<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                                  FORM 10-KSB
(Mark One)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the fiscal year ended June 30, 2001

[_]  TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from                to
                               --------------    ---------------

                        Commission File Number: 1-13964

                       THE SOUTHERN BANC COMPANY, INC.
                ---------------------------------------------
                (Name of Small Business Issuer in Its Charter)

             Delaware                                    63-1146351
 ---------------------------------          ----------------------------------
   (State or Other Jurisdiction            (I.R.S. Employer Identification No.)
 of Incorporation or Organization)


   221 S. 6th Street, Gadsden, Alabama                      35901
 --------------------------------------                     -----
(Address of Principal Executive Offices)                 (Zip Code)

        Issuer's Telephone Number, Including Area Code: (256) 543-3860

          Securities registered pursuant to Section 12(b) of the Act:

 Common stock, par value $.01 per share           American Stock Exchange
 --------------------------------------    ------------------------------------
           (Title of Class)               (Name of Exchange on Which Registered)

          Securities registered pursuant to Section 12(g) of the Act:
                                Not Applicable

Check whether the issuer: (1) filed all reports required by Section 13 or 15(d)
of the Exchange Act during the preceding 12 months (or such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes  X  No
                                                   ---

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

Registrant's revenues for the fiscal year ended June 30, 2001: $467,541
The aggregate market value of the 743,498 shares of Common Stock of the
registrant issued and outstanding held by non-affiliates was approximately $7.8
million based on the closing sales price of $10.49 per share of the registrant's
Common Stock on September 24, 2001 as listed on the American Stock Exchange. For
purposes of this calculation, it is assumed that directors, executive officers
and beneficial owners of more than 10% of the registrant's outstanding voting
stock are affiliates.

Number of shares of Common Stock outstanding as of September 24, 2001: 1,006,498

Transitional Small Business Disclosure Format Yes ___  No  X
                                                          ---

                      DOCUMENTS INCORPORATED BY REFERENCE

The following lists the documents incorporated by reference and the part of this
report into which the document is incorporated:

1.    Portions of the Annual Report to Stockholders for the Fiscal Year Ended
      June 30, 2001 (the "Annual Report"). (Parts I and II)

2.    Portions of the Proxy Statement for the registrant's 2001 Annual Meeting
      of Stockholders (the "Proxy Statement"). (Part III)
<PAGE>

                                    PART I

Item 1.  Description of Business
--------------------------------

General

         The Southern Banc Company, Inc. The Southern Banc Company, Inc. (the
"Company") was incorporated under the laws of the State of Delaware in May 1995
at the direction of management of The Southern Bank Company, formerly First
Federal Savings and Loan Association of Gadsden (the "Bank"), for the purpose of
serving as the savings institution holding company of the Bank upon the
Company's acquisition of all of the capital stock issued by the Bank in
connection with the Bank's conversion from mutual to stock form.

         The holding company structure permits the Company to expand the
financial services offered through the Bank. As a holding company, the Company
has greater flexibility than the Bank to diversify its business activities
through existing or newly formed subsidiaries or through acquisition or merger
with other financial institutions. The Company qualifies as a unitary savings
institution holding company and is subject to regulation by the Office of Thrift
Supervision ("OTS"). The Company's principal business is the business of the
Bank. At June 30, 2001, the Company had total consolidated assets of $97.3
million, deposits of $79.8 million, net loans receivable of $37.6 million and
stockholders' equity of $17.0 million or 17.5% or total assets.

         The Company's executive offices are located at 221 S. 6th Street,
Gadsden, Alabama 35901, and its telephone number is (256) 543-3860.

         The Southern Bank Company. The Bank is an independent
community-oriented savings institution dedicated to providing quality customer
service. 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.

         In 1999, the Bank changed it corporate title from "First Federal
Savings and Loan Association of Gadsden" to "The Southern Bank Company." The
change of name was made to eliminate any confusion between the Company and the
Bank and to increase public awareness of the expanded banking services which the
Bank is authorized to offer. The Bank currently operates through four
full-service banking offices located in Gadsden, Albertville, Guntersville and
Centre, Alabama.

         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 ("Federal Reserve Board").

Special Note Regarding Forward Looking Statements

         Certain matters discussed in this document are "forward looking
statements," intended to qualify for the safe harbors from liability established
by the Private Securities Legislation Reform Act of 1995. These forward looking
statements can generally be identified as such because the context of the
statement will include words such as the Company "believes," "anticipates,"
"expects," "estimates," or words of similar import. Similarly, statements that
describe the Company's future plans, objectives or goals are

                                       1
<PAGE>

also forward looking statements. Such forward looking statements are subject to
certain risks and uncertainties which are described in close proximity to such
statements and which could cause actual results to differ materially from those
anticipated as of the date of this report. Stockholders, potential investors,
and other readers are cautioned not to place undue reliance on such forward-
looking statements. The forward-looking statements included herein are only made
as of the date of this report and the Company undertakes no obligation to
publicly update such forward-looking statements to reflect subsequent events or
circumstances.

Business Strategy

         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 loans secured by owner-occupied one-to-four-family residential
real estate located in the Bank's market area, 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"), 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 and
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.

Market Area

         The Bank considers its primary market area to consist of Etowah,
Cherokee and Marshall Counties in which the Bank has its four offices. The City
of Gadsden, in which the Bank's main office is located, is in Etowah County,
approximately 65 miles northeast of Birmingham, Alabama. Based upon the 2000
population census, the combined population of Etowah, Cherokee and Marshall
Counties was approximately 210,000.

         The economy in the Bank's market area includes a mixture of
manufacturing and agriculture. For years the two major industrial employers were
Goodyear Tire and Rubber Company ("Goodyear") and Gulf States Steel Corporation
("Gulf States"). At present Goodyear employs around 1,500 workers which is an
increase from 1,205 workers as of March 2001. Gulf States, which previously
employed 1,850 workers, ceased production on August 21, 2000 after operating
under Chapter 11 Bankruptcy since July 1999. Currently, Honda Motor Company is
constructing a manufacturing plant in Talladega County, 17 miles from Etowah
County. According to projections, the Honda Plant, suppliers, and additional
economic opportunities for local businesses could produce approximately 900 jobs
for Etowah County residents. Production at the Honda Plant is expected to begin
in early Fall 2001. Several other new projects and industries were announced in
the past year which could boost the economy in the Bank's primary market area.
According to the Alabama Department of Industrial Relations, the unemployment
rates for July 2001 in Etowah, Cherokee and Marshall Counties were 6.7%, 3.1%
and 5.6%, respectively, as compared to 4.5% for the state of Alabama.

                                       2
<PAGE>

Competition

         The Bank experiences substantial competition both in attracting and
retaining savings deposits and in the making of mortgage and other loans.

         Direct competition for savings deposits comes from other savings
institutions, credit unions, regional bank holding companies and commercial
banks located in its primary market area. Significant competition for the Bank's
other deposit products and services comes from money market mutual funds and
brokerage firms. The primary factors in competing for loans are interest rates
and loan origination fees and the range of services offered by various financial
institutions. Competition for origination of real estate loans normally comes
from other savings institutions, commercial banks, credit unions, mortgage
bankers, and mortgage brokers.

         The Bank's primary competition comes from institutions headquartered in
the Bank's market area as well as numerous additional commercial banks which
have branch offices located in the Bank's market area. Many competing financial
institutions have financial resources substantially greater than the Bank and
offer a wider variety of deposit and loan products.

Lending Activities

         General. The Bank's principal lending activity consists of the
origination of loans secured by mortgages on existing one-to-four-family
residences and a variety of consumer loans in the Bank's market area. The Bank
also makes limited amounts of non-residential real estate and commercial loans.

         With certain limited exceptions, the maximum amount that a savings
institution such as the Bank may lend to any borrower (including certain related
entities of the borrower) at one time may not exceed 15% of the unimpaired
capital and surplus of the institution, plus an additional 10% of unimpaired
capital and surplus for loans fully secured by readily marketable collateral.
Savings institutions are additionally authorized to make loans to one borrower,
for any purpose, in an amount not to exceed $500,000 or, by order of the
Director of OTS, in an amount not to exceed the lesser of $30,000,000 or 30% of
unimpaired capital and surplus to develop residential housing, provided: (i) the
purchase price of each single-family dwelling in the development does not exceed
$500,000; (ii) the savings institution is in compliance with its fully phased-in
capital requirements; (iii) the loans comply with applicable loan-to-value
requirements, and; (iv) the aggregate amount of loans made under this authority
does not exceed 15% of unimpaired capital and surplus.

         At June 30, 2001, the maximum amount that the Bank could have loaned to
any one borrower without prior OTS approval was approximately $4.3 million. At
such date, the largest aggregate amount of loans that the Bank had outstanding
to any one borrower was approximately $450,000.

                                       3
<PAGE>

         Loan Portfolio Composition. The following table sets forth selected
data relating to the composition of the Bank's loan portfolio by type of loan at
the dates indicated. At June 30, 2001, the Bank had no concentrations of loans
exceeding 10% of total loans that are not disclosed below.

