<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999 OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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Commission File number 0-25033
The Banc Corporation
(Exact Name of Registrant as Specified in Its charter)
Delaware 63-1201350
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(State or Other Jurisdiction of Incorporation (IRS Employer Identification No.)
Or Organization)
17 North 20th Street,Birmingham, Alabama 35203
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(Address of principal executive offices) Zip Code
(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.
Class Outstanding as of June 30, 1999
- ------------------------------ --------------------------------
Common stock, $.001 par value 14,385,142
<PAGE> 2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED) (NOTE 1)
<S> <C> <C>
Assets
Cash and due from banks $ 33,541 $ 31,307
Interest bearing deposits in other banks 2,339 1,048
Federal funds sold 7,797 25,045
Investment securities available for sale 71,570 91,482
Investment securities held-to-maturity 5,635 6,726
Mortgage loans held for sale 4,025 4,899
Loans, net of unearned income 511,822 431,931
Less: Allowance for loan losses (6,721) (6,466)
----------- ------------
Net loans 505,101 425,465
----------- ------------
Premises and equipment, net 31,329 29,666
Accrued interest receivable 5,040 4,812
Stock in FHLB and Federal Reserve Bank 2,526 1,760
Other assets 12,442 7,879
----------- ------------
TOTAL ASSETS $ 681,345 $ 630,089
=========== ============
Liabilities and stockholders' equity
Deposits
Noninterest-bearing $ 80,133 $ 79,990
Interest-bearing 474,433 451,080
----------- ------------
TOTAL DEPOSITS 554,566 531,070
Advances from FHLB 50,160 23,160
Other borrowed funds 2,809 3,700
Note payable 1,004 --
Accrued expenses and other liabilities 4,556 6,193
----------- ------------
TOTAL LIABILITIES 613,095 564,123
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;
14,385,142 shares issued and outstanding in 1999 and 14,077,036
in 1998 14 14
Surplus 47,756 45,491
Retained earnings 21,753 20,362
Accumulated other comprehensive (loss)income (1,273) 99
----------- ------------
TOTAL STOCKHOLDERS' EQUITY 68,250 65,966
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 681,345 $ 630,089
=========== ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 3
THE BANC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Unaudited)
(Amounts In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------------------
1999 1998 1999 1998
------- -------- ------- -------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans $11,360 $ 7,964 $21,745 $15,247
Interest on investment securities
Taxable 945 1,193 1,951 2,655
Exempt from federal income tax 237 304 487 534
Interest on federal funds sold 168 321 387 722
Interest and dividends on other investments 141 37 196 68
------- -------- ------- -------
Total interest income 12,851 9,819 24,766 19,226
INTEREST EXPENSE
Interest on deposits 5,427 4,510 10,751 9,032
Interest on other borrowed funds 651 68 936 91
------- -------- ------- -------
Total interest expense 6,078 4,578 11,687 9,123
------- -------- ------- -------
NET INTEREST INCOME 6,773 5,241 13,079 10,103
Provision for loan losses 298 853 542 1,293
------- -------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 6,475 4,388 12,537 8,810
Noninterest income 1,241 979 2,674 2,002
Gain(loss) on sale of securities 79 (6) 59 69
------- -------- ------- -------
TOTAL NONINTEREST INCOME 1,320 973 2,733 2,071
NONINTEREST EXPENSES
Salaries and employee benefits 3,160 2,302 6,383 4,492
Occupancy, furniture and equipment expense 1,224 719 2,408 1,424
