EXHIBIT 13

                          ANNUAL REPORT TO STOCKHOLDERS

<PAGE>
================================================================================

                                      2000

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







================================================================================


                         THE SOUTHERN BANC COMPANY, INC.



<PAGE>
                 [LETTERHEAD OF THE SOUTHERN BANC COMPANY, INC.]

         To Our Stockholders:


                  We are happy to present the Annual Report of The Southern Banc
         Company, Inc. for the fiscal year ended June 30, 2000. We invite you to
         review the Report and the Company's performance during fiscal 2000.

                  During  fiscal  1999,  we  significantly  increased  our  loan
         production,  while  preserving  the  Bank's  traditionally  high  asset
         quality.  During fiscal 2000, we continued our increased  level of loan
         production,  while reducing our operating expenses. We also repurchased
         approximately  65,600 shares of outstanding common stock. These efforts
         resulted in another  increase in net income and a significant  increase
         in earnings per share.

                  We will continue to focus on our  stockholders and communities
         in  order to  enhance  your  investment  and the  banking  needs of our
         customers.

                  Your continued  support and interest in our Company is greatly
         appreciated.

                                   Sincerely,



                                   James B. Little Jr.

<PAGE>

                         THE SOUTHERN BANC COMPANY, INC.

         The Southern Banc Company, Inc. (the "Company") was incorporated at the
direction of management of The Southern  Bank  Company,  formerly  First Federal
Savings and Loan Association of Gadsden,  Alabama (the "Bank"),  for the purpose
of  serving  as the  savings  institution  holding  company of the Bank upon the
acquisition  of all of the capital stock issued by the Bank upon its  conversion
from  mutual to stock  form in 1995.  The  Company  is  classified  as a unitary
savings  institution  holding company and is subject to regulation by the Office
of  Thrift  Supervision  ("OTS").  At June  30,  2000,  the  Company  had  total
consolidated   assets  of  $98.1   million,   deposits  of  $81.4   million  and
stockholders' equity of $16.3 million, or 16.6% of total assets.

         The Bank was organized in 1936 as a federally  chartered mutual savings
and loan association,  at which time it also became a member of the Federal Home
Loan Bank  ("FHLB")  System and obtained  federal  deposit  insurance.  The Bank
currently operates through four banking offices located in Gadsden, Albertville,
Guntersville  and  Centre,  Alabama.  In 1999,  the  Bank  adopted  its  current
corporate title to eliminate any confusion  between the Company and the Bank and
to increase public awareness of the expanded banking services which the Bank now
offers.

         The Bank's  business  strategy has been to operate as a profitable  and
independent   community-oriented  savings  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  mortgage-backed  securities  issued by the  Federal  Home Loan
Mortgage  Corporation  ("FHLMC"),  the Government National Mortgage  Association
("GNMA") and the Federal National Mortgage Association  ("FNMA"),  loans secured
by owner-occupied  one-to-four-family residential real estate properties located
in  the  Bank's   market   area,   U.S.   government   and  agency   securities,
interest-earning  deposits,  cash and equivalents and consumer loans. 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
local residential mortgage loans, consumer loans, 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.

         As a federally  chartered savings  institution,  the Bank is subject to
extensive regulation by the OTS. The lending activities and other investments of
the Bank must comply with various federal regulatory  requirements,  and the OTS
periodically   examines  the  Bank  for  compliance   with  various   regulatory
requirements.  The Federal Deposit Insurance  Corporation  ("FDIC") also has the
authority to conduct special  examinations.  The Bank must file reports with OTS
describing its activities and financial condition and is also subject to certain
reserve  requirements  promulgated  by the  Board of  Governors  of the  Federal
Reserve System.


<PAGE>

                             MARKET FOR COMMON STOCK
                         AND RELATED STOCKHOLDER MATTERS

         The Company's Common Stock began trading on the American Stock Exchange
in 1995 under the symbol "SRN." At June 30, 2000, there were 1,008,498 shares of
the Common Stock outstanding and approximately 302 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  payment  of   dividends   on  the  Common   Stock  is  subject  to
determination  and  declaration  by the Board of Directors  of the Company.  The
Board of Directors has adopted a policy of paying  quarterly  cash  dividends on
the Common  Stock.  In addition,  from time to time,  the Board of Directors may
determine to 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,  thrift industry trends and general  economic  conditions,
justify the payment of dividends.  There can be no assurance that dividends will
be paid.

         The  following  table sets forth  information  as to high and low sales
prices of the Company's  Common Stock and cash  dividends  declared per share of
common stock for the calendar quarters indicated.

                                   Price Per Share               Dividends
                             -----------------------------
                                  HIGH            LOW            PER SHARE

FISCAL 1999

   First Quarter             $15.750          $13.688             $.0875
   Second Quarter            $13.688          $12.063             $.0875
   Third Quarter             $12.625          $11.000             $.0875
   Fourth Quarter            $12.625          $11.500             $.0875

FISCAL 2000

   First Quarter             $12.313          $  8.250            $.0875
   Second Quarter            $ 9.875          $  8.000            $.0875
   Third Quarter             $ 9.000          $  7.250            $.0875
   Fourth Quarter            $ 9.375          $  7.313            $.0875


                                       2
<PAGE>

                 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
                                                                          Year Ended June 30,
                                                  --------------------------------------------------------------------
                                                      2000         1999          1998          1997          1996
                                                      ----         ----          ----          ----          ----
                                                                 (In thousands, except per share data)

INCOME STATEMENT DATA
<S>                                               <C>           <C>          <C>            <C>          <C>
Interest income.............................      $    6,944    $    6,990   $    7,418     $   7,513    $    7,702
Interest expense............................           4,081         4,100        4,519         4,534         4,679
                                                  ----------    ----------   ----------     ---------    ----------
Net interest income.........................           2,863         2,890        2,899         2,979         3,023
Provision for loan losses...................              17            27           --            --            --
                                                  ----------    ----------   ----------     ---------    ----------
Net interest income after provision
Noninterest income..........................             118           196           92            92            77
Noninterest expense.........................           1,962         2,148        2,171         2,849         2,231
                                                  ----------    ----------   ----------     ---------    ----------
Income before provision for income taxes....           1,002           911          820           222           869
Provision for income taxes..................             356           313          277            79           294
                                                  ----------    ----------   ----------     ---------    ----------
Net income..................................      $      646    $      598          543           143           575
                                                  ==========    ==========   ==========     =========    ==========
Earnings per share
     Basic..................................      $     0.71    $     0.59   $     0.51     $    0.13    $     0.34
                                                  ==========    ==========   ==========     =========    ==========
     Diluted................................      $     0.71    $     0.57   $     0.49     $    0.12    $     0.34
                                                  ==========    ==========   ==========     =========    ==========


                                                                          Year Ended June 30,
                                                  --------------------------------------------------------------------
                                                      2000         1999          1998          1997          1996
                                                      ----         ----          ----          ----          ----
                                                                            (In thousands)

BALANCE SHEET DATA
Total assets................................      $   98,087    $   96,875   $  105,087     $ 105,434    $  107,029
Loans receivable, net.......................          39,840        42,109       41,153        36,180        33,145
Securities:
     Available for sale.....................          27,109        21,351       22,239        17,621        13,504
     Held to maturity.......................          23,886        23,706       34,077        44,158        52,822
Deposits....................................          81,437        79,734       85,926        86,759        85,847
Stockholders' equity........................          16,319        16,645       18,570        17,931        20,135


                                                                          Year Ended June 30,
                                                  --------------------------------------------------------------------
                                                      2000         1999          1998          1997          1996
                                                      ----         ----          ----          ----          ----
KEY OPERATING DATA
Return on average assets....................            0.66%       0.61%        0.52%         0.14%          0.53%
Return on average equity....................            4.03        3.38          2.96         0.82           3.29
Average equity to average assets............           16.33       18.12         17.43        16.58          16.17
Dividend payout ratio.......................           49.30       59.32         68.63       424.07         127.53
Number of offices...........................               4           4             4            4              4
</TABLE>
                                       3

<PAGE>
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

         The principal  business of the Bank consists of accepting deposits from
the general public through its main and branch offices and investing those funds
in loans secured by  one-to-four-  family  residential  properties  and consumer
loans located in the Bank's  primary  market area.  Due to the  competition  for
one-to-four-family  mortgage loans and consumer loans in the Bank's market area,
the Bank  maintains a substantial  portfolio of investment  and  mortgage-backed
securities.  The Bank's  mortgage-backed  securities  are all  guaranteed  as to
principal and interest by GNMA, FHLMC or FNMA. The Bank's  securities  portfolio
consists  primarily of U.S.  Treasury  notes and government  agency  securities,
including  agency notes.  See Notes 6 and 7 of Notes to  Consolidated  Financial
Statements. The Bank maintains a substantial amount in interest-bearing deposits
in other banks, primarily an interest-bearing account with the FHLB of Atlanta.

         The  Bank's  net  income is  dependent  primarily  on its net  interest
income,  which is the difference  between  interest  income earned on its loans,
mortgage-backed  securities  and  securities  portfolio  and  interest  paid  on
customers'  deposits.  The Bank's net  income is also  affected  by the level of
non-interest income, such as service charges on customers' deposit accounts, net
gains or losses on the sale of  securities  and other  fees.  In  addition,  net
income is affected by the level of non-interest expense, primarily consisting of
compensation and employee benefit expense,  Savings  Association  Insurance Fund
("SAIF") deposit insurance premiums and other expenses.

         The operations of the Bank and the financial  institution industry as a
whole are significantly affected by prevailing economic conditions,  competition
and  the  monetary  and  fiscal  policies  of  governmental  agencies.   Lending
activities  are  influenced by demand for and supply of housing and  competition
among  lenders and the level of interest  rates in the Bank's  market area.  The
Bank's  deposit flows and costs of funds are  influenced  by  prevailing  market
rates of interest,  primarily on competing  investments,  account maturities and
the levels of personal income and savings in the Bank's market area.

COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2000 AND JUNE 30, 1999

         Total assets increased  approximately $1.2 million, or 1.3%, from $96.9
million  at June 30,  1999 to $98.1  million at June 30,  2000.  During the year
ended June 30, 2000, net loans decreased  approximately  $2.3 million,  or 5.4%,
securities  available for sale increased  approximately $5.8 million,  or 27.0%,
and securities held to maturity increased approximately $180,000, or 0.76%.

         Cash and cash  equivalents  decreased  approximately  $2.9 million,  or
33.8%,  from $8.7 million at June 30, 1999 to $5.7 million at June 30, 2000. The
decrease  in  cash  and  cash  equivalents  was  primarily  attributable  to the
reduction in interest-bearing deposits in other banks.

                                       4
<PAGE>

         Accrued  interest  and  dividends  receivable  increased  approximately
$75,000,  or 12.5%, from $601,000 at June 30, 1999 to $677,000 at June 30, 2000.
Prepaid expenses and other assets increased  approximately  $187,000, or 110.6%,
from  $169,000 at June 30, 1999 to $355,000 at June 30, 2000.  This increase was
primarily attributable to an increase in prepaid federal income taxes.

         Total deposits  increased  approximately  $1.7 million,  or 2.1%,  from
$79.7  million  at June  30,  1999 to $81.4  million  at June  30,  2000.  Other
liabilities  during the fiscal year ended June 30, 2000 decreased  approximately
$166,000, or 33.4%, from $497,000 at June 30, 1999 to $331,000 at June 30, 2000.
This  decrease  was  primarily  attributable  to a decrease in deferred  federal
income taxes.

         Total equity  decreased  approximately  $325,000,  or 2.0%,  from $16.6
million at June 30,  1999 to $16.3  million at June 30,  2000.  This  change was
primarily  attributable to the repurchase of approximately  65,600 shares of the
Company's outstanding Common Stock.

COMPARISON OF RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED JUNE 30, 2000 AND
1999

         The  Company  reported  net income for the fiscal  years ended June 30,
2000 and 1999 of $646,000 and $598,000, respectively. The increase in net income
for the  fiscal  year  ended  June 30,  2000  was  primarily  attributable  to a
reduction in salaries and employee benefits.