<TABLE>
<CAPTION>

                                                                                At June 30,
                                                      -----------------------------------------------------------------
                                                                   2001                              2000
                                                      -------------------------------    ------------------------------
                                                          Amount            %                Amount            %
                                                          ------          -----              ------          -----
                                                                           (Dollars in thousands)
<S>                                                   <C>              <C>              <C>               <C>
Type of Loan:
------------
Real estate loans:
  One-to-four-family residential/(1)/..........        $   30,743           81.37%        $    33,401          83.48%
  Non-residential..............................                81            0.21                  96           0.24
Consumer loans.................................             6,000           15.88               5,746          14.36
Commercial loans...............................               139            0.37                   0           0.00
Savings account loans..........................               820            2.17                 769           1.92
                                                       ----------      ----------         -----------      ---------
Total gross loans..............................            37,783          100.00%             40,012         100.00%
                                                                       ==========                          =========
Less:
----
  Unearned income..............................               325                                 383
  Discounts on loans purchased.................                 0                                   9
  Deferred loan fees (costs), net..............              (252)                               (335)
  Allowance for loan losses....................               123                                 115
                                                       ----------                         -----------
    Total......................................        $   37,587                         $    39,840
                                                       ==========                         ===========
</TABLE>
---------------
(1)  One-to-four-family residential includes second mortgage loans of
     approximately $1,494,000 and $1,462,000, at June 30, 2001 and 2000,
     respectively. The proceeds of these second mortgage loans were used for
     improvements and consumer purposes.

         The following table sets forth information at June 30, 2001 regarding
the dollar amount of loans maturing or repricing in the Bank's portfolio, based
on contractual terms to maturity or repricing period. Demand loans, loans having
no schedule of repayments and no stated maturity, and overdrafts are reported as
due in one year or less.

<TABLE>
<CAPTION>

                                                                             Due After
                                                           Due Within        1 through        Due After
                                                             1 Year           5 Years       5 Years After
                                                         After 6/30/01     After 6/30/01       6/30/01          Total
                                                         -------------     -------------       -------          -----
                                                                          (In thousands)
<S>                                                      <C>              <C>              <C>               <C>
Real estate mortgage..............................      $         475      $       1,920    $      28,429     $    30,824
Consumer, commercial and savings account loans....
                                                                2,042              3,859            1,058           6,959
                                                        -------------     --------------    -------------     -----------
    Total.........................................      $       2,517     $        5,779    $      29,487     $    37,783
                                                        =============     ==============    =============     ===========
</TABLE>

                                       4
<PAGE>

         The following table sets forth at June 30, 2001, the dollar amount of
gross loans due after one year after that date, based upon contractual maturity
dates or period to reprice, and whether such loans have fixed or adjustable
rates.

<TABLE>
<CAPTION>

                                                                   Predetermined                    Floating or
                                                                       Rate                      Adjustable Rates
                                                                 ----------------                ----------------
                                                                                  (In thousands)
<S>                                                              <C>                             <C>
Real estate...................................................      $     28,650                     $     2,174
Consumer, commercial and savings account loans................             6,300                             659
                                                                    ------------                     -----------
    Total.....................................................      $     34,950                     $     2,833
                                                                    ============                     ===========
</TABLE>

         Scheduled contractual principal repayments of loans do not necessarily
reflect the actual life of such assets. The average life of long-term loans is
substantially less than their contractual terms, due to prepayments. The average
life of mortgage loans tends to increase when current mortgage loan market rates
are higher than rates on existing mortgage loans and tends to decrease when
current mortgage loan market rates are lower than rates on existing mortgage
loans.

         Originations, Purchases and Sales of Loans. The Bank's loans are
primarily originated by salaried loan officers of the Bank, although, from time
to time, the Bank purchases loans. During fiscal 2001, the Bank purchased no
loans. During the fiscal year ended June 30, 2001, the Bank originated and sold
a total of $1,730,000 in loans to the secondary market.

         One-to-Four-Family Residential Lending. Historically, the Bank's
principal lending activity has been the origination of fixed rate loans secured
by first mortgages on existing one-to-four-family residences in the Bank's
market area. The purchase price or appraised value of most of such residences
generally has been between $28,000 and $249,000, with the Bank's loan amounts
averaging approximately $66,000. At June 30, 2001, $30.7 million, or 81.4% of
the Bank's total loans were secured by one-to-four-family residences, a
substantial portion of which were existing, owner-occupied, single-family
residences in the Bank's market area. At June 30, 2001, $28.5 million, or 93.0%
of the Bank's one-to-four-family residential loans had fixed rates, and $2.2
million, or 7.0%, had adjustable rates.

         The Bank's one-to-four-family residential mortgage loans generally are
for terms of up to 21 years, amortized on a monthly basis, with principal and
interest due each month. The majority of the Bank's one-to-four-family mortgage
loans are underwritten with terms of 15 years or less. Residential real estate
loans often remain outstanding for significantly shorter periods than their
contractual terms. These loans customarily contain "due-on-sale" clauses which
permit the Bank to accelerate repayment of a loan upon transfer of ownership of
the mortgaged property. In 1995, the Bank introduced a new mortgage loan product
which provides for a term of up to 21 years with the interest rate increasing
one percentage point every seven years. This increase is not contingent upon any
corresponding increase in market interest rates. As of June 30, 2001, the Bank
had originated $7.4 million of these graduated rate loans.

         The Bank's lending policies generally limit the maximum loan-to-value
ratio on one-to-four-family residential mortgage loans secured by owner-occupied
properties to 97% of the lesser of the appraised value or purchase price. The
Bank's lending policies generally require private mortgage insurance for any
loan that exceeds an 80% loan-to-value ratio. Pursuant to its "First-Time Home
Buyer Plan," the Bank may lend up to 100% of the purchase price of a
one-to-four-family residence provided that the borrower (or third party)
provides additional collateral in the form of a pledge of a savings deposit or
certificate of deposit equal to 25% of the loan amount for loans up to 15 years
and 28% of the loan

                                       5
<PAGE>

amount for loans with terms greater than 15 years up to 21 years. Securities may
also be pledged as additional collateral, but such securities must have a
current market value equal to 140% of the required collateral amount.

         The Bank has not originated any adjustable rate, one-to-four-family
residential mortgage loans in recent years. However, total loans at June 30,
2001 included adjustable rate one-to-four-family residential loans with an
aggregate principal balance of $2.2 million, substantially all of which were
purchased during fiscal 1996. The rates at which interest accrues on these loans
are adjustable annually, generally with limitations on adjustments of 2.0% per
adjustment period and 6.0% - 6.5% over the life of the loan. While such loans
may include initial discounted rates, they were underwritten and borrowers were
qualified based on the fully indexed interest rate. The Bank's adjustable rate
loans do not permit negative amortization.

         The Bank also originates second mortgage loans. Such loans, when
combined with the first mortgage, generally are limited to 75% of the appraised
value. Such loans have a fixed rate and a maximum term of 10 years.

         The retention of adjustable and graduated rate loans in the Bank's
portfolio helps reduce the Bank's exposure to increases in prevailing market
interest rates. However, there are unquantifiable credit risks resulting from
potential increases in costs to borrowers in the event of upward repricing of
such loans. It is possible that during periods of rising interest rates, the
risk of default on adjustable and graduated rate loans may increase due to
increases in interest costs to borrowers. Adjustable and graduated rate loans
which provide for initial rates of interest below the fully indexed rates may be
subject to increased risk of delinquency or default as the higher, fully indexed
rate of interest subsequently replaces the lower, initial rate. Further,
although adjustable rate loans allow the Bank to increase the sensitivity of its
interest-earning assets to changes in interest rates, the extent of this
interest sensitivity is limited by the initial fixed rate period before the
first adjustment, the periodic and lifetime interest rate adjustment
limitations, and the ability of borrowers to convert the loans to fixed rates.
Accordingly, there can be no assurance that yields on the Bank's adjustable rate
loans will fully adjust to compensate for increases in the Bank's cost of funds.
Finally, adjustable rate loans increase the Bank's exposure to decreases in
prevailing market interest rates, although decreases in the Bank's cost of funds
tend to offset this effect.

         Consumer Lending. The Bank's consumer loans consist primarily of home
equity lines of credit, new and used automobile loans, and secured demand loans.
These loans totaled approximately $1.3 million, $4.7 million and $900,000,
respectively, at June 30, 2001. Management plans to continue the Bank's
expansion of these programs as part of the Bank's plan to provide a wider range
of financial services to the Bank's customers while increasing the Bank's
portfolio yields.

         The Bank makes home equity lines of credit secured by the borrower's
residence. These loans, combined with the first mortgage loan, which usually is
from the Bank, generally are limited to 75% of the appraised value of the
residence as long as the first mortgage is held by the Bank and 70% if the first
mortgage is held by another lender. Home equity lines of credit are open-end
with the rate on such loans adjusting monthly based on the Prime Rate as
published in The Wall Street Journal as of the first day of the month.

         The Bank's new and used automobile loans generally are underwritten in
amounts up to 85% of the purchase price, dealer cost or the loan value as
published by the National Automobile Dealers Association (i.e., the "Black
Book"). The terms of such loans generally do not exceed 60 months with loans for
older used cars underwritten for shorter terms. The Bank requires that the
vehicles be insured and that the Bank be listed as loss payee on the insurance
policy. The Bank originates a portion of its

                                       6
<PAGE>

automobile loans on an indirect basis through various dealerships located in its
market area. See " -- Loan Solicitation and Processing."

         The Bank generally makes savings account loans for up to 80% of the
balance of the account. The interest rate on these loans is generally two
percentage points above the rate paid on the account, and interest is billed on
a monthly basis. These loans are payable on demand, and the account must be
pledged as collateral to secure the loan.

