1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________________ TO _________________
Commission File number 0-25033
The Banc Corporation
--------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 63-1201350
----------------------------- ----------------------
(State or Other Jurisdiction (IRS Employer
of Incorporation) Identification No.)
17 North 20th Street, Birmingham, Alabama 35203
-----------------------------------------------
(Address of Principal Executive Offices)
(205) 326-2265
--------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of March 31, 2001
----------------------------------- ---------------------------------
Common stock, $.001 par value 14,345,021
2
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
MARCH 31, DECEMBER 31,
2001 2000
----------- ------------
(UNAUDITED) (NOTE 1)
ASSETS
Cash and due from banks $ 36,780 $ 36,691
Interest bearing deposits in other banks 5,548 2,427
Federal funds sold 44,010 3,120
Investment securities available for sale 113,223 91,316
Investment securities held-to-maturity -- 4,389
Mortgage loans held for sale 7,785 4,324
Loans, net of unearned income 854,568 808,145
Less: Allowance for loan losses (9,551) (8,959)
Net loans 845,017 799,186
Premises and equipment, net 44,089 43,957
Accrued interest receivable 9,037 8,615
Stock in FHLB and Federal Reserve Bank 8,250 6,922
Other assets 28,744 28,268
TOTAL ASSETS $ 1,142,483 $ 1,029,215
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing $ 94,263 $ 88,910
Interest-bearing 805,932 738,394
TOTAL DEPOSITS 900,195 827,304
Advances from FHLB 136,100 104,300
Other borrowed funds 869 534
Note payable 5,000 --
Accrued expenses and other liabilities 8,357 7,202
TOTAL LIABILITIES 1,050,521 939,340
Guaranteed preferred beneficial interests in the Corporation's
subordinated debentures 15,000 15,000
Stockholders' Equity
Preferred stock, par value $.001 per share; authorized 5,000,000 shares;
shares issued -0- -- --
Common stock, par value $.001 per share; authorized 25,000,000 shares;
shares issued 14,385,021; outstanding 14,345,021 shares 14 14
Surplus 47,756 47,756
Retained Earnings 29,218 27,640
Accumulated other comprehensive income (loss) 184 (325)
Treasury stock, at cost - 40,000 shares (210) (210)
TOTAL STOCKHOLDERS' EQUITY 76,962 74,875
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,142,483 $ 1,029,215
See Notes to Condensed Consolidated Financial Statements.
3
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31
---------------------------------
2001 2000
----------- -----------
INTEREST INCOME
Interest and fees on loans $ 20,281 $ 15,201
Interest on investment securities
Taxable 1,457 954
Exempt from Federal income tax 174 191
Interest on federal funds sold 462 202
Interest and dividends on other investments 187 101
Total interest income 22,561 16,649
INTEREST EXPENSE
Interest on deposits 11,060 7,256
Interest on other borrowed funds 1,865 1,028
Total interest expense 12,925 8,284
NET INTEREST INCOME 9,636 8,365
Provision for loan losses 795 888
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 8,841 7,477
Noninterest income 2,193 1,647
Gain on sale of securities 37 --
TOTAL NONINTEREST INCOME 2,230 1,647
NONINTEREST EXPENSES
Salaries and employee benefits 4,593 3,796
Occupancy, furniture and equipment expense 1,726 1,440
Other operating expenses 2,147 2,615
TOTAL NONINTEREST EXPENSES 8,466 7,851
DISTRIBUTIONS ON TRUST PREFERRED SECURITIES 398 --
Income before income taxes 2,207 1,273
INCOME TAX EXPENSE 628 371
NET INCOME $ 1,579 $ 902
BASIC AND DILUTED NET INCOME PER SHARE $ 0.11 $ 0.06
AVERAGE COMMON SHARES OUTSTANDING 14,345 14,385
AVERAGE COMMON SHARES OUTSTANDING, ASSUMING DILUTION 14,347 14,388
See Notes to Condensed Consolidated Financial Statements.
4
THE BANC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31
---------------------------------
2001 2000
----------- -----------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES $ (241) $ 2,033
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in interest bearing deposits in other banks (3,121) (624)
Net (increase) decrease in federal funds sold (40,890) 2,688
Net decrease in short-term investments -- 14,499
Proceeds from sales of securities available for sale 3,101 --
Proceeds from maturities of investment securities available for sale 12,969 1,523
Purchases of investment securities available for sale (32,609) (1,483)
Proceeds from maturities of investment securities held to maturity -- 30
Net increase in loans (46,910) (33,679)
Purchases of premises and equipment (908) (3,263)
Other investing activities (1,328) (1,500)
----------- -----------
Net cash used by investing activities (109,696) (21,809)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposit accounts 72,891 (700)
Net increase in FHLB advance and other borrowings 32,135 20,378
Proceeds from note payable 5,000 1,830
----------- -----------
Net cash provided by financing activities 110,026 21,508
----------- -----------
Net increase in cash and due from banks 89 1,732
Cash and due from banks at beginning of period 36,691 31,825
----------- -----------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 36,780 $ 33,557
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q, and, therefore, do
not include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. For a summary of significant
accounting policies that have been consistently followed, see Note 1 to the
Consolidated Financial Statements included in Form 10-K for the year ended
December 31, 2000. It is management's opinion that all adjustments, consisting
of only normal and recurring items necessary for a fair presentation, have been
included. Operating results for the three-month period ended March 31, 2001, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2001.