         Net Interest  Income.  Net interest income for each of the fiscal years
ended June 30, 2000 and 1999 was $2.9 million.  Total interest income  decreased
approximately  $47,000, or 0.67%, for the fiscal year ended June 30, 2000. Total
interest expense decreased  approximately $19,000, or 0.47%, for the fiscal year
ended June 30, 2000 compared with the fiscal year ended June 30, 1999.

         Provision for Loan Losses.  During the fiscal year ended June 30, 2000,
the provision for loan losses was approximately  $17,000. The provision for loan
losses for the fiscal year ended June 30, 1999 was  approximately  $27,000.  The
allowance for loan losses is based on  management's  evaluation of possible loan
losses inherent in the Bank's loan portfolio.  Management considers, among other
factors, past loss experience,  current economic conditions,  volume, growth and
composition of the loan portfolio, and other relevant factors.

         Non-Interest  Income.   Non-interest  income  decreased   approximately
$76,000,  or 39.2%,  for the fiscal year ended June 30, 2000,  from $194,000 for
the  year  ended  June  30,  1999  to  $118,000.   The  decrease  was  primarily
attributable to a decrease in prepayment penalties associated with mortgage loan
refinances.

         Non-Interest  Expense.  Non-interest  expense  decreased  approximately
$185,000,  or 8.6%,  for the fiscal year ended June 30, 2000,  from $2.2 million
for the year ended June 30, 1999 to $2.0  million.  This  decrease was primarily
attributable  to a decrease in salaries and employee  benefits of  approximately
$177,000,  or 12.27% for the fiscal year ended June 30,  2000.  Other  operating
expenses increased by approximately  $2,000, or 0.37%, for the fiscal year ended
June 30, 2000.

                                       5
<PAGE>

         Provision for Income Taxes. During the fiscal year ended June 30, 2000,
the provision for income tax expense increased  approximately $44,000, or 14.1%.
This  increase was  primarily  attributable  to an increase in pre-tax  earnings
resulting from a reduction in operating expenses.

COMPARISON OF RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED JUNE 30, 1999 AND
1998

         The  Company  reported  net income for the fiscal  years ended June 30,
1999 and 1998 of $598,000 and $543,000, respectively. The increase in net income
for the  fiscal  year  ended  June 30,  1999  was  primarily  attributable  to a
reduction in operating expenses.

         Net Interest  Income.  Net interest income for each of the fiscal years
ended June 30, 1999 and 1998 was $2.9 million.  Total interest income  decreased
approximately  $427,000,  or 5.8%,  for the  fiscal  year  ended  June 30,  1999
compared  with the fiscal  year  ended June 30,  1998.  Total  interest  expense
decreased  approximately  $418,000,  or 9.3%, for the fiscal year ended June 30,
1999 compared with the fiscal year ended June 30, 1998.

         Provision for Loan Losses.  During the fiscal year ended June 30, 1999,
the provision for loan losses was approximately  $27,000.  No provision for loan
losses was deemed  necessary in fiscal year ended June 30, 1998.  The  allowance
for loan losses is based on  management's  evaluation  of  possible  loan losses
inherent  in the  Bank's  loan  portfolio.  Management  considers,  among  other
factors, past loss experience,  current economic conditions,  volume, growth and
composition of the loan portfolio, and other relevant factors.

         Non-Interest  Income.  Non-interest  income  increased by approximately
$103,000,  from  $92,000 for the fiscal year ended June 30, 1998 to $194,000 for
the fiscal year ended June 30, 1999. This increase was primarily attributable to
an increase in prepayment penalties associated with mortgage loan refinances.

         Non-Interest  Expense.  Non-interest  expense  decreased  approximately
$24,000, or 1.1%, in 1999. Non-interest expenses were approximately $2.2 million
for each of the fiscal years ended June 30, 1999 and 1998. Salaries and employee
benefits  were  approximately  $1.4  million for the fiscal years ended June 30,
1999 and 1998. Other operating expenses decreased by approximately  $45,000,  or
7.3%,  for the fiscal  year ended June 30,  1999  compared  with the fiscal year
ended June 30, 1998.

         Provision for Income Taxes. During the fiscal year ended June 30, 1999,
the provision for income tax expense increased  approximately $36,000, or 12.8%.
This  increase was  primarily  attributable  to an increase in pre-tax  earnings
resulting from a reduction in operating expenses.

ASSET/LIABILITY MANAGEMENT

         Net interest income, the primary component of the Bank's net income, is
determined by the difference or "spread"  between the yield earned on the Bank's
interest-earning  assets and the rates paid on its interest-bearing  liabilities
and the relative  amounts of such assets and  liabilities.  Key  components of a
successful  asset/liability strategy are the monitoring and managing of

                                       6
<PAGE>

interest   rate   sensitivity   on  both   the   interest-earning   assets   and
interest-bearing  liabilities. The matching of the Bank's assets and liabilities
may be analyzed by examining the extent to which its assets and  liabilities are
interest rate sensitive and by monitoring the expected  effects of interest rate
changes on an institution's net portfolio value.

         An asset or liability is interest rate sensitive within a specific time
period if it will  mature or  reprice  within  that time  period.  If the Bank's
assets  mature  or  reprice  more  quickly  or  to a  greater  extent  than  its
liabilities,  the Bank's net portfolio  value and net interest income would tend
to increase  during periods of rising interest rates but decrease during periods
of falling interest rates. If the Bank's assets mature or reprice more slowly or
to a lesser extent than its liabilities,  the Bank's net portfolio value and net
interest  income would tend to decrease  during periods of rising interest rates
but increase  during periods of falling  interest  rates.  The Bank's policy has
been to mitigate  the  interest  rate risk  inherent in the  historical  savings
institution  business  of  originating  long term  loans  funded  by short  term
deposits by pursuing the  following  strategies:  (i) the Bank has  historically
maintained  substantial  liquidity  and  capital  levels to sustain  unfavorable
movements in market  interest  rates;  and (ii) in order to minimize the adverse
effect  of  interest  rate  risk  on  future  operations,   the  Bank  purchases
adjustable-  and fixed-rate  securities with maturities of primarily one to five
years and originates limited amounts of shorter term consumer loans.

         The OTS  requires  the  Bank  to  measure  its  interest  rate  risk by
computing  estimated  changes  in the net  present  value of its cash flows from
assets,  liabilities and off-balance sheet items ("NPV") in the event of a range
of assumed  changes in market interest rates.  These  computations  estimate the
effect  on the  Bank's  NPV of  sudden  and  sustained  1% to 4%  increases  and
decreases in market interest rates. The Bank's Board of Directors has adopted an
interest rate risk policy which  establishes  maximum increases and decreases in
the Bank's  estimated  NPV of 25%, 50% and 77% and 25%, 35% and 50% in the event
of 1%, 2% and 3% increases and decreases in market interest rates, respectively.
At June 30, 2000, based on the most recent  information  provided by the OTS, it
was estimated  that the Bank's NPV would  decrease 11%, 23% and 34% and increase
9%, 15% and 20% in the event of 1%, 2% and 3% increases  and decreases in market
interest rates,  respectively.  These calculations  indicate that the Bank's net
portfolio  value could be adversely  affected by  increases  in interest  rates.
Changes in interest rates also may affect the Bank's net interest  income,  with
increases in rates  expected to decrease  income and decreases in rates expected
to increase income, as the Bank's interest-bearing liabilities would be expected
to mature or reprice more quickly than the Bank's interest-earning assets.

         While management  cannot predict future interest rates or their effects
on the Bank's NPV or net interest  income,  management  does not expect  current
interest  rates to have a  material  adverse  effect  on the  Bank's  NPV or net
interest  income  in  the  future.   Computations  of  prospective   effects  of
hypothetical interest rate changes are based on numerous assumptions,  including
relative levels of market interest rates,  prepayments and deposit  run-offs and
should not be relied upon as indicative of actual results.  Certain shortcomings
are inherent in such  computations.  Although certain assets and liabilities may
have similar  maturity or periods of repricing they may react at different times
and in different  degrees to changes in the market interest rates.  The interest
rates on certain  types of assets and  liabilities  may  fluctuate in advance

                                       7
<PAGE>

of changes in market  interest  rates,  while rates on other types of assets and
liabilities  may lag behind changes in market  interest  rates.  Certain assets,
such as  adjustable  rate  mortgages,  generally  have features  which  restrict
changes in interest  rates on a short term basis and over the life of the asset.
In the event of a change in interest  rates,  prepayments  and early  withdrawal
levels could deviate significantly from those assumed in making calculations set
forth above. Additionally, an increased credit risk may result as the ability of
many  borrowers  to service  their debt may decrease in the event of an interest
rate increase. Finally, virtually all of the adjustable rate loans in the Bank's
portfolio  contain  conditions  which  restrict the periodic  change in interest
rate.

         The Bank's Board of Directors is  responsible  for reviewing the Bank's
asset and liability  policies.  On at least a quarterly basis, the Board reviews
interest  rate risk and trends,  as well as  liquidity  and  capital  ratios and
requirements.  The  Bank's  management  is  responsible  for  administering  the
policies and determinations of the Board of Directors with respect to the Bank's
asset and liability  goals and  strategies.  Management  expects that the Bank's
asset and liability  policies and strategies will continue as described above so
long as  competitive  and  regulatory  conditions in the  financial  institution
industry and market interest rates continue as they have in recent years.

                                       8
<PAGE>

AVERAGE BALANCE, INTEREST AND AVERAGE YIELDS AND RATES

         The  following  table sets forth  certain  information  relating to the
Company's average  interest-earning assets and interest-bearing  liabilities and
reflects the average yield on assets and the average cost of liabilities for the
periods and at the date indicated. Such yields and costs are derived by dividing
income or  expense by the  average  monthly  balance  of assets or  liabilities,
respectively, for the periods indicated.

         The table also presents  information  for the periods  indicated and at
June 30, 2000 with respect to the difference  between the weighted average yield
earned  on  interest-earning  assets  and  the  weighted  average  rate  paid on
interest-bearing   liabilities,   or  "interest   rate  spread,"  which  savings
institutions have traditionally  used as an indicator of profitability.  Another
indicator  of an  institution's  net  interest  income  is  its  "net  yield  on
interest-earning  assets,"  which  is its net  interest  income  divided  by the
average balance of  interest-earning  assets. Net interest income is affected by
the interest rate spread and by the relative amounts of interest-earning  assets
and interest-bearing  liabilities.  When interest-earning  assets approximate or
exceed  interest-bearing  liabilities,  any positive  interest  rate spread will
generate net interest income.
<TABLE>
<CAPTION>
                                                                   Year Ended June 30,
                                        ---------------------------------------------------------------------------------
                                                        2000                                      1999
                                        -----------------------------------     -----------------------------------------
                                                                Average                                     Average
                                        Average                 Yield/          Average                     Yield/
                                        BALANCE     INTEREST      COST          BALANCE      INTEREST         COST
                                        -------     --------    ---------       -------      --------       --------
                                                                                (Dollars in thousands)
Interest-earning assets:
<S>                                     <C>         <C>            <C>          <C>          <C>               <C>
  Loans receivable.................     $  39,996   $   3,143      7.86%        $  41,508    $    3,185        7.67%
  Securities.......................        49,435       3,383      6.84            52,145         3,502        6.72
  Other interest-earning assets....         6,598         416      6.30             6,828           303        4.44
                                        ---------   ---------                   ---------    ----------
    Total interest-earning assets..        96,029       6,942      7.23           100,481         6,990        6.96
Non-interest-earning assets........         2,079                                   2,009
                                        ---------                               ---------
    Total assets...................     $  98,108                               $ 102,490
                                        =========                               =========

Interest-bearing liabilities:
  Deposits.........................     $  81,270       4,098      5.04         $  83,137         4,100        4.93
                                         --------   ---------                   ---------    ----------
    Total interest-bearing liabilities     81,270       4,098      5.04            83,137         4,100        4.93
                                                    ---------                                ----------
Non-interest-bearing liabilities...           812                                   1,106
                                        ---------                               ---------
    Total liabilities..............        82,082                                  84,243
Equity.............................        16,026                                  18,247
                                        ---------                               ---------
    Total liabilities and equity...     $  98,108                               $ 102,490
                                        =========                               =========
Net interest income..............                   $   2,844                                $    2,890
                                                     ========                                ==========
Interest rate spread.............                                   2.19%                                       2.03%
                                                                ========                                    ========
Net interest margin..............                                   2.96%                                       2.88%
                                                                ========                                    ========
Ratio of average interest-earning
   assets to average interest-bearing
   liabilities...................                                 118.16%                                   120.86%
                                                                ========                                    ======

