Southern Banc : FY2021 Annual Report

A N N U A L R E P O R T

THE SOUTHERN BANC COMPANY, INC.

Dear Fellow Shareholders,

In 2021 the company increased profits, avoided problems, and kept expenses in check. These were acceptable results as we worked out of the fluctuations of the pandemic, but still far below our targets for growth and profit.

Our plan is still the same. We offer Community Banking in our branch markets and Factoring across the US, growing them both on a conservatively managed balance sheet. While our profile differs from that of most other community banks, we believe our strategy affords us excellent opportunities for growth and profit.

We appreciate your support, and look forward reporting to you next year.

Sincerely,

Gates Little

President

THE SOUTHERN BANC COMPANY, INC.

The Southern Banc Company, Inc. (the "Company") was incorporated at the direction of management of The Southern Bank Company (the "Bank"), formerly First Federal Savings and Loan Association of Gadsden, Alabama (the "Original Bank"), for the purpose of serving as the holding company of the Bank upon the acquisition of all of the capital stock issued by the Original Bank in its conversion from mutual to stock form in 1995. At June 30, 2021, the Company had total consolidated assets of approximately $112.4 million, deposits of $93.8 million and stockholders' equity of $12.5 million, or 11.1% of total consolidated assets.

The Original Bank was organized in 1936 as a federal savings association, at which time it also became a member of the Federal Home Loan Bank ("FHLB") System and obtained federal deposit insurance. On July 1, 2008, the Company announced that the Original Bank had converted its charter from a federal savings association to an Alabama state-chartered commercial bank. As a state-chartered bank, the Bank is regulated by the State of Alabama Banking Department (the "Banking Department") and the Federal Deposit Insurance Corporation ("FDIC"). As a bank holding company, the Company is regulated by the Board of Governors of the Federal Reserve System (the "Federal Reserve"). In 1999, the Bank adopted its current corporate title.

The Bank currently operates through four full-service banking offices located in Gadsden, Albertville, Guntersville and Centre, Alabama, and one commercial finance office located in Birmingham, Alabama. The Bank's business strategy has been to operate as a profitable and independent community-oriented financial institution dedicated to providing quality customer service. Generally, the Bank has sought to implement this strategy by using retail deposits as its sources of funds and maintaining most of its assets in loans secured by real estate properties located in the Bank's market area, consumer loans, commercial loans and leases, mortgage-backed securities issued by Federal Home Loan Mortgage Corporation ("Freddie Mac"), the Government National Mortgage Association ("GNMA") and Federal National Mortgage Association ("Fannie Mae"), U.S. government and agency securities, interest-earning deposits, and cash and equivalents.

In an effort to diversify the Company's loan and lease portfolio and to increase yield in the portfolio, the Company's management team and the Board of Directors developed and approved the Commercial Finance Division ("CFD") of The Southern Bank Company. This division was officially started in January 2011. The business of the CFD is to purchase accounts receivable. This business is also known as factoring. In 2021 factoring constituted a significant amount of the Company's revenue.

Accounts receivable factoring allows companies to access cash by selling their customers' invoices for Bank cash advances. The Bank follows up with the selling company's customers for payment of the outstanding invoice amount. After receiving payment from the customer, the Bank pays the company the remainder of the invoice amount, minus the Bank's fee which is a percentage of the invoice face value. The interest charge fee is calculated based on the advanced amount outstanding multiplied by an agreed-upon interest rate based on a number of considerations, primarily the creditworthiness of the selling company's customer. Although factoring is considered to have greater risk than commercial lending, to date the Bank has experienced approximately $45,000 of losses in CFD's factoring activities. At June 30, accounts receivable in the factoring portfolio constituted approximately 13.6% of the Company's total assets. For additional information, see Note 1 of Notes to Consolidated Financial Statements.

The Bank's business strategy incorporates the following key elements: (1) remaining a community-oriented financial institution while maintaining a strong core customer base by providing quality service and offering customers the access to senior management and services that a community-based institution can offer; (2) attracting a retail deposit base from the communities served by the Bank's four banking offices; (3) maintaining asset quality by emphasizing investment in real estate loans, commercial loans, consumer loans, leases, factoring, mortgage-backed securities and other securities issued or guaranteed by the U.S. government or agencies thereof; and (4) maintaining liquidity and capital substantially in excess of regulatory requirements.

The lending activities and other investments of the Bank must comply with various regulatory requirements, and the Banking Department and FDIC periodically examine the Bank for compliance with various regulatory requirements. The Bank must file reports with the regulators describing its activities and financial condition. The

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Company and the Bank are also subject to certain reserve and capital requirements promulgated by the Federal Reserve.

The coronavirus 2019 disease (COVID-19) pandemic has created both a public health crisis and an economic crisis in the United States. The pandemic has disrupted lives, pushed the hospital system to its capacity, and created a global economic slowdown. The economic crisis is unprecedented in its scale: the pandemic has created a demand shock, a supply shock, and a financial shock all at once.

An increase in unemployment and/or continued negative developments in the domestic and international credit markets may significantly affect economic conditions in the market areas in which we do business, the value of our loans and investments, supply of and demand for deposits, and our ongoing operations, costs and profitability.

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MARKET FOR COMMON STOCK

AND RELATED STOCKHOLDER MATTERS

At June 30, 2021, there were 806,086 shares of the Common Stock outstanding and approximately 130 stockholders of record. This total does not reflect the number of persons or entities who hold Common Stock in nominee or "street name" through various brokerage firms.

The Company's common stock trades in the over-the-counter market under the symbol "SRNN."

The payment of dividends on the Common Stock is subject to determination and declaration by the Board of Directors of the Company. In addition, from time to time, the Board of Directors may pay special cash dividends in addition to, or in lieu of, regular cash dividends. The payment of future dividends will be subject to the requirements of applicable law and the determination by the Board of Directors of the Company that the net income, capital and financial condition of the Company and the Bank, industry trends and general economic conditions, justify the payment of dividends. The Company is subject to certain restrictions on the amount of dividends that may be declared without prior regulatory approval.

Dividends paid by the Bank are a principal source of funds available to the Company for payment of dividends to its stockholders and for other needs. Applicable federal and state statutes and regulations impose restrictions on the amounts of dividends that may be declared by the subsidiary bank. At June 30, 2021, the Bank was able to pay dividends subject to regulatory approval. See Note 12 of Notes to Consolidated Financial Statements.

On April 21, 2009, the Company announced that to preserve capital it would suspend the payment of future dividends. The determination was made in the best judgment of the Board of Directors and management.

The following table sets forth information as to high and low sales prices of the Company's Common Stock for the calendar quarters indicated. The high and low sales prices of the Company's common stock shown below are based on information previously posted on the OTC Pink Marketplace by broker-dealers. These prices may include dealer mark-up,mark-down and/or commission and may not necessarily represent actual transactions. Comparable sales price information for the Common Stock may not be currently available from the OTC Pink Marketplace.

	Price Per Share
Fiscal 2020	High	Low
First Quarter	$8.60	$8.30
Second Quarter	$9.75	$8.01
Third Quarter	$9.10	$8.90
Fourth Quarter	$9.01	$6.90
Fiscal 2021
First Quarter	$7.11	$5.95
Second Quarter	$7.20	$6.35
Third Quarter	$8.26	$7.05
Fourth Quarter	$10.18	$7.75

The Company has recently been advised by OTC Markets Group, Inc. that the Common Stock has been moved from the Pink Market to the OTC Expert Market, where there are trading restrictions and the Common Stock is not publicly quoted.

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