<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________________ TO _________________
Commission File number 0-25033
The Banc Corporation
--------------------
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<CAPTION>
<S> <C>
Delaware 63-1201350
- ---------------------------------------------------- -----------------------------------------
(State or Other Jurisdiction of Incorporation) (IRS Employer Identification No.)
</TABLE>
17 North 20th Street, Birmingham, Alabama 35203
-----------------------------------------------
(Address of Principal Executive Offices)
(205) 326-2265
--------------
(Registrant's Telephone Number Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
<S> <C>
Class Outstanding as of September 30, 1999
- -------------------------------------------- -----------------------------------------------------
Common stock, $.001 par value 14,385,021
</TABLE>
<PAGE> 2
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- --------------
(UNAUDITED) (NOTE 1)
<S> <C> <C>
Assets
Cash and due from banks $ 32,757 $ 31,307
Interest bearing deposits in other banks 4,672 1,048
Federal funds sold 3,457 25,045
Investment securities available for sale 71,658 91,482
Investment securities held-to-maturity 5,585 6,726
Mortgage loans held for sale 2,346 4,899
Loans, net of unearned income 595,159 431,931
Less: Allowance for loan losses (10,036) (6,466)
------------- --------------
Net loans 585,123 425,465
------------- --------------
Premises and equipment, net 34,309 29,666
Accrued interest receivable 5,983 4,812
Stock in FHLB and Federal Reserve Bank 2,893 1,760
Other assets 26,622 7,879
------------- --------------
TOTAL ASSETS $ 775,405 $ 630,089
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing $ 87,142 $ 79,990
Interest-bearing 544,747 451,080
------------- --------------
TOTAL DEPOSITS 631,889 531,070
Advances from FHLB 57,500 23,160
Other borrowed funds 99 3,700
Note payable 9,754 --
Accrued expenses and other liabilities 6,982 6,193
------------- --------------
TOTAL LIABILITIES 706,224 564,123
Stockholders' Equity
Preferred stock, par value $.001 per share; authorized 5,000,000 shares;
shares issued -0- -- --
Common stock, par value $.001 per share; authorized 25,000,000 shares;
14,385,021 shares issued in 1999 and 14,077,036 in 1998 14 14
Surplus 47,756 45,491
Retained Earnings 22,509 20,362
Accumulated other comprehensive (loss)income (1,098) 99
------------- --------------
TOTAL STOCKHOLDERS' EQUITY 69,181 65,966
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 775,405 $ 630,089
============= ==============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 3
THE BANC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(Amounts In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans $ 12,918 $ 9,045 $ 34,663 $ 24,292
Interest on investment securities
Taxable 1,105 1,350 3,056 4,005
Exempt from Federal income tax 233 306 720 840
Interest on federal funds sold 181 450 568 1,172
Interest and dividends on other investments 143 17 339 85
-------- -------- -------- --------
Total interest income 14,580 11,168 39,346 30,394
INTEREST EXPENSE
Interest on deposits 6,227 5,119 16,978 14,151
Interest on other borrowed funds 703 112 1,639 203
-------- -------- -------- --------
Total interest expense 6,930 5,231 18,617 14,354
-------- -------- -------- --------
NET INTEREST INCOME 7,650 5,937 20,729 16,040
Provision for loan losses 1,445 2,275 1,987 3,568
-------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 6,205 3,662 18,742 12,472
Noninterest income 1,746 773 4,420 2,775
Gain on sale of securities 6 148 65 217
-------- -------- -------- --------
TOTAL NONINTEREST INCOME 1,752 921 4,485 2,992
NONINTEREST EXPENSES
Salaries and employee benefits 3,463 2,826 9,846 7,318
Occupancy, furniture and equipment expense 1,271 971 3,679 2,395
Merger related expenses 52 -- 743 --
Other operating expenses 2,064 2,600 6,056 5,213
-------- -------- -------- --------
TOTAL NONINTEREST EXPENSES 6,850 6,397 20,324 14,926
-------- -------- -------- --------
Income (loss) before income taxes 1,107 (1,814) 2,903 538
INCOME TAX EXPENSE (BENEFIT) 352 (850) 757 (344)
-------- -------- -------- --------
NET INCOME (LOSS) $ 755 $ (964) $ 2,146 $ 882
======== ======== ======== ========
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE $ 0.05 $ (0.07) $ 0.15 $ 0.07
======== ======== ======== ========
AVERAGE COMMON SHARES OUTSTANDING 14,385 12,907 14,318 12,907