(TABLE CONTINUED)
                                                   Year Ended June 30,
                                        ----------------------------------------
                                                          1998
                                        ----------------------------------------
                                                                         Average
                                               Average                   Yield/
                                               BALANCE      INTEREST       COST
                                               -------      --------     ------
                                                   (Dollars in thousands)
Interest-earning assets:
<S>                                            <C>             <C>           <C>
  Loans receivable.................            $  38,751       $3,081        7.95%
  Securities.......................               58,426        4,046        6.92
  Other interest-earning assets....                6,252          291        4.65
                                               ---------    ---------
    Total interest-earning assets..              103,429        7,418        7.17
Non-interest-earning assets........                1,844
                                               ---------
    Total assets...................            $ 105,273
                                               =========

Interest-bearing liabilities:
  Deposits.........................            $  85,262        4,519        5.30
                                               ---------    ---------
    Total interest-bearing liabilities            85,262        4,519        5.30
                                                            ---------
Non-interest-bearing liabilities...                1,667
                                               ---------
    Total liabilities..............
Equity.............................               18,344
                                               ---------
    Total liabilities and equity...            $ 105,273
                                               =========
Net interest income..............                           $   2,899
                                                            =========
Interest rate spread.............                                            1.87%
                                                                         ========
Net interest margin..............                                            2.80%
                                                                         ========
Ratio of average interest-earning
   assets to average interest-bearing
   liabilities...................                                          121.31%
                                                                         ========
</TABLE>
                                       9
<PAGE>

RATE/VOLUME ANALYSIS

         The table below sets forth  certain  information  regarding  changes in
interest income and interest  expense of the Company for the periods  indicated.
For each  category of  interest-earning  asset and  interest-bearing  liability,
information  is  provided  on changes  attributable  to:  (i)  changes in volume
(changes in volume  multiplied by old rate) and (ii) changes in rates (change in
rate multiplied by old volume).
<TABLE>
<CAPTION>
                                                                            Year Ended June 30,
                                            ------------------------------------------------------------------------------
                                                          2000 vs. 1999                            1999 vs. 1998
                                            ------------------------------------    --------------------------------------
                                                       Increase (Decrease)                      Increase (Decrease)
                                                             Due to                                   Due to
                                            ------------------------------------    --------------------------------------
                                            RATE       VOLUME        TOTAL          RATE        VOLUME          TOTAL
                                            ----       ------        -----          ----        ------          -----
                                                                           (In thousands)
Interest income
<S>                                         <C>        <C>           <C>            <C>         <C>          <C>
  Loans.................................    $     74   $   (116)     $   (42)       $   (114)   $      219   $      105
  Securities............................          63       (182)        (119)            (78)         (431)        (509)
  Other interest-earning assets.........         125        (12)         113              47           (71)         (24)
                                            --------   ---------     -------        ---------   -----------  -----------
    Total interest-earning assets.......         262       (310)         (48)           (145)        (283)         (428)
                                            --------   ---------     --------       --------    ----------   ----------

Interest expense
  Deposits.............................           90        (92)          (2)           (306)         (113)        (419)
                                            --------   ---------     --------       ---------   -----------  ----------
   Total interest-bearing liabilities...          90        (92)          (2)           (306)         (113)        (419)
                                            --------   ---------     --------       ---------   -----------  ----------

Change in net interest income...........    $    172   $   (218)     $   (46)       $     161   $     (170)  $       (9)
                                            ========   =========     ========       =========   ===========  ==========
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

         As a holding  company,  the Company  conducts its business  through its
subsidiary,  the Bank,  which is required to maintain  minimum  levels of liquid
assets as defined by regulations of the OTS. The requirement,  which varies from
time to time depending upon economic conditions and deposit flows, is based upon
a percentage of deposits and short-term borrowings. The required ratio currently
is 4.0%. The Bank adjusts its liquidity levels in order to meet funding needs of
deposit outflows,  repayment of borrowings and loan  commitments.  The Bank also
adjusts  liquidity as  appropriate  to meet its asset and  liability  management
objectives.

         The Bank's primary sources of funds are deposits,  payment of loans and
mortgage-backed  securities,  maturities  of  investment  securities  and  other
investments.  While scheduled principal  repayments on loans and mortgage-backed
securities are a relatively  predictable source of funds, deposit flows and loan
prepayments  are  greatly   influenced  by  general  interest  rates,   economic
conditions,  and  competition.  The Bank invests in short-term  interest-earning
assets which provide liquidity to meet lending requirements.

         The Bank  continues to maintain a high level of liquid  assets in order
to meet its funding  requirements.  At June 30, 2000, the Bank had approximately
$5.7 million in cash on hand and interest-bearing deposits in other banks, which
represented  5.9% of total  assets.  The  Bank's

                                       10
<PAGE>

average  liquidity  ratio well  exceeded the required  minimum at and during the
fiscal year ended June 30, 2000.  At June 30,  2000,  the Bank's level of liquid
assets, as measured for regulatory  compliance  purposes,  was $19.8 million, or
22.9%.

         At June 30, 2000, the Bank had $16.3 million of total equity,  or 16.6%
of total assets. The Bank continued to exceed its regulatory capital requirement
ratios at June 30,  2000.  Tangible  capital  and core  capital  were each $14.7
million,  which  represented  14.8% of adjusted  total  assets,  and  risk-based
capital was $14.8 million, which represented 50.0% of total risk-weighted assets
at June 30, 2000. Such amounts  exceeded the respective  minimum required ratios
of 1.5%,  4.0% and 8.0% by 13.3%,  10.8% and  42.0%,  respectively.  At June 30,
2000,  the  Bank  continued  to  meet  the  definition  of a  "well-capitalized"
institution,  the  highest of the five  categories  under the prompt  corrective
action  standards  adopted  by the OTS.  See  Note 2 of  Notes  to  Consolidated
Financial Statements.

NEW ACCOUNTING PRONOUNCEMENTS

         See Note 1 of Notes to Consolidated Financial Statements.

FORWARD-LOOKING STATEMENTS

         Management's  discussion and analysis includes certain  forward-looking
statements  addressing,  among other things,  the Bank's prospects for earnings,
asset growth and net interest margin. Forward-looking statements are accompanied
by, and identified  with, such terms as  "anticipates,"  "believes,"  "expects,"
"intends," and similar phrases.  Management's expectations for the Bank's future
involve a number of assumptions  and estimates.  Factors that could cause actual
results to differ from the expectations  expressed  herein include:  substantial
changes in interest rates,  and changes in the general  economy;  changes in the
Bank's strategies for credit-risk management,  interest-rate risk management and
investment  activities.  Accordingly,  any  forward-looking  statements included
herein do not purport to be  predictions of future events or  circumstances  and
may not be realized.

                                       11
<PAGE>


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Southern Banc Company, Inc.:


We have audited the accompanying  consolidated statements of financial condition
of THE SOUTHERN BANC COMPANY,  inc. (a Delaware corporation) AND SUBSIDIARIES as
of June 30, 2000 and 1999 and the  related  consolidated  statements  of income,
stockholders'  equity and cash  flows for each of the three  years in the period
then  ended June 30,  2000.  These  consolidated  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial  position of The Southern Banc
Company,  Inc. and Subsidiaries as of June 30, 2000 and 1999, and the results of
their  operations and their cash flows for each of the three years in the period
ended June 30, 2000 in conformity with accounting  principles generally accepted
in the United States.

                                        /s/ Arthur Andersen LLP

Birmingham, Alabama
August 18, 2000

                                       12
<PAGE>
                         THE SOUTHERN BANC COMPANY, INC.

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                             JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
                                     ASSETS

                                                                                         2000             1999

CASH AND EQUIVALENTS:
<S>                                                                                   <C>             <C>
    Cash on hand and in other banks                                                   $  1,498,835    $  1,379,871
    Interest-bearing deposits in other banks                                             4,247,611       7,300,785
                                                                                       -----------     -----------
                                                                                         5,746,446       8,680,656

SECURITIES AVAILABLE FOR SALE, AT FAIR VALUE                                            27,108,816      21,350,466

SECURITIES HELD TO MATURITY (FAIR VALUES OF $23,640,455 AND $23,646,445,                23,886,255      23,706,524

LOANS RECEIVABLE, NET                                                                   39,840,261      42,108,709

ACCRUED INTEREST AND DIVIDENDS RECEIVABLE                                                  676,947         601,477

PREMISES AND EQUIPMENT, NET                                                                472,563         258,557

PREPAID EXPENSES AND OTHER ASSETS                                                          355,225         168,666
                                                                                       -----------     -----------
              Total assets                                                             $98,086,513     $96,875,055
                                                                                       ===========     ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

DEPOSITS                                                                               $81,436,491     $79,733,677

OTHER LIABILITIES                                                                          330,725         496,638
                                                                                       -----------     -----------
              Total liabilities                                                         81,767,216      80,230,315
                                                                                       -----------     -----------
COMMITMENTS AND CONTINGENCIES (NOTE 13)

STOCKHOLDERS' EQUITY:
    Preferred stock, par value $.01 per share; 500,000 shares authorized;                        0               0
    Common stock, par value $.01 per share; 3,500,000 shares authorized;                    14,548          14,548
    Additional paid-in capital                                                          13,744,707      13,723,149
    Retained earnings                                                                   10,034,813       9,684,032
    Unearned compensation                                                                 (535,417)       (724,696)
    Shares held in trust, 65,275 shares in 2000 and 1999                                  (846,197)       (846,197)
    Treasury stock at cost, 446,252 and 380,652 shares in 2000 and 1999                 (5,624,141)     (4,991,316)
    Accumulated other comprehensive loss                                                  (469,016)       (214,780)
                                                                                       -----------     -----------
              Total stockholders' equity                                                16,319,297      16,644,740
                                                                                       -----------     -----------
              Total liabilities and stockholders' equity                               $98,086,513     $96,875,055
                                                                                       ===========     ===========
</TABLE>

 The accompanying notes are an integral part of these consolidated statements.

                                       13
<PAGE>

                         THE SOUTHERN BANC COMPANY, INC.

                        CONSOLIDATED STATEMENTS OF INCOME

                FOR THE YEARS ENDED JUNE 30, 2000, 1999, AND 1998
<TABLE>
<CAPTION>
                                                                           2000            1999           1998
INTEREST INCOME:
<S>                                                                      <C>             <C>            <C>
    Interest and fees on loans                                           $3,184,222      $3,221,414     $3,080,942
    Interest and dividends on securities available for sale               1,618,026       1,286,155      1,253,456
    Interest and dividends on securities held to maturity                 1,603,952       2,068,895      2,792,400
    Other interest income                                                   537,938         414,190        290,785
                                                                         ----------      ----------     ----------
              Total interest income                                       6,944,138       6,990,654      7,417,583

INTEREST EXPENSE:
    Interest on deposits                                                  3,889,578       4,100,296      4,518,576
    Interest on borrowed funds                                              191,576               0              0
                                                                         ----------      ----------     ----------
              Total interest expense                                      4,081,154       4,100,296      4,518,576
                                                                         ----------      ----------     ----------
              Net interest income                                         2,862,984       2,890,358      2,899,007

PROVISION FOR LOAN LOSSES                                                    17,000          27,000              0
                                                                         ----------      ----------     ----------
              Net interest income after provision for loan                2,845,984       2,863,358      2,899,007
                                                                         ----------      ----------     ----------
NONINTEREST INCOME:
    Customer service fees                                                   107,654         153,362         88,523
    Miscellaneous income, net                                                10,578          41,015          3,277
                                                                         ----------      ----------     ----------
              Total noninterest income                                      118,232         194,377         91,800
                                                                         ----------      ----------     ----------
NONINTEREST EXPENSE:

    Salaries and employee benefits                                        1,263,249       1,439,904      1,400,837
    Office building and equipment expense                                    86,396          77,503         91,264
    Deposit insurance expense                                                32,391          52,213         55,657
    Other expense                                                           579,791         577,656        623,121
                                                                         ----------      ----------     ----------
              Total noninterest expense                                   1,961,827       2,147,276      2,170,879
                                                                         ----------      ----------     ----------
              Income before provision for income taxes                    1,002,389         910,459        819,928

PROVISION FOR INCOME TAXES                                                  356,664         312,558        277,043
                                                                         ----------      ----------     ----------
              Net income                                                 $  645,725      $  597,901     $  542,885
                                                                         ==========      ==========     ==========
EARNINGS PER SHARE:
    Basic                                                                      $.71            $.59           $.51
    Diluted                                                                    $.71            $.57           $.49

AVERAGE SHARES OUTSTANDING--BASIC                                           903,202       1,014,959      1,061,133
AVERAGE SHARES OUTSTANDING--DILUTED                                         910,934       1,048,023      1,118,613
</TABLE>

  The accompanying notes are an integral part of these consolidated statements.