The statement of financial condition at December 31, 2000, has been derived from
the audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENT
Financial Accounting Standards Statement (FAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," requires all derivatives to be
recorded on the statement of financial condition at fair value and establishes
standard accounting methodologies for hedging activities. The statement is
effective for the Corporation's fiscal year ending December 31, 2001. The
adoption of this statement did not have a material impact on the accompanying
financial statements.
The transition provisions of FAS No. 133 provide that at the date of initial
application (January 1, 2001), debt securities categorized as held-to-maturity
may be transferred into the available-for-sale category without calling into
question the Corporation's intent to hold other debt securities until maturity.
As such, on January 1, 2001, the Corporation transferred debt securities with a
carrying value of $4,389,000 and a market value of $4,317,000 to the
available-for-sale category.
NOTE 3 - SEGMENT REPORTING
The Corporation has two reportable segments, the Alabama Region and the Florida
Region. The Alabama Region consists of operations located throughout the state
of Alabama. The Florida Region consists of operations located in the panhandle
region of Florida. The Corporation's reportable segments are managed as separate
business units because they are located in different geographic areas. Both
segments derive revenues from the delivery of financial services. These services
include commercial loans, mortgage loans, consumer loans, deposit accounts and
other financial services.
The Corporation evaluates performance and allocates resources based on profit or
loss from operations. There are no material intersegment sales or transfers. Net
interest revenue is used as the basis for performance evaluation rather than its
components, total interest revenue and total interest expense. The accounting
policies used by each reportable segment are the same as those discussed in Note
1 to the Consolidated Financial Statements included in the Form 10-K for the
year ended December 31, 2000. All costs have been allocated to the reportable
segments. Therefore, combined amounts agree to the consolidated totals.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 3 - SEGMENT REPORTING - CONTINUED
Alabama Florida
Region Region Combined
------------ ------------ ------------
Three months ended March 31, 2001
Net interest income $ 6,513 $ 3,123 $ 9,636
Provision for loan losses 465 330 795
Noninterest income 1,666 564 2,230
Noninterest expense 6,568 1,898 8,466
Distributions on trust preferred securities 398 -- 398
Income tax expense 110 518 628
Net income 638 941 1,579
Total assets 862,313 280,170 1,142,483
Three months ended March 31, 2000
Net interest income $ 5,651 $ 2,714 $ 8,365
Provision for loan losses 604 284 888
Noninterest income 1,302 345 1,647
Noninterest expense 6,238 1,613 7,851
Income tax (benefit) expense (35) 406 371
Net income 146 756 902
Total assets 592,974 255,388 848,362
NOTE 4 - NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net income
per common share (in thousands, except per share amounts):
Three Months Ended
March 31
-------------------------------
2001 2000
------------ ------------
Numerator:
For basic and diluted, net income $ 1,579 $ 902
============ ============
Denominator:
For basic, weighted average common shares
outstanding 14,345 14,385
Effect of dilutive stock options 2 3
------------ ------------
Average diluted common shares outstanding 14,347 14,388
============ ============
Basic and diluted net income per share $ .11 $ .06
============ ============
7
NOTE 5 - COMPREHENSIVE INCOME
Total comprehensive income was $2,087,000 and $852,000 for the three-months
ended March 31, 2001 and 2000, respectively. Total comprehensive income consists
of net income and the unrealized gain or loss on the Corporation's available for
sale securities portfolio arising during the period.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 6 - INCOME TAXES
The primary difference between the effective tax rate and the federal statutory
rate in 2001 and 2000 is due to the recognition of rehabilitation tax credits
generated from the restoration of the Corporation's headquarters, the John A.
Hand Building.