Merger related expenses 622 -- 691 --
Other operating expenses 1,973 1,411 3,992 2,613
------- -------- ------- -------
TOTAL NONINTEREST EXPENSES 6,979 4,432 13,474 8,529
------- -------- ------- -------
Income before income taxes 816 929 1,796 2,352
INCOME TAX EXPENSE 237 111 405 506
------- -------- ------- -------
NET INCOME $ 579 $ 818 $ 1,391 $ 1,846
======= ======== ======= =======
BASIC AND DILUTED NET INCOME PER SHARE $ 0.04 $ 0.06 $ 0.10 $ 0.14
======= ======== ======= =======
AVERAGE COMMON SHARES OUTSTANDING 14,315 12,906 14,284 12,906
AVERAGE COMMON SHARES OUTSTANDING, ASSUMING DILUTION 14,353 12,935 14,327 12,935
</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>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITES $ 2,972 $ 2,733
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in interest bearing deposits in other banks (1,291) --
Net decrease in federal funds sold 17,248 21,615
Proceeds from sales of securities available for sale 12,309 11,597
Proceeds from maturities of investment securities available for sale 15,838 15,152
Purchases of investment securities available for sale (10,471) (36,524)
Proceeds from maturities of investment securities held to maturity 1,084 12,818
Purchases of investment securities held to maturity -- (11,218)
Net increase in loans (83,266) (45,998)
Proceeds from sale of subsidiary's net assets 3,392 --
Purchases of premises and equipment (3,885) (3,077)
Other investing activities (4,475) (256)
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Net cash used by investing activities (53,517) (35,891)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit accounts 23,496 34,714
Net increase(decrease) in FHLB advance and other borrowings 26,109 (1,994)
Proceeds from note payable 1,004 --
Proceeds from issuance of common stock 2,170 2,411
Repurchase of common stock by pooled subsidiary (29)
Dividends paid by pooled subsidiary -- (105)
-------- --------
Net cash provided by financing activities 52,779 34,997
-------- --------
Net increase in cash and due from banks 2,234 1,839
Cash and due from banks at beginning of period 31,307 19,259
-------- --------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 33,541 $ 21,098
======== ========
Supplemental schedule of noncash investing activity:
Sale of subsidiary's net assets financed by the Corporation $ 2,202 $ --
======== ========
</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 six-month periods ended June 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 COMBINATION
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 headquarterd 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 also 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.
<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 2 - BUSINESS COMBINATION - CONTINUED
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>
The following table presents financial information as reported by the
Corporation, Emerald, C&L and Blountstown on a combined basis for the six
months ended June 30, 1998.
Net interest income:
<TABLE>
<S> <C>
Corporation $ 6,709
Emerald 1,301
C&L 1,070
Blountstown 1,023
---------
Combined $ 10,103
=========
Net income (loss):
Corporation $ 1,354
Emerald (7)
C&L 410
Blountstown 89
---------
Combined $ 1,846
=========
Net income per equivalent share of Corporation:
Corporation $ .14
Emerald (.01)
C&L .32
Blountstown .11
Combined .14
</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 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.
<PAGE> 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 3 - SEGMENT REPORTING - CONTINUED
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.