                                       14
<PAGE>

                         THE SOUTHERN BANC COMPANY, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                FOR THE YEARS ENDED JUNE 30, 2000, 1999, AND 1998
<TABLE>
<CAPTION>

                                                                 ADDITIONAL                                      SHARES
                                                      COMMON       PAID-IN        RETAINED       UNEARNED       HELD IN
                                                      STOCK        CAPITAL        EARNINGS     COMPENSATION      TRUST

<S>                                                   <C>        <C>            <C>            <C>             <C>
BALANCE, JUNE 30, 1997                                $14,548    $13,642,623    $  9,253,350   $(1,396,305)    $(520,789)

    Net income                                              0              0         542,885             0             0
    Change in unrealized gain (loss) on securities          0              0               0             0             0

    Comprehensive income
    Amortization of unearned compensation                   0         32,470               0       237,758             0
    Dividends declared ($.35 per share)                     0              0        (362,894)            0             0
    Exercise of stock options (8,599 shares)                0              0               0       100,489             0
    Purchase of shares held in trust                        0              0               0             0       (21,600)
                                                      -------    -----------     -----------   -----------     ---------
BALANCE, JUNE 30, 1998                                 14,548     13,675,093       9,433,341    (1,058,058)     (542,389)

    Net income                                              0              0         597,901             0             0
    Change in unrealized gain (loss) on securities          0              0               0             0             0

    Comprehensive income
    Purchase of treasury stock, at cost                     0              0               0             0             0
    Amortization of unearned compensation                   0         48,056               0       333,362             0
    Dividends declared ($.35 per share)                     0              0        (347,210)            0             0
    Purchase of shares held in trust                        0              0               0             0      (303,808)
                                                      -------    -----------     -----------   -----------     ---------
BALANCE, JUNE 30, 1999                                 14,548     13,723,149       9,684,032      (724,696)     (846,197)

    Net income                                              0              0         645,725             0             0
    Change in unrealized loss on securities                 0              0               0             0             0

    Comprehensive income
    Purchase of treasury stock, at cost                     0              0               0             0             0
    Amortization of unearned compensation                   0         21,558               0       194,028             0
    Dividends declared ($.35 per share)                     0              0        (294,944)       (4,749)            0
                                                      -------    -----------     -----------   -----------     ---------
BALANCE, JUNE 30, 2000                                $14,548    $13,744,707     $10,034,813   $  (535,417)    $(846,197)
                                                      =======    ===========     ===========   ===========     =========
</TABLE>
<TABLE>
<CAPTION>

(TABLE CONTINUED)
                                                                                                NON-OWNER
                                                       TREASURY     UNREALIZED                 CHANGES IN
                                                         STOCK     GAIN (LOSS)      TOTAL         EQUITY

<S>                                                  <C>           <C>            <C>             <C>
BALANCE, JUNE 30, 1997                               $(3,000,128)  $  (62,113)    $17,931,186

    Net income                                                 0            0         542,885     $542,885
    Change in unrealized gain (loss) on securities             0      109,640         109,640      109,640
                                                                                                ----------
    Comprehensive income                                                                           652,525
    Amortization of unearned compensation                      0            0         270,228
    Dividends declared ($.35 per share)                        0            0        (362,894)
    Exercise of stock options (8,599 shares)                   0            0         100,489
    Purchase of shares held in trust                           0            0         (21,600)
                                                      ----------   ----------     -----------
BALANCE, JUNE 30, 1998                                (3,000,128)      47,527      18,569,934

    Net income                                                 0            0         597,901      597,901
    Change in unrealized gain (loss) on securities             0     (262,307)       (262,307)    (262,307)
                                                                                                ----------
    Comprehensive income                                                                           335,594
    Purchase of treasury stock, at cost               (1,991,188)           0      (1,991,188)
    Amortization of unearned compensation                      0            0         381,418
    Dividends declared ($.35 per share)                        0            0        (347,210)
    Purchase of shares held in trust                           0            0        (303,808)
                                                      ----------   ----------     -----------
BALANCE, JUNE 30, 1999                                (4,991,316)    (214,780)     16,644,740

    Net income                                                 0            0         645,725      645,725
    Change in unrealized loss on securities                    0     (254,236)       (254,236)    (254,236)
                                                                                                ----------
    Comprehensive income                                                                           391,489
    Purchase of treasury stock, at cost                 (632,825)           0        (632,825)
    Amortization of unearned compensation                      0            0         215,586
    Dividends declared ($.35 per share)                        0            0        (299,693)
                                                      ----------   ----------     -----------
BALANCE, JUNE 30, 2000                               $(5,624,141)   $(469,016)    $16,319,297
                                                     ===========    =========     ===========
</TABLE>
  The accompanying notes are an integral part of these consolidated statements.

                                       15
<PAGE>

                         THE SOUTHERN BANC COMPANY, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                FOR THE YEARS ENDED JUNE 30, 2000, 1999, AND 1998
<TABLE>
<CAPTION>
                                                                             2000            1999          1998

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                       <C>           <C>            <C>
    Net income                                                            $   645,725   $     597,901  $   542,885
    Adjustments to reconcile net income to net cash provided
          Depreciation                                                         41,194          38,186       46,176
          Accretion, net                                                      (33,892)       (187,428)     (15,581)
          Amortization of intangible asset                                     28,172          32,973       38,847
          Amortization of unearned compensation                               215,586         381,418      270,228
          Provision for loan losses                                            17,000          27,000            0
          Deferred income tax provision (benefit)                             (26,997)        (77,771)      31,167
    Change in assets and liabilities:
       Decrease (increase) in accrued interest and dividends                  (75,470)        135,368       23,876
       Decrease (increase) in prepaid expenses and other assets              (186,559)          6,682      392,588
       Increase (decrease) in other liabilities                              (165,913)        113,955     (205,027)
                                                                         ------------    ------------  -----------
              Net cash provided by operating activities                       458,846       1,068,284    1,125,159
                                                                         ------------    ------------  -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of securities available for sale                            (10,223,478)    (16,350,702) (12,304,906)
    Proceeds from maturities and principal payments on                      4,481,656      16,946,256    7,808,031
    Purchases of securities held to maturity                              (13,231,431)     (5,780,036)  (5,004,063)
    Proceeds from maturities and principal payments on securities          12,791,904      16,237,441   15,110,735
    Purchase of loans                                                               0               0     (685,400)
    Net loan (originations) repayments                                      2,268,448        (982,371)  (4,287,542)
    Capital expenditures                                                     (255,200)        (45,370)     (30,812)
                                                                         ------------    ------------  -----------
              Net cash provided by (used in) investing activities          (4,168,101)     10,025,218      606,043
                                                                         ------------    ------------  -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Purchase of shares held in trust                                                0        (303,808)     (21,600)
    Purchase of treasury stock                                               (632,825)     (1,991,188)           0
    Cash dividends paid                                                      (294,944)       (347,210)    (362,894)
    Increase (decrease) in deposits, net                                    1,702,814      (6,192,158)    (832,879)
    Proceeds from exercise of stock options                                         0               0      100,489
                                                                         ------------    ------------  -----------
              Net cash provided by (used in) financing activities             775,045      (8,834,364)  (1,116,884)
                                                                         ------------    ------------  -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                       (2,934,210)      2,259,138      614,318

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                              8,680,656       6,421,518    5,807,200
                                                                         ------------    ------------  -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                $   5,746,446    $  8,680,656  $ 6,421,518
                                                                         ============    ============  ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
    Cash paid during the period for:
       Income taxes, net of refund received                             $     358,000    $    284,079  $   224,222
                                                                         ============    ============  ===========
       Interest                                                         $   4,514,570    $  4,059,596  $ 4,504,499
                                                                         ============    ============  ===========
    Noncash transactions:
       Change in unrealized net gain (loss) on securities
           available for sale, net of deferred taxes (benefit)          $    (254,236)   $    262,307  $   109,640
                                                                         ============    ============  ===========
</TABLE>

  The accompanying notes are an integral part of these consolidated statements.

                                       16
<PAGE>
                         THE SOUTHERN BANC COMPANY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             JUNE 30, 2000 AND 1999

1.     ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION, NATURE OF OPERATIONS, AND PRINCIPLES OF CONSOLIDATION

The Southern Banc Company, Inc. (the "Company") was incorporated in the State of
Delaware in May 1995,  for the purpose of becoming a holding  company to own all
of the  outstanding  capital  stock of The Southern  Bank Company (the  "Bank"),
formerly the First Federal  Savings and Loan  Association  of Gadsden,  upon the
Bank's  conversion from a federally  chartered  mutual savings  association to a
federally   chartered  stock  savings   association  (the   "Conversion").   The
accompanying  consolidated  financial  statements  include  the  accounts of the
Company  and its two  wholly  owned  subsidiaries:  the Bank and  First  Service
Corporation.  All significant  intercompany  balances and transactions have been
eliminated in consolidation.

The Bank is primarily  engaged in the business of obtaining funds in the form of
various savings deposit  products and investing those funds in mortgage loans or
single family real estate and, to a lesser extent,  in consumer loans.  The Bank
operates  from  its  four  offices  in the  northeast  portion  of  Alabama  and
originates the majority of its loans in this market area.

USE OF ESTIMATES

The accounting principles and reporting policies of the Company, and the methods
of  applying  these  principles,  conform  with  generally  accepted  accounting
principles  ("GAAP") and with general  practices within the thrift industry.  In
preparing the financial statements, Management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the  statement  of  financial  condition  and income and expense for the
period. Actual results could differ significantly from those estimates. Material
estimates that are particularly  susceptible to significant  changes in the near
term relate to the determination of the allowance for loan losses. A substantial
portion of the Company's  loans are secured by real estate in its primary market
area.  Accordingly,  the ultimate collectibility of a substantial portion of the
Company's loan portfolio and the recovery of a portion of the carrying amount of
foreclosed real estate are susceptible to changes in economic  conditions in the
Company's primary market areas.

SECURITIES

Securities have been  classified as either trading,  available for sale, or held
to maturity based on Management's intentions at the time of purchase. Securities
classified  as  available  for sale are  carried at fair value.  The  unrealized
difference  between  amortized  cost and fair value on securities  available for
sale is excluded  from  earnings and is reported,  net of deferred  taxes,  as a
separate   component  of   stockholders'   equity.   The   available   for  sale
classification includes securities that Management intends to use as part of its
asset/liability  management  strategy or that may be sold in response to changes
in interest rates, liquidity needs, or for other purposes.

Securities  designated as held to maturity are carried at amortized cost, as the
Company has both the  ability and  Management  has the  positive  intent to hold
these  securities  to  maturity.  The Company had no  securities  classified  as
trading at June 30, 2000 and 1999.

                                       17
<PAGE>

Amortization   of  premiums  and  accretion  of  discounts  on   mortgage-backed
securities and other  investments  are computed using the level yield method and
the  straight-line  method,  respectively.  The  adjusted  cost of the  specific
security sold is used to compute gain or loss on the sale of securities.

LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans receivable are stated at unpaid principal balances, less the allowance for
loan losses, discounts on loans, unearned interest income, and net deferred loan
fees/costs. Unearned interest income on consumer loans is amortized to income by
use of a method  which  approximates  level  yield over the lives of the related
loans.

The Company  ceases accrual of interest on a loan when payment on the loan is in
excess of 90 days past due. Income is subsequently recognized only to the extent
that cash payments are received until, in Management's  judgment, the borrower's
ability to make periodic interest and principal payments has been reestablished,
in which case the loan is returned to accrual status.