NOTE 7 - GUARANTEED PREFERRED BENEFICIAL INTERESTS IN THE CORPORATION'S
SUBORDINATED DEBENTURES
On September 7, 2000, TBC Capital Statutory Trust II ("TBC Capital"), a
Connecticut statutory trust established by the Corporation, received $15,000,000
in proceeds in exchange for $15,000,000 principal amount of TBC Capital's 10.6%
cumulative trust preferred securities in a pooled trust preferred private
placement. The proceeds were used to purchase an equal principal amount of 10.6%
subordinated debentures of the Corporation. The Corporation has fully and
unconditionally guaranteed all obligations of TBC Capital on a subordinated
basis with respect to the preferred securities. The Corporation accounts for TBC
Capital as a minority interest. Subject to certain limitations, the preferred
securities qualify as Tier 1 capital and are presented in the Condensed
Consolidated Statement of Financial Condition as "Guaranteed preferred
beneficial interests in the Corporation's subordinated debentures." The sole
asset of TBC Capital is the subordinated debentures issued by the Corporation.
Both the preferred securities of TBC Capital and the subordinated debentures of
the Corporation each have 30-year lives. However, both the Corporation and TBC
Capital have a call option after ten years, subject to regulatory approval, or
earlier depending upon certain changes in tax or investment company laws, or
regulatory capital requirements.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Basis of Presentation
The following is a discussion and analysis as of March 31, 2001 of the
consolidated financial condition of the Corporation and of the results of
operations for the three-month periods ended March 31, 2001 (first quarter of
2001) and 2000 (first quarter of 2000). All significant intercompany accounts
and transactions have been eliminated. The accounting and reporting policies of
the Corporation conform with generally accepted accounting principles.
This information should be read in conjunction with the Corporation's unaudited
consolidated financial statements and related notes appearing elsewhere in this
report and "Management's Discussion and Analysis of Financial Condition and
Results of Operations", appearing in the Corporation's Annual Report on Form
10-K for the year ended December 31, 2000.
Financial Overview
Total assets of the Corporation were $1.14 billion at March 31, 2001, an
increase of $113.3 million, or 11.0%, from $1.03 billion as of December 31,
2000. Total deposits were $900.2 million at March 31, 2001, an increase of $72.9
million, or 8.8%, from $827.3 million as of December 31, 2000. Total
stockholders' equity was $77.0 million at March 31, 2001, an increase of $2.1
million, or 2.8%, from $74.9 million as of December 31, 2000.
Net income for the first quarter of 2001 was $1.6 million compared to $902,000
for the first quarter of 2000, an increase of $677,000 or 75.1%. Basic and
diluted net income per share was $.11 and $.06 for the first quarter of 2001 and
2000, respectively. Return on average assets, on an annualized basis, was .59%
for the first quarter 2001 compared to .43% for the first quarter of 2000.
Return on average stockholders' equity, on an annualized basis, was 8.43% for
the first quarter 2001 compared to 5.40% for the first quarter of 2000. Book
value per share at March 31, 2001 was $5.37 compared to $5.22 as of December 31,
2000.
Results of Operations
The growth in net income during the first quarter of 2001 compared to the first
quarter of 2000 is primarily the result of an increase in net interest income.
Net interest income is the difference between the income earned on interest
earning assets and interest paid on interest bearing liabilities used to support
such assets. Net interest income increased $1.3 million, or 15.2%, to $9.6
million for the first quarter of 2001 from $8.4 million for the first quarter of
2000. The increase in net interest income was offset by an increase in
noninterest expense of $615,000, or 7.8%, to $8.5 million for the first quarter
of 2001 compared to $7.9 million for the first quarter of 2000.
Average interest-earning assets for the first quarter of 2001 increased $240.9
million, or 32.3%, to $987.5 million from $746.7 million in the first quarter of
2000. This growth in average interest-earning assets was funded by a $234.2
million increase in average interest-earning liabilities to $907.8 million for
the first quarter of 2001 from $673.6 million for the first quarter of 2000.
Average interest bearing assets produced a tax equivalent yield of 9.30% for the
first quarter of 2001 compared to 9.02% for the first quarter of 2000. The
average rate paid on interest bearing liabilities was 5.77% for the first
quarter of 2001 compared to 4.95% for the first quarter of 2000. The
Corporation's net interest spread and net interest margin were 3.53% and 3.99%,
respectively, for the first quarter of 2001, compared to 4.07% and 4.56% for the
first quarter of 2000. The decline in net interest spread and margin is
primarily the result of a rise in the volume of higher yielding sources
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS-CONTINUED
Results of Operations - continued
such as certificates of deposit, brokered deposits and Federal Home Loan Bank
borrowings. These funds were needed to meet the strong loan demand, which
accounted for the increase in the average interest earning assets during the
first quarter of 2001.
The following table depicts, on a tax-equivalent basis for the periods
indicated, certain information related to the Corporation's average balance
sheet and its 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.