         Consumer loans generally involve more risk than first mortgage loans.
Repossessed collateral for a defaulted loan may not provide an adequate source
of repayment of the outstanding loan balance as a result of damage, loss or
depreciation, and the remaining deficiency often does not warrant further
substantial collection efforts against the borrower. In addition, loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be adversely affected by job loss, divorce, illness or
personal bankruptcy. Further, the application of various federal and state laws,
including federal and state bankruptcy and insolvency laws, may limit the amount
which can be recovered. These loans may also give rise to claims and defenses by
a borrower against the Bank, and a borrower may be able to assert against the
Bank claims and defenses which it has against the seller of the underlying
collateral. In underwriting consumer loans, the Bank considers the borrower's
credit history, an analysis of the borrower's income, expenses and ability to
repay the loan, and the value of the collateral.

         Loan Solicitation and Processing. The Bank's loan originations are
derived from a number of sources, including referrals by realtors, builders,
depositors, borrowers, as well as walk-in customers. In addition, the Bank
originates a portion of its automobile loans on an indirect basis through
various dealerships located in the Bank's market area. The Bank's solicitation
programs consist of calls by the Bank's officers to local realtors and builders
and advertisements in local newspapers, billboards and real estate-related
periodicals. Real estate loans are originated by the Bank's staff loan officers
and executive officers, none of whom receives commissions for loan originations.
Loan applications are accepted at each of the Bank's offices for processing and
approval.

         Upon receipt of a loan application from a prospective borrower, the
Bank's staff obtains the necessary information and then prepares the file for
processing. Once in processing, a credit report and verifications of the loan
applicant's employment, income and credit standing are made. It is the Bank's
policy to obtain an appraisal of the real estate intended to secure a proposed
mortgage loan from a Bank-approved appraiser. The Bank generally does not obtain
a formal environmental report on the real estate at the time a loan is made,
except when the Bank becomes aware of a particular risk of environmental
contamination.

         It is the Bank's policy to record a lien on the real estate securing
the loan and, in most instances, to obtain a title insurance policy which
insures that the property is free of prior encumbrances. Borrowers must also
obtain hazard insurance policies prior to closing and, when the property is in a
designated flood plain, paid flood insurance policies are required.

         The Board of Directors has the overall responsibility and authority for
general supervision of the Bank's loan policies. The Board has established
written lending policies for the Bank. The Bank has established a loan committee
which is comprised of Board members and Executive Officers. Any loan committee
member has the authority to approve mortgage loans of $200,000 or under.
Mortgage loans over $200,000 require the approval of one committee member
accompanied by the approval of the Chairman of the Board. Consumer loans up to
$20,000 may be approved by individual loan officers. Consumer loans greater than
$20,000 must be approved by at least two members of the Bank's consumer loan
committee which is comprised of all of the Bank's loan officers. Loan applicants
are promptly

                                       7
<PAGE>

notified of the decision of the Bank. It has been management's experience that
substantially all approved loans are funded.

         Interest Rates and Loan Fees. Interest rates charged by the Bank on
mortgage loans are primarily determined by competitive loan rates offered in its
market area and the Bank's minimum yield requirements. Mortgage loan rates
reflect factors such as prevailing market interest rate levels, the supply of
money available to the savings industry and the demand for such loans. These
factors are in turn affected by general economic conditions, the monetary
policies of the federal government, including the Federal Reserve Board, the
general supply of money in the economy, tax policies and governmental budget
matters.

         The Bank receives fees in connection with loan originations, loan
modifications, late payments, changes of property ownership, and for
miscellaneous services related to its loans. Loan origination fees are
calculated as a percentage of the loan principal. The Bank typically receives
fees of up to 1.0% in connection with the origination of fixed rate mortgage
loans. The excess, if any, of loan origination fees over direct loan origination
expenses is deferred and accreted into income over the contractual life of the
loan using the interest method. If a loan is prepaid, refinanced or sold, all
remaining deferred fees with respect to such loan are taken into income at such
time.

         Collection Policies. When a borrower fails to make a payment on a loan,
the Bank generally takes prompt steps to have the delinquency cured and the loan
restored to current status. Once the payment grace period has expired (in most
instances 15 days after the due date), a late notice is mailed to the borrower,
and a late charge is imposed, if applicable. Loans on which payments are 30 or
more days delinquent and possess credit deficiencies or potential weaknesses are
designated as "special mention." The Bank's Board of Directors reviews a list of
all classified assets on a monthly basis. See " -- Asset Classification,
Allowances for Losses and Non-performing Assets." If a loan remains delinquent
90 days or more, the Bank generally makes demand for payment and/or initiates
foreclosure or other legal proceedings.

         Asset Classification, Allowances for Losses and Non-performing Assets.
Federal regulations require savings institutions to classify their assets on the
basis of quality on a regular basis. An asset is classified as substandard if it
is determined to be inadequately protected by the current net worth and paying
capacity of the obligor or of the collateral pledged, if any. An asset is
classified as doubtful if full collection is highly questionable or improbable.
An asset is classified as loss if it is considered uncollectible, even if a
partial recovery could be expected in the future. The regulations also provide
for a special mention designation, described as assets which do not currently
expose an institution to a sufficient degree of risk to warrant classification
but do possess credit deficiencies or potential weaknesses deserving
management's close attention. Assets classified as substandard or doubtful
require an institution to establish general allowances for loan losses. If an
asset or portion thereof is classified loss, an institution must either
establish a specific allowance for loss in the amount of the portion of the
asset classified loss, or charge off such amount. Federal examiners may disagree
with an institution's classifications. If an institution does not agree with an
examiner's classification of an asset, it may appeal this determination to the
OTS Regional Director. The Bank regularly reviews its assets to determine
whether any assets require classification or re-classification. The Board of
Directors reviews and approves all classifications on a monthly basis. At June
30, 2001, the Bank had $6,301 of assets classified as loss, no assets classified
as doubtful, $141,764 of assets classified as substandard and $526,285 of assets
designated as special mention.

         In extending credit, the Bank recognizes that losses will occur and
that the risk of loss will vary with, among other things, the type of credit
being extended, the creditworthiness of the obligor over the term of the
obligation, general economic conditions and, in the case of a secured
obligation, the quality of

                                       8
<PAGE>

the security. It is management's policy to maintain allowances for losses based
on, among other things, regular reviews of delinquencies and credit portfolio
quality, character and size, the Bank's historical loss experience and current
and forecasted economic conditions. The Bank increases its allowance for loan
losses by charging provisions for losses against the Bank's income.

         Management actively monitors the Bank's asset quality and charges off
loans against the allowance for losses on such loans and makes additional loss
provisions in its discretion. Allowances are provided for individual assets, or
portions of assets, when ultimate collection is considered improbable by
management based on the current payment status of the assets and the fair value
or net realizable value of the collateral. Although management believes it uses
the best information available to make determinations with respect to the
allowance for losses, future adjustments may be necessary if economic conditions
differ substantially from the economic conditions in the assumptions used in
making the initial determinations.

         At the date of foreclosure or other repossession, the Bank transfers
the property to real estate acquired in settlement of loans at the lower of
recorded investment in the loan or fair value, net of estimated cost of
disposition. Fair value is defined as the amount in cash or cash-equivalent
value of other consideration that a property would yield in a current sale
between a willing buyer and a willing seller. Fair value is measured by market
transactions. If a market does not exist, fair value of the property is
estimated based on selling prices of similar properties in active markets or, if
there are no active markets for similar properties, by discounting a forecast of
expected cash flows at a rate commensurate with the risk involved. Fair value
generally is determined through an appraisal at the time of foreclosure. Any
amount of the recorded investment in the loan in excess of fair value is
charged-off against the allowance for loan losses. Subsequent to foreclosure,
the property is periodically evaluated by management and an allowance is
established if the estimated fair value of the property, less estimated costs to
sell, declines. If, upon ultimate disposition of the property, net sales
proceeds exceed the net carrying value of the property, a gain on sale of real
estate may be recorded if certain conditions are met. At June 30, 2001, the Bank
had no properties acquired in settlement of loans.

                                       9
<PAGE>

         The following table sets forth an analysis of the Bank's allowance for
loan losses for the periods indicated.

<TABLE>
<CAPTION>
                                                                             Year Ended June 30,
                                                                  ------------------------------------------
                                                                         2001                  2000
                                                                         ----                  ----
                                                                               (In thousands)
<S>                                                               <C>                  <C>
Balance at beginning of period............................        $        115         $         98

Charge-offs...............................................                  22                   --

Recoveries................................................                  --                   --

Provision for loan losses.................................                  30                   17
                                                                  ------------         ------------

Balance at end of period..................................        $        123         $        115
                                                                  ============         ============

Ratio of net charge-offs during the period to average
  loans outstanding during the period.....................                0.06%                0.00%
                                                                  ============         ============

</TABLE>

         The following table allocates the allowance for loan losses by asset
category at the dates indicated. The allocation of the allowance to each
category is not necessarily indicative of future losses and does not restrict
the use of the allowance to absorb losses in any category.

<TABLE>
<CAPTION>
                                                                         At June 30,
                                            ----------------------------------------------------------------------
                                                         2001                                  2000
                                            --------------------------------     ---------------------------------
                                                               Percent of                           Percent of
                                                                Loans in                             Loans in
                                                                Category                             Category
                                                                to Total                             to Total
                                               Amount             Loans              Amount           Loans
                                              --------         -----------        ------------     ---------------
                                                                   (Dollars in thousands)
<S>                                         <C>                <C>               <C>               <C>
Real estate loans:
  One-to four-family residential.......     $        65             81.37%       $        55           83.48%
  Non-residential......................               0              0.21                  0            0.24
Consumer, commercial and savings account
loans..................................              58             18.42                 60           16.28
                                            -----------       -----------        -----------     -----------
     Total allowance for loan losses...     $       123            100.00%       $       115          100.00%
                                            ===========       ===========        ===========     ===========
</TABLE>

         The Bank ceases accrual of interest on a loan when payment on the loan
is delinquent in excess of 90 days. 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.