<TABLE>
<CAPTION>
Alabama Florida
Region Region Combined
--------- --------- -----------
<S> <C> <C> <C>
Three months ended June 30, 1999
Net interest income $ 4,537 $ 2,236 $ 6,773
Provision for loan losses 185 113 298
Noninterest income 925 395 1,320
Noninterest expense 5,068 1,911 6,979
Income tax (benefit) expense (10) 247 237
Net income 219 360 579
Total assets 470,607 210,738 681,345
Three months ended June 30, 1998
Net interest income $ 3,463 $ 1,778 $ 5,241
Provision for loan losses 545 308 853
Noninterest income 703 270 973
Noninterest expense 3,010 1,422 4,432
Income tax (benefit) expense (47) 158 111
Net income 658 160 818
Total assets 329,919 170,685 500,604
Six months ended June 30, 1999
Net interest income $ 8,813 $ 4,266 $ 13,079
Provision for loan losses 307 235 542
Noninterest income 1,906 827 2,733
Noninterest expense 9,906 3,568 13,474
Income tax (benefit) expense (75) 480 405
Net income 581 810 1,391
Six months ended June 30, 1998
Net interest income $ 6,709 $ 3,394 $ 10,103
Provision for loan losses 877 416 1,293
Noninterest income 1,443 628 2,071
Noninterest expense 5,712 2,817 8,529
Income tax expense 209 297 506
Net income 1,354 492 1,846
</TABLE>
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 4 - NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net income
per common share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Numerator:
For basic and diluted, net income $ 579 $ 818 $ 1,391 $ 1,846
======= ======= ======= =======
Denominator:
For basic, weighted average common shares
outstanding 14,315 12,906 14,284 12,906
Effect of dilutive stock options 38 29 43 29
------- ------- ------- -------
Average diluted common shares outstanding 14,353 12,935 14,327 12,935
======= ======= ======= =======
Basic and diluted net income per share $ .04 $ .06 $ .10 $ .14
======= ======= ======= =======
</TABLE>
NOTE 5 - COMPREHENSIVE (LOSS) INCOME
Total comprehensive (loss) income was $(532,000) and $18,000 for the three and
six-month periods ended June 30, 1999, and $1,202,000 and $1,918,000 for the
three and six-month periods ended June 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 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> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Financial Condition
Total assets of the Corporation were $681.3 million at June 30, 1999, an
increase of $51.3 million from December 31, 1998. At June 30, 1999, total
stockholders' equity was $68.3 million, an increase of $2.3 million over 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 from
the Federal Home Loan Bank. The increase in total stockholders' equity resulted
primarily from $2.2 million in proceeds received from the issuance of common
stock.
Cash and due from banks, federal funds sold and investment securities decreased
$36.1 million to $118.5 million at June 30, 1999, from $154.6 million at
December 31, 1998. On June 30, 1999, cash and due from banks, federal funds sold
and investment securities made up 17.4% of total assets compared with 24.5%
at December 31, 1998.
Loans, net of unearned income, totaled $511.8 million at June 30, 1999, an
increase of $79.9 million from $431.9 million at December 31, 1998. Loans, net
of unearned income, made up 75.1% of total assets at June 30, 1999, as compared
with 68.6% at December 31, 1998.
Deposits totaled $554.6 million at June 30, 1999, an increase of $23.5 million
from $531.1 million at December 31, 1998. The increase is primarily in interest
bearing deposits, of which, time and savings deposits increased $15.2 million,
and interest bearing demand deposits increased $8.1 million.
Results of Operations
Net income was $579,000 and $1,391,000 for the three and six-month periods ended
June 30, 1999, compared with $818,000 and $1,846,000 respectively for the same
periods in 1998. The decrease in net income was primarily due to an increase in
total noninterest expenses partially offset by an increase in net interest
income and noninterest income and a decrease in the provision for loan losses.
Net interest income increased $3.0 million or 29.5% over the first six months
of 1998 and $1.5 million or 29.2% over the second 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 advances from the Federal Home Loan Bank.
Noninterest income increased $662,000 or 32.0% over the first six months of
1998 and $347,000 or 35.7% over the second quarter of 1998. The increase in
noninterest income was primarily due to an increase in service charge income on
deposits and mortgage origination fees.
Noninterest expense increased $5.0 million or 58.0% over the first six-months
of 1998 and $2.6 million or 57.5% over the second quarter of 1998. The increase
in noninterest expense was primarily due to an increase in salary and employee
benefits and various other operating expenses, such as board fees and
professional fees, which resulted from the operations of new branches (primarily
Birmingham) and the creation of new departments. In addition, $691,000 of merger
related expenses were incurred during the first six months of 1999, of which,
$622,000 were recognized during the second quarter. The merger related expenses
consist primarily of legal and accounting fees.
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS-CONTINUED
Results of Operations - Continued
Income tax expense was $405,000 for the six-month period ended June 30, 1999,
compared with $506,000 for the six-month period ended June 30, 1998. The
effective tax rates were 23% and 22%, respectively. 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 Hand
Building.