CONSOLIDATED AVERAGE BALANCE INTEREST/INCOME/EXPENSE
AND YIELD/RATES TAXABLE EQUIVALENT BASIS
THREE MONTHS ENDED MARCH 31,
--------------------------------------------- ----------------------------------------------
2001 2000
--------------------------------------------------------------------------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE Rate
------- ------- ---- ------- ------- ----
(Dollars in thousands)
ASSETS
Earning assets:
Loans, net of unearned
income(1)................ $ 837,727 $ 20,281 9.82% $ 650,563 $ 15,201 9.40%
Investment securities
Taxable................... 91,635 1,457 6.45 59,440 954 6.46
Tax-exempt(2)............. 14,040 264 7.63 15,418 289 7.54
---------- --------- ---------- ---------
Total investment
securities............ 105,675 1,721 6.60 74,858 1,243 6.68
Federal funds sold........ 32,745 462 5.72 14,214 202 5.72
Other investments......... 11,376 187 6.67 7,014 101 5.79
---------- --------- ---------- ---------
Total interest-earning
assets................ 987,523 22,651 9.30 746,649 16,747 9.02
Noninterest-earning assets:
Cash and due from banks..... 31,680 26,225
Premises and equipment...... 43,862 38,647
Accrued interest and other
assets.................... 39,632 34,702
Allowance for loan losses... (9,221) (8,400)
---------- ----------
Total assets.......... $1,093,476 $ 837,823
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits............. $ 196,889 1,979 4.08 $ 175,643 1,614 3.70
Savings deposits............ 33,355 230 2.80 34,036 247 2.92
Time deposits............... 543,979 8,851 6.60 388,339 5,395 5.59
Other borrowings............ 133,569 1,865 5.66 75,559 1,028 5.47
---------- --------- ---------- ---------
Total interest-bearing
liabilities........... 907,792 12,925 5.77 673,577 8,284 4.95
Noninterest-bearing liabilities:
Demand deposits............. 86,793 89,521
Accrued interest and other
liabilities................. 7,973 5,451
Guaranteed preferred beneficial
interest in Corporation's
subordinated debentures 15,000 --
Stockholders' equity........ 75,918 69,274
---------- ----------
Total liabilities and
stockholders' equity $1,093,476 $ 837,823
========== ==========
Net interest income/net interest
spread...................... 9,726 3.53% 8,463 4.07%
========== =========
Net yield on earning assets... 3.99% 4.56%
========== =========
Taxable equivalent adjustment:
Investment securities(2).... 90 98
--------- ---------
Net interest income... $ 9,636 $ 8,365
========= =========
(1) Nonaccrual loans are included in loans net of unearned income. No
adjustment has been made for these loans in the calculation of yields.
10
(2) Interest income and yields are presented on a fully taxable equivalent
basis using a tax rate of 34 percent.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS-CONTINUED
Results of Operations - Continued
The following table sets forth, on a taxable equivalent basis, the effect
which the varying levels of earning assets and interest-bearing liabilities and
the applicable rates have had on changes in net interest income for the three
months ended March 31, 2001 and 2000.
THREE MONTHS ENDED MARCH 31 (1)
2001 VS 2000
----------------------------------
INCREASE CHANGES DUE TO
(DECREASE) RATE VOLUME
---------- ---- ------
(Dollars in thousands)
Increase (decrease) in:
Income from earning assets:
Interest and fees on loans................. $ 5,080 $ 683 $ 4,397
Interest on securities:
Taxable............................... 503 (10) 513
Tax-exempt............................ (25) 22 (47)
Interest on federal funds.................. 260 -- 260
Interest on other investments.............. 86 17 69
-------- ------- --------
Total interest income................. 5,904 712 5,192
-------- ------- --------
Expense from interest-bearing liabilities:
Interest on demand deposits................... 365 168 197
Interest on savings deposits.................. (17) (11) (6)
Interest on time deposits..................... 3,456 1,074 2,382
Interest on other borrowings.................. 837 36 801
-------- ------- --------
Total interest expense................ 4,641 1,267 3,374
-------- ------- --------
Net interest income................... $ 1,263 $ (555) $ 1,818
======== ======= ========
----------
(1) The change in interest due to both rate and volume has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the changes in each.
Noninterest income increased $583,000, or 35.5%, to $2.2 million for the first
quarter of 2001 from $1.6 million for the first quarter of 2000, primarily due
to growth in service charge income from an increase in the volume of deposits
and a $247,000 gain from the sale of real estate.
Noninterest expense increased $615,000, or 7.8%, to $8.5 million for first
quarter of 2001 from $7.9 million for the first quarter of 2000. Salaries and
benefits increased $797,000, or 21.0%, to $4.6 million for the first quarter of
2001 from $3.8 million for the first quarter of 2000. The increase in salaries
and benefits primarily resulted from the addition of personnel in the lending,
administrative and operations area.
