Southern Banc : FY2023 Annual Report

2023

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

THE SOUTHERN BANC COMPANY, INC.

Dear Fellow Shareholders,

I am happy to report that in 2023, we had a good year. Our factoring product again performed well, extending credit across the United States to small businesses who do not conform to traditional lending criteria. Revenues were higher, and our interest costs did not increase so much as to cause the margin compression currently plaguing the banking industry. However, with higher rates, customer behavior has changed, causing us to lose some of the funds that came so easily during the COVID years.

Our model only works because of our outstanding employees who help customers in our local branches and in places far afield. The products we sell are available everywhere, so service has to win the day.

Our plan is the same in 2024: Offer Community Banking in our branch markets and Factoring across the country, growing them both on a conservatively managed balance sheet.

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

Sincerely,

Gates Little

President

THE SOUTHERN BANC COMPANY, INC.

The Southern Banc Company, Inc. (the "Company") was incorporated at the direction of management of The Southern Bank Company (the "Bank"), formerly First Federal Savings and Loan Association of Gadsden, Alabama (the "Original Bank"), for the purpose of serving as the holding company of the Bank upon the acquisition of all of the capital stock issued by the Original Bank in its conversion from mutual to stock form in 1995. At June 30, 2023, the Company had total consolidated assets of approximately $108.6 million, deposits of $91.0 million and stockholders' equity of $12.1 million, or 11.1% of total consolidated assets.

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

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

In an effort to diversify the Company's loan and lease portfolio and to increase yield in the portfolio, the Company's management team and the Board of Directors developed and approved the Commercial Finance Division ("CFD") of the Bank. This division was officially started in January 2011. The business of the CFD is to purchase accounts receivable. This business is also known as factoring. In 2023 factoring constituted a significant amount of the Company's revenue.

Accounts receivable factoring allows participating companies to access cash by selling their customers' invoices for Bank cash advances. The Bank follows up with the selling company's customers for payment of the outstanding invoice amount. After receiving payment from the customer, the Bank pays the selling company the remainder of the invoice amount, minus the Bank's fee which is a percentage of the invoice face value. The interest charge fee is calculated based on the advanced amount outstanding multiplied by an agreed-upon interest rate based on a number of considerations, primarily the creditworthiness of the selling company's customer. Although factoring is generally considered to have greater risk than commercial lending, to date the Bank has experienced approximately $45,000 of losses in CFD's factoring activities. At June 30, 2023 accounts receivable in the factoring portfolio constituted approximately $26.1 million or 24.0%, as compared to approximately $24.8 million or 21.5% at June 30, 2022, of the Company's total assets. For additional information, see Note 1 of Notes to Consolidated Financial Statements.

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

The lending activities and other investments of the Bank must comply with various regulatory requirements, and the Banking Department and FDIC periodically examine the Bank for compliance with various regulatory requirements. The Bank must file reports with the regulators describing its activities and financial condition. The Company and the Bank are also subject to certain reserve and capital requirements promulgated by the Federal Reserve.

MARKET FOR COMMON STOCK

AND RELATED STOCKHOLDER MATTERS

At June 30, 2023, there were 806,086 shares of the Common Stock outstanding and approximately 124 stockholders of record. This total does not reflect the number of persons or entities who hold Common Stock in nominee or "street name" through various brokerage firms.

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

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

Dividends paid by the Bank are a principal source of funds available to the Company for payment of dividends to its stockholders and for other needs. Applicable federal and state statutes and regulations impose restrictions on the amounts of dividends that may be declared by the subsidiary bank. At June 30, 2023, the Bank was able to pay dividends subject to regulatory approval. See Note 12 of Notes to Consolidated Financial Statements.