The  allowance  for  loan  losses  is  maintained  at a level  which  Management
considers  adequate  to absorb  losses  inherent in the loan  portfolio  at each
reporting date. To serve as a basis for making this provision each quarter,  the
Bank  maintains  an extensive  credit risk  monitoring  process  that  considers
several factors  including:  current  economic  conditions  affecting the Bank's
customers,  the  payment  performance  of  individual  large  loans and pools of
homogeneous  small  loans,  distribution  of  loans  by  risk  class,  portfolio
seasoning,  changes in collateral values, and detailed reviews of specific large
loan relationships.  Though Management believes the allowance for loan losses is
adequate, ultimate losses may vary from their estimates;  however, estimates are
reviewed periodically and, as adjustments become necessary, they are reported in
earnings in the periods in which they become known.

The  provision  for loan losses  increases  the  allowance  for loan  losses,  a
valuation  account which is netted against loans  receivable on the statement of
financial  condition.  As the amount of a loan loss is  confirmed  by  gathering
additional  information,  taking collateral in full or partial settlement of the
loan,  bankruptcy of the borrower,  etc., the loan is written down, reducing the
allowance for loan losses.  If,  subsequent to a writedown,  the Bank is able to
collect  additional  amounts from the customer or obtain  control of  collateral
worth more than  earlier  estimated,  a recovery  is  recorded,  increasing  the
allowance for loan losses.

Impaired loans are measured  based on the present value of expected  future cash
flows discounted at each loan's original effective interest rate. As a practical
expedient,  impairment  may be measured  based on the loan's  observable  market
price or the fair value of the  collateral if the loan is collateral  dependent.
When the measure of the impaired  loan is less than the recorded  investment  of
the loan, the impairment is recorded through a valuation allowance.

LOAN ORIGINATION FEES AND RELATED COSTS AND DISCOUNTS

Loan fees and certain direct costs of loan origination are deferred, and the net
fee or cost is  recognized as an adjustment to interest and fees on loans in the
accompanying consolidated statements of income using the level yield method over
the contractual life of the loans. Discounts associated with loans purchased are
deferred and accreted to income using the level yield method.

                                       18
<PAGE>

PREMISES AND EQUIPMENT

Land is  carried  at cost.  Property  and  equipment  are  stated at cost,  less
accumulated  depreciation.  Depreciation methods and estimated service lives are
as follows:

        Building and improvements       10-40 years    Accelerated/Straight-line
        Leasehold improvements          10 years       Straight-line
        Furniture and equipment         5-20 years     Accelerated/Straight-line
        Automobile                      3 years        Straight-line

CORE DEPOSIT PREMIUM

The premium paid to acquire the deposits of another  financial  institution  has
been shown as an intangible  asset and is included in prepaid expenses and other
assets in the accompanying  consolidated statements of financial condition. This
net core  deposit  premium  ($76,090  and  $104,262  at June 30,  2000 and 1999,
respectively)  is being  amortized  using an accelerated  method over a ten year
period  which   approximates  the  expected  lives  of  the  purchased   deposit
relationships  (amortization expense of $28,172,  $32,973, and $38,847 in fiscal
years 2000, 1999, and 1998, respectively).

STATEMENTS OF CASH FLOWS

For purposes of the consolidated statements of cash flows, the Company considers
cash on hand and in other banks and interest-bearing  deposits in other banks to
be cash and cash equivalents.

PENDING ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting  Standards ("SFAS") No. 133,  Accounting for Derivative
Instruments and Hedging Activities.  This Statement  establishes  accounting and
reporting  standards  for  derivative  instruments  embedded in other  contracts
(collectively  referred  to as  derivatives)  and  for  hedging  activities.  It
requires  that  an  entity   recognize  all  derivatives  as  either  assets  or
liabilities  in the balance sheet and measure those  instruments  at fair value.
Under  certain  conditions,  a derivative  may be  specifically  designated as a
hedge. Accounting for changes in fair values of derivatives will depend on their
designation.  In June  1999,  the FASB  issued  SFAS  No.  137,  Accounting  for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB  Statement No. 133. This  Statement  amends the effective  date of SFAS No.
133,  which will now be  effective  for all fiscal  quarters of all fiscal years
beginning after June 15, 2000. Given the Company's June 30 fiscal year-end, this
Statement will be effective July 1, 2000. In June 2000, the FASB issued SFAS No.
138,   Accounting  for  Certain  Derivative   Instruments  and  Certain  Hedging
Activities--An  Amendment to FASB Statement No. 133. This Statement  addresses a
limited  number of  issues  causing  implementation  difficulties  for  numerous
entities that apply SFAS 133, and amends the accounting and reporting  standards
of SFAS 133 for certain derivative  instruments and certain hedging  activities.
Management is completing its assessment of the impact of these Statements on the
Company's  financial  position and results of operations but believes the impact
will not be significant.

PRIOR YEAR CLASSIFICATION

Certain prior year amounts have been reclassified to conform to the current year
presentation.

                                       19
<PAGE>

2.     REGULATORY MATTERS

The Bank is subject to various regulatory capital  requirements  administered by
the federal banking agencies.  Failure to meet minimum capital  requirements can
initiate  certain  mandatory and possibly  additional  discretionary  actions by
regulators  that,  if  undertaken,  could have a direct  material  effect on the
Bank's  financial   statements.   Under  capital  adequacy  guidelines  and  the
regulatory  framework for prompt corrective  action, the Bank must meet specific
capital  guidelines  that involve  quantitative  measures of the Bank's  assets,
liabilities,  and certain off-balance sheet items as calculated under regulatory
accounting  practices.  The Bank's capital amounts and  classifications are also
subject to  qualitative  judgments  by the  regulators  about  components,  risk
weightings, and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Bank to maintain  minimum amounts and ratios (set forth in the table
which  follows) of Total and Tier 1 capital (as defined in the  regulations)  to
Risk-weighted assets (as defined), and of Tier 1 capital (as defined) to Average
assets (as defined). Management believes, as of June 30, 2000 and 1999, that the
Bank meets all capital adequacy requirements to which it is subject.

As of June 30, 2000 and 1999, the most recent  notification  from the regulatory
authorities  categorized  the  Bank as well  capitalized  under  the  regulatory
framework for prompt  corrective  action. To be categorized as well capitalized,
the Bank must maintain minimum Total risk-based,  Tier 1 risk-based,  and Tier 1
leverage ratios as set forth in the table which follows.

Actual capital amounts and ratios are presented in the table below for the Bank:
<TABLE>
<CAPTION>
                                                                                                     TO BE WELL
                                                                                                 CAPITALIZED UNDER
                                                                         FOR CAPITAL ADEQUACY   PROMPT CORRECTIVE
                                                          ACTUAL               PURPOSES         ACTION PROVISIONS
                                                    -------------------  --------------------  -------------------
                                                     AMOUNT     RATIO      AMOUNT    RATIO      AMOUNT     RATIO
                                                     ------     -----      ------    -----      ------     -----
                                                                        (Dollars in thousands)
JUNE 30, 2000:
<S>                                                 <C>          <C>        <C>          <C>      <C>        <C>
    Total capital (to risk weighted assets)         $14,769      50.0%      $2,367       8.0%     $2,960     10.0%

    Tier 1 (core)  capital (to risk weighted         14,654      49.5        1,184       4.0       1,776      6.0

    Tier 1 (core) capital (to adjusted total         14,654      14.8        3,956       4.0       4,945      5.0

    Tangible capital (to adjusted total              14,654      14.8        1,484       1.5         N/A      N/A

JUNE 30, 1999:
    Total capital (to risk weighted assets)         $15,848      56.0%      $2,266       8.0%     $2,832     10.0%

    Tier 1 (core)  capital (to risk weighted         15,750      55.6        1,133       4.0       1,699      6.0

    Tier 1 (core) capital (to adjusted total         15,750      16.2        3,893       4.0       4,867      5.0

    Tangible capital (to adjusted total              15,750      16.2        1,460       1.5         N/A      N/A
</TABLE>
                                       20
<PAGE>

The following table is a reconciliation  of the Bank's  stockholder's  equity to
Tangible, Tier 1, and Risk-based capital as required by the OTS:


                                                         2000         1999
                                                         ----         ----
                                                           (In thousands)

 Stockholder's equity                                    $14,261      $15,639
 Intangible assets                                           (76)        (104)
 Unrealized loss on securities available for sale            469          215
                                                         -------      -------
               Tangible and Tier 1 capital                14,654       15,750
 Allowance for loan losses                                   115           98
                                                         -------      -------
               Total risk based capital                  $14,769      $15,848
                                                         =======      =======

 Total assets                                            $98,516      $97,225
 Adjusted total assets                                    98,909       97,336
 Total risk weighted assets                               29,599       28,324

Pursuant to OTS  regulations,  an institution  that exceeds all fully  phased-in
capital  requirements  before and after a proposed capital  distribution and has
not  been  advised  by the  OTS  that it is in need  of  more  than  the  normal
supervision  can,  after prior notice but without the approval of the OTS,  make
capital distributions during a calendar year equal to the greater of (i) 100% of
its net income to date  during  the  calendar  year plus the  amount  that would
reduce by one-half  its  "surplus  capital  ratio" (the excess  capital over its
fully phased-in capital  requirements) at the beginning of the calendar year, or
(ii) 75% of its net  income  over  the  most  recent  four-quarter  period.  Any
additional capital distributions require prior regulatory approval.

The Company's  principal source of funds for dividend payments is dividends from
the Bank.  Certain  restrictions  exist regarding the ability of the Bank to pay
dividends to the Company.  At July 1, 2000,  dividend  payments by the Bank were
subject to regulatory  approval.  The Company's ability to pay dividends will be
largely  dependent upon dividends to the Company from the Bank.  Pursuant to the
Office of Thrift Supervision ("OTS") regulations, the Bank will not be permitted
to pay dividends on its capital  stock or repurchase  shares of its stock if its
stockholders'  equity  would  be  reduced  below  the  amount  required  for the
liquidation account or if stockholders' equity would be reduced below the amount
required by the OTS.

3.     EARNINGS PER SHARE

Basic  earnings  per share were  computed by dividing net income by the weighted
average number of shares of common stock outstanding during the years ended June
30, 2000,  1999, and 1998.  Common stock  outstanding  consists of issued shares
less  unallocated  ESOP  shares and shares  held in trust (see Note 4).  Diluted
earnings  per share for the years  ended June 30,  2000,  1999,  and 1998,  were
computed  by dividing  net income by the  weighted  average  number of shares of
common stock  outstanding  and the dilutive  effects of the shares awarded under
the Management  Recognition Plan ("MRP") and the Stock Option Plan, based on the
treasury stock method using an average fair market value of the stock during the
respective periods.

                                       21
<PAGE>

The following table represents the earnings per share calculations for the years
ended June 30, 2000, 1999, and 1998 accompanied by the effect of this accounting
change on previously reported earnings per share:
<TABLE>
<CAPTION>
                                                                                                PER SHARE
                                                                  INCOME          SHARES         AMOUNT
                                                                  ------          ------         ------
        2000:
        <S>                                                        <C>            <C>             <C>
            Basic earnings per share                               $645,725         903,202       $.71
            Diluted securities:                                                                   ----
               Management recognition plan shares                                     7,732
               Incentive stock option plan shares                                         0
                                                                   --------       ---------
               Diluted earnings per share                          $645,725         910,934       $.71
                                                                   ========       =========       ====
        1999:
            Basic earnings per share                               $597,901       1,014,959       $.59
            Diluted securities:                                                                   ----
               Management recognition plan shares                                    22,401
               Incentive stock option plan shares                                    10,663
                                                                   --------       ---------
               Diluted earnings per share                          $597,901       1,048,023       $.57
                                                                   ========       =========       ====
        1998:

            Basic earnings per share                               $542,885       1,061,133       $.51
            Diluted securities:                                                                   ----
               Management recognition plan shares                                    24,449
               Incentive stock option plan shares                                    33,031
                                                                   --------       ---------
               Diluted earnings per share                          $542,885       1,118,613       $.49
                                                                   ========       =========       ====
</TABLE>

4.     EMPLOYEE RETIREMENT AND SAVINGS PLANS

EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP")

In connection  with the  Conversion,  the Bank  established an ESOP for eligible
employees.  The ESOP purchased 116,380 shares of the Company's common stock with
the proceeds of a $1,163,800  note payable to the Bank and secured by the common
stock  owned by the  ESOP.  The note due from the ESOP has been  reflected  as a
separate component of stockholders' equity as unearned  compensation.  Principal
payments  under  the note  are due in  equal  and  annual  installments  through
December 2005; interest is payable annually at a variable rate which is adjusted
each January 1.

