Southern BancShares N C : Annual Report – 2021

SOUTHERN BANCSHARES (N.C.), INC.

ANNUAL REPORT

2021

Mission

Founded in 1901, Southern Bank is a customer-focused community bank serving eastern North Carolina and southeastern Virginia. Our mission is to be the bank of preference for consumers and businesses in the markets that we serve.

Genuine concern for the customer is our top priority, striving to create

and deliver superior value in the financial services we provide by

exceeding the expectations of our customers.

We are dedicated to the communities we serve, both in spirit and support. We provide a progressive and rewarding working environment for our employees that encourages the investment of their time, energy, and talents to the betterment of their communities.

We embrace sound banking philosophies that incorporate dedication to relationships, strong business values, and financial integrity while advocating the maintenance of quality assets and reasonable return on shareholder investment.

Southern Bank is a wholly owned subsidiary of Southern BancShares

(N.C.), Inc.

Contents

Letter to Shareholders	4
Financial Summary and Selected Financial Data	5
Independent Auditors' Report	7
Condensed Consolidated Financial Statements	8
Directors and Officers	10
Branch Locations	12

Annual Report 2021

Letter to Shareholders

The year 2021 saw our Company as well as our industry, state, and nation move gradually toward normalcy from the worst of the pandemic. While we have felt the continued weight of COVID during this year, we are grateful the burden was modest compared to that felt by those in our healthcare systems and schools. Our associates' resiliency continues to be amazing. Our Board of Directors could not be more proud of their strength and progress during this trying time. We are pleased to report that our Company's condition remains strong, and we have great optimism about the future.

The last three years have made it clear that focusing on community banking principles continues to be the bedrock of our success. Our recent growth has clearly been the result of the excellent work of our team; however, we also recognize that the numerous stimulus programs enacted by the Federal Government have distorted our economy in many ways. We have seen material disruptions in supply chains, employment markets, and a level of inflation not seen for 40 years. The Federal Reserve Bank has signaled its intentions to lift rates from historic lows. While a rising-rate environment typically portends better bank performance over time, our greater concern is the damage wrought to consumers and commercial customers if the Federal Reserve Bank executes poorly. We believe strongly that ours can be a forgiving business over time as long as government policy supports a healthy consumer.

Once again, Southern Bank has enjoyed historic increases in both loans and deposits during the year totaling $139.9 million and $603.4 million, respectively. We are sound financially and stand ready for future developments; however, the unknown continues to be pandemic- related market distortions and the possibility they may create headwinds to our success in future periods.

Our Company enjoyed another year of record demand for mortgage services, with our mortgage team closing a remarkable 1,366 mortgage loans totaling $205.9 million during 2021. Southern Investment Services also enjoyed a banner year, growing their total revenue by $3.6 million, representing a 50% increase. I personally want to applaud both teams' efforts in delivering such strong performance that contributed meaningful results to our company's bottom line.

As mentioned in previous letters to shareholders, the change in accounting rules related to fluctuations in the market value of our long-held equity security investments again had a significant impact on our 2021 net income. During 2021, the value of those investments increased by $45.4 million, net of income tax, which is included in our reported net income. However, as shown on page 6 of the Annual Report, our net income for 2021, excluding the appreciation in those instruments, was $48.2 million, which we think is a far more telling measure of our progress as an organization. This accounting treatment for equity securities will continue to cause volatility in our earnings even though economically nothing has changed in how we manage our company.

In another notable 2021 event, our Company raised $90.0 million in subordinated debt and senior notes. Market conditions allowed us to complete this offering at very competitive rates and should help to support our company's growth for years to come.

We continued to increase our investment in our people. We take this investment very seriously, as we recognize that our people ARE the bank to our customers. It remains one of our foundational commitments that we invest in their careers and maintain a culture of caring while encouraging the right balance of family, faith, and commitment to work. Making investments in their professional development remains a cornerstone of our Company's success. In the spirit of that commitment, we started construction of a state-of-the-art Learning and Development Center on the 3rd floor of our Medical Park banking facility on Stantonsburg Road in Greenville, North Carolina. With the completion of this facility, we will have a central hub through which to host local and regional events, as well as to support virtual learning for our associates.

Our Company continued to make significant investments in needed information technology platforms that are really too numerous to list. Most involve data security infrastructure and redundancy, which are foundational to the relationship of trust we have with our customers. Our entire Information Technology team has had an eventful and successful year. We salute their extra effort in delivering seamless and reliable

March 21, 2022

solutions for our associates and safety for our customers.

Our Company will continue to make investments in its customer-focused business model. We endeavor to be ever- responsive and attentive to our customer relationships in a world that appears to grow more remote and automated by the day. We firmly believe there is untold value in creating an environment where we encourage our leaders to invest meaningful time with their teams and devote time in developing and deepening relationships with our customers. This will allow us to better understand and serve their needs and, over the long term, provide a truly distinctive banking experience.

In closing, we would like to thank our associates, shareholders, and customers for their continued loyalty and for all they do for our Company. As we now turn our focus to 2022 and the hopes for a gradual return to a more normal environment for us all, we look forward with great optimism as our Company remains favorably positioned for continued growth. As always, we offer our sincere appreciation for your loyalty and confidence in our organization.

Drew M. Covert

Chairman of the Board and Chief Executive Officer

4 Letter to Shareholders

Annual Report 2021

Book Value per Common Share

at December 31

$6,000
$5,500
$5,000
$4,500
$4,000
$3,500
$3,000
$2,500
$2,000
$0
2011	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021

BancShares Total Assets

at December 31

(Dollars in Millions)

$5,000
$4,500
$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$0
2011	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021

5