                                       10
<PAGE>

         The following table sets forth information with respect to the Bank's
non-performing assets at the dates indicated.

<TABLE>
<CAPTION>
                                                                                 At June 30,
                                                                  ------------------------------------------
                                                                         2001                  2000
                                                                         ----                  ----
                                                                           (Dollars in thousands)
<S>                                                               <C>                  <C>
Loans accounted for on a non-accrual basis:/(1)/
  Real estate loans:
    One-to-four-family residential........................        $        117         $         18
    Non-residential.......................................                  --                   --
Consumer, commercial and savings account loans............                  31                    1
Other loans...............................................                  --                   --
                                                                  ------------         ------------
   Total..................................................        $        148         $         19
                                                                  ============         ============

Accruing loans which are contractually past due 90 days
or more:
  Real Estate loans:
  One-to-four-family residential..........................        $         --         $         --
  Non-residential.........................................                  --                   --
Consumer, commercial and savings account loans............                  --                   --
Other loans...............................................                  --                   --
                                                                  ------------         ------------
   Total..................................................        $         --         $         --
                                                                  ============         ============

   Total of non-accrual and accruing loans
   90 days past due loans.................................        $        148         $         19
                                                                  ============         ============

Percentage of total loans.................................                0.39%                0.05%
                                                                  ============         ============
Other non-performing assets/(2)/..........................        $         --         $         --
                                                                  ============         ============
Percentage of total assets................................                0.15%                0.02%
                                                                  ============         ============
</TABLE>

________________________________
(1)  The Bank ceases accrual of interest on a loan when payment on the loan is
     delinquent in excess of 90 days. 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.
(2)  Other non-performing assets may include real estate or other assets
     acquired by the Bank through foreclosure or repossession. Real estate owned
     is recorded at the lower of the recorded investment in the loan or fair
     value of the property, less estimated costs of disposition.

         Interest income foregone on non-accrual loans was considered
insignificant for the year ended June 30, 2001.

         At June 30, 2001, management had identified no loans which were not
reflected in the preceding table but as to which known information about
possible credit problems of borrowers caused management to have doubts as to the
ability of the borrowers to comply with present loan repayment terms.

                                       11
<PAGE>

Investment Activities

         The Bank is permitted under federal law to make certain investments,
including investments in securities issued by FNMA, FHLMC, GNMA, various federal
agencies and state and municipal governments; deposits at the FHLB of Atlanta;
certificates of deposit in federally insured institutions; certain bankers'
acceptances; and federal funds. The Bank may also invest, subject to certain
limitations, in commercial paper having one of the two highest investment
ratings of a nationally recognized credit rating agency, and certain other types
of corporate debt securities and mutual funds. Federal regulations require the
Bank to maintain an investment in FHLB of Atlanta stock and a minimum amount of
liquid assets which may be invested in cash and specified securities. From time
to time, the OTS adjusts the percentage of liquid assets which savings
institutions are required to maintain.

         The Bank invests in investment securities in order to diversify its
assets, manage cash flow and interest rate risk, obtain yields, and maintain the
minimum levels of qualified and liquid assets required by regulatory
authorities. The investment activities of the Bank consist primarily of
investments in mortgage-backed securities, U.S. Treasury securities and U.S.
Government agency securities, and other securities. Investment decisions are
generally made by the President of the Bank and are ratified by the Board of
Directors. Investment and aggregate investment limitations and credit quality
parameters of each class of investment are prescribed in the Bank's investment
policy. The Bank's investment policy does not permit the Bank to invest in any
futures, options or high risk mortgage derivatives, including residual interests
in collateralized mortgage obligations and other real estate mortgage investment
conduits, stripped mortgage-backed securities and other investments that exhibit
a high degree of price volatility.

         Securities designated as "available for sale" are carried at their fair
value with unrealized gains or losses, net of tax effect, recognized in equity.
Securities designated as held to maturity are carried at amortized cost. At June
30, 2001, investment securities with an aggregate amortized cost of
approximately $36.5 million and an aggregate fair value of approximately $36.4
million were included in the portfolio of securities designated as available for
sale. The aggregate impact on equity was a net increase of approximately
$412,000 for the year ended June 30, 2001. The gross unrealized pre-tax loss on
securities available for sale at June 30, 2001 was approximately $107,000, with
an after-tax unrealized loss of approximately $57,000. For additional
information, see Consolidated Statements of Stockholders' Equity and Note 6 to
Consolidated Financial Statements in the Annual Report filed as Exhibit 13 to
this Report. Securities designated as "held to maturity" are those assets which
the Bank has the ability and management has the intent to hold to maturity. At
June 30, 2001, securities designated as held to maturity had an aggregate
amortized cost of approximately $17.5 million and an aggregate fair value of
approximately $17.7 million. Upon acquisition, securities are classified as to
the Bank's intent.

         Mortgage-Backed Securities. The Bank maintains a substantial portfolio
of mortgage-backed securities in the form of GNMA, FHLMC and FNMA participation
certificates. GNMA, FHLMC and FNMA certificates are each guaranteed by their
respective agencies as to principal and interest, and GNMA certificates are
backed by the full faith and credit of the U.S. Government. Mortgage-backed
securities generally entitle the Bank to receive a pro rata portion of the cash
flows from an identified pool of mortgages. Although mortgage-backed securities
generally yield less than the loans which are exchanged for such securities,
they present substantially lower credit risk, they are more liquid than
individual mortgage loans, and they may be used to collateralize obligations of
the Bank. In addition, the Bank's portfolio of mortgage-backed securities
qualify as "Qualified Thrift Investments" for purposes of determining the Bank's
compliance with the "Qualified Thrift Lender" test and may also be considered
for purposes of meeting certain definitional tests prescribed by the Internal
Revenue Code which entitle thrift institutions to favorable tax treatment. See
"Regulation -- Regulation of the Bank -- Qualified Thrift Lender Test" and " --
Taxation -- Federal Income Taxation."

                                       12
<PAGE>

         Mortgage-backed securities typically are issued with stated principal
amounts and the securities are backed by pools of mortgages that have loans with
interest rates that are within a range and have similar maturities. The
underlying pool of mortgages can be composed of either fixed-rate or adjustable-
rate mortgage loans. Mortgage-backed securities generally are referred to as
mortgage participation certificates or pass-through certificates. As a result,
the interest rate risk characteristics of the underlying pool of mortgages,
i.e., fixed-rate or adjustable-rate, as well as prepayment risk, are passed on
to the certificate holder. The life of a mortgage-backed pass-through security
is equal to the life of the underlying mortgages.

         The actual maturity of a mortgage-backed security varies, depending on
when the mortgagors prepay or repay the underlying mortgages. Prepayments of the
underlying mortgages may shorten the life of the investment, thereby adversely
affecting its yield to maturity and the related market value of the
mortgage-backed security. The yield is based upon the interest income and the
amortization of the premium or accretion of the discount related to the
mortgage-backed security. Premiums and discounts on mortgage-backed securities
are amortized or accreted over the estimated life of the securities using a
level yield method. Prepayments of the underlying mortgages depend on many
factors, including the type of mortgage, the coupon rate, the age of the
mortgages, the geographical location of the underlying real estate
collateralizing the mortgages and general levels of market interest rates. The
difference between the interest rates on the underlying mortgages and the
prevailing mortgage interest rates is an important determinant in the rate of
prepayments. During periods of falling mortgage interest rates, prepayments
generally increase, and, conversely, during periods of rising mortgage interest
rates, prepayments generally decrease. If the coupon rate of the underlying
mortgage significantly exceeds the prevailing market interest rates offered for
mortgage loans, refinancing generally increases and accelerates the prepayment
of the underlying mortgages. Prepayment experience is more difficult to estimate
for adjustable-rate mortgage-backed securities.

         The Bank's mortgage-backed securities portfolio consists primarily of
seasoned fixed-rate and adjustable rate mortgage-backed securities. At June 30,
2001, the Bank had approximately $14.7 million in mortgage-backed securities and
approximately $2.8 million in U. S. Government agency securities which are
considered to be held to maturity and which are insured or guaranteed by FNMA,
FHLMC or GNMA. At June 30, 2001, the Bank had approximately $20.0 million in
mortgage-backed securities and approximately $16.0 million in U. S. Government
agency securities and U. S. Treasury securities designated as available for
sale.

                                       13
<PAGE>

         The following table sets forth the carrying value of the Bank's
investment portfolio at the dates indicated.

<TABLE>
<CAPTION>
                                                                                             At June 30,
                                                                                    ------------------------------
                                                                                        2001            2000
                                                                                        ----            ----
                                                                                           (In thousands)
<S>                                                                                 <C>            <C>
Securities available for sale:/1)/
  U.S. Treasury securities.................................................         $     1,025    $     4,273
  U.S. Government agency securities........................................              15,091         15,011
  Mortgage-backed securities...............................................              19,503          7,101
  Federal Home Loan Bank stock.............................................                 724            724
  Other                                                                                      17             17
                                                                                    -----------    -----------
    Total securities available for sale....................................         $    36,360    $    27,126
                                                                                    ===========    ===========

Securities held to maturity:/2)/
  U.S. Government agency securities........................................         $     2,848    $     4,821
  Mortgage-backed securities...............................................              14,665         19,065
                                                                                    -----------    -----------
    Total securities held to maturity......................................         $    17,513    $    23,886
                                                                                    ===========    ===========
Total securities...........................................................         $    53,873    $    51,012
                                                                                    ===========    ===========
</TABLE>

---------------
(1) The carrying value is the approximate fair value of the security at each
reporting date.
(2) The carrying value is the amortized cost of the security at each reporting
date.