AVERAGE COMMON SHARES OUTSTANDING, ASSUMING DILUTION 14,399 12,936 14,351 12,936
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 4
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1999 1998
--------- ---------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 7,004 $ 5,081
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase)decrease in interest bearing deposits in other banks (3,624) 91
Net decrease in federal funds sold 24,808 15,250
Proceeds from sales of securities available for sale 15,401 26,914
Proceeds from maturities of investment securities available for sale 17,740 21,120
Purchases of investment securities available for sale (12,335) (48,053)
Proceeds from maturities of investment securities held to maturity 1,124 15,797
Purchases of investment securities held to maturity -- (23,520)
Net increase in loans (146,221) (81,362)
Net cash received in business combination 981 --
Proceeds from sale of subsidiary's net assets 3,392 --
Purchases of premises and equipment (5,165) (6,214)
Other investing activities (9,075) (2,544)
--------- ---------
Net cash used by investing activities (112,974) (82,521)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit accounts 64,757 74,964
Net increase in FHLB advance and other borrowings 30,739 832
Proceeds from note payable 9,754 --
Proceeds from issuance of common stock 2,170 2,437
Repurchase of common stock by pooled subsidiary -- (29)
Dividends paid by pooled subsidiary -- (146)
--------- ---------
Net cash provided by financing activities 107,420 78,058
--------- ---------
Net increase in cash and due from banks 1,450 618
Cash and due from banks at beginning of period 31,307 19,259
--------- ---------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 32,757 $ 19,877
========= =========
Supplemental schedule of noncash investing activity:
Sale of subsidiary's net assets financed by the Corporation $ 2,202 $ --
Assets acquired in business combination 38,087 --
Liabilities assumed in business combination 36,504 --
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q, and, therefore, do
not include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. For a summary of significant
accounting policies that have been consistently followed, see Note 1 to the
Supplemental Consolidated Financial Statements included in the Current Report on
Form 8-K, filed April 15, 1999, as Exhibit 99.3. It is management's opinion that
all adjustments, consisting of only normal and recurring items necessary for a
fair presentation, have been included. Operating results for the three and
nine-month periods ended September 30, 1999, are not necessarily indicative of
the results that may be expected for the year ended December 31, 1999.
The statement of financial condition at December 31, 1998, has been derived from
the audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
Prior period financial information has been restated for business combinations
with Emerald Coast Bancshares, Inc. ("Emerald"), which was consummated in the
first quarter of 1999, and C&L Banking Corporation ("C&L"), and C&L Bank of
Blountstown ("Blountstown"), which were consummated in the second quarter of
1999. All of these business combinations were accounted for as poolings of
interests. Additionally, Blountstown was immediately merged into C&L's
subsidiary C&L Bank of Bristol.
NOTE 2 - BUSINESS COMBINATIONS
On February 12, 1999, the Corporation issued 1,379,978 shares of common stock in
exchange for all of the outstanding common stock of Emerald headquartered in
Panama City Beach, Florida. This transaction, accounted for as a pooling of
interests, added approximately $92 million in assets.
On June 30, 1999, the Corporation issued 1,289,454 shares of common stock in
exchange for all of the outstanding common stock of C&L headquartered in
Bristol, Florida. This transaction, accounted for as a pooling of interests,
added approximately $49 million in assets.
On June 30, 1999, the Corporation issued 838,902 shares of common stock in
exchange for all of the outstanding common stock of Blountstown, headquartered
in Blountstown, Florida. This transaction, accounted for as a pooling of
interests, added approximately $56 million in assets.
As explained in Note 1, the Corporation restated prior period financial
information for the Emerald transaction, which was closed in the first quarter
of 1999, and the C&L and Blountstown transactions which were closed in the
second quarter of 1999.