Expense related to the ESOP was approximately  $113,000,  $285,000, and $166,000
for  2000,  1999,  and  1998.  Unearned  compensation  related  to the  ESOP was
approximately $459,901 and $515,000 at June 30, 2000 and 1999, respectively.

Unearned  compensation is amortized into compensation  expense based on employee
services rendered in relation to shares which are committed to be released based
on the fair value of shares.  The  difference  between  the fair value of shares
committed to be released and the cost of those shares to the ESOP (i.e. unearned
compensation) is  charged/credited  to additional  paid-in capital in accordance
with AICPA Statement of Position 93-6,  Employers' Accounting for Employee Stock
Ownership Plans.

                                       22
<PAGE>

MANAGEMENT RECOGNITION PLAN ("MRP")

During fiscal 1996, the Bank  established a MRP which purchased 58,190 shares of
the  Company's  common stock on the open market.  The MRP provides for awards of
common stock to directors and officers of the Bank.  The  aggregate  fair market
value of the shares purchased by the MRP is reflected in shares held in trust at
the time of purchase.  As shares in the MRP are granted to employees,  an amount
equal to the  award  is  reclassified  from  shares  held in  trust to  unearned
compensation. Compensation is earned ratably over the stipulated vesting period.
The  expense  related  to the  MRP was  approximately  $112,000,  $112,000,  and
$104,000 for 2000, 1999, and 1998,  respectively.  Unearned compensation related
to  the  MRP  was  approximately   $75,516  and  $175,710  for  2000  and  1999,
respectively,  and is  shown  as a  reduction  to  stockholders'  equity  in the
accompanying  consolidated  statements of financial condition.  Contributions to
the MRP,  usually in the form of  dividend  equivalents,  which  will  result in
future compensation to the employees, are debited to unearned compensation.

SIMPLIFIED EMPLOYEE PENSION PLAN

The Company  established  a  Simplified  Employee  Pension  Plan ("SEP") for all
employees who have completed one year of service,  pursuant to Section 408(k) of
the  Internal   Revenue  Code  of  1986.  The  Company  makes  a   discretionary
contribution  to the SEP each year.  The cost to the  Company  under the SEP was
$38,770,   $38,132,   and  $94,996  for  fiscal  years  2000,  1999,  and  1998,
respectively.

SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT

During fiscal 1996, the Company entered into a Supplemental Executive Retirement
Agreement ("SERA") with an executive of the Company. Under the provisions of the
SERA, the Company will establish an account for the executive and will credit to
the  executive's  account an amount equal to the  difference  between 25% of his
compensation  for the plan year and the annual  additions  credited to him under
any  tax-qualified  plans  sponsored by the Company  (including the ESOP and the
SEP). For each plan year, the amount credited to the  executive's  account shall
appreciate at a rate equal to the highest rate paid by the Bank on  certificates
of  deposit  (regardless  of  their  term).  Said  account  shall be paid to the
executive  in five  substantially  equal  annual  installments,  with the  first
installment due on the first day of the second month after he leaves employment.

In the event that the  Executive  retires  before the Company and the Bank fully
repay the loan by which the ESOP  purchased  common stock in the initial  public
offering,  the Company  will pay the  executive  an amount  having a fair market
value equal to (i) the benefits he would have accrued under the ESOP if the loan
had been  discharged on the date of his retirement  through a  contribution,  on
said  date,  by the  Company  to the  ESOP,  and if all  assets of the ESOP were
thereupon allocated to the accounts of participants, plus (ii) a tax bonus equal
to 40% of the amount he  recognizes  as ordinary  income  pursuant to clause (i)
hereof.  The executive will forfeit the right to receive any benefits under this
SERA if he is discharged from employment for just cause.

In the event that the executive dies before he has received all benefit payments
provided under this plan (calculated as if the executive  retired on the date of
his death),  the Company  shall pay to the  executive's  beneficiary  a lump sum
payment,  within 60 days following the executive's  death, in an amount equal to
the balance of the executive's account.

The  Company  recognized  compensation  expense  for the  SERA of  approximately
$18,000 and $60,000 for the year ended June 30, 2000 and 1999, respectively. The
projected benefit obligation, accumulated benefit obligation, and vested benefit
obligation   were  all  $197,883  and  $197,546  at  June  30,  2000  and  1999,
respectively.  The  components  of the net  periodic  cost as of 2000 and  1999,
respectively,  are service  costs of $3,704 and $5,186,  interest cost of $9,695
and $13,233,  and net  amortization and deferred cost (benefit) of $(13,062) and
$33,900.  In determining  the actuarial  present value of the projected  benefit
obligation, the discount rate was 7% and the increase in share value was 10%.

                                       23
<PAGE>

EMPLOYMENT AGREEMENT

The  Company  has a  36-month  employment  agreement  with its  President  and a
Vice-President.  This agreement  provides that if employment under the agreement
is terminated  by the Company in  connection  with or within 12 months after any
change in control of the Company,  each shall be paid  approximately 3 times his
salary.

5.     STOCK-BASED COMPENSATION PLANS

The Company has a stockholder-approved Option Plan. The Option Plan provides for
the grant of incentive  stock options  ("ISO's") to employees  and  nonincentive
stock options ("non-ISO's") to nonemployee  directors.  The Company utilizes the
intrinsic  value method of  accounting  for stock option  grants.  As the option
price  is  equal  to the fair  value  of the  stock  at the  date of  grant,  no
compensation cost is recognized.

The Company has adopted the disclosure  requirements of SFAS No. 123, Accounting
for Stock-Based  Compensation.  This Statement  establishes financial accounting
and reporting standards for stock-based employee compensation plans. Those plans
include all  arrangements  by which  employees  receive shares of stock or other
equity  instruments  of the  employer  or the  employer  incurs  liabilities  to
employees in amounts based on the price of the employer's stock.

Under the Option Plan,  the Company may grant  options up to 145,475  shares and
has granted options  outstanding of 123,577 shares through June 30, 2000.  Under
the Option Plan, the options vest 20% per year and become  exercisable  upon the
participant's  completion  of each of five years of  service.  Had  compensation
costs for  these  plans  been  determined  consistent  with  SFAS No.  123,  the
Company's  net  income and  earnings  per share  would have been  reduced to the
following pro forma amounts:

                                        2000          1999          1998

           Net income:
               As reported             $645,725       $597,901      $542,885
               Pro forma                619,119        555,592       494,676

           Earnings per share:
               As reported:
                  Basic                   $.71           $.59          $.51
                  Diluted                  .71            .55           .49
               Pro forma:
                  Basic                    .69            .57           .47
                  Diluted                  .68            .53           .44

Because the SFAS No. 123 method of  accounting  has not been  applied to options
granted prior to October 5, 1995, the resulting pro forma compensation costs may
not be representative of that to be expected in future years.

The Company has  purchased  shares in the open market to be issued upon exercise
of stock  options.  Such shares are reflected at cost as shares held in trust in
the  accompanying  statements of financial  condition.  During 2000 and 1999 the
Company purchased 0 and 24,005 shares, respectively,  which will be used for the
exercise of options.

                                       24
<PAGE>


A summary of the status of the  Company's  stock  option plan at June 30,  2000,
1999, and 1998, and the changes during the years then ended is as follows:
<TABLE>
<CAPTION>
                                                     2000                     1999                     1998
                                             --------------------     ---------------------     -------------------
                                                        Weighted                  Weighted                 Weighted
                                                         Average                  Average                  Average
                                                        Exercise                  Exercise                 Exercise
                                              Shares      Price        Shares      Price         Shares     Price
                                              ------      -----        ------      -----         ------     -----

<S>                                           <C>         <C>          <C>          <C>          <C>         <C>
Outstanding at beginning of year              123,577     $11.96       111,777      $11.69       120,376     $11.69
    Forfeitures                                     0       0.00             0        0.00             0       0.00
    Exercised                                       0       0.00             0        0.00        (8,599)     11.69
    Granted                                         0       0.00        11,800       14.56             0       0.00
                                              -------     ------       -------      ------       -------     ------
Outstanding at end of year                    123,577     $11.96       123,577      $11.96       111,777     $11.69
                                              =======     ======       =======      ======       =======     ======

Exercisable at end of year                     93,838     $11.69        68,114      $11.69        43,402     $11.69
                                              =======     ======       =======      ======       =======     ======
Weighted average fair value of the options       N/A                     $1.74                     $1.70
                                              ======                   =======                   =======
</TABLE>

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes   option   pricing  model  with  the  following   weighted-average
assumptions used for grants in 2000: risk-free interest rate of 6.22%;  expected
life of the  options  is 20% per year  over the next  five  years  and  expected
volatility and dividend yields of 17% and 3%, respectively.

Shares  held in trust  related  to the Option  Plan  amounted  to  approximately
$666,907 and $662,417 at June 30, 2000 and 1999, respectively,  and are shown as
a reduction of stockholders' equity in the accompanying  statements of financial
condition.

6.     SECURITIES AVAILABLE FOR SALE

The amortized cost, gross unrealized gain and loss, and fair value of securities
designated as available for sale are summarized as follows:
<TABLE>
<CAPTION>
                                                                             JUNE 30, 2000
                                                   ---------------------------------------------------------------
                                                                          GROSS          GROSS
                                                       AMORTIZED       UNREALIZED     UNREALIZED
                                                         COST             GAIN          (LOSS)        FAIR VALUE
                                                         ----             ----          ------        ----------

<S>                                                   <C>                 <C>          <C>            <C>
U.S. Treasury securities                              $  4,306,717        $  9,035     $  (42,837)    $  4,272,915
U.S. Government agency securities                       22,812,080           3,596       (704,175)      22,111,501
Federal Home Loan Bank stock                               724,400               0              0          724,400
                                                       -----------        --------     ----------     ------------
                                                       $27,843,197         $12,631      $(747,012)     $27,108,816
                                                       ===========        ========     ==========     ============

                                                                             JUNE 30, 2000
                                                   ---------------------------------------------------------------
                                                                          GROSS          GROSS
                                                       AMORTIZED       UNREALIZED     UNREALIZED
                                                         COST             GAIN          (LOSS)        FAIR VALUE
                                                         ----             ----          ------        ----------

U.S. Treasury securities                              $  5,316,831         $37,489     $  (48,977)    $  5,305,343
U.S. Government agency securities                       15,644,198           6,197       (329,672)      15,320,723
Federal Home Loan Bank stock                               724,400               0              0          724,400
                                                       -----------        --------     ----------     ------------
                                                       $21,685,429         $43,686      $(378,649)     $21,350,466
                                                       ===========        ========     ==========     ============
</TABLE>
                                       25
<PAGE>

The  amortized  cost and fair  value of debt  securities  available  for sale by
contractual  maturity  are shown  below.  Expected  maturities  may differ  from
contractual  maturities  because  issuers  may have the  right to call or prepay
obligations with or without call or prepayment penalties.

                                                     JUNE 30, 2000
                                             -------------------------------
                                              AMORTIZED
                                                COST           FAIR VALUE

 Due in one year or less                     $  3,954,773      $  3,937,246
 Due after one year through five years         11,346,151        11,006,546
 Due after five years through ten years         6,221,871         5,961,891
 Due after ten years                            5,596,002         5,478,733
                                             ------------      ------------
                                               27,118,797        26,384,416
 Federal Home Loan Bank stock                     724,400           724,400
                                             ------------      ------------
                                              $27,843,197       $27,108,816
                                             ============      ============

A security  designated as available for sale with a carrying  value (fair value)
of $1,286,391 has been pledged as collateral for certain large deposits  (public
funds) with an aggregate balance of $1,325,000 at June 30, 2000.