All other noninterest expenses decreased $182,000, or 4.5%, to $3.9 million, for
the first quarter of 2001 from $4.1 million for the first quarter of 2000. This
decrease in other noninterest expenses is primarily due to a decline in
professional fees and foreclosure losses.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS-CONTINUED
Results of Operations - Continued
Income tax expense was $628,000 for the first quarter of 2001, compared to
$371,000 for the first quarter of 2000. The primary difference in the effective
rate and the federal statutory rate (34%) is due to the recognition of a
rehabilitation tax credit generated from the restoration of the Corporation's
headquarters, the John A. Hand Building.
Provision for Loan Losses
The provision for loan losses was $795,000 for the first quarter of 2001
compared to $888,000 for first quarter of 2000. 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, plus estimated losses associated with off-balance sheet credit
instruments such as letters of credit and unfunded lines of credit. The
allowance for loan losses at March 31, 2001, totaled $9.6 million, or 1.12% of
total loans, compared to $9.0 million, or 1.11% of total loans at December 31,
2000. The Corporation prepares an analysis to assess the risk in the loan
portfolio and to determine the adequacy of the allowance for loan losses.
Generally, the Corporation estimates the allowance using factors such as
historical loss experience based on volume and types of loans, volume and trends
in delinquencies and nonaccruals, national and local economic conditions and
other pertinent information.
The Corporation manages and controls risk in the loan portfolio through
adherence to credit standards established by the Board of Directors and
implemented by senior management. These standards are set forth in a formal loan
policy, which establishes loan underwriting/approval procedure, sets limits on
credit concentration and enforces regulatory requirements.
Loan portfolio concentration risk is reduced through concentration limits for
borrowers and collateral types and through geographical diversification.
Concentration risk is measured and reported to senior management and the Board
of Directors on a regular basis.
A risk rating system is employed whereby each loan is assigned a rating which
corresponds to the perceived credit risk. Risk ratings are subject to
independent review by the Corporation's Loan Review Department, which also
performs ongoing, independent review of the risk management process that
includes 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.
Review results are reported to the Audit Committee of the Board of Directors.
Financial Condition
Total assets of the Corporation were $1.14 billion at March 31, 2001, an
increase of $113.3 million, or 11.0%, from $1.03 billion as of December 31,
2000. The increase in total assets was funded by an increase in deposits and
borrowings from the Federal Home Loan Bank ("FHLB"). The Corporation believes
that FHLB borrowings are a reliable and relatively inexpensive source of funding
when compared to market deposit rates in the Birmingham, Alabama market and
other markets in which the Corporation conducts its business.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS-CONTINUED
Financial Condition - Continued
Short-term liquid assets (cash and due from banks, interest-bearing deposits in
other banks and federal funds sold) increased $44.1 million, or 104.4%, to $86.3
million at March 31, 2001 from $42.2 million at December 31, 2000. This increase
resulted primarily from the purchase of federal funds sold. At March 31, 2001,
short-term liquid assets comprised 7.6% of total assets compared to 4.1% at
December 31, 2000. The Corporation continually monitors its liquidity position
and will increase or decrease its short-term liquid assets as necessary.
Total investment securities increased $17.5 million, or 18.3%, to $113.2 million
at March 31, 2001, from $95.7 million at December 31, 2000. Mortgage-backed
securities, which comprised 45.4% of the total investment portfolio at March 31,
2001, increased $12.1 million, or 30.1%, to $51.4 million from $39.3 million at
December 31, 2000. Investments in U.S. Treasury and agency securities, which
comprised 42.1% of the total investment portfolio at March 31, 2001, increased
$8.5 million, or 21.6%, to $47.7 million from $39.2 million at December 31,
2000. The total investment portfolio at March 31, 2001 comprised 11.0% of all
interest-earning assets compared to 10.4% at December 31, 2000 and produced an
average tax equivalent yield of 6.6% for the first quarter of 2001 compared to
6.7% for the first quarter of 2000.
Loans, net of unearned income, totaled $854.6 million at March 31, 2001, an
increase of 5.7%, or $46.4 million from $808.2 million at December 31, 2000,
with average loans totaling $837.8 million for the first quarter of 2001
compared to $650.6 million for the first quarter of 2000. Of the $46.4 million
increase in loans, 70.0%, or $31.1 million were produced by branches in the
Alabama region, the other 30.0%, or $15.3 million were produced by branches in
the Florida region. Loans, net of unearned income, comprised 82.7% of
interest-earning assets at March 31, 2001, compared to 87.8% at December 31,
2000 and produced an average yield of 9.8% for the first quarter of 2001,
compared to 9.4% for the first quarter of 2001. The following table details the
distribution of the loan portfolio by category as of March 31, 2001 and December
31, 2000:
DISTRIBUTION OF LOANS BY CATEGORY
MARCH 31, 2001 DECEMBER 31, 2000
-------------------- --------------------
AMOUNT PERCENT OF AMOUNT PERCENT OF
TOTAL TOTAL
-------- ---------- --------- ----------
Commercial, industrial and agricultural........... $255,807 29.9% $245,154 30.3%
Real estate-- construction........................ 118,106 13.8 100,448 12.4
Real estate-- mortgage............................ 389,500 45.5 373,509 46.2
Consumer.......................................... 85,701 10.0 84,129 10.4
Other............................................. 6,280 .8 5,725 .7
-------- ------ -------- -------
Total loans............................. 855,394 100.0% 808,965 100.0%
====== =======
Unearned income................................... (826) (820)
Allowance for loan losses......................... (9,551) (8,959)
-------- --------
Net loans............................... $845,017 $799,186
======== ========
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS-CONTINUED
Financial Condition- continued
Noninterest bearing deposits totaled $94.3 million at March 31, 2001, an
increase of 6.0%, or $5.4 million from $88.9 million at December 31, 2000.