                                       14
<PAGE>

         The following table sets forth information regarding the scheduled
maturities, amortized costs, fair values and weighted average yields for the
Bank's investment securities at June 30, 2001.

<TABLE>
<CAPTION>
                                               One Year or Less         One to Five Years         Five to Ten Years
                                             --------------------     --------------------     ---------------------
                                             Carrying   Average       Carrying   Average       Carrying    Average
                                              Value      Yield         Value      Yield         Value       Yield
                                             ---------  ---------     ---------  ---------     ---------   ---------
                                                                                              (Dollars in Thousands)
<S>                                          <C>        <C>           <C>        <C>           <C>         <C>
Securities available for sale:/(1)/
 U.S. treasury securities................    $      --         --%    $   1,025        5.8%    $      --          --%
 U.S. Government agency
  Securities.............................           --         --         2,713        6.1         9,696         6.7
  Mortgage-backed securities.............           81        7.5         1,055        6.5         1,906         6.5
Other/(3)/...............................           --         --            --         --            --          --
 Federal Home Loan Bank stock/(4)/.......           --         --            --         --            --          --
                                             ---------  ---------     ---------  ---------     ---------   ---------
Total securities available for sale......    $      81        7.5%    $   4,793        6.1%    $  11,602         6.6%
                                             =========  =========     =========  =========     =========   =========

Securities held to maturity:/(2)/
 U.S. Government agency
  Securities.............................    $     111        7.0%    $   1,239        6.8%    $     362         7.6%
 Mortgage-backed securities..............          119        7.5         1,089        7.5         9,120         7.0
                                             ---------  ---------     ---------  ---------     ---------   ---------
Total securities held to maturity........    $     230        7.3%    $   2,328        7.1%    $   9,482         7.0%
                                             =========  =========     =========  =========     =========   =========

Total securities.........................    $     311        7.4%    $   7,121        6.4%    $  21,084         6.8%
                                             =========  =========     =========  =========     =========   =========

<CAPTION>
                                                   More than Ten Years          Total Investment Portfolio
                                                  --------------------      --------------------------------
                                                  Carrying   Average        Amortized      Fair     Average
                                                    Value     Yield            Cost        Value     Yield
                                                  ---------  ---------      -----------  ---------  --------
Securities available for sale:/(1)/
 U.S. treasury securities................         $      --         --%     $     1,001  $   1,025       5.8%
 U.S. Government agency
  Securities.............................             2,682        6.7           15,083     15,091       6.6
  Mortgage-backed securities.............            16,461        6.3           19,642     19,503       6.3
Other/(3)/...............................                17         --               17         17       0.0
 Federal Home Loan Bank stock/(4)/.......               724        7.4              724        724       7.4
                                                  ---------  ---------      -----------  ---------  --------
Total securities available for sale......         $  19,884        6.3%     $    36,467  $  36,360       6.4%
                                                  =========  =========      ===========  =========  ========

Securities held to maturity:/(2)/
 U.S. Government agency
  Securities.............................         $   1,136        6.7%     $     2,848  $   2,849       6.9%
 Mortgage-backed securities..............             4,337        7.4           14,665     14,802       7.2
                                                  ---------  ---------      -----------  ---------  --------
Total securities held to maturity........         $   5,473        7.2      $    17,513  $  17,651       7.1%
                                                  =========  =========      ===========  =========  ========

Total securities.........................         $  25,357        6.5%     $    53,980  $  54,011       6.6%
                                                  =========  =========      ===========  =========  ========
</TABLE>

__________________
(1)      Carrying value of securities available for sale is their approximate
         fair value at the reporting date. Average yield on securities available
         for sale is based on their amortized historical costs at the reporting
         date.
(2)      Carrying value of securities held to maturity is their amortized
         historical cost at their reporting date. Average yield on securities
         held to maturity is based on their amortized historical cost at the
         reporting date.
(3)      Other securities includes the Bank's investment, at cost, in Intrieve,
         Inc., the Bank's data processing service bureau.
(4)      Federal Home Loan Bank stock is an equity security. The amount of stock
         held by the Bank is included under "More than Ten Years" as the Bank is
         required to hold such stock as a FHLB of Atlanta member.

         For additional information, see Notes 6 and 7 of Notes to Consolidated
Financial Statements in the Annual Report filed as Exhibit 13 to this Report.

                                       15
<PAGE>

Deposit Activity and Other Sources of Funds


         General. Deposits are the primary source of the Bank's funds for
lending and other investment purposes. In addition to deposits, the Bank derives
funds from loan principal repayments, interest payments and maturing
investments. Loan repayments and interest payments are a relatively stable
source of funds, while deposit inflows and outflows are significantly influenced
by prevailing market interest rates and money market conditions.

         Deposits. The Bank attracts deposits principally from within its market
area by offering a variety of deposit instruments, including regular checking,
passbook, statement savings accounts and certificates of deposit which range in
term from seven days to ten years. Deposit terms vary, principally on the basis
of the minimum balance required, the length of time the funds must remain on
deposit and the interest rate. The Bank also offers Individual Retirement
Accounts ("IRAs").

         The Bank's policies are designed primarily to attract deposits from
local residents through the Bank's branch network rather than from outside the
Bank's market area. The Bank's interest rates, maturities, service fees and
withdrawal penalties on deposits are established by management on a periodic
basis. Management determines deposit interest rates and maturities based on the
Bank's funds acquisition and liquidity requirements, the rates paid by the
Bank's competitors, the Bank's growth goals, and applicable regulatory
restrictions and requirements. The Bank does not solicit deposits from brokers
and currently does not bid for public unit funds.

         The Bank plans to remain competitive in its primary market area by
introducing new products and services which include various checking account
products, enhancements to the savings portfolio, offering competitive interest
rates and fees, and to attract new customers by providing full service banking.

                                       16
<PAGE>

     Deposits in the Bank as of June 30, 2001 were represented by the various
programs described below.

<TABLE>
<CAPTION>
Interest              Minimum                                               Minimum                    Percentage of
Rate                   Term                       Category                   Amount          Balances  Total Savings
----                   ----                       --------                   ------          --------  -------------
                                                                                       (In thousands)
<S>             <C>                  <C>                                  <C>                <C>       <C>
1.961%          None                 NOW Accounts                         $     100          $    405       0.51%
2.523           None                 Passbook Statement Accounts                100             2,844       3.56
3.973           None                 Gold Star Savings Account                  100             1,821       2.28
1.992           None                 Money Market Deposit Account             1,500               199       0.25
1.992           None                 High Yield Account                         100               928       1.16
2.228           None                 Best Checking Account                       50               176       0.22
1.946           None                 Merit Checking                              50               614       0.77
2.250           None                 Classic 55 Checking                         50             1,462       1.83
0.000           None                 Free Checking                               --                87       0.11
0.000           None                 Business Checking                           50               250       0.31
2.250           None                 First Checking                              50             1,908       2.39
4.060           None                 Premium MMDA                            10,000             1,001       1.25

                                     Certificates of Deposit
                                     -----------------------

4.628           91 Days              3-Month Money Market                     1,000             2,198       2.75
4.666           5 Month              Fixed Term, Fixed Rate                   1,000             5,168       6.47
4.252           182 Days             6-Month Money Market                     1,000             1,297       1.62
5.065           7 Month              Fixed Term, Fixed Rate                   1,000             4,676       5.86
3.000           8 Month              Fixed Term, Fixed Rate                   1,000               603       0.76
3.000           9 Month              Fixed Term, Fixed Rate                   1,000               210       0.26
4.100           10 Month             Fixed Term, Fixed Rate                   1,000               714       0.89
4.196           12 Month             Fixed Term, Fixed Rate                   1,000             1,044       1.31
3.999           14 Month             Fixed Term, Fixed Rate                   1,000             1,175       1.47
4.000           18 Month             Fixed Term, Fixed Rate                   1,000               760       0.95
4.250           18 Month-IRA         Fixed Term, Fixed Rate - IRA               250             1,408       1.76
4.200           20 Month             Fixed Term, Fixed Rate                   1,000             1,915       2.40
4.200           24 Month             Fixed Term, Fixed Rate                   1,000             1,341       1.68
5.105           30 Month             Fixed Term, Fixed Rate                   1,000            11,648      14.60
5.982           36 Month             Fixed Term, Fixed Rate                   1,000             6,822       8.54
3.334           48 Month             Fixed Term, Fixed Rate                   1,000               502       0.63
5.326           60 Month             Fixed Term, Fixed Rate                   1,000             4,007       5.02
4.924           72 Month             Fixed Term, Fixed Rate                   1,000               147       0.18
4.595           96 Month             Fixed Term, Fixed Rate                   1,000                38       0.05
5.172           120 Month            Fixed Term, Fixed Rate                   1,000               783       0.98
4.173           3-Month-State        Fixed Term, Fixed Rate                   1,000             1,325       1.66
4.488           11 Month             Fixed Term, Fixed Rate                   1,000               433       0.54
4.981           17 Month             Fixed Term, Fixed Rate                   1,000               592       0.74
7.000           19 Month             Fixed Term, Fixed Rate                   1,000            19,342      24.24
                                                                                             --------  ---------

                                               Total...............................          $ 79,843     100.00%
                                                                                             ========  =========
</TABLE>

                                       17
<PAGE>

         The following tables set forth the average balances and average
interest rates paid for deposits in the Bank as of the dates indicated.