7.     SECURITIES HELD TO MATURITY

The amortized cost, gross unrealized gain and loss, and fair value of securities
designated as held to maturity are summarized as follows:
<TABLE>
<CAPTION>
                                                                             JUNE 30, 2000
                                                    -------------------------------------------------------------
                                                                          GROSS         GROSS
                                                        AMORTIZED      UNREALIZED    UNREALIZED
                                                          COST            GAIN         (LOSS)        FAIR VALUE
                                                          ----            ----         ------        ----------

<S>                                                     <C>               <C>          <C>            <C>
U.S. Government agency securities                       $23,886,255       $139,132     $(384,932)     $23,640,455
                                                        -----------       --------     ---------      -----------
                                                        $23,886,255       $139,132     $(384,932)     $23,640,455
                                                        ===========       ========     =========      ===========

                                                                             JUNE 30, 1999
                                                    -------------------------------------------------------------
                                                                          GROSS         GROSS
                                                        AMORTIZED      UNREALIZED    UNREALIZED
                                                          COST            GAIN         (LOSS)        FAIR VALUE
                                                          ----            ----         ------        ----------

U.S. Government agency securities                       $23,706,524       $231,055     $(291,134)     $23,646,445
                                                        -----------       --------     ---------      -----------
                                                        $23,706,524       $231,055     $(291,134)     $23,646,445
                                                        ===========       ========     =========      ===========
</TABLE>
                                       26
<PAGE>

The  amortized  cost  and fair  value of debt  securities  held to  maturity  by
contractual  maturity  are shown  below.  Expected  maturities  may differ  from
contractual  maturities  because  issuers  may have the  right to call or prepay
obligations with or without call or prepayment penalties.

                                                          JUNE 30, 2000
                                                --------------------------------
                                                   AMORTIZED
                                                     COST           FAIR VALUE

   Due in one year or less                      $      196,144      $    195,469
   Due after one year through five years             3,948,550         3,924,805
   Due after five years through ten years           13,179,277        13,036,158
   Due after ten years                               6,562,284         6,484,023
                                                --------------     -------------
                                                   $23,886,255       $23,640,455
                                                ==============     =============

8.     LOANS RECEIVABLE

Loans receivable are summarized as follows:

                                                            June 30,
                                                   --------------------------
                                                     2000            1999
                                                     ----            ----

 Mortgage loans:
     Secured by one to four family residential     $33,401,335     $36,702,144
     Secured by nonresidential properties               96,136         301,936
 Consumer loans                                      5,745,397       4,450,682
 Share loans                                           769,409         647,406
                                                   -----------     -----------
                                                    40,012,277      42,102,168
 Less:
     Unearned interest income                          382,977         240,453
     Deferred loan fees (costs), net                  (325,797)       (344,830)
     Allowance for loan losses                         114,836          97,836
                                                   -----------     -----------
               Loans receivable, net               $39,840,261     $42,108,709
                                                   ===========     ===========

Loans  secured  by one to four  family  residential  properties  include  second
mortgage  loans on properties for which the Bank holds the first  mortgage.  The
proceeds on these second mortgage loans were used for  improvements and consumer
purposes.  Second  mortgage  loan  balances  at June  30,  2000  and  1999  were
approximately $1,462,000 and $1,464,000, respectively.

As a  savings  and loan  institution,  the Bank  has a credit  concentration  in
residential  real  estate  mortgage  loans.  Substantially  all  of  the  Bank's
customers  are  located  in its trade  area of Etowah,  Marshall,  and  Cherokee
Counties in Alabama.  Although the Bank has generally conservative  underwriting
standards,  including a  collateral  policy  calling for low loan to  collateral
values,  the  ability  of its  borrowers  to  meet  their  residential  mortgage
obligations is dependent upon local economic conditions.

In the normal  course of business,  loans are made to officers,  directors,  and
employees of the Company and the Bank. These loans are made on substantially the
same terms,  including  interest rates and collateral,  as those  prevailing for
comparable  transactions with others. As of June 30, 2000 and 1999, $363,889 and
$442,075,  respectively,  of these loans were  outstanding.  During fiscal 2000,
$167,576 of new loans were made and repayments totaled $245,762.

                                       27
<PAGE>

An analysis of the Company's allowance for loan losses is as follows:

                                                   For the Years Ended
                                                         June 30,
                                           -------------------------------------
                                              2000          1999         1998
                                              ----          ----         ----

        Balance, beginning of year          $  97,836      $75,673      $75,673
        Provision for loan losses              17,000       27,000            0
        Charge-offs, net of recovery                0       (4,837)           0
                                            ---------      -------      -------
        Balance, end of year                 $114,836      $97,836      $75,673
                                            =========      =======      =======

At June 30, 2000 and 1999,  nonaccrual loans totaled  approximately  $18,705 and
$10,333,  respectively.  Interest  income  foregone on nonaccrual  loans was not
significant for fiscal years 2000, 1999, and 1998, respectively.

9.     PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows:

                                                          June 30,
                                                 ---------------------------
                                                   2000             1999
                                                   ----             ----

        Land                                     $   320,085     $   170,085
        Building and improvements                    332,674         254,677
        Leasehold improvements                        63,956          58,793
        Furniture, fixtures, and equipment           583,463         561,422
                                                 -----------     -----------
                                                   1,300,178       1,044,977
        Less accumulated depreciation               (827,615)       (786,420)
                                                 -----------     -----------
                                                 $   472,563     $   258,557
                                                 ===========     ===========

Depreciation  expense charged to office building and equipment  expense in 2000,
1999,  and  1998,  totaled   approximately   $41,000,   $38,000,   and  $46,000,
respectively.

                                       28
<PAGE>

10.      DEPOSITS

Deposits are summarized as follows:
<TABLE>
<CAPTION>

                                                                JUNE 30, 2000                  June 30, 1999
                                                                -------------                  -------------
                                                            AMOUNT          PERCENT         AMOUNT         PERCENT
                                                            ------          -------         ------         -------

Demand, NOW, and Money Market accounts, including
  noninterest bearing deposits of
  $143,076 and $162,173 at
  June 30, 2000 and June 30, 1999,
<S>                                                       <C>                <C>          <C>                <C>
  respectively                                            $  6,107,584       7.50%        $  7,814,777       9.80%
Passbook savings                                             5,235,751       6.43            5,713,307       7.17
                                                          ------------     ------         ------------     ------
                                                            11,343,335      13.93           13,528,084      16.97
Certificates of deposit:
      2.00-  4.00%                                           5,400,448       6.63            7,490,137       9.39
      4.01-  6.00%                                          37,065,603      45.52           57,545,893      72.18
      6.01-  8.00%                                          27,509,481      33.78            1,047,695       1.31
      8.01-10.00%                                              117,624       0.14              121,868       0.15
                                                          ------------     ------         ------------     ------
                                                            70,093,156      86.07           66,205,593      83.03
                                                          ------------     ------         ------------     ------
                                                           $81,436,491     100.00%         $79,733,677     100.00%
                                                          ============     ======         ============     ======
</TABLE>

The  aggregate   amount  of  jumbo   certificates  of  deposit  with  a  minimum
denomination  of $100,000 was  $11,614,430  and  $9,629,583 at June 30, 2000 and
1999, respectively.

At June 30, 2000, the scheduled maturities of time deposits are as follows:

                                   2001                             $39,843,488
                                   2002                              20,937,681
                                   2003                               7,049,260
                                   2004                               1,533,367
                                   2005                                 647,688
                                   Thereafter                            81,672
                                                                    -----------
                                                 Total              $70,093,156
                                                                    ===========

Interest expense on deposits consisted of the following:

                                          For the Years Ended June 30,
                                          ----------------------------
                                     2000            1999             1998
                                     ----            ----             ----

        Passbook savings           $   199,670     $   173,306     $   149,106
        NOW accounts                   150,082         247,099         240,356
        Certificates of deposit      3,539,826       3,679,891       4,129,114
                                   -----------     -----------      ----------
                                    $3,889,578      $4,100,296      $4,518,576
                                   ===========     ===========      ==========

                                       29
<PAGE>

11.      INCOME TAXES

The provision (benefit) for income taxes for the periods indicated is summarized
as follows:

                                            For the Years Ended June 30,
                                            ----------------------------
                                         2000           1999          1998
                                         ----           ----          ----

        Current Provision:
            Federal                      $338,311      $342,262       $216,746
            State                          45,350        48,067         29,130
                                         --------      --------       --------
                                          383,661       390,329        245,876
        Deferred provision (benefit)      (26,997)      (77,771)        31,167
                                         --------      --------       --------
                                         $356,664      $312,558       $277,043
                                         ========      ========       ========

The differences  between the provision (benefit) for income taxes and the amount
computed  by applying  the  statutory  federal  income tax rate of 34% to income
before taxes were as follows:
<TABLE>
<CAPTION>
                                                                       For the Years Ended June 30,
                                                                       ----------------------------
                                                                    2000           1999          1998
                                                                    ----           ----          ----

        <S>                                                         <C>           <C>            <C>
        Pretax income at statutory rates                            $333,944      $313,813       $273,142
        Add (deduct):
            State income tax, net of federal tax benefit              10,554        26,183         21,494
            Other, net                                                12,166       (27,438)       (17,593)
                                                                    --------      --------       --------
                                                                    $356,664      $312,558       $277,043
                                                                    ========      ========       ========
        Effective income tax rate                                         36%           34%            34%
                                                                    ========      ========       ========
</TABLE>

The  components  of the net deferred tax asset or liability at June 30, 2000 and
1999 were as follows:

                                                               June 30,
                                                               --------
                                                          2000        1999
                                                          ----        ----

Amortization of intangibles                             $  78,806   $   68,552
Reserves for employee benefit plans                       164,911      160,547
Depreciation                                               13,069        5,362
Unrealized net loss on securities available for sale      178,226       81,616
Other                                                      17,686       14,703
              Deferred tax asset                          452,698      330,780
FHLB stock dividend                                       (58,919)     (58,919)
Bad debt reserve, net                                      (8,462)     (17,462)
Accretion of discount on securities                      (145,659)    (133,887)
Deferred loan fees and costs, net                        (140,239)    (144,900)
Other                                                        (312)        (112)
              Deferred tax liability                     (353,591)    (355,280)
              Net deferred tax asset (liability)        $  99,107    $ (24,500)

                                       30
<PAGE>

The portion of a thrift's tax bad debt reserve that was not recaptured under the
provisions of the Small  Business Job Protection Act of 1996 are only subject to
recapture  at a later date under  certain  circumstances.  These  include  stock
repurchases  redemptions  by the thrift or if the thrift  converts  to a type of
institution  (such  as a credit  union)  that is not  considered  a bank for tax
purposes.  However,  no  further  recapture  would  be  required  if the  thrift
converted to a commercial  bank charter or was acquired by a bank. The Bank does
not anticipate  engaging in any transactions at this time that would require the
recapture of its pre-1988 tax bad debt reserves of approximately $2.8 million.

12.      ACCRUED INTEREST AND DIVIDENDS RECEIVABLE

Accrued interest and dividends receivable is summarized as follows:

                                                           June 30,
                                                           --------
                                                      2000          1999
                                                      ----          ----

        Securities available for sale                $334,331       $254,431
        Securities held to maturity                   155,648        145,540
        Loans receivable                              164,493        180,399
        Dividends receivable - FHLB stock              13,956         13,821
        Interest-bearing deposits in other banks        8,519          7,286
                                                     --------       --------
                                                     $676,947       $601,477
                                                     ========       ========

13.      COMMITMENTS AND CONTINGENCIES

LEASES

The Company has lease  agreements for its branch  offices.  Rental expense under
these leases aggregated $20,115,  $18,546,  and $16,694,  for fiscal years 2000,
1999, and 1998,  respectively.  The aggregate annual minimum rental  commitments
under the terms of all noncancellable leases at June 30, 2000 are as follows:

                                        FISCAL YEAR                    AMOUNT
                                        -----------                    ------

                                          2001                        $15,348
                                          2002                         15,348
                                          2003                         15,348
                                          2004                          8,069
                                          2005                              0
                                                                      -------
                                                                      $54,113
                                                                      =======

                                       31
<PAGE>

OFF-BALANCE-SHEET ITEMS

The  Company's  policies  as to  collateral  and  assumption  of credit risk for
off-balance  sheet  items are  essentially  the same as those for  extension  of
credit to its customers.  Generally, the off-balance sheet exposure the Bank has
is its  commitment to originate  loans and fund unused lines of credit.  At June
30, 2000,  the Company had no outstanding  commitments to originate  residential
real  estate  loans.  Additionally,  at June 30,  2000,  the  Bank had  provided
approximately $653,721 in unused lines of credit.