Noninterest bearing deposits comprised 10.5% of total deposits at March 31,
2001, compared to 10.8% at December 31, 2000.
Interest bearing deposits totaled $805.9 million at March 31, 2001, an increase
of 9.2%, or $67.5 million from $738.4 million at December 31, 2000, with
interest bearing deposits averaging $774.2 million for the first quarter of 2001
compared to $598.0 million for the first quarter of 2000. The $67.5 million
increase in interest bearing deposits during the first quarter of 2001 is
comprised primarily of higher yielding certificates of deposit issued to fund
loan demand. The average rate paid on all interest bearing deposits during the
first quarter of 2001 was 5.8% compared to 4.9% for the first quarter of 2000.
Advances from the Federal Home Loan Bank ("FHLB") increased $31.8 million to
$136.1 million at March 31, 2001 from $104.3 million at December 31, 2000.
Borrowings from the FHLB were used primarily to fund growth in the loan
portfolio. The advances are secured by FHLB stock, agency securities and a
blanket lien on certain residential real estate loans.
As of March 31, 2001, the Corporation had outstanding $5.0 million under a $15.0
million line of credit with a regional bank. Interest is one and one quarter
(1.25%) percentage points in excess of the applicable LIBOR Index Rate. The line
matures May 1, 2001. The funds were used as a capital contribution to
Corporation's banking subsidiary during the first quarter of 2001.
On September 7, 2000, TBC Capital Statutory Trust II ("TBC Capital"), a
Connecticut statutory trust established by the Corporation, received $15,000,000
in proceeds in exchange for $15,000,000 principal amount of TBC Capital's 10.6%
cumulative trust preferred securities in a pooled trust preferred private
placement. The proceeds were used to purchase an equal principal amount of 10.6%
subordinated debentures of the Corporation. The Corporation has fully and
unconditionally guaranteed all obligations of TBC Capital on a subordinated
basis with respect to the preferred securities. The Corporation accounts for TBC
Capital as a minority interest. Subject to certain limitations, the preferred
securities qualify as Tier 1 capital and are presented in the Condensed
Consolidated Statement of Financial Condition as "Guaranteed preferred
beneficial interests in the Corporation's subordinated debentures." The sole
asset of TBC Capital is the subordinated debentures issued by the Corporation.
Both the preferred securities of TBC Capital and the subordinated debentures of
the Corporation each have 30-year lives. However, both the Corporation and TBC
Capital have a call option after ten years, subject to regulatory approval, or
earlier depending upon certain changes in tax or investment company laws, or
regulatory capital requirements.
At March 31, 2001, total stockholders' equity was $77.0 million, an increase of
$2.1 million from $74.9 million at December 31, 2000. The increase in
stockholders' equity resulted primarily from total comprehensive income for the
first quarter of 2001.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS-CONTINUED
Allowance for Loan Losses
The Corporation maintains an allowance for loan losses at a level it believes is
adequate to absorb estimated losses inherent in the loan portfolio, plus
estimated losses associated with off-balance sheet credit instruments such as
letters of credits and unfunded lines of credit. The Corporation prepares an
analysis to assess the risk in the loan portfolio and to determine the adequacy
of the allowance for loan losses. Generally, the Corporation estimates the
allowance using factors such as historical loss experience based on volume and
types of loans, volume and trends in delinquencies and non-accruals, national
and local economic conditions and other pertinent information.
The Corporation manages and controls risk in the loan portfolio through
adherence to credit standards established by the Board of Directors and
implemented by senior management. These standards are set forth in a formal loan
policy, which establishes loan underwriting/approval procedure, sets limits on
credit concentration and enforces regulatory requirements.
Loan portfolio concentration risk is reduced through concentration limits for
borrowers and collateral types and through geographical diversification.
Concentration risk is measured and reported to senior management and the Board
of Directors on a regular basis.