Provision and 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 credits 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 to the allowance for loan losses, which are expensed 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 six-month period ended
June 30, 1999 was $542,000 as compared with $1,293,000 for the six-month period
ended June 30, 1998. The allowance for loan losses was $6.7 million or 1.31% of
total loans at June 30, 1999, compared with $6.5 million or 1.50% at December
31, 1998. 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 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, 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.
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS-CONTINUED
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 date-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 noncompliant systems;
- testing and validating solutions; and
- implementing those solutions.
The Corporation has completed its five-step plan. Each of the
Corporation's banking subsidiaries have 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's 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
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS-CONTINUED
and has completed century date testing and validation of these core business
systems. For the remainder of the externally maintained systems, the
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 is currently
estimated at approximately $300,000 and is being funded through operating cash
flows. As of June 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 costs of the project and the date on which the Corporation
plans to complete Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no assurance that
these estimates will be accurate, and actual results could differ materially
from those plans.
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
estimated costs of the Year 2000 project and the target dates for completion.
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
2
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-CONTINUED
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 and pending
acquisitions; one time costs associated with the recently-completed and pending
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.
3
<PAGE> 14
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 AND USE OF PROCEEDS
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 15, 1999, the Annual Meeting of Stockholders of the Corporation was held
at which shares of common stock represented at the Annual Meeting were voted in
favor of the election of the directors listed below as follows:
<TABLE>
<CAPTION>
Director For Withheld Abstain
-------- --- -------- -------
<S> <C> <C> <C> <C>
1. W. T. Campbell, Jr. 8,365,644 5,068 0
2. K. Earl Durden 8,366,144 4,568 0
3. Thomas E. Jernigan, Jr. 8,365,644 5,068 0
4. Mayer Mitchell 8,366,144 4,568 0
5. Harold W. Ripps 8,366,144 4,568 0
6. James A. Taylor, Jr. 8,208,369 162,343 0
7. T. Mandell Tillman 8,363,809 6,903 0
</TABLE>
In addition, shares of common stock represented at the Annual Meeting were voted
in favor of the ratification of Ernst & Young LLP as independent auditors as
follows:
For Withheld Abstain
--- -------- -------
8,369,712 0 1,000
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27.1 - Financial Data Schedule (SEC use only)
Exhibit 27.2 - Restated Financial Data Schedule (SEC use only)
Exhibit 27.3 - Restated Financial Data Schedule (SEC use only)
<PAGE> 15
(b) Report on Form 8-K:
On April 15, 1999, the registrant filed a current report on Form 8-K
under items 5 and 7. This report includes the registrant's supplemental
financial statements and related financial information reflecting the
acquisition of Emerald Coast Bancshares, Inc. accounted for as a
pooling of interests.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
The Banc Corporation
(Registrant)
Date: August 16, 1999 By: /s/ James A. Taylor, Jr.
------------------- -----------------------------------------
James A. Taylor, Jr.
Executive Vice President, General Counsel
and Secretary
Date: August 16, 1999 By:/s/ David R. Carter
------------------- -----------------------------------------
David R. Carter
Executive Vice President
and Chief Financial Officer
(Principal Accounting Officer)
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0
0
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<TABLE> <S> <C>
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<S> <C>
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0
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<COMMON> 14
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<INTEREST-DEPOSIT> 5,324
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
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<S> <C>
<PERIOD-TYPE> YEAR
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<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
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0
0
<COMMON> 14
<OTHER-SE> 66,952
<TOTAL-LIABILITIES-AND-EQUITY> 630,089
<INTEREST-LOAN> 34,310
<INTEREST-INVEST> 6,670
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<INTEREST-TOTAL> 42,472
<INTEREST-DEPOSIT> 19,616
<INTEREST-EXPENSE> 20,205
<INTEREST-INCOME-NET> 22,266
<LOAN-LOSSES> 4,667
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<INCOME-PRETAX> (439)
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</TABLE>
