6/29/09

Southern Bancorp Inc. of Arkadelphia is poised to become the first rural development bank to launch a public stocking offering. CEO Phil Baldwin and his team are positioning Southern Bancorp for an IPO during the next couple of years.

“We have a goal of becoming a publicly traded bank,” Baldwin said. “I call it a publicly traded philanthropic bank. We had a prospectus put together last year but tabled it because of what was going on in the markets.”

Set to become a $1 billion-asset concern this year, Southern Bancorp has established a reputation for serving up a heady blend of profitable performance and difference-making charity. Going public will provide the capital needed to expand its banking operations from three Arkansas-Mississippi communities to 20.

Profits from banking provide a sustainable source of money for Southern Bancorp’s place-based incentive programs to transform impoverished areas. Growing the bank operations to expand its nonprofit pool is a key to making a greater impact on local economies.

“The basis of all we do is banking,” Baldwin said. “It gives us longevity, a local presence and financial staying power. Our model provides funding for our charitable work.”

That charitable work includes helping drive out predatory payday lenders from Arkansas and extends to enhancing educational opportunities.

Through its community development corporation subsidiary, Southern Bancorp bought the old Federal Reserve Building at 123 W. Third St. in downtown Little Rock.

The $1.35 million purchase will help expand the neighboring eStem Charter School campus as the 45,000-SF building undergoes renovation for upper-grade classes. Historic renovation tax credits and new markets tax credits are helping save redevelopment dollars.

Southern Bancorp has aided educational projects with conventional public schools and charter schools in Phillips County and construction of a new charter school in Jacksonville, Lighthouse Academies of Arkansas.

Buying Banks
Billed as America’s largest rural development bank among its 50 peers, the venture is moving into three new markets this year through bank buys.

While waiting for the financial markets to rebound for an IPO, Baldwin jumped at the opportunity to receive Capital Purchase Plan money under the TARP program in January. He put the $11 million to quick use funding two acquisitions.

Total assets at Southern Bancorp topped $700 million with the recent purchase of El Dorado’s Timberland Bank, and the pending acquisition of Blytheville’s First Delta Bankshares Inc. will push that number beyond $1 billion.

Two months after receiving the federal funds, the deal to buy Timberland Bank was announced on March 26. However, no money changed hands in the June 25 transaction.

Southern Bancorp used $7 million in CPP funds to broaden the El Dorado bank’s capital base, and Timberland Bancshares Inc. remained an autonomous operation with loans totaling $12.3 million.

“We approached them,” Baldwin said. “They had been looking to do something, and we were aware of that.”

Formed in 2000, Timberland Bank was operating under a July 2008 cease-and-desist order, issued by the Federal Deposit Insurance Corp., for unsafe or unsound banking practices

The deal for First Delta Bankshares, expected to close by the end of September, is no distress sale. The conventional transaction carries an estimated price tag of $60 million, of which $4 million is CPP money.

The sales talk was a result of the favorable impression of Southern Bancorp’s impact on