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

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

	Price Per Share
Fiscal 2022	High	Low
First Quarter	$9.75	$8.30
Second Quarter	$9.75	$5.00
Third Quarter	$11.00	$7.56
Fourth Quarter	$11.00	$10.00
Fiscal 2023
First Quarter	$11.93	$10.99
Second Quarter	$11.98	$11.10
Third Quarter	$15.00	$10.00
Fourth Quarter	$12.90	$12.25

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
						Year Ended June 30,
			2023			2022			2021			2020			2019
				(In thousands, except per share data)
INCOME STATEMENT DATA
Interest income	$	9,216	$	7,079		$	5,225		$	5,377			$	5,483
Interest expense			926			470			784			1,118			918
.......................................Net interest income			8,290			6,609				4,441				4,259				4,565
Provision for loan and lease losses			0			0				41			44			20
Net interest income after provision
for loan and lease losses			8,290			6,609			4,400			4,215			4,545
Non-interest income			538			478			328			395			170
Non-interest expense			5,515			4,734			4,081			4,181			4,081
Income before income tax expense			3,313			2,353			647			429			634
Income tax expense			839			617			169			115			169
....................................................Net income		$	2,474	$		1,736			$	478			$	314				$	465
Earnings per share
Basic	$	3.26	$	2.29		$	0.63		$	0.41			$	0.61
Diluted	$	3.24	$	2.28		$	0.63		$	0.41			$	0.61
						As of June 30,
			2023			2022			2021			2020			2019
						(In thousands)
BALANCE SHEET DATA
Total assets	$	108,631	$	115,282		$	112,425	$	103,302			$	97,705
Loans and leases receivable, net			55,356			56,894			54,127			49,105			58,874
Securities:
Available for sale			40,424			45,345			44,608			25,874			18,567
Federal Home Loan Bank stock			98			141			141			174			177
Deposits			90,952			97,112			93,839			88,766			82,342
FHLB advances & other borrowings			0			2,000			430			0			2,000
Stockholders' equity			12,122			10,601			12,455			12,348			11,760
						Year Ended June 30,
			2023			2022			2021			2020			2019
KEY OPERATING DATA
Return on average assets			2.26%			1.54%			0.45%				0.32%			0.49%
Return on average equity			22.46%			15.04%			4.05%				2.73%			4.34%
Average equity to average assets			10.06%			10.25%	11.02%				11.79%			11.38%
Dividend payout ratio			0.00%			0.00%			0.00%				0.00%			0.00%
Number of full-service offices			4			4				4				4					4

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MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis is intended to assist you in understanding the consolidated financial condition and results of operations of The Southern Banc Company, Inc. and The Southern Bank Company (collectively, the "Company"), as of June 30, 2023 and June 30, 2022 and for the fiscal years ended June 30, 2023 and 2022. This discussion should be read in conjunction with the audited consolidated financial statements, accompanying footnotes and supplemental financial data included herein.

General

The principal business of the Bank consists of accepting deposits from the general public through the Bank's main and branch offices and investing those funds in loans secured by real estate properties, commercial and consumer loans located in the Bank's primary market area, and factoring. In order to preserve liquidity, the Bank maintains a sizeable portfolio of investment and mortgage - backed securities. Substantially all of the Bank's mortgage-backed securities are guaranteed as to principal and interest by GNMA, Freddie Mac or Fannie Mae. The Bank's securities portfolio consists primarily of mortgage- backed securities, municipal securities and government agency securities, including agency notes. See Note 2 of Notes to Consolidated Financial Statements. The Bank maintains a substantial amount in interest-bearing deposits in other banks, primarily interest-bearing accounts with the FHLB of Atlanta, PNC Bank and South States Bank, the Bank's correspondents.

In an effort to diversify the Company's loan and lease portfolio and to increase yield in the loan portfolio, the Company's management team and the Board of Directors developed and approved the Commercial Finance Division ("CFD") of The Southern Bank Company. This division was officially started in January 2011 and currently generates significant revenues for the loan portfolio. The business of the CFD is to purchase accounts receivable, also known as "factoring", the results of which are included in the commercial loan portfolio. See Note 1 and Note 3 of Notes to Consolidated Financial Statements.

