Banking in Rural America Rebuilding the American Dream
Southern Bancorp Annual Report 2013
“ Big banks are abandoning rural America for more profitable urban markets, leaving many communities without adequate access to capital. That’s why unique organizations like Southern Bancorp are more important than ever. If we’re going to truly rebuild our economy and build broad based prosperity, we must have strong and vibrant rural communities.” — Former President Bill Clinton, November 2013
To watch a video of Former President Clinton’s remarks, follow the QR code or visit banksouthern.com/mission/history
Table of Contents
6 - 10
Banking in Rural America
11 - 12
13 - 18
Invest. Empower. Transform.
19 - 20
Shareholders & Supporters
Message from the CEO
Follow the Code There’s more to explore about the stories contained in this annual report. Follow the QR codes or links (e.g. - bit.ly/1jO8lym) to read about the people and communities we serve as well as other content related to Southern Bancorp’s mission. If you don’t have a QR reader app on your smart phone, you can download both Apple and Android versions from the app store, or you may also visit banksouthern.com.
Message from the CEO After nearly a year on the job as CEO of Southern, my appreciation for this organization continues to grow. Through my travels to the rural communities served by Southern, I have been routinely amazed by the impact we are having, both at the individual and the community level. Of course, I have also recognized the great challenges that remain. Predatory lenders continue to multiply at record rates, focusing their efforts on some of the nationâ€™s most impoverished counties. In fact, according to the Center for Financial Services Innovation, the unbanked and underbanked spent nearly $90 billion on predatory financial products and services in 2012. As a lawmaker and attorney, I helped fight to put an end to these practices in Arkansas, and I continue to do so at Southern by seeking viable alternatives. Seeking such innovative solutions is in our DNA. Our organization was founded by visionaries like Bill and Hillary Clinton, Rob Walton, Muhammad Yunus and others who sought new ways to combat economic decline in rural America. Their experiment has thus far proved successful in that from an initial investment of $10 million in 1986, Southern has today provided over $3 billion in loans in high-poverty markets, with over half of those being for less than $10,000. And while that is significant, there is so much more to do. Access to financial resources is steadily declining across rural America as banks close or consolidate toward more populous, urban locations. This not only leaves the door open to predatory financial services in rural areas, but it also serves to hasten the decline of those communities. As others make plans to abandon these communities, we are making plans to fill that void. Southern is in the midst of a capital campaign that will enable us to build on our history of serving the most vulnerable and underserved people and communities, by offering them a better financial alternative, for their family and generations to come. I hope youâ€™ll consider joining us on this journey as we seek to build up even more communities and change even more lives.
Darrin L. Williams Chief Executive Officer, Southern Bancorp Inc.
Case in Point: Testing an affordable alternative to payday loans in Mississippi Feb. 7, 2014
Tally of U.S. Banks Sinks to Record Low Dec. 3, 2013
Fighting Financial Exclusion: How to serve 88 million Americans who have no bank June 5, 2014
Banking in Rural America In his 1931 book, The Epic of America, author James Truslow Adams coined the now famous term, “American Dream.” He described it as “that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement…regardless of the fortuitous circumstances of birth or position.” Essentially it was a way to describe what should be possible for Americans, yet in one part of our country, the signs are undeniable that the American Dream is becoming nothing more than that – a dream.
Rural America has long been the engine that drives our nation. The nearly 50 million Americans living in rural communities feed us, protect us, and provide us with the raw materials necessary to secure our position at the top of the global marketplace. Yet those living in these communities are losing the ability to experience that same American Dream faster than their urban counterparts, and in many cases, one of the root causes is a lack of access to responsible and responsive financial services.
The Plight of Rural America Last year, the number of federally insured financial institutions in America plummeted to 6,891, the lowest number recorded since regulators first began tracking them in 1934, and down from a high of more than 18,000. Bank branches are also closing at a high rate, with nearly 1,500 closing in 2013 alone, according to the Wall Street Journal. The Great Recession, and the myriad of banking regulations enacted to avoid future financial fallouts, is behind many of these closures, which some view as a positive “thinning out” of an overcrowded field. However, this “thinning out” is happening predominantly in already unbanked and underbanked communities. Increased regulatory burdens and higher capital demands combined with the lack of succession plans in rural banks has created the perfect storm for small rural communities already left behind.