The following table presents financial information contributed by the pooled
companies during 1999 prior to the consummation of the mergers (in thousands):
<TABLE>
<CAPTION>
Net
Interest Income Net Income
--------------- ----------
<S> <C> <C>
C&L $ 1,162 $ 319
Blountstown 989 166
</TABLE>
<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 2 - BUSINESS COMBINATIONS - CONTINUED
The following table presents financial information as reported by the
Corporation, Emerald, C&L, Blountstown and on a combined basis for the nine
months ended September 30, 1998.
<TABLE>
<CAPTION>
<S> <C>
Net interest income:
Corporation $10,692
Emerald 2,191
C&L 1,598
Blountstown 1,559
-------
Combined $16,040
=======
Net income:
Corporation $ 11
Emerald 12
C&L 575
Blountstown 284
-------
Combined $ 882
=======
Net income per equivalent share of Corporation:
Corporation $ --
Emerald .01
C&L .45
Blountstown .34
Combined .07
</TABLE>
On July 13, 1999, the Corporation acquired BankersTrust of Alabama, Inc.
("BankersTrust") in a business combination accounted for as a purchase.
BankersTrust was a one-bank holding company operating in north Alabama. The
total cost of the acquisition was $1,624,000, which exceeded the fair value of
the net assets of BankersTrust by $5,125,000. The excess is being amortized on a
straight-line basis over 15 years. The Corporation's condensed consolidated
financial statements include the results of operations of BankersTrust only from
July 13, 1999, its date of acquisition. The following unaudited summary
information presents the consolidated results of operations of the Corporation
on a pro forma basis, as if BankersTrust had been acquired on January 1, 1998.
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 periods presented, or of results that may occur in the future.
<PAGE> 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 2 - BUSINESS COMBINATIONS - CONTINUED
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Interest income $ 40,906 $ 32,027
Interest expense 19,516 15,303
-------- --------
Net interest income 21,390 16,724
Provision for loan losses 4,984 4,278
Noninterest income 4,670 4,671
Noninterest expense 22,318 16,171
-------- --------
(Loss) income before income taxes (1,242) 946
Income tax expense (benefit) 678 (194)
======== ========
Net (loss) income $ (1,920) $ 1,140
======== ========
Basic and diluted net (loss) income per share $ (0.13) $ 0.09
======== ========
</TABLE>
NOTE 3 - SEGMENT REPORTING
The Corporation has two reportable segments, the Alabama Region and the Florida
Region. The Alabama Region consists of operations located throughout the state
of Alabama. The Florida Region consists of operations located in the panhandle
region of the state. The Corporation's reportable segments are managed as
separate business units because they are located in different geographic areas.
Both segments derive revenues from the delivery of financial services. These
services include commercial loans, mortgage loans, consumer loans, deposit
accounts and other financial services.
The Corporation evaluates performance and allocates resources based on profit or
loss from operations. There are no material intersegment sales or transfers. Net
interest revenue is used as the basis for performance evaluation rather than its
components, total interest revenue and total interest expense. The accounting
policies used by each reportable segment are the same as those discussed in Note
1 to the Supplemental Consolidated Financial Statements included in the Current
Report on Form 8-K, filed April 15, 1999, as Exhibit 99.3. All costs have been
allocated to the reportable segments. Therefore, combined amounts agree to the
consolidated totals.
