Southern Bancorp, Inc.: Reviving the Rural Economy Through Financial Products and Community Involvement

Abstract

The case features Southern Bancorp, Inc. (Southern), a family of community development financial institutions (CDFIs) consisting of Southern Bancorp Bank, one of the largest and most profitable community development banks in the United States, and Southern Bancorp Community Partners, a nonprofit affiliate. Although the bank was expected to be profitable, the entire organization put community, not the financial interests of its shareholders, first; therefore, it was driven by mission rather than profit. Based in Arkadelphia, Arkansas, Southern served low-income populations in disadvantaged markets in the rural South and worked on a difficult task of revitalizing high-poverty communities. Even though Southern had implemented profitable operations, at one point the organization suffered substantial loan losses that threatened its existence. The case focuses on the CEO's decision regarding two loan portfolios: that of residential mortgages and small teacher-certification loans. The CEO must decide whether his organization can afford to continue offering those loans. Excerpt UVA-ENT-0203 Jun. 18, 2014 SOUTHERN BANCORP, INC.: REVIVING THE RURAL ECONOMY THROUGH FINANCIAL PRODUCTS AND COMMUNITY INVOLVEMENT In 2014, Darrin L. Williams, the newly appointed CEO of Southern Bancorp, Inc., (Southern) was reviewing two loan portfolios: one of homeowner mortgages Southern offered in rural Arkansas and Mississippi, and one of small teacher-certification loans offered in the Clarksdale Municipal School District in Mississippi. Southern operated in distressed rural markets that were underserved by traditional financial institutions such as banks and credit unions. As a result of a lack of access to mainstream financial services, low-income consumers in those markets were vulnerable to the exploitative lending practices of the minimally regulated alternative financial sector. In 30% of its markets, Southern was the only bank offering affordable financial services, including transactional accounts, microloans, small-business loans, consumer credit, and residential mortgages. As a community development financial institution (CDFI) consisting of a for-profit bank and a nonprofit affiliate, Southern had a double bottom line because it cultivated both financial and community investments. Although the bank was expected to be profitable, the entire organization put the community interest rather than the financial interest of its shareholders first; therefore, it was not profit but mission driven. During its nearly 30-year existence, Southern had implemented profitable operations while serving low-income populations in disadvantaged markets in the rural South and working on the difficult task of revitalizing high-poverty communities. In the beginning, Southern had not always displayed its current disciplined focus on its core value of “no margin, no mission” and suffered substantial loan losses that threatened its existence. . . .