So how does this impact the American Dream? Access to responsive and responsible financial products is needed to make capitalism work. Without financial access, builders can’t build, farmers can’t grow, and entrepreneurs can’t hire. Which means that already impoverished areas continue to decline. Responsible financial access is the fuel that lights the fire of economic growth in this country and without it, the fire goes out. Of course, this is not to say that rural communities are left with no financial access. People still need credit and payment services. In the absence of a traditional community banker, many rural customers seek out lenders in more urban areas or branches of larger banks near their communities. On its face, this seems like a reasonable alternative; however, much of the benefit that comes from a true community bank lies in the personal relationships that exist between lenders and customers. Many of the businesses in rural communities have unique capital needs that don’t always meet the traditional definition of what a large bank with a centralized lending department considers a “good” loan. Community bank lenders know their customers. They go to church with them. Their kids play together. They understand the investments needed to make capitalism work with the often unique circumstances of rural customers, and they are willing to make loans that others without those relationships might not make.
And then there is the other option. In rural storefronts across America, neon signs beckon the financially strapped inside with promises of quick cash and easy money. They offer short term, small dollar loans with extraordinarily high interest rates that most customers have little to no chance of being able to pay back, so they simply roll the loan over for another period and begin the cycle of debt which is so difficult to escape. With no other options, rural customers are either missing out on economic opportunities or sinking them and their families into a never ending debt cycle which ensures their chances of achieving even a small piece of the American Dream remain abysmally low. This gets at the root of the rural American problem. Lack of financial access leads to missed economic opportunities, which inhibits entrepreneurship and increases poverty.
However, there is hope. Southern, with an explicit mission of community development is ready to fill this void.
A recent study from the Consumer Financial Protection Bureau found that over 80 percent of payday loans are rolled over.
A Bank on a Mission Twenty-five years ago, a group of socially minded entrepreneurs, including then Arkansas Gov. Bill Clinton and his wife First Lady Hillary Clinton, Walmart Board Chairman Rob Walton, Nobel Prize Winner and Grameen Bank founder Mohammad Yunus, and the Winthrop Rockefeller Foundation, came together in search of a new approach to the ever increasing economic divide facing communities in rural
Arkansas. With $10 million in start-up capital, Southern Development Bancorporation was created to bridge the financial gap in these communities and create economic opportunities for those living there. The success of the endeavor would later lead then President Clinton to promote a bipartisan initiative to establish an entire industry based on the Southern Bancorp model â€“ the Community Development Financial Institution or CDFI. Today, there are nearly 1,000 CDFIs operating throughout America, leveraging billions in private and public sector investments to revitalize communities, create jobs, and provide the tools needed to make capitalism work for all Americans. CDFIs like Southern believe that entrepreneurship can help lift up entire communities and help solve many of the deep-rooted economic problems they face. The flexibility in purpose-driven lending afforded by CDFIs gives disadvantaged individuals and businesses an opportunity they may not otherwise have had to realize their dream, while traditional financial institutions are simply not organized or capitalized in ways that allow them to serve highly distressed markets, like rural communities.
Riegle Act Signed by President Bill Clinton in 1994, the Riegle Community Development & Regulatory Improvement Act established the CDFI Fund, eased regulatory requirements, and created provisions to reduce abusive lending practices that targeted low-income communities, minorities and the elderly.
Southern Bancorp is showing just how effective a CDFI can be in serving these areas. Far from its origins 25 years ago, Southern today has more than $1 billion in assets, over 80,000 customers and 38 branches located primarily in rural, underserved markets in Arkansas and Mississippi. Over the past 25 years, we’ve lent over $3 billion to give consumers and businesses access to affordable credit and capital in markets largely abandoned by banks. Southern provides diverse traditional and nontraditional products and services focused on the needs of the 48% unbanked and underbanked population in its target market, with many of our loans with terms that fuel economic opportunity. In 2013, Southern provided over $400 million in loans across its markets. Over 50% of Southern’s consumer loans are less than $10,000 and over 55% of its business loans are under $50,000. In short, the banking exodus in rural America is taking a heavy toll, but there is an opportunity for socially minded investors to help reduce that impact and lift up these communities through the work of CDFIs like Southern. Southern is a bank on a mission to create economic opportunity in rural America by investing with both financial and human capital, empowering individuals and businesses to grow and thrive and thereby transforming these communities into self-sustaining models of positive capitalism. We’re looking for partners to help us reach even more communities so that we can change the face – and the fate – of rural America.
According to the Small Business Administration, small businesses provide 55% of all jobs in the U.S. Community Development Financial Institutions (CDFIs) like Southern are helping to create jobs across the country.
Southern Impact Southern is creating economic opportunity throughout its communities by providing responsible and responsive financial services. Small businesses in rural communities which are driving those local economies and creating jobs remain our primary focus.
With financial support from Southern, Matt Inman is transforming this dilapidated building on historic Cherry St. in Helena, Ark. into a vibrant new storefront.