<TABLE>
<CAPTION>
                                                               Year Ended June 30,
                             -----------------------------------------------------------------------------------------
                                               2001                                           2000
                             ------------------------------------------    -------------------------------------------
                                           Interest-                                       Interest-
                                            Bearing                                         Bearing
                              Passbook       Demand      Certificates        Passbook       Demand      Certificates
                               Savings      Deposits      of Deposit         Savings       Deposits      of Deposit
                               -------      --------      ----------         -------       --------      ----------
                                                            (Dollars in thousands)
<S>                          <C>           <C>           <C>                 <C>           <C>          <C>
Average balance..........    $   4,620     $   7,142     $  67,561           $  5,106      $ 6,160      $   70,006
Average interest rate....         3.75%         2.31%         5.95%              3.92%        2.44%           5.07%
</TABLE>

     The following table sets forth the certificates of deposit in the Bank
classified by rates at the dates indicated.

<TABLE>
<CAPTION>
                                                                           At June 30,
                                                                  ------------------------------
                                                                     2001               2000
                                                                  ----------         -----------
                                                                         (In thousands)
               <S>                                                <C>                <C>
               2.00 - 4.00%..............................         $    5,845         $   5,400
               4.01 - 6.00%..............................             28,443            37,066
               6.01 - 8.00%..............................             33,860            27,509
               8.01 - 10.00%.............................                  0               118
                                                                  ----------         ---------
                                                                  $   68,148         $  70,093
                                                                  ==========         =========
</TABLE>

     The following table indicates the amount of the certificates of deposit of
$100,000 or more in the Bank by time remaining until maturity at June 30, 2001.

<TABLE>
<CAPTION>
                                                                   Certificates
                                 Maturity Period                   of Deposits
                                 ---------------                   -----------
                                                                  (In thousands)
                  <S>                                              <C>
                  Three months or less....................         $    1,732
                  Over three through six months...........              2,774
                  Over six through twelve months..........              3,084
                  Over twelve months......................              3,715
                                                                   ----------
                       Total..............................         $   11,305
                                                                   ==========
</TABLE>

                                       18
<PAGE>

     Borrowings. Savings deposits historically have been the primary source of
funds for the Bank's lending, investment and general operating activities. The
Bank is authorized, however, to use advances from the FHLB of Atlanta to
supplement its supply of lendable funds and to meet deposit withdrawal
requirements. The FHLB of Atlanta functions as a central reserve bank providing
credit for savings institutions and certain other member financial institutions.
As a member of the FHLB system, the Bank is required to own stock in the FHLB of
Atlanta and is authorized to apply for advances. Advances are made pursuant to
several different programs, each of which has its own interest rate and range of
maturities. The Bank had no borrowings from the FHLB as of June 30, 2001, and
management currently does not expect to borrow from the FHLB in the future.

Subsidiary Activities

     Federally chartered savings institutions are permitted to invest up to 2%
of their assets in subsidiary service corporations, plus an additional 1% in
subsidiaries engaged in specific community purposes. Under such limitation, as
of June 30, 2001, the Bank was authorized to invest approximately $2.0 million
in the stock of or loans to subsidiaries. The Bank currently does not have a
subsidiary.


                                  REGULATION

     The following discussion is intended to be a summary of certain statutes,
rules and regulations affecting the Company and the Bank. A number of other
statutes and regulations have an impact on their operations. The following
summary of applicable statutes and regulations does not purport to be complete
and is qualified in its entirety by reference to such statutes and regulations.

Regulation of the Company

     General. The Company is a unitary savings and loan holding company subject
to regulatory oversight by the OTS. As such, the Company is required to register
and file reports with the OTS and is subject to regulation and examination by
the OTS. In addition, the OTS has enforcement authority over the Company and its
non-savings association subsidiaries, should such subsidiaries be formed, which
authority also permits the OTS to restrict or prohibit activities that are
determined to be a serious risk to the subsidiary savings association. This
regulation and oversight is intended primarily for the protection of the
depositors of the Bank and not for the benefit of stockholders of the Company.

     As a unitary savings and loan holding company, the Company generally is not
subject to any restrictions on its business activities. While the Gramm-Leach-
Bliley Act (the "GLB Act"), enacted in November 2001, terminated the "unitary
thrift holding company" exemption from activity restrictions on a prospective
basis, the Company enjoys grandfathered status under this provision of the GLB
Act because it acquired the Bank prior to May 4, 2001. As a result, the
Company's freedom from activity restrictions as a unitary savings and loan
holding company were not affected by the GLB Act. However, if the Company were
to acquire control of an additional savings association, its business activities
would be subject to restriction under the Home Owners' Loan Act. Furthermore, if
the Company were in the future to sell control of the Bank to any other company,
such company would not succeed to the Company's grandfathered status under the
GLB Act and would be subject to the same activity restrictions. The continuation
of the Company's exemption from restrictions on business activities as a unitary
savings and loan holding company is also subject to the Company's continued
compliance with the Qualified Thrift Lender ("QTL") test. See "- Regulation of
the Bank - Qualified Thrift Lender Test."

                                       19
<PAGE>

Regulation of the Bank

     General. As a federally chartered, SAIF-insured savings institution, the
Bank is subject to extensive regulation by the OTS and the FDIC. Lending
activities and other investments must comply with various federal statutory and
regulatory requirements. The Bank is also subject to certain reserve
requirements promulgated by the Federal Reserve Board.

     The OTS regularly examines the Bank and prepares reports for the
consideration of the Bank's Board of Directors on any deficiencies that are
found in the Bank's operations. The Bank's relationship with its depositors and
borrowers is also regulated to a great extent by federal and state law,
especially in such matters as the ownership of savings accounts and the form and
content of the Bank's mortgage documents.

     The Bank must file reports with the OTS concerning its activities and
financial condition, in addition to obtaining regulatory approvals prior to
entering into certain transactions such as mergers with or acquisitions of other
savings institutions. This regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and is
intended primarily for the protection of the SAIF and depositors. The regulatory
structure also gives the regulatory authorities extensive discretion in
connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes.

     Branching. Subject to certain limitations, OTS regulations currently permit
a federally chartered savings institution like the Bank to establish branches in
any state of the United States, provided that the federal savings institution
qualifies as a "domestic building and loan association" under the Internal
Revenue Code. See "-- Qualified Thrift Lender Test." The authority for a federal
savings institution to establish an interstate branch network would facilitate a
geographic diversification of the institution's activities.

     Regulatory Capital Requirements. OTS capital regulations require savings
institutions to meet three capital standards: (1) tangible capital equal to 1.5%
of total adjusted assets, (2) core capital equal to at least 3% of total
adjusted assets for savings institutions that receive the highest supervisory
rating for safety and soundness and 4% of total adjusted assets for all other
thrifts, and (3) risk-based capital equal to 8% of total risk-weighted assets.
At June 30, 2001, the Bank was in compliance with its regulatory capital
requirements.

     For purposes of the OTS capital regulations, tangible capital is defined as
core capital less all intangible assets, less certain mortgage servicing rights
and less certain investments. Core, or Tier 1, capital includes common
stockholders' equity, noncumulative perpetual preferred stock and minority
interests in the equity accounts of consolidated subsidiaries, less
nonqualifying intangible assets, certain mortgage servicing rights and certain
investments.

     The risk-based capital standard for savings institutions requires the
maintenance of total risk-based capital of 8% of risk-weighted assets. Risk-
based capital equals the sum of core and supplementary capital. The components
of supplementary capital include, among other items, cumulative perpetual
preferred stock, perpetual subordinated debt, mandatory convertible subordinated
debt, intermediate-term preferred stock, the portion of the allowance for loan
losses not designated for specific loan losses, and up to 45% of unrealized
gains on equity securities. The portion of the allowance for loan and lease
losses includable in supplementary capital is limited to a maximum of 1.25% of
risk-weighted assets. Overall, supplementary capital is limited to 100% of core
capital. A savings institution must calculate its risk-weighted assets by
multiplying each asset and off-balance sheet item by various risk

                                       20
<PAGE>

factors as determined by the OTS, which range from 0% for cash to 100% for
delinquent loans, property acquired through foreclosure, commercial loans, and
other assets.

     In addition to the above regulatory capital requirements, the OTS' prompt
corrective action regulation classifies savings institutions by capital levels
and provides that the OTS will take various corrective actions, including
imposing significant operational restrictions, against any savings institution
that fails to meet the regulation's capital standards. Under this regulation, a
"well capitalized" savings institution is one that has a total risk-based
capital ratio of at least 10%, a Tier 1 risk-based capital ratio of at least 6%
and a leverage capital ratio of 5%, and is not subject to any capital order or
directive. A savings institution is deemed "adequately capitalized" category if
it has a total risk-based capital ratio of at least 8%, a Tier 1 risk-based
capital ratio of at least 4%, and a leverage capital ratio of at least 4%.
Institutions with lower capital levels are deemed to be "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized," depending on
their capital levels. A savings institution that falls within any of the three
undercapitalized categories is subject to severe regulatory sanctions under the
prompt corrective action regulation. At June 30, 2001, the Bank was classified
as "well capitalized."