A risk rating system is employed whereby each loan is assigned a rating which
corresponds to the perceived credit risk. Risk ratings are subject to
independent review by a Loan Review Department, which also performs ongoing,
independent review of the risk management process that includes 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.
Review results are reported to the Audit Committee of the Board of Directors.
The allowance as a percentage of loans at March 31, 2001 was 1.12% compared to
1.11% as of December 31, 2000. The allowance as a percentage of loans for the
five-year period ending December 31, 2000 has averaged 1.25%. Allowance for loan
losses as a percentage of nonperforming loans increased to 96.6% at March 31,
2001 from 90.9% at December 31, 2000, while nonperforming loans remained level
at $9.9 million. As a percent of net loans, nonperforming loans decreased from
1.22% at December 31, 2000 to 1.16% at March 31, 2001. The balance of
nonperforming loans includes a single credit, secured by real estate, totaling
$3.8 million and $4.9 million as of March 31, 2001 and December 31, 2000,
respectively. Excluding this credit, the allowance for loan losses as a percent
of nonperforming loans was 156.8% and 181.6% as of March 31, 2001 and December
31, 2000, respectively.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS-CONTINUED
Allowance for Loan Losses-continued
Net charge-offs were $203,000 for the first quarter of 2001. Net charge-offs to
average loans on an annualized basis totaled .10% for the first quarter of 2001.
The ratio of net charge-offs to average loans has averaged .67% for the five
year period ended December 31, 2000, with a ratio of .57% in 2000 and .90% in
1999. Historically, net charge-offs have been more significant for commercial
and consumer loans. Net charge-off loans during 2000 are more reflective of
historical averages because net charge-off loans during 1999 included the
charge-off of loans acquired in a purchase business combination and a
significant loss from a single commercial loan customer. The Corporation
believes that in future periods loan losses should reflect amounts that are
similar to its historical averages, exclusive of 1999.
The following table summarizes certain information with respect to the
Corporation's allowance for loan losses and the composition of charge-offs and
recoveries for the periods indicated.
SUMMARY OF LOAN LOSS EXPERIENCE
THREE-MONTH
PERIOD ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
2001 2000
----------- ------------
(Dollars in Thousands)
Allowance for loan losses at beginning of year ......... $ 8,959 $ 8,065
Charge-offs:
Commercial, industrial and agricultural ............... 6 3,133
Real estate ........................................... 148 756
Consumer .............................................. 185 726
-------- --------
Total charge-offs ............................. 339 4,615
Recoveries:
Commercial, industrial and agricultural ............... 13 193
Real estate ........................................... 8 87
Consumer .............................................. 115 268
-------- --------
Total recoveries .............................. 136 548
Net charge-offs ......................................... 203 4,067
Provision for loan losses ............................... 795 4,961
-------- --------
Allowance for loan losses at end of year ................ $ 9,551 $ 8,959
======== ========
Loans at end of period, net of unearned income .......... $854,568 $808,145
Average loans, net of unearned income ................... 837,727 710,414
Ratio of ending allowance to ending loans ............... 1.12% 1.11%
Ratio of net charge-offs to average loans (1) ........... .10% .57%
Net charge-offs as a percentage of:
Provision for loan losses ............................. 25.53% 81.98%
Allowance for loan losses (1).......................... 8.62% 45.40%
Allowance for loan losses as a percentage
of nonperforming loans ................................ 96.60% 90.85%
(1)Annualized.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS-CONTINUED
Allowance for Loan Losses-continued
The following table represents the Corporation's nonperforming loans for the
dates indicated.
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
MARCH 31, DECEMBER 31,
2001 2000
----------- -------------
Nonaccrual.................................................. $ 8,947 $ 9,340
Past due (contractually past due 90 days or more)........... 940 334
Restructured................................................ -- 187
--------- ---------
$ 9,887 $ 9,861
========= =========
A delinquent loan is generally placed on nonaccrual status when it becomes 90
days or more past due and management believes, after considering economic and
business conditions and collection efforts, that the borrower's financial
condition is such that the collection of interest is doubtful. When a loan is
placed on nonaccrual status, all interest which has been accrued on the loan but
remains unpaid is reversed and deducted from earnings as a reduction of reported
interest income. No additional interest income is accrued on the loan balance
until the collection of both principal and interest becomes reasonably certain.
When a problem loan is finally resolved, there may ultimately be an actual
write-down or charge-off of the principal balance of the loan, which may
necessitate additional charges to earnings.