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 3 - SEGMENT REPORTING - CONTINUED
<TABLE>
<CAPTION>
Alabama Florida
Region Region Combined
--------- --------- ---------
<S> <C> <C> <C>
Three months ended September 30, 1999
Net interest income $ 5,151 $ 2,499 $ 7,650
Provision for loan losses (reduction of allowance) 2,244 (799) 1,445
Noninterest income 1,387 365 1,752
Noninterest expense 5,160 1,690 6,850
Income tax (benefit) expenses (465) 817 352
Net (loss) income (401) 1,156 755
Total assets 558,585 216,820 775,405
Three months ended September 30, 1998
Net interest income $ 3,983 $ 1,954 $ 5,937
Provision for loan losses 2,007 268 2,275
Noninterest income 481 440 921
Noninterest expense 4,771 1,626 6,397
Income tax (benefit) expenses (971) 121 (850)
Net (loss) income (1,343) 379 (964)
Total assets 366,200 177,972 544,172
Nine months ended September 30, 1999
Net interest income $ 13,964 $ 6,765 $ 20,729
Provision for loan losses (reduction of allowance) 2,551 (564) 1,987
Noninterest income 3,293 1,192 4,485
Noninterest expense 15,066 5,258 20,324
Income tax (benefit) expenses (540) 1,297 757
Net income 180 1,966 2,146
Nine months ended September 30, 1998
Net interest income $ 10,692 $ 5,348 $ 16,040
Provision for loan losses 2,884 684 3,568
Noninterest income 1,924 1,068 2,992
Noninterest expense 10,483 4,443 14,926
Income tax (benefit) expenses (762) 418 (344)
Net income 11 871 882
</TABLE>
<PAGE> 9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 4 - NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted net income
(loss) per common share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Numerator:
For basic and diluted, net income (loss) $ 755 $ (964) $ 2,146 $ 882
======== ======== ======== ========
Denominator:
For basic, weighted average common shares
Outstanding 14,385 12,907 14,318 12,907
Effect of dilutive stock options 14 29 33 29
-------- -------- -------- --------
Average diluted common shares outstanding 14,399 12,936 14,351 12,936
======== ======== ======== ========
Basic and diluted net income (loss) per share $ .05 $ (.07) $ .15 $ .07
======== ======== ======== ========
</TABLE>
NOTE 5 - COMPREHENSIVE INCOME (LOSS)
Total comprehensive income (loss) was $930,000 and $949,000 for the three and
nine-month periods ended September 30, 1999, and $(677,000) and $1,241,000 for
the three and nine-month periods ended September 30, 1998. Total comprehensive
income consists of net income and the unrealized gain or loss on the
Corporation's available for sale securities portfolio arising during the period.
NOTE 6 - INCOME TAXES
The primary difference between the effective tax rates and the federal statutory
rate in 1998 and 1999 is due to the recognition of rehabilitation tax credits
generated from the restoration of the Corporation's headquarters, the John A.
Hand Building.
NOTE 7 - STOCKHOLDERS' EQUITY
During 1999, the Corporation received approximately $2,170,000 in proceeds from
the issuance of common stock, of which, $636,000 was received from 134,000
shares issued upon the exercise of stock options. The remaining proceeds were
received from the sale of 150,000 shares of common stock issued to satisfy the
exercise of the underwriter's overallotment option in connection with the
Corporation's underwritten public offering, which closed on January 10, 1999.
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Financial Condition
Total assets of the Corporation were $775.4 million at September 30, 1999, an
increase of $145.3 million from December 31, 1998. At September 30, 1999, total
stockholders' equity was $69.2 million, an increase of $3.2 million compared
with total stockholders' equity at December 31, 1998. The increase in total
assets was due to the growth of the loan portfolio, which was funded by the sale
of investment securities and federal funds and an increase in deposits and
borrowings under various lines of credit. The increase in stockholders' equity
resulted primarily from $2.2 million in proceeds received from the issuance of
common stock.
Cash and due from banks, interest-bearing deposits due, federal funds sold and
investment securities decreased $37.5 million to $118.1 million at September 30,
1999, from $155.6 million at December 31, 1998. On September 30, 1999, cash and
due from banks, interest-bearing deposits due, federal funds sold and investment
securities comprised 15.2% of total assets compared with 24.7% at December 31,
1998.
Loans, net of unearned income, totaled $595.1 million at September 30, 1999, an
increase of $163.2 million from $431.9 million at December 31, 1998. Loans, net
of unearned income, comprised 76.8% of total assets at September 30, 1999, as
compared with 68.6% at December 31, 1998.
Deposits totaled $631.9 million at September 30, 1999, an increase of $100.8
million from $531.1 million at December 31, 1998. The increase is primarily in
interest bearing deposits, of which, time and savings deposits increased $83.0
million, and interest-bearing demand deposits increased $10.6 million.
Results of Operations
Net income (loss) was $755,000 and $2,146,000 for the three and nine-month
periods ended September 30, 1999, compared with $(964,000) and $882,000,
respectively, for the same periods in 1998. The increase in net income was
primarily due to an increase in net interest income and noninterest income and a
decrease in the provision for loan losses.