     Insurance of Deposit Accounts. The deposit accounts held by the Bank are
insured by the SAIF to a maximum of $100,000 for each insured member (as defined
by law and regulation). Insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
institution's primary regulator.

     The Bank is required to pay insurance premiums based on a percentage of its
insured deposits to the FDIC for insurance of its deposits by the SAIF. The FDIC
has set the deposit insurance assessment rates for SAIF-member institutions for
the first six months of 2001 at 0% to .027% of insured deposits on an annualized
basis, with the assessment rate for most savings institutions set at 0%. In
addition, all FDIC-insured institutions are required to pay assessments to the
FDIC at an annual rate of approximately .0212% of insured deposits to fund
interest payments on bonds issued by the Financing Corporation ("FICO"), an
agency of the Federal government established to recapitalize the predecessor to
the SAIF. These assessments will continue until the FICO bonds mature in 2017.

     Qualified Thrift Lender Test. Federal savings institutions must meet one of
two Qualified Thrift Lender ("QTL") tests. To qualify as a QTL, a savings
institution must either (i) be deemed a "domestic building and loan association"
under the Internal Revenue Code by maintaining at least 60% of its total assets
in specified types of assets, including cash, certain government securities,
loans secured by and other assets related to residential real property,
educational loans and investments in premises of the institution or (ii) satisfy
the statutory QTL test set forth in the Home Owner's Loan Act by maintaining at
least 65% of its "portfolio assets" in certain"Qualified Thrift Investments"
(defined to include residential [Amortgages and related equity investments,
certain mortgage-related securities, small business loans, student loans and
credit card loans, and 50% of certain community development loans). For purposes
of the statutory QTL test, portfolio assets are defined as total assets minus
intangible assets, property used by the institution in conducting its business,
and liquid assets equal to 10% of total assets. A savings institution must
maintain its status as a QTL on a monthly basis in at least nine out of every 12
months. A failure to qualify as a QTL would result in a number of sanctions,
including certain operating restrictions. At June 30, 2001, the Bank was in
compliance with its QTL requirement.

     Dividend and Other Capital Distribution Limitations. The OTS imposes
various restrictions or requirements on the ability of savings institutions to
make capital distributions, including cash dividends.

                                       21
<PAGE>

     A savings institution, such as the Bank, that is a subsidiary of a savings
and loan holding company, must file an application or a notice with the OTS at
least 30 days before making a capital distribution. Savings institutions are not
required to file an application for permission to make a capital distribution
and need only file a notice if the following conditions are met: (1) they are
eligible for expedited treatment under OTS regulations, (2) they would remain
adequately capitalized after the distribution, (3) the annual amount of capital
distribution does not exceed net income for that year to date added to retained
net income for the two preceding years, and (4) the capital distribution would
not violate any agreements between the OTS and the savings institution or any
OTS regulations. Any other situation would require an application to the OTS.

     The OTS may disapprove an application or notice if the proposed capital
distribution would: (i) make the savings institution undercapitalized,
significantly undercapitalized, or critically undercapitalized; (ii) raise
safety or soundness concerns; or (iii) violate a statue, regulation, or
agreement with the OTS (or with the FDIC), or a condition imposed in an OTS-
approved application or notice. Further, a federal savings institution, like the
Bank, cannot distribute regulatory capital that is needed for its liquidation
account.

     Loans to One Borrower. A savings institution may not make a loan or extend
credit to a single or related group of borrowers in excess of 15% of the
institution's unimpaired capital and surplus. An additional amount may be lent,
equal to 10% of the unimpaired capital and surplus, under certain circumstances.
At June 30, 2001, the Registrant's lending limit for loans to one borrower was
approximately $4.3 million and had not outstanding commitments that exceeded the
loads to one borrower limit at the time originated or committed.

     Federal Home Loan Bank System. The Bank is a member of the FHLB of Atlanta,
which is one of 12 regional FHLBs that administers the home financing credit
function of savings associations. Each FHLB serves as a reserve or central bank
for its members within its assigned region. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It makes
loans to members (i.e., advances) in accordance with policies and procedures
established by the Board of Directors of the FHLB.

     As a member, the Bank is required to purchase and maintain stock in the
FHLB of Atlanta in an amount equal to the greater of 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year or 5% of the Bank's advances from the FHLB. At June
30, 2001, the Bank was in compliance with this requirement.

     Federal Reserve System. The Federal Reserve Board requires all depository
institutions to maintain non-interest bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW, and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve Board may be used
to satisfy the liquidity requirements that are imposed by the OTS. At June 30,
2001, the Bank was in compliance with these Federal Reserve Board requirements.

Taxation

         General. The Company and the Bank file a consolidated federal income
tax return on a calendar year basis. Consolidated returns have the effect of
eliminating intercompany distributions, including dividends, from the
computation of consolidated taxable income for the taxable year in which the
distributions occur.

                                       22
<PAGE>

     Federal Income Taxation. Savings institutions, such as the Bank, generally
are subject to the provisions of the Internal Revenue Code of 1986, as amended,
in the same manner as other corporations. For tax years beginning before
December 31, 1995, however, by meeting certain definitional tests and other
conditions prescribed by the Internal Revenue Code, thrift institutions could
benefit from special deductions for annual additions to tax bad debt reserves
with respect to loans. For purposes of the bad debt reserve deduction, loans
were separated into "qualifying real property loans," which generally were loans
secured by interests in improved real property, and "nonqualifying loans," which
were all other loans. The bad debt reserve deduction with respect to
nonqualifying loans was based on actual loss experience. The bad debt reserve
deduction with respect to qualifying real property loans could be based upon
actual loss experience (the "experience method") or a percentage of taxable
income determined without regard to such deduction (the "percentage of taxable
income method"). The Bank historically used whichever method resulted in the
highest bad debt reserve deduction in any given year.

     Legislation enacted in August 1996 repealed the percentage of taxable
income method of calculating the bad debt reserve. Savings institutions, like
the Bank, which have previously used that method are required to recapture into
taxable income post-1987 reserves in excess of the reserves calculated under the
experience method over a six-year period beginning with the first taxable year
beginning after December 31, 1995. The start of such recapture may be delayed
until the third taxable year beginning after December 31, 1995 if the dollar
amount of the institution's residential loan originations in each year is not
less than the average dollar amount of residential loan originated in each of
the six most recent years disregarding the years with the highest and lowest
originations during such period. For purposes of this test, residential loan
originations would not include refinancings and home equity loans.

     Beginning with the first taxable year beginning after December 31, 1995,
savings institutions, such as the Bank, have been treated the same as commercial
banks. Institutions with $500 million or more in assets are able to take a tax
deduction only when a loan is actually charged off. Institutions with less than
$500 million in assets are still permitted to make deductible bad debt additions
to reserves, but only using the experience method. As a result, thrifts must
recapture into taxable income the amount of their post-1987 tax bad debt
reserves over a six-year period beginning after 1995. This recapture can be
deferred for up to two years if the thrift satisfies a residential loan
portfolio test. At June 30, 2001, the Bank's post-1987 tax bad debt reserve
subject to recapture was approximately $46,000. The Bank recaptured
approximately $46,318 of this reserve into taxable income in the year ended June
30, 2001. The recapture did not have any effect on the Bank's net income because
the related tax expense had already been accrued.

     Under the experience method, the bad debt deduction to an addition to the
reserve for qualifying real property loans is an amount determined under a
formula based generally on the bad debts actually sustained by a savings
institution over a period of years. Under the percentage of taxable income
method, the bad debt reserve deduction for qualifying real property loans was
computed as 8% of the thrift's taxable income. The maximum deduction could be
taken as long as not less than 60% of the total dollar amount of the assets of
an institution fell within certain designated categories. If the amount of
qualifying assets fell below 60%, the institution would get no deduction and
could be required to recapture, generally over a period of years, its existing
bad debt reserves (although net operating loss carryforwards could be used to
offset such recapture).

     The bad debt deduction under the percentage of taxable income method was
limited to the extent that the amount accumulated in the reserve for losses on
qualifying real property loans exceeded 6% of such loans outstanding at the end
of the taxable year. In addition, the amount claimed as a bad debt deduction
when added to accumulated loss reserves was limited to the excess, if any, of
12% of total deposits or withdrawable accounts of depositors at year-end in
excess of the sum of surplus, undivided

                                       23
<PAGE>

profits and reserves at the beginning of the year. The percentage bad debt
deduction was reduced by the deduction for losses on nonqualifying loans.

     Earnings appropriated to the Bank's tax bad debt reserves and claimed as
tax deductions will not be available for the payment of cash dividends or other
distributions to the Company (including distributions made upon dissolution or
liquidation), unless the Bank includes the amounts distributed in taxable
income, along with the amounts deemed necessary to pay the resulting federal
income tax. At June 30, 2001, the Bank had approximately $2.8 million of pre-
1988 accumulated bad debt reserves for which federal income taxes have not been
provided.