Lending to small businesses and individuals in rural America continues to decline. At Southern, weâ€™re sustainably reversing this trend.
TOTAL LOANS &â€¨NONPERFORMING LOANS (AS A % OF TOTAL LOANS)
$750 Million $700 Million $650 Million $600 Million $550 Million
$500 Million 2011
Percentage of Nonperforming Loans
In 2013, Southern made 56 2 small business loans and microloans ... all under $5 0,000 each.
Development services that build net worth and economic security go hand in hand with our financial services. One such example is our VITA program, Volunteer Income Tax Assistance, which connects people with responsible banking services and introduces them to other development services provided by Southern. The IRS sponsored VITA program also allows us to bring millions in refunds and credits back to the community â€“ all at no charge to income eligible taxpayers. Approximately half of this returned money has come in the form of federal tax credits like the EITC, or Earned Income Tax Credit, which has been described as one of the nationâ€™s most effective anti-poverty tools. VOLUNTEER INCOME TAX ASSISTANCE 2,380 Tax Returns Filed $4,952,714 Total
2,473 Tax Returns Filed $5,363,698 Total
2,763 Tax Returns Filed $6,031,277 Total
INVEST The definition of Investing can take on different meanings to different people. For some, it’s simply an expenditure of money with the goal of receiving a return. For others, it’s the time and energy they spend working toward a goal. And still others will say that it’s the act of giving someone the opportunity to build a better life. When Southern uses the term Invest as it relates to our work, it can mean all three.
Southern Development Southernâ€™s approach to individual and community economic development can be viewed as three interrelated strategies, with each contributing to the overall economic strength of the individual or community served. Invest. Empower. Transform.
The New Roxy Theater Clarksdale, Mississippi
While traveling through the Mississippi Delta on vacation, Seattle native Robin Colonas made an unexpected stop in Clarksdale, Mississippi that would change her life. While touring the town, she came upon a crumbling building with a rusting marquee. The New Roxy Theater sat empty for years, and where others had regularly passed it by as the ceiling collapsed and nature reclaimed its walls, Colonas saw something different. She saw her future. Colonas decided to purchase the theater that once served as a source of entertainment and employment for the African-American community in Clarksdale. And with the help of her husband William, who also agreed to relocate, and with Southern financing, she is now giving the theater new life as an open-air music venue that will not only showcase the buildingâ€™s rich history, but also serve as an economic driver for the community. Read more about the New Roxy transformation by scanning the QR code here.
Robin Colonas and William Laidlaw, New Roxy owners
EMPOWER One of the ways that Southern helps create economic opportunity is by helping provide customers with the ability to direct and control their own lives. At its core, this is what empowerment is all about. The communities we serve arenâ€™t looking for handouts, they are looking for hand-ups. They are looking for ways to make capitalism work so that the American Dream can be realized, and Southern is uniquely situated to help them do just that.
Larry Denson, Director of Human Resources & Administration, Hoffinger Industries
Hoffinger Industries Helena, Arkansas
For 40 years, Hoffinger industries has been producing one of the most trusted brands of above ground pools in the country, right in the heart of the Arkansas Delta. Over the years, the company has become known nationally for its quality products, but it has also been equally admired for being one of the townâ€™s largest quality job providers. Which is why when Mr. Hoffinger passed away in 2012, there was great concern for the 100+ employees and the impact that the loss of such a company would have on the community. In the face of a potential purchase and closure by a competitor, company president Doug Hollowell came to Southern Bancorp to inquire about how he could purchase the company himself. Southern recognized not only the benefit to the company, but also to the community. So with the help of other specialized financial partners such as the Arkansas Capital Corporation, Southern was able to finance a significant loan that would ensure the long-term viability of this major employer. Read more about the origins of Hoffinger Industries by scanning the QR code here.
TRANSFORM The ultimate goal of Southernâ€™s work is to help individuals and communities create economic opportunities. Sometimes this can be accomplished in a relatively short timeframe; however, some transformations, the type that can produce large-scale, catalytic change, require a long-term commitment.
Tru-Cab owner Robert Heard with daughter, Robin
Trumann, Arkansas In its heyday, the Singer factory in Trumann, Arkansas was responsible for creating over 2,500 jobs, supporting countless other local businesses and helping establish many of the services needed to care for a growing community. However, in the late 1980s, the plant closed its doors, leaving both an empty space at the factory and in the hearts of those throughout the community. Yet out of this loss, new opportunities would arise. Robert Heard, who had once worked at the factory building sewing machine cabinets, had over the years developed a strong side business of building cabinets in his garage. After leaving Singer, he decided to strike out on his own, and with the help of Southern, opened a small shop. Fast forward several years, and we find the once garagebased cabinet maker has grown into a national wholesaler providing over 70 jobs to the community. Throughout its growth, Southern has been a partner to Tru-Cab as it has not only been a success for the Heards, but for the community of Trumann as well. Read more about Tru-Cab and the companyâ€™s interesting twist by scanning the QR code here.
