BANC CORP - 10-K Annual Report

Back to GetFilings.com

.
.
.

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
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."

2

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.

3

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
4

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

5

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

6

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.

7

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,

8

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