Regulatory Capital
The table below represents the regulatory and minimum regulatory capital
requirements of the Corporation and its subsidiary at March 31, 2001 (dollars in
thousands):
FOR CAPITAL
ADEQUACY TO BE WELL
ACTUAL PURPOSES CAPITALIZED
-------------- -------------- ---------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
Total Risk-Based Capital
Corporation $95,216 10.77% $70,745 8.00% $88,431 10.00%
The Bank 91,049 10.40 70,069 8.00 87,586 10.00
Tier 1 Risk-Based Capital
Corporation 85,665 9.69 35,372 4.00 53,058 6.00
The Bank 81,498 9.30 35,034 4.00 52,551 6.00
Leverage Capital
Corporation 85,665 7.88 43,465 4.00 54,341 5.00
The Bank 81,498 7.50 43,474 4.00 54,343 5.00
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS-CONTINUED
Liquidity
The Corporation's principal sources of funds are deposits, principal and
interest payments on loans, federal funds sold and maturities and sales of
investment securities. In addition to these sources of liquidity, the
Corporation has access to purchased funds from several regional financial
institutions and may borrow from a regional financial institution under a line
of credit, and from the Federal Home Loan Bank under a blanket floating lien on
certain residential real estate loans. While scheduled loan repayments and
maturing investments are relatively predictable, interest rates, general
economic conditions and competition primarily influence deposit flows and early
loan payments. The management of the Corporation places constant emphasis on the
maintenance of adequate liquidity to meet conditions that might reasonably be
expected to occur.
Forward-Looking Statements
Statements contained in this Quarterly Report on Form 10-Q, which are not
historical facts, are forward-looking statements. In addition, the Corporation,
through its senior management, from time to time makes forward-looking public
statements concerning its expected future operations and performance and other
developments. Such forward-looking statements are made pursuant to the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
Additionally, such forward-looking statements are based on the Corporation's
belief as well as certain assumptions made by, and information currently
available to, the Corporation with respect to its ability to achieve the
operating results it expects relating to the recently-completed acquisitions;
one-time costs associated with the recently-completed acquisitions; the ability
of the Corporation to achieve anticipated cost savings and revenue enhancements
with respect to the acquired operations; the assimilation of the acquired
operations by the Corporation, including installing the Corporation's
centralized policy oversight, credit review and management systems at the
acquired institutions; the absence of material contingencies related to the
acquired operations; the adequacy of the allowance for loan losses; the ability
of the Corporation to resolve any pending litigation on acceptable terms; the
effect of legal proceedings on the Corporation's financial condition, results of
operations and liquidity; and market risk disclosures, as well as other
information. The risks and uncertainties that may affect operations,
performance, growth projections and the results of the Corporation's business
include, but are not limited to, fluctuations in the economy, the relative
strength and weakness in the commercial and consumer sector and in the real
estate market, the actions taken by the Federal Reserve Board for the purpose of
managing the economy, interest rate movements, the impact of competitive
products, services and pricing, timely development by the Corporation of
technology enhancements for its products and operating systems, legislation and
similar matters. Although management of the Corporation believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to be correct. Prospective
investors are cautioned that any such forward-looking statements are not
guaranties of future performance, and involve risks and uncertainties, and that
actual results may differ materially from those contemplated by such
forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information set forth under the caption "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations-Market Risk-Interest
Sensitivity" included in the Corporation's Annual Report on Form 10-K for the
year ended December 31, 2000, is hereby incorporated herein by reference.
18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
While we may from time to time be a party to various legal proceedings arising
in the ordinary course of our business, we believe that, other than as set forth
below, or as discussed in, and incorporated herein by reference, "Item 3. Legal
Proceedings" in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2000, there are no proceedings threatened or pending against the
Corporation at this time that may individually, or in the aggregate,
materially, adversely affect the Corporation's business, financial condition or
results of operations.
The Bank is currently a defendant in various legal proceedings pending in
state court arising out of certain losses that occurred in our Decatur branch
in late 1999. See "Item 3. Legal Proceedings" of the Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 2000. On May 2,
2001, the trial court denied our motion for summary judgment in John C. Moses
v. The Bank et al, Case No. CV 00-150, which is pending in the Circuit Court of
Morgan County, Alabama. The plaintiff contends that the defendants converted
property and accounts that he values at $483,000. The plaintiff also requests
additional damages, including punitive damages. Trial is set for June 11, 2001,
on all counts including plaintiff's claims for punitive damages. While we
believe that we will prevail in this lawsuit, there can be no assurance,
especially given the unpredictability of punitive damages awards, that, if we
do not prevail, the litigation will not have a material adverse effect on our
financial condition or results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None
(b) Report on Form 8-K:
None
SIGNATURES
Pursuant with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Banc Corporation
(Registrant)
Date: May 15, 2001 By: /s/ James A. Taylor, Jr.
---------------------------------------------
James A. Taylor, Jr.
President and Chief Operating Officer
Date: May 15, 2001 By: /s/ David R. Carter
---------------------------------------------
David R. Carter
Executive Vice President and Chief Financial
Officer
(Principal Accounting Officer)