     For taxable years beginning after June 30, 1986, the Internal Revenue Code
imposes an alternative minimum tax at a rate of 20%. The alternative minimum tax
generally applies to a base of regular taxable income plus certain tax
preferences ("alternative minimum taxable income" or "AMTI") and is payable to
the extent such AMTI exceeds an exemption amount. The Internal Revenue Code
provides that an item of tax preference is the excess of the bad debt deduction
allowable for a taxable year pursuant to the percentage of taxable income method
over the amount allowable under the experience method. The other items of tax
preference that constitute AMTI include (a) tax-exempt interest on newly-issued
(generally, issued on or after August 8, 1986) private activity bonds other than
certain qualified bonds and (b) for taxable years including 1987 through 1989,
50% of the excess of (i) the taxpayer's pre-tax adjusted net book income over
(ii) AMTI (determined without regard to this latter preference and prior to
reduction by net operating losses). For taxable years beginning after 1989, this
latter preference has been replaced by 75% of the excess (if any) of (i)
adjusted current earnings as defined in the Internal Revenue Code, over (ii)
AMTI (determined without regard to this preference and prior to reduction by net
operating losses). For any taxable year beginning after 1986, net operating
losses can offset no more than 90% of AMTI. Certain payments of alternative
minimum taxes may be used as credits against regular tax liabilities in future
years. In addition, for taxable years after 1986 and before 1992, corporations,
including savings institutions, are also subject to an environmental tax equal
to 0.12% of the excess of AMTI for the taxable year (determined without regard
to net operating losses and the deduction for the environmental tax) over $2.0
million. The Bank is not currently paying any amount of alternative minimum tax
but may, depending on future results of operations, be subject to this tax.

     The Bank's federal income tax returns have not been examined by the
regulatory authorities within the past five years. For additional information,
see Note 11 of Notes to Consolidated Financial Statements in the Annual Report
filed as Exhibit 13 to this Report.

Employees

     As of June 30, 2001, the Company and the Bank had 28 full-time employees,
none of whom was represented by a collective bargaining agreement.

                                       24
<PAGE>

Item 2.  Description of Property
--------------------------------

     The following table sets forth information regarding the Bank's offices at
June 30, 2001.

<TABLE>
<CAPTION>
                                                   Net Book                        Owned
                                      Year         Value at        Approximate       or
                                     Opened      June 30, 2001   Square Footage    Leased
                                   ----------    -------------   --------------  --------
<S>                                <C>           <C>             <C>             <C>
Main Office:
221 South 6th Street                  1968        $  198,021          6,500        Owned
Gadsden, Alabama  35901

Branch Offices:
202 Sand Mountain Drive               1965             2,200          1,405        Leased
Albertville, Alabama  35950

2204 Henry Street                     2000           217,189          1,100        Owned
Guntersville, Alabama 35976

390 W. Main Street                    1994             4,715          2,263        Leased
Centre, Alabama  35960
</TABLE>

     The net book value of the Bank's investment in furnishings and equipment
totaled $43,859 at June 30, 2001.


Item 3.  Legal Proceedings
--------------------------

     From time to time, the Bank is a party to various legal proceedings
incident to its business. At June 30, 2001, the Company was a party to
litigation and claims 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.


Item 4.  Submission of Matters to a Vote of Security Holders
------------------------------------------------------------

     No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 2001.

                                       25
<PAGE>

                                    PART II

Item 5.  Market for Common Equity and Related Stockholder Matters
-----------------------------------------------------------------

     The information required by this item is incorporated by reference to
"Item 1. Description of Business - Regulation - Regulation of the Bank -
Limitations on Capital Distributions" herein and "Market for Common Stock and
Related Stockholder Matters" and Note 2 of the Notes to Consolidated Financial
Statements in the portions of the Annual Report filed as Exhibit 13 to this
Report.

Item 6.  Management's Discussion and Analysis or Plan of Operation
------------------------------------------------------------------

     The information required by this item is incorporated by reference to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the portions of the Annual Report filed as Exhibit 13 to this
Report.

Item 7.  Financial Statements
-----------------------------

     The financial statements required by this item are incorporated by
reference to the Consolidated Financial Statements, Notes to Consolidated
Financial Statements and Independent Auditors' Report in the portions of the
Annual Report filed as Exhibit 13 to this Report.

Item 8.  Changes in and Disagreements with Accountants on Accounting and
------------------------------------------------------------------------
Financial Disclosure
--------------------

     Not applicable.


                                   PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
----------------------------------------------------------------------
Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------

     Information concerning the directors and executive officers of the Company
is incorporated herein by reference to the section captioned "Election of
Directors" in the Proxy Statement.


Item 10. Executive Compensation
-------------------------------

     The information required by this item is incorporated herein by reference
to the section captioned "Election of Directors -- Executive Compensation" in
the Proxy Statement.


Item 11. Security Ownership of Certain Beneficial Owners and Management
-----------------------------------------------------------------------

     The information required by this item is incorporated herein by reference
to the sections captioned "Voting Securities and Beneficial Ownership" and
"Election of Directors" in the Proxy Statement.

                                       26
<PAGE>

Item 12.  Certain Relationships and Related Transactions
--------------------------------------------------------

     The information required by this item is incorporated herein by reference
to the section captioned "Election of Directors -- Transactions with Management"
in the Proxy Statement.

Item 13.  Exhibits, List and Reports on Form 8-K
------------------------------------------------

     (a)  The following exhibits are filed as part of this report.

No.                                 Description
---                                 -----------

3.1            Certificate of Incorporation of The Southern Banc Company, Inc.
               (As amended)

3.2 *          Bylaws of The Southern Banc Company, Inc.

4.1 *          Specimen Common Stock Certificate of The Southern Banc Company,
               Inc.

4.2**          Rights Agreement

10.1 ***       Employment Agreements between The Southern Banc Company, Inc. and
               First Federal Savings and Loan Association of Gadsden and James
               B. Little Jr.

10.2 ***       First Federal Savings and Loan Association of Gadsden
               Supplemental Executive Retirement Agreement

10.3 ****      The Southern Banc Company, Inc. 1996 Stock Option and Incentive
               Plan and trust

10.4 ****      First Federal Savings and Loan Association of Gadsden Management
               Recognition Plan and trust

10.5 *****     1997 Amendments to Employment Agreements between The Southern
               Banc Company, Inc. and First Federal Savings and Loan Association
               and James B. Little Jr.

10.6 *****     Employment Agreements between The Southern Banc Company, Inc. and
               First Federal Savings and Loan Association of Gadsden and Gates
               Little.

10.7******     2001 Amendment to Employment Agreement between The Southern Banc
               Company, Inc. and Gates B. Little.

10.8******     2000 Amendment to Employment Agreement between The Southern Bank
               Company and Gates Little.

10.9******     2001 Amendment to Employment Agreement between The Southern Banc
               Company, Inc. and James B. Little, Jr.

10.10******    2000 Amendment to Employment Agreement between The Southern Bank
               Company and James B. Little, Jr.

                                       27
<PAGE>

10.11          2001 Amendment to Employment Agreement between The Southern Bank
               Company and Gates B. Little.

10.12          2001 Amendment to Employment Agreement between The Southern Banc
               Company, Inc. and James B. Little, Jr.

10.13          2001 Amendment to Employment Agreement between The Southern Bank
               Company, Inc. and James B. Little, Jr.

13             Annual Report to Stockholders. Except for these portions of the
               Annual Report to Stockholders which are expressly incorporated
               herein by reference, such Annual Report is furnished for the
               information of the Commission and is not to be deemed "filed" as
               part of this Report.

21             Subsidiaries

23             Consent of Arthur Andersen LLP



----------------
*      Incorporated by reference to Registration Statement on Form 8-A (No.
       1-13964).
**     Incorporated by reference to Current Report on Form 8-K dated July 15,
       1999.
***    Incorporated by reference to Registration Statement on Form S-1 (No. 3
       3-93218).
****   Incorporated by reference to Registration Statement on Form S-8 (No.
       333-3546).
*****  Incorporated by reference to Annual Report on Form 10-KSB for fiscal
       year ended June 30, 1998
****** Incorporated by reference to Quarterly Report on Form 10-QSB for fiscal
       quarter ended March 31, 2001.

       (b)  Reports on Form 8-K. There were no Current Reports on Form 8-K filed
during the last quarter of fiscal year 2001.

                                       28
<PAGE>

                                  SIGNATURES


     In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.

                                      THE SOUTHERN BANC COMPANY, INC.


Date:  September 24, 2001             By:      /s/ Gates Little
                                           ------------------------------
                                           Gates Little
                                           Chairman of the Board, President and
                                           Chief Executive Officer
                                           (Duly Authorized Representative)


     In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant in the capacities and on the
dates indicated.


<TABLE>
<S>                                                             <C>
By:  /s/ Gates Little                                           By:  /s/ Thomas F. Dowling
     --------------------------------------------------              ------------------------------
      Gates Little.                                                  Thomas F. Dowling
      Chairman of the Board, President and                           Director
      Chief Executive Officer
      (Director and Principal Executive, Financial
      and Accounting Officer)

Date:  September 24, 2001                                       Date:  September 24, 2001
       ------------------                                              ------------------

By:  /s/ Craig G. Cantrell                                      By:  /s/ James B. Little III
     --------------------------------------------------              --------------------------------
      Craig G. Cantrell                                              James B. Little III
      Director                                                       Director

Date:  September 24, 2001                                       Date:  September 24, 2001
       ------------------                                              ------------------


By:  /s/ Grady Gillam                                           By:  /s/ James B. Little, Jr.
     --------------------------------------------------              --------------------------------
      Grady Gillam                                                   James B. Little, Jr.
      Director                                                       Investment Officer and Director

Date:  September 24, 2001                                       Date:  September 24, 2001
       ------------------                                              ------------------


By:  /s/ Rex G. Keeling, Jr.                                    By:  /s/ Fred Taylor
     --------------------------------------------------              --------------------------------
      Rex G. Keeling, Jr.                                            Fred Taylor
      Director                                                       Director

Date:  September 24, 2001                                       Date:  September 24, 2001
       ------------------                                              ------------------
</TABLE>

                                       29