Net interest income increased $4.7 million or 29.2% over the first nine months
of 1998 and $1.7 million or 28.9% over the third quarter of 1998. The increase
in net interest income was primarily due to a higher level of earning assets
funded by an increase in deposits and borrowings under various lines of credit.
Noninterest income increased $1.5 million or 49.9% over the first nine months of
1998 and $831,000 or 90.2% over the third quarter of 1998. The increase in
noninterest income was primarily due to enhanced service charge income resulting
from an increase in the volume of deposits and an increase in service charge
rates, and fees from increased mortgage originations.
Noninterest expense increased $5.4 million or 36.2% over the first nine months
of 1998 and $453,000 or 7.1% over the third quarter of 1998. The increase in
noninterest expense was primarily due to an increase in salary and employee
benefits, and occupancy, furniture and equipment expenses, which resulted from
the opening of new branches and the purchase of new computer equipment and
communication systems. In addition, $743,000 of merger related expenses were
incurred during the first nine months of 1999, of which, $52,000 were recognized
during the third quarter. The merger related expenses consist primarily of legal
and accounting fees.
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS-CONTINUED
Results of Operations - Continued
Income tax expense was $757,000 for the nine-month period ended September 30,
1999, compared with a tax benefit of $(344,000) for the nine-month period ended
September 30, 1998. The primary difference in the effective rate is due to the
recognition of a rehabilitation tax credit generated from the restoration of the
Corporation's headquarters, the John A. Hand Building.
Provision for Allowance for Loan Losses
The Corporation maintains an allowance for loan losses at a level that it
believes is adequate to absorb estimated losses inherent in the loan portfolio,
plus estimated losses associated with off-balance sheet credit instruments such
as letters of credit and unfunded lines of credit. The Corporation prepares an
analysis to assess the risk in the loan portfolio and to determine the adequacy
of the allowance for loan losses. Generally, the Corporation estimates the
allowance using factors such as historical loss experience based on volume and
types of loans, volume and trends in delinquencies and non-accruals, national
and local economic conditions and other pertinent information.
Management conducts a review of all loans over $100,000 and a sample of loans
less than $100,000. Specific reserves are allocated based on these reviews.
General reserves are allocated based on the aforementioned factors. Thus, there
can be no assurance that charge-offs in future periods will not exceed the
allowance for loan losses or that additional increases in the allowance for loan
losses will not be required. The adequacy of the allowance for loan losses and
the effectiveness of the Corporation's monitoring and analysis system are also
reviewed periodically by the banking regulators.
Additions or reductions to the allowance for loan losses, which are recorded on
the Corporation's statement of operations, are made periodically to maintain the
allowance at an appropriate level based on the analysis of the potential risk in
the loan portfolio. Loan losses and recoveries are charged or credited directly
to the allowance. The provision for loan losses for the three and nine-month
periods ended September 30, 1999 were $1.4 million and $2.0 million as compared
to $2.3 million and $3.6 million for the same periods in 1998. The decrease in
the provision for loan losses in 1999 was primarily the result of a reduction in
the allowance for loan losses in the Florida region. This reduction is the
result of the inclusion of the recently acquired C&L Banks in the Corporation's
allowance methodology. The allowance for loan losses was $10.0 million or 1.69%
of total loans at September 30, 1999, compared with $6.5 million or 1.50% at
December 31, 1998. Approximately $3.7 million in allowance for loan losses was
acquired in the acquisition of BankersTrust, which was consummated in July 1999.
Management has concluded, based upon the analysis of the addition to established
allowances and the composition of the loan portfolio, that the allowance is
adequate. While current economic conditions in the Corporation's market are
stable, future conditions may impact the level of future allowances for losses
on loans.
Liquidity
The Corporation's principal sources of funds are deposits, principal and
interest payments on loans, federal funds sold and maturities and sales of
investment securities. In addition to these sources of liquidity, the
Corporation has access to purchased funds from several regional financial
institutions and may borrow from a regional financial institution under a line
of credit, and from the Federal Home Loan Bank under a blanket floating lien on
certain residential real estate loans. While scheduled loan repayments and
maturing investments are relatively predictable, deposit flows and early loan
payments are primarily influenced by interest rates,
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS-CONTINUED
Liquidity - Continued
general economic conditions and competition. The management of the Corporation
places constant emphasis on the maintenance of adequate liquidity to meet
conditions that might reasonably be expected to occur.