Tru-Cab Owners Robert and Donna Heard
Financials Consolidated Balance Sheets
At December 31
2013 2012 ASSETS
Cash & due from banks $ 29,645,372 $ 27,539,774 Interest-bearing deposits in other banks 29,023,087 26,078,063 Cash & cash equivalents 58,668,459 53,617,837 Investment securities, available-for-sale 218,450,094 277,907,430 Other equity investments 19,955,177 5,450,208 Loans: Commercial, financial, & agricultural 152,854,695 130,967,382 Real estate 542,001,758 494,111,548 Installment & other 47,235,819 48,369,877 Total loans 742,092,272 673,448,807 Credit discount, net of accumulated amortization — (179,663) Allowance for loan losses (8,593,030) (7,852,606) Net loans 733,499,242 665,416,538 Premises & equipment, net Goodwill Other assets TOTAL ASSETS
45,378,578 47,976,422 36,752,842 36,752,842 41,301,366 34,081,172 $ 1,154,005,758 $ 1,121,202,449
Deposits: Non-interest bearing demand $ 185,746,572 $ 201,326,256 Interest-bearing demand 413,655,430 354,374,993 Savings 70,752,223 64,941,772 Time deposits 288,618,183 318,604,485 Total deposits 958,772,408 939,247,506
Securities sold under agreements to repurchase 22,316,945 31,517,298 Federal Home Loan Bank of Dallas advances 30,367,483 10,842,740 Subordinated debentures 17,437,000 17,437,000 Notes payable 19,059,562 11,055,005 Other liabilities 4,197,840 7,895,032 TOTAL LIABILITIES 1,052,151,238 1,017,994,581
Preferred stock, $1 par value; 200,000 shares authorized; 38,350 shares, issued & outstanding at December 31, 2013 & 2012, $1,000 per share liquidation value 38,248,310 38,248,310 Common stock, $1 par value; 1,600,000 shares authorized; 167,938 shares issued & outstanding at December 31, 2013 & 2012 167,938 167,938 Capital surplus 23,657,267 23,657,267 Retained earnings 46,208,786 39,077,375 Accumulated other comprehensive income (loss) (6,427,781) 2,056,978 TOTAL STOCKHOLDERS’ EQUITY 101,854,520 103,207,868 TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY $ 1,154,005,758 $ 1,121,202,449
Consolidated Statements of Income
Year Ended December 31
2013 2012 2011 INTEREST INCOME
Loans, including fees $ 39,336,745 $ 38,596,422 $ 40,492,688 Investment securities: Taxable 2,934,701 3,915,035 5,292,064 Tax exempt 2,736,438 2,350,215 2,329,751 Federal funds sold & other 278,184 524,974 694,274 Total interest income 45,286,068 45,386,646 48,808,777
Deposits 2,985,017 5,093,107 8,161,123 Subordinated debentures 692,238 692,239 692,239 Other 998,852 752,536 1,014,706 Total interest expense 4,676,107 6,537,882 9,868,068 Net interest income 40,609,961 38,848,764 38,940,709 Provision for loan losses 3,185,038 3,772,988 3,896,075 Net interest income after provision for loan losses
Service charges on deposit accounts 4,400,990 4,550,788 4,516,206 Net investment securities gains (losses) 53,148 2,637,272 (62,955) Fees, commissions & other 5,532,964 6,104,623 4,743,560 9,987,102 13,292,683 9,196,811
Salaries & employee benefits 20,618,990 19,378,191 18,067,203 Net occupancy & equipment expense 4,601,772 4,678,880 4,256,802 Other 12,148,090 11,245,856 13,581,141 37,368,852 35,302,927 35,905,146
INCOME BEFORE INCOME TA XES 10,043,173 13,065,532 8,336,299
Income tax provision
NET INCOME $ 8,694,912 $ 10,146,987 $ 6,677,208 Southern’s core bank earning have continued to improve in 2013. This continued growth of impact and core earnings has been largely driven by increases in lending. Total loans reached $742 million, up from $673 million in 2012. Even in the current persistently low interest rate environment, the bank’s net interest spread and margin on earning assets increased by 0.12% and 0.07% respectively. While the yield on the loan portfolio decreased to 5.47% from 6.03% the effect of this was more than offset by the growth in total loans and decrease in interest expense. Consequently, net interest income after provision for loan losses increased to $37.4 million from $35.1 million in 2012. Despite this significant growth in lending, Southern’s asset quality continues to remain strong. In 2013, nonperforming portfolio stood at 0.41% vs. 0.61% in 2012. Net income in 2013 decreased to $8.7 million from $10.2 million in 2012. However, normalizing the net income by removing one-time gains and expenses like the one-time securities pre-tax gain of $2.6 million realized in 2012 provides a more accurate picture of Southern’s financial performance. Removing such one-time items, Southern’s normalized net income increased by 26% from 2012 to 2013.