The Company's earnings are dependent primarily on the Bank's net interest income, which is the difference between interest income earned on its loans, securities portfolio, and income from factoring activities, and interest paid on customers' deposits and any other borrowings. See Note 1 of Notes to Consolidated Financial Statements. The Company's earnings are also affected by the Bank's level of non-interest income, such as service charges on customers' deposit accounts, net gains or losses on the sale of securities, and other fees. In addition, earnings are affected by the level of non-interest expense, primarily consisting of compensation and employee benefit expense, data processing expense, professional service expense, office building and equipment expense, and other expenses.

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

Comparison of Financial Condition at June 30, 2023 and June 30, 2022

Total consolidated assets decreased approximately $6.7 million, or (5.77%), from $115.3 million at June 30, 2022 to $108.6 million at June 30, 2023. During the year ended June 30, 2023, net loans decreased approximately $1.5 million, or (2.70%), from $56.9 million at June 30, 2022 to $55.4 million at June 30, 2023. For the fiscal year ended June 30, 2023, securities available for sale decreased approximately $4.9 million, or (10.85%), from $45.3 million at June 30, 2022 to $40.4 million at June 30, 2023.

Cash and cash equivalents decreased approximately $1.3 million, or (12.89%), from $10.0 million at June 30, 2022 to $8.7 million at June 30, 2023. The change in cash was primarily attributable to decreases in securities available for sale of approximately $4.9 million and loans receivable, net of approximately $1.5 million. Total deposits decreased approximately $6.2 million and FHLB Advances net of federal funds purchased decreased by approximately $2.0 million.

Accrued interest and dividends receivable increased approximately $485,000, or 163.52%, from approximately $297,000 at June 30, 2022 to $782,000 at June 30, 2023. This increase was primarily attributable to an increase in interest receivables in securities available for sale, loans, and factoring.

Total deposits decreased approximately $6.2 million, or (6.34%), from approximately $97.1 million at June 30, 2022 to $91.0 million at June 30, 2023. During the fiscal year ended June 30, 2023, other borrowings including federal funds purchased decreased approximately $2.0 million or (100.00%). Other liabilities decreased during the fiscal year ended June 30, 2023 by approximately $11,000, or (0.20%) when compared to fiscal year ended 2022.

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Total consolidated equity increased approximately $1.5 million, or 14.37%, from approximately $10.6 million at June 30, 2022 to $12.1 million at June 30, 2023. This increase was primarily attributable to an increase in retained earnings offset in part by an increase in accumulated other comprehensive income (loss) on securities available for sale of approximately $1.0 million, or (28.34%) due to the current rising rate environment in the securities market. No dividends were paid during the fiscal years ended June 30, 2023, and 2022.

The Company evaluates securities for impairment on a monthly basis. This evaluation considers a number of factors including the cause of a decline in value. These unrealized losses resulted primarily from higher interest rates that have impacted the current market value of available for sale securities, but they do not currently appear related to any credit deterioration within the portfolio. Even though these securities have been classified as available for sale, the Company has traditionally held these securities until maturity. As a result, management does not anticipate the unrealized losses recorded in fiscal 2023 to be other than temporary.

Results of Operation for the Years Ended June 30, 2023 and June 30, 2022

The Company reported net income for the fiscal year ended June 30, 2023 of approximately $2.5 million as compared to net income of approximately $1.7 million for the fiscal year ended June 30, 2022. Net interest income after provision for loan and lease losses increased approximately $1.7 million, or 25.45% for the fiscal year ended June 30, 2023 when compared to fiscal year 2022. This increase was primarily attributable to an increase in total interest expense of approximately $456,000, or 96.93%, and an increase in total interest income of approximately $2.1 million, or 30.20%.