LITIGATION

The Company is a party to litigation  and claims arising in the normal course of
business.  Management,  after consultation with legal counsel, believes that the
liabilities,  if any,  arising  from  such  litigation  and  claims  will not be
material to the consolidated financial statements.

STOCK CONVERSION

On October 5, 1995, the Conversion of the Bank from a Federally-chartered mutual
institution to a Federally-chartered stock savings association through amendment
of its charter  and  issuance  of common  stock to the  Company  was  completed.
Related  thereto,  the Company sold 1,454,750  shares of common stock, par value
$.01 per  share,  at an  initial  price of $10 per  share  in  subscription  and
community  offerings.  Costs  associated with the Conversion were  approximately
$880,000, including underwriting fees. These conversion costs were deducted from
the gross  proceeds  of the sale of the common  stock.  In  connection  with the
Offering,  the Bank established a liquidation  account in an amount equal to its
regulatory  capital as of the latest  practicable  date prior to consummation of
the Offering.

14.      FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company has a variety of financial  instruments which include items recorded
on the consolidated  statement of financial  condition and items which, by their
nature, are not recorded on the consolidated  statement of financial  condition.
Quoted  market  prices,  if  available,  are utilized as an estimate of the fair
value of  financial  instruments.  In cases where quoted  market  prices are not
available,  fair  values  have  been  estimated  using  present  value  or other
valuation techniques. These methods are highly sensitive to the assumptions used
by management, such as those concerning appropriate discount rates and estimates
of future cash  flows.  Different  assumptions  could  significantly  affect the
estimated fair value amounts  presented below. In this regard,  the derived fair
value estimates  cannot be  substantiated  by comparison to independent  markets
and, in many cases,  could not be realized in the  immediate  settlement  of the
instrument.  Further, assets that are not financial instruments are not included
in the following table. Accordingly, the aggregated estimated fair value amounts
presented do not represent the underlying value of the Company.

                                       32
<PAGE>


This table  summarizes  the  Company's  disclosure  of fair values of  financial
instruments made in accordance with the requirements of SFAS No. 107:
<TABLE>
<CAPTION>
                                                           AT JUNE 30, 2000           AT JUNE 30, 1999
                                                           ----------------           ----------------
                                                        CARRYING     ESTIMATED      CARRYING    ESTIMATED
                                                         AMOUNT      FAIR VALUE      AMOUNT     FAIR VALUE
                                                         ------      ----------      ------     ----------
                                                                     (Dollars in thousands)
        ASSETS:
        <S>                                             <C>          <C>            <C>          <C>
            Cash on hand and in banks                   $  5,746     $  5,746       $  8,681     $  8,681
            Securities--AFS                               27,109       27,109         21,350       21,350
            Securities--HTM                               23,886       23,640         23,706       23,646
            Loans receivable, net                         39,840       39,037         42,109       42,530

        LIABILITIES:
            Deposits                                      81,436       81,650         79,734       79,730
            Other liabilities                                331          331            497          497
</TABLE>

The following methods and assumptions were used by the Company in estimating the
fair values provided above:

         CASH AND CASH EQUIVALENTS

         The carrying value of highly liquid  instruments,  such as cash on hand
         and cash equivalents, are considered to approximate their fair value.

         SECURITIES AVAILABLE FOR SALE AND SECURITIES HELD TO MATURITY

         Substantially all of the Company's  securities available for sale (AFS)
         and held to maturity (HTM) have a readily determinable fair value. Fair
         values for these  securities are based on quoted market  prices,  where
         available. If not available,  fair values are based on market prices of
         comparable instruments. The carrying value of accrued interest on these
         instruments approximates fair value.

         LOANS RECEIVABLE, NET

         For loans with rates which are repriced in coordination  with movements
         in market rates and with no  significant  change in credit  risk,  fair
         value  estimates  are based on  carrying  values.  The fair  values for
         certain  mortgage  loans are based on quoted  market  prices of similar
         loans sold in conjunction with securitizing transactions,  adjusted for
         differences in loan characteristics. The fair values of other loans are
         estimated by discounting future cash flows using current rates at which
         loans with similar  terms would be made to borrowers of similar  credit
         ratings.  The carrying amount of accrued interest on loans approximates
         fair values.

         DEPOSITS

         The fair value of deposits  with no stated  maturity,  such as interest
         and non-interest demand deposits,  NOW accounts,  savings accounts, and
         money market accounts,  is, by definition,  equal to the amount payable
         on demand at the reporting date (i.e.,  their carrying  amounts).  Fair
         values for  certificates  of deposit are  estimated  using a discounted
         cash  flow   analysis  that  applies   rates   currently   offered  for
         certificates of similar  remaining  maturities.  The carrying amount of
         accrued interest payable on deposits approximates its fair value.

                                       33
<PAGE>

         OTHER LIABILITIES

         The carrying amount of accrued interest payable and advance payments by
         borrowers approximates its fair value.

         OFF-BALANCE-SHEET INSTRUMENTS

         Off-balance-sheet  financial  instruments include commitments to extend
         credit.  The fair value of such  commitments  is  negligible  since the
         arrangements are at current rates, are for short periods,  and there is
         no known credit exposure.

15.      PARENT COMPANY FINANCIAL STATEMENTS

Separate condensed financial statements of The Southern Banc Company,  Inc. (the
"Parent  Company")  as of and for the  years  ended  June 30,  2000 and 1999 are
presented below:


                        STATEMENT OF FINANCIAL CONDITION

                             JUNE 30, 2000 AND 1999

                          (DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                               2000         1999
                                                                                               ----         ----
     ASSETS:
     <S>                                                                                     <C>         <C>
         Cash and cash equivalents                                                           $  1,517    $     403
         Investment in subsidiary                                                              14,261       15,640
         ESOP loan receivable                                                                     548          654
         Other assets                                                                              31           35
                                                                                             --------    ---------
                   Total assets                                                               $16,357      $16,732
                                                                                             ========    =========
     LIABILITIES:
         Other liabilities                                                                 $       38   $       87
                                                                                             --------    ---------
     STOCKHOLDERS' EQUITY:
         Preferred stock                                                                            0            0
         Common stock                                                                              15           15
         Paid-in capital                                                                       13,744       13,723
         Retained earnings                                                                     10,034        9,684
         Unearned compensation                                                                   (535)        (725)
         Shares held in trust                                                                    (846)        (846)
         Treasury stock                                                                        (5,624)      (4,991)
         Unrealized loss on securities available for sale, net                                   (469)        (215)
                                                                                             --------    ---------
                   Total stockholders' equity                                                  16,319       16,645
                                                                                             --------    ---------
                   Total liabilities and stockholders' equity                                 $16,357      $16,732
                                                                                             ========    =========
</TABLE>
                                       34
<PAGE>

                               STATEMENT OF INCOME

                   FOR THE YEARS ENDED JUNE 30, 2000 AND 1999

                          (DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                                                  2000       1999
                                                                                                  ----       ----

     INCOME FROM SUBSIDIARY:
         <S>                                                                                      <C>        <C>
         Dividends                                                                                $2,000     $1,000
         Interest                                                                                     45        102
                                                                                                  ------     ------
                   Total income                                                                    2,045      1,102
     OPERATING EXPENSE                                                                                31         66
                                                                                                  ------     ------
     INCOME BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED CURRENT YEAR SUBSIDIARY EARNINGS       2,014      1,036

     INCOME TAXES                                                                                     34         16
                                                                                                  ------     ------
     INCOME BEFORE EQUITY IN UNDISTRIBUTED CURRENT YEAR SUBSIDIARY EARNINGS                        1,980      1,020

     DISTRIBUTIONS (OVER) UNDER CURRENT YEAR SUBSIDIARY EARNINGS                                  (1,334)      (422)
                                                                                                  ------     ------
                   Net income                                                                    $   646    $   598
                                                                                                  ======     ======
</TABLE>

                             STATEMENT OF CASH FLOWS

                   FOR THE YEARS ENDED JUNE 30, 2000 AND 1999

                          (DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                                                  2000       1999
                                                                                                  ----       ----

     OPERATING ACTIVITIES:
     <S>                                                                                         <C>       <C>
         Net income                                                                              $   646   $    598
         Distributions over (under) current year subsidiary earnings                               1,334        422
                                                                                                 -------   --------
                                                                                                   1,980      1,020
         Adjustments  to reconcile  net income to net cash provided by operating
activities:

            Decrease in other assets                                                                   4          9
            Increase (decrease) in other liabilities                                                 (49)       (26)
                                                                                                 -------   --------
                   Net cash provided by operating activities                                       1,935      1,003
                                                                                                 -------   --------
     INVESTING ACTIVITIES:


                   Net cash provided by investing activities                                           0          0
                                                                                                 -------   --------
     FINANCING ACTIVITIES:
         Capital contributions to plan trust                                                           0       (304)
         Payments received on ESOP loan                                                              106        182
         Purchase of treasury stock                                                                 (633)    (1,991)
         Dividends paid                                                                             (294)      (347)
                                                                                                 -------   --------
                   Net cash provided by (used in) financing activities                              (821)    (2,460)
                                                                                                 -------   --------
     INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                              1,114     (1,457)

     CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                                  403      1,860
                                                                                                 -------   --------
     CASH AND CASH EQUIVALENTS AT END OF YEAR                                                     $1,517   $    403
                                                                                                 =======   ========
</TABLE>
                                       35
<PAGE>

                              CORPORATE INFORMATION


<TABLE>
<CAPTION>
<S>                                                                                <C>
DIRECTORS AND EXECUTIVE OFFICERS:                                                  MAIN OFFICE:

James B. Little Jr.                                                                221 S. 6th Street
   Chairman of the Board and Chief Executive                                       Gadsden, Alabama
   Officer of the Company and the Bank
                                                                                   BRANCH OFFICES:
Craig G. Cantrell                                                                  202 Sand Mountain Drive
   Retired                                                                         Albertville, Alabama

Thomas F. Dowling                                                                  2204 Henry Street
   Dentist                                                                         Guntersville, Alabama
   Gadsden, Alabama
                                                                                   390 W. Main Street
Grady Gillam                                                                       Centre, Alabama
   Retired

Rex G. Keeling Jr.                                                                 INDEPENDENT PUBLIC ACCOUNTANTS:
   Property/Casualty Salesman with Insurance Facilities
                                                                                   Arthur Andersen LLP
Gates Little                                                                       Birmingham, Alabama
   President of the Company and
   the Bank                                                                        GENERAL COUNSEL:

James B. Little III                                                                Inzer, Haney & McWhorter, P.A.
   New Capital Partners, LLC                                                       Gadsden, Alabama
   Founder and Partner
                                                                                   SECURITIES AND REGULATORY COUNSEL:
Fred Taylor
   Owner of Taylor Realty                                                          Kutak Rock
   Albertville, Alabama                                                            Washington, D.C.

OFFICERS:                                                                          ANNUAL STOCKHOLDERS MEETING:

Rodney Rich                                                                        November  9, 2000 - 5:00 p.m.
   Vice President of the Bank                                                      The Southern Bank Company
                                                                                   221 S. 6th Street
Janice Stephens                                                                    Gadsden, Alabama
   Comptroller of the Bank                                                         Record Date - September 15, 2000

Teresa Elkins                                                                      A COPY OF THE ANNUAL REPORT ON FORM 10-
   Vice President of the Bank                                                      KSB FOR THE FISCAL YEAR ENDED JUNE 30, 2000
                                                                                   AS FILED WITH THE SEC WILL BE FURNISHED TO
Peggy Smith                                                                        STOCKHOLDERS AS OF THE RECORD DATE UPON
   Secretary of the Company and Secretary-Treasurer of the Bank                    WRITTEN  REQUEST TO THE  SECRETARY  OF THE
                                                                                   COMPANY,  221 SOUTH 6TH STREET, GADSDEN,
Martha Garrett                                                                     AL 35901.
   Vice President of the Bank

Annette Espy
   Vice President of the Bank
</TABLE>

                                       36
<PAGE>
================================================================================


================================================================================
                         THE SOUTHERN BANC COMPANY, INC.

         221 SOUTH 6TH STREET o GADSDEN, ALABAMA 35901 o (256) 543-3860