Governing Boards Southern Bancorp Inc. Glendell Jones, Jr., Chair
President, Henderson State University
Chair, Arkansas Public Service Commission
Program, Evaluation and Research Officer, W.K. Kellogg Foundation
Partner, Squire Patton Boggs
Retired Civic Leader and Businesswoman
Retired Ernst & Young Partner
President and Chief Executive Officer, HT & Associates
President and Chief Executive Officer, Davenport Group
John C. Edwards
Regional Customer Service Manager, Entergy Arkansas
Partner, Anible & Edwards
Southern Bancorp Bank Sherman Tate, Chair
President and Chief Executive Officer, HT & Associates
Vice President of Development and Client Services, Arkansas Community Foundation
Hugh Arant Jr.
Walter L. Morris Jr.
President, Arant Farms
President, H & M Lumber Company
Retired Ernest & Young Partner
President and Chief Executive Officer, Southern Bancorp Bank
Southern Bancorp Community Partners Herman Davenport, Chair
President and Chief Executive Officer, Davenport Group
Senior Vice President, Government Services Division of TransFirst Holding Inc.
United States District Judge, United States District Court, Eastern District of Arkansas
John C. Edwards
Assistant Professor of Leadership and Philanthropy, Clinton School of Public Service
Mary Gay Shipley
Partner, Anible & Edwards
Dr. Robert Fisher
President, Belmont University
Retired Civic Leader and Businesswoman
CEO, Aaron E. Henry Community Health Services Center, Inc.
Jacquelyn Williams McCray
Retired Dean, School of Agriculture, Fisheries and Human Sciences, University of Arkansas at Pine Bluff
Southern Bancorp is proud to have been funded by a generous group of foundations, corporations, and individuals who believe in our mission. They invested in an idea of bringing economic opportunity to those who needed it most without the expectation of market rate returns.
Aman & Company ArcBest Corporation Arkansas Capital Corporation Arkansas Community Foundation Arkansas Electric Cooperatives Calmeadow Foundation, Canada Calvert Foundation Charles A. Frueauff Foundation Fred Darragh Estate/Pulaski Bank Trustee Dominican Sisters of Springfield, IL Jean T. Gordon Hampshire College James Harrington International Paper Company Robert B. Lifton Trust Local Church Ministries MetLife Foundation
Gwen Morgan Trust Charles Stewart Mott Foundation National Community Investment Fund Regions Bank Reliant Energy SF Holding Corporation Southern Bancorp Community Partners Levi Strauss Foundation United States Treasury Department Community Development Financial Institution Fund Walton Family Foundation Weyerhaeuser Company Arthur White W.K. Kellogg Foundation Winrock International Winthrop Rockefeller Foundation Verizon Corporation
Many funders, partners, and investors generously support us in our efforts to transform distressed communities and create opportunities for thousands of people. Since they are too numerous to list here, we want all of our supporters to know how grateful we are for their belief that every community and person in America should have a chance to improve their lives. 22
Candice and her boyfriend Michael have been active participants in Southernâ€™s credit and home buying counseling services. They have used Southernâ€™s free tax preparation service, participated in financial counseling to improve their credit, and even worked with Southern to help find Candice a better, more fulfilling career. Today, Candice and Michael are living the American Dream in their first home and paving the way toward a stronger, brighter future for their children.
Candice Ward and Family
Bank with us, Borrow from us, Donate to our nonprofit, or become a Shareholder! We need your support as we Invest in, Empower, and Transform rural America. By banking with us, borrowing from us, donating to our nonprofit, or becoming a Southern Bancorp shareholder, you are playing a major role in improving the economic and social conditions of rural communities.
Contact Dominik Mjartan today at firstname.lastname@example.org to find out more and explore all the ways you can help build communities and change lives.
SPECIAL THANKS Arkansas Printing Company KES Photography Zimny Media
www.banksouthern.com www.southernpartners.org /SouthernBancorp
Published on Aug 11, 2014
Southern Bancorp's 2013 Annual Report offers customers, funders, and supporters an overview of the organization's work in 2013. It provides...