Net Interest Income. For the year ended June 30, 2023, net interest income before provision for loan and lease losses increased approximately $1.7 million, or 25.45%, when compared to fiscal year ended 2022. This increase was primarily attributable to an increase in the Bank's total interest expense of approximately $456,000, or 96.93%, and an increase in total interest income of approximately $2.1 million, or 30.20%. Interest income on securities available for sale increased approximately $91,000, or 14.16%. Total interest and fees on loans increased approximately $1.9 million, or 29.41%.

Provision for Loan and Lease Losses. During the fiscal year ended June 30, 2023, the Company recorded no provision for loan and lease losses for the fiscal years ended June 30, 2023, and 2022, respectively. The allowance for loan and lease losses is based on management's evaluation of possible loan and lease losses inherent in the Bank's loan portfolio. Management considers, among other factors, past loss experience, current economic conditions, volume, growth and composition of the loan portfolio, and other relevant factors.

Other Non-InterestIncome. Other non-interest income increased approximately $59,000, or 12.43%, for the fiscal year ended June 30, 2023, when compared to fiscal year ended 2022. The increase in other non-interest income was primarily attributable to an increase in miscellaneous income, net of approximately $61,000, or 19.53%, offset in part by a decrease in customer service fees of approximately $1,300, or (0.79%).

Other Non-InterestExpense. Other non-interest expense increased approximately $781,000, or 16.51%, for the fiscal year ended June 30, 2023, when compared to fiscal year ended 2022. This increase was primarily attributable to increases in salaries and benefits of approximately $698,000, or 26.97%, occupancy expenses of approximately $17,000, or 6.39%, and professional services expenses of approximately $60,000, or 12.71%, offset in part by a decrease in data processing expenses of approximately $30,000, or (4.14%).

Provision for Income Taxes. During the fiscal year ended June 30, 2023, the income tax provision increased approximately $223,000, or 36.09%. See Note 7 of Notes to Consolidated Financial Statements for reconciliation between the statutory tax rate and the effective tax rate.

Asset/Liability Management

Net interest income, the primary component of the Company's net income, is determined by the difference or "spread" between the yields earned on the Bank's interest-earning assets and the rates paid on its interest-bearing liabilities and the relative amounts of such assets and liabilities. Key components of a successful asset/liability strategy are the monitoring and managing of interest rate sensitivity on both the interest-earning assets and interest-bearing liabilities. The matching of the Bank's assets and liabilities may be analyzed by examining the extent to which its assets and liabilities are interest rate sensitive and by monitoring the expected effects of interest rate changes on an institution's net portfolio value.

An asset or liability is interest rate sensitive within a specific time period if it will mature or reprice within that time period. If the Bank's assets mature or reprice more quickly or to a greater extent than its liabilities, the Bank's net portfolio value and net interest income would tend to increase during periods of rising interest rates but decrease during periods of falling interest rates. If the Bank's assets mature or reprice more slowly or to a lesser extent than its liabilities, the Bank's net portfolio

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value and net interest income would tend to decrease during periods of rising interest rates but increase during periods of falling interest rates. The Bank's policy has been to seek to mitigate the interest rate risk inherent in business of originating long term loans funded by short term deposits by pursuing the following strategies and practices: (i) the Bank has historically maintained substantial liquidity and capital levels to sustain unfavorable movements in market interest rates; (ii) analyzing alternative rate scenarios given the recent unparalleled movement in interest rates; (iii) revisit deposit assumptions (betas and decay rates); and

1. focus on sensitivity testing. However, the reemergence of significant inflation and uncertain market expectations have pushed Treasury rates higher. This aggressive rise in market rates resulted in steep declines in the values of, and unrealized losses in, many financial institutions' investment portfolios. While the Bank has experienced portfolio losses, management believes that its strategies and practices have mitigated, but not avoided, the adverse effects of inflation on its portfolio and support its opinion that these effects will ultimately be temporary.

