Annual Report on Form 10-K for the year ended December 31,
1999, is hereby incorporated herein by reference.
(10)-10 -- Employment Agreement dated as of September 19, 2000, by and
between The Banc Corporation and David R. Carter, filed as
Exhibit (10)-14 to The Banc Corporation's Annual Report on
Form 10-K for the year ended December 31, 2001, is hereby
incorporated herein by reference.
(10)-11 -- Employment Agreement, dated as of January 16, 2001, by and
between The Banc Corporation and F. Hampton McFadden, Jr.,
filed February 28, 2002 as Exhibit (10)-13 to The Banc
Corporation's Registration Statement on Form S-l
(Registration No. 333-82428) is hereby incorporated herein
by reference.
(10)-12 -- The Banc Corporation and Subsidiaries Employee Stock
Ownership Plan, filed as Exhibit (10)-13 to The Banc
Corporation's Annual Report on Form 10-K for the year ended
December 31, 2002, is hereby incorporated herein by
reference.
(10)-13 -- Agreement, dated January 24, 2005, between The Banc
Corporation and James A. Taylor, Sr., filed as Exhibit 10-3
to The Banc Corporation's Current Report on Form 8-K dated
January 24, 2005, is hereby incorporated herein by
reference.
(10)-14 -- Agreement, dated January 24, 2005, between The Banc
Corporation and James A. Taylor, Jr., filed as Exhibit 10-4
to The Banc Corporation's Current Report on Form 8-K dated
January 24, 2005, is hereby incorporated herein by
reference.
(10)-15 -- Employment Agreement, dated January 24, 2005, by and between
The Banc Corporation, The Bank and C. Stanley Bailey, filed
as Exhibit 10-5 to The Banc Corporation's Current Report on
Form 8-K dated January 24, 2005, is hereby incorporated
herein by reference.
(10)-16 -- Employment Agreement, dated January 24, 2005, by and between
The Banc Corporation, The Bank and C. Marvin Scott, filed as
Exhibit 10-6 to The Banc Corporation's Current Report on
Form 8-K dated January 24, 2005, is hereby incorporated
herein by reference.
(10)-17 -- Employment Agreement, dated January 24, 2005, by and between
The Banc Corporation, The Bank and Rick D. Gardner, filed as
Exhibit 10-7 to The Banc Corporation's Current Report on
Form 8-K dated January 24, 2005, is hereby incorporated
herein by reference.
(10)-18 -- Employment Agreement Standstill Agreement dated as of
January 24, 2005, by and between The Banc Corporation, The
Bank and David R. Carter.
(10)-19 -- Employment Agreement Standstill Agreement dated as of
January 24, 2005, by and between The Banc Corporation, The
Bank and F. Hampton McFadden, Jr.

81

(16) -- Letter from Ernst & Young LLP dated September 21, 2004,
filed as Exhibit (16)-1 to The Banc Corporation's Current
Report on Form 8-K/A dated June 14, 2004, is hereby
incorporated herein by reference.
(21) -- Subsidiaries of The Banc Corporation.
(23)-1 -- Consent of Carr, Riggs & Ingram, LLC
(23)-2 -- Consent of Ernst & Young LLP.
(31) -- Certifications of Chief Executive Officer and Chief
Financial Officer pursuant to Rule 13a-14(a).
(32) -- Certifications of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350.

(c) 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 incorporated herein by
reference.

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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/ C. Stanley Bailey
------------------------------------
C. Stanley Bailey
Chief Executive Officer

March 16, 2005

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints C. Stanley Bailey and David R. Carter, and each
of them, the true and lawful agents and his 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 2004 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.