Year 2000 Compliance
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Corporation's
computer programs or hardware that have data-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could cause a system failure or miscalculations resulting in
disruptions of operations, including, among other things, a temporary inability
to process transactions, send statements or engage in similar normal business
activities.
The Corporation has a five-step plan to resolve the Year 2000 Issue:
- establishing awareness of and educating key personnel with
respect to Year 2000 issues and the Corporation's plan to
address those potential problems;
- identifying significant systems and assessing potential Year
2000 issues relating to those systems;
- renovating and repairing noncompliance systems;
- testing and validating solutions; and
- implementing those solutions.
The Corporation has completed its five-step plan. Each of the
Corporation's banking subsidiaries has received satisfactory compliance reviews.
The Corporation determined that it needed to upgrade significant portions of its
software and hardware so that those systems will utilize dates beyond December
31, 1999. The Corporation presently believes that with these upgrades of its
existing software and hardware, potential Year 2000 issues can be mitigated.
The Corporation adopted a Year 2000 Merger Policy to address Year 2000
issues related to the Corporation' acquisitions. The Year 2000 Merger Policy is
designed to act as a guide for both the Corporation and its acquired entities in
addressing Year 2000 issues. The Corporation is using this policy to ensure that
both the Corporation and its acquired entities follow a logical and planned
process for identifying, assessing and remediating Year 2000 issues and testing
and implementing those solutions.
The Corporation has utilized both internal and external resources to
reprogram, replace and test software and other components of its systems for
Year 2000 modifications. Modifications were scheduled to ensure that
mission-critical systems were completed in time to allow for extended testing.
The Corporation's systems are divided into two categories, those
maintained internally by the Corporation's information systems personnel and
those provided by external vendors. For internally maintained systems, revisions
were implemented during the first quarter of 1999. The Corporation has installed
the Year 2000 releases provided by vendors on its core-business systems and has
completed century date testing and validation of these core business systems.
For the remainder of the externally maintained systems, the
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS-CONTINUED
Year 2000 Compliance - Continued
Corporation has received written confirmation from its vendors that each system
will be made Year 2000 compliant in 1999. The Corporation will continue to
assess with its vendors the status of their Year 2000 compliance and install any
necessary additional code releases through 1999.
The majority of the Corporation's software is supplied by third parties
affecting most significant systems of the Corporation. The Corporation has
conducted formal communications with all of its significant suppliers and large
customers to determine the extent to which the Corporation is vulnerable to
those third parties' failure to remediate their own Year 2000 issues. The
Corporation has applied the majority of its resources that are allocated to the
Year 2000 Issue to installing and testing vendor releases. To date, the
Corporation is not aware of any external agent with a Year 2000 issue that would
have a material adverse effect on the Corporation's financial condition or
results of operations.
The projected total cost of the Year 2000 project was originally
estimated at approximately $300,000 and is being funded through operating cash
flows. As of September 30, 1999, the Corporation has incurred $220,000 in
expenses, with $2,000, $138,000 and $80,000 expensed in 1997, 1998 and 1999,
respectively. The cost of the project is not expected to exceed the original
estimate.
The Corporation believes it has an effective program in place to
resolve the Year 2000 Issue in a timely manner. However, disruptions in the
economy that are beyond the Corporation's control resulting from Year 2000
issues could materially adversely affect the Corporation. Furthermore, the
Corporation has no means of ensuring that third parties that it does not control
will be Year 2000 compliant. The Corporation believes that failure of third
parties to address their Year 2000 problems in a timely fashion presents the
greatest likelihood of the Corporation not being Year 2000 compliant. Such a
failure could materially adversely impact the Corporation's operations. The
effect of non-compliance by third parties is not determinable at this time. The
Corporation could be subject to litigation for computer systems product failure,
including equipment shutdown or failure to properly date business records. The
amount of potential liability, if any, and lost revenue cannot be reasonably
estimated at this time.
The Corporation has developed contingency plans in the event that
efforts to renovate the Corporation's systems are not fully successful or are
not completed in accordance with current expectations. The contingency plans
address risk factors related to the Corporation's acquisitions, including the
inadequate allocation of resources to Year 2000 issues by one or more of the
acquired companies; and the potential costs of completing renovation or
replacement of non-compliant systems of one or more of the acquired companies.
Forward-Looking Statements
Statements contained in this Quarterly Report on Form 10-Q which are not
historical facts are forward-looking statements. In addition, the Corporation,
through its senior management, from time to time makes forward-looking public
statements concerning its expected future operations and performance and other
developments. Such forward-looking statements are made pursuant to the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
Additionally, such forward-looking statements are based on the Corporation's
belief as well as certain assumptions made by, and information currently
available to, the Corporation with respect to its ability to achieve the
operating results it expects relating to the recently-completed acquisitions;
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS-CONTINUED
Forward-Looking Statements - continued
one-time costs associated with the recently-completed acquisitions; the ability
of the Corporation to achieve anticipated cost savings and revenue enhancements
with respect to the acquired operations; the assimilation of the acquired
operations by the Corporation, including installing the Corporation's
centralized policy oversight, credit review and management systems at the
acquired institutions; the absence of material contingencies related to the
acquired operations; the adequacy of the allowance for loan losses; the effect
of legal proceedings on the Corporation's financial condition, results of
operations and liquidity; Year 2000 compliance issues and market risk
disclosures, as well as other information. The risks and uncertainties that may
affect operations, performance, growth projections and the results of the
Corporation's business include, but are not limited to, fluctuations in the
economy, the relative strength and weakness in the commercial and consumer
sector and in the real estate market, the actions taken by the Federal Reserve
for the purpose of managing the economy, interest rate movements, the impact of
competitive products, services and pricing, timely development by the
Corporation of technology enhancements for its products and operating systems,
legislation and similar matters. Although management of the Corporation believes
that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to be
correct. Prospective investors are cautioned that any such forward-looking
statements are not guaranties of future performance, and involve risks and
uncertainties, and that actual results may differ materially from those
contemplated by such forward-looking statements.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information set forth under the caption "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations-Market Risk-Interest
Sensitivity" included in the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1998, is hereby incorporated herein by reference.
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule (SEC use only)
(b) Report on Form 8-K:
On July 15, 1999, the Corporation filed a Current Report on
Form 8-K reporting under Item 2, the Corporation's acquisitions by
merger of C&L Banking Corporation and C&L Bank of Blountstown and
reporting under Item 7 certain audited and unaudited consolidated
financial statements and pro forma financial information for the
Corporation, C&L Banking Corporation and C&L Bank of Blountstown.
SIGNATURES
Pursuant with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<CAPTION>
The Banc Corporation
(Registrant)
<S> <C>
Date: November 12, 1999 By: /s/ James A. Taylor, Jr.
-----------------------------------------------------
James A. Taylor, Jr.
Executive Vice President, General Counsel and
Secretary
Date: November 12, 1999 By: /s/ David R. Carter
-----------------------------------------------------
David R. Carter
Executive Vice President and Chief Financial Officer
(Principal Accounting Officer)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE BANC CORPORATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 32,757
<INT-BEARING-DEPOSITS> 4,672
<FED-FUNDS-SOLD> 3,457
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 71,658
<INVESTMENTS-CARRYING> 5,585
<INVESTMENTS-MARKET> 5,550
<LOANS> 595,159
<ALLOWANCE> 10,036
<TOTAL-ASSETS> 775,405
<DEPOSITS> 631,889
<SHORT-TERM> 9,853
<LIABILITIES-OTHER> 6,982
<LONG-TERM> 57,500
0
0
<COMMON> 14
<OTHER-SE> 69,167
<TOTAL-LIABILITIES-AND-EQUITY> 775,405
<INTEREST-LOAN> 34,663
<INTEREST-INVEST> 4,115
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<LOAN-LOSSES> 1,987
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<INCOME-PRETAX> 2,903
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<EXTRAORDINARY> 0
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</TABLE>