The Bank measures its interest rate risk by computing estimated changes in the net interest income ("NII") of its cash flows from assets, liabilities and off-balance sheet items in the event of a range of assumed changes in market interest rates. These computations estimate the effect on the Bank's NII of sudden and sustained 100 basis point to 400 basis point increases and 100 basis point to 400 basis point decreases in market interest rates. The Bank's Board of Directors has adopted an interest rate risk policy which establishes maximum decreases in the Bank's estimated NII of 7.5%, 10%, 15% and 20% and maximum decreases of 7.5%, 10%, 15% and 20% in the event of 100, 200, 300 and 400 basis point increases and decreases in market interest rates, respectively. At June 30, 2023, based on the most recent available information, management estimated that the Bank's NII change from the base to be approximately (0.81%), (1.50%), (2.15%), and (2.75%) in the event of an instantaneous and sustained 100, 200, 300 and 400 point increase and approximately 0.25%, 0.23%, (0.23%) and (1.56%) in the event of an instantaneous and sustained 100, 200, 300 and 400 point decrease.

These calculations indicate that the Bank's net interest income would increase in the event of an instantaneous and sustained rate increase whereas the economic value (long-term sensitivity) of the Bank's equity would decrease in the event of instantaneous and sustained rate increases. These calculations indicate that the Bank's interest-earning assets would be expected to reprice more quickly than the Bank's interest-bearing liabilities.

Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, prepayments and deposit run-offs and should not be relied upon as indicative of actual results. Certain shortcomings are inherent in such computations. Although certain assets and liabilities may have similar maturity or periods of repricing, they may react at different times and in different degrees to changes in the market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while rates on other types of assets and liabilities may lag behind changes in market interest rates. Certain assets, such as adjustable-rate mortgages, generally have features which restrict changes in interest rates on a short-term basis and over the life of the asset. In the event of a change in interest rates, prepayments and early withdrawal levels could deviate significantly from those assumed in making calculations set forth above. Additionally, an increased credit risk may result, as the ability of many borrowers to service their debt may decrease in the event of an interest rate increase. Finally, virtually all of the adjustable-rate loans in the Bank's portfolio contain conditions which restrict periodic changes in interest rates.

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

Contractual Obligations

The following table sets forth the contractual obligations of the Bank as of June 30, 2023. The Company maintains a credit facility with the Federal Home Loan Bank of Atlanta for borrowings subject to certain collateral requirements. As of June 30, 2023, there were no amounts outstanding under this arrangement.

					One Year
	Less than		through Two		Two through			Over
	One Year			Years		Three Years		Three Years			Total
							(In thousands)
Certificates of deposit (1)	$	37,503	$	5,242	$	1,663	$	2,776	$	47,184
Total	$	37,503		$	5,242		$	1,663		$	2,776		$	47,184

____________________

1. See Note 5 of Notes to Consolidated Financial Statements.

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Average Balance, Interest and Average Yields and Rates

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

The table also presents information for the periods indicated with respect to the difference between the weighted average yield earned on interest-earning assets and the weighted average rate paid on interest-bearing liabilities, or "interest rate spread" which banks have traditionally used as an indicator of profitability. Another indicator of an institution's net interest income is its "net yield on interest-earning assets" which is its net interest income divided by the average balance of interest- earning assets. Net interest income is affected by the interest rate spread and by the relative amounts of interest-earning assets and interest-bearing liabilities. When interest-earning assets approximate or exceed interest-bearing liabilities, any positive interest rate spread will generate net interest income.

						Years Ended June 30,
				2023													2022
						Average										Average
		Average			Yield/			Average					Yield/
		Balance	Interest				Cost				Balance	Interest				Cost
Interest-earning assets:						(Dollars in thousands)
Loans receivable	$ 57,200	$	8,254	14.43%	$	55,897	$	6,378		11.41%
Securities	42,460		732	1.72							45,892		642	1.40
Other interest-earning assets		6,913		230	3.33							6,598			59	0.89
Total interest-earning assets		106,573		9,216	8.65							108,387			7,079	6.53
............Non-interest-earning assets		2,901													4,226
Total assets	$ 109,474										$	112,613
Interest-bearing liabilities:
Deposits	$ 78,155		820	1.05				$	80,323		467	0.58
Borrowings		2,488		106	4.26							401		3		0.75
Total interest-bearing liabilities..		80,643		926	1.15							80,724		470	0.58
.......Non-interest-bearing liabilities		17,818													19,856
Total liabilities	98,461													100,580
Stockholders' equity		11,013													12,033
Total liabilities and equity	$ 109,474										$	112,613
Net interest income				$	8,290													$	6,609
Interest rate spread						7.50%									5.95%
......................Net interest margin								7.78%													6.10%
Ratio of average interest-earning
assets to average interest-bearing
liabilities						132.15%										134.27%

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Rate/Volume Analysis

The table below sets forth certain information regarding changes in interest income and interest expense of the Company for the periods indicated. For each category of interest-earning asset and interest-bearing liability, information is provided on changes attributable to: (i) changes in volume (changes in volume multiplied by old rate) and (ii) changes in rates (changes in rate multiplied by old volume).

			Year Ended June 30,
				2023 vs. 2022
			Increase (Decrease)
					Due to
			Rate		Volume			Total
Interest income				(In thousands)
Loans………………………………...	$	1,727	$	149	$	1,876
Securities…………………………….			138			(48)			90
Other interest-earning assets…..…...			171			-				171
Total interest-earning assets………			2,036			101				2,137
Interest expense
Deposits……………………………..			365			(13)			352
Interest on FHLB advances…….…..			87			16				103
Total interest-bearing liabilities…..			452			3				455
Change in net interest income………	$	1,584	$	98		$	1,682

Liquidity and Capital Resources

The Company conducts its business through its subsidiary, the Bank, which is required to maintain minimum levels of liquidity. The requirement, which varies from time to time depending upon economic conditions and deposit flows, is based upon a percentage of deposits and short-term borrowings. The Bank adjusts its liquidity levels in order to meet funding needs of deposit outflows, repayments of borrowings, and loan commitments. The Bank also adjusts liquidity as appropriate to meet its asset and liability management objectives.

The Bank's primary sources of funds are deposits, repayments of loans and mortgage-backed securities, maturities of investment securities and other investments. While scheduled principal repayments on loans and mortgage-backed securities are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. The Bank invests, with the FHLB of Atlanta and other correspondent banks, in short- term interest-earning assets (e.g., Overnight Investments and Federal Funds Sold) that provide liquidity to meet lending requirements.

The Bank continues to maintain a high level of liquid assets in order to meet its funding requirements and compensating balance requirements of correspondent banks. At June 30, 2023, the Bank had approximately $33.4 million in on-balance sheet liquidity which represented 31.22% of total assets. The Bank's average liquidity ratio well exceeded the required minimum at and during the fiscal year ended June 30, 2023.

As of June 30, 2020, the Bank opted into the Community Bank Leverage Ratio ("CBLR") framework. At June 30, 2023, the Bank's CBLR ratio was 14.89% which exceeded all regulatory capital requirements under the CBLR framework and the Bank was considered to be "well-capitalized." See Note 12 of Notes to Consolidated Financial Statements.

Commitments and Contingencies

In the normal course of business, the Bank is a party to activities that contain credit, market and operational risks that are not reflected in the Company's Consolidated Financial Statements. The Bank provides customers with off-balance sheet credit support through loan commitments and lines of credit. Many of the commitments expire unused or are only partially used. Therefore, the total amount of commitments does not necessarily represent future cash demand requirements. The Company anticipates that the Bank will continue to have sufficient funds together with available borrowings to satisfy its commitments. As of June 30, 2023, the Bank had approximately $55.1 million of commitments to extend credit. See Note 10 of Notes to Consolidated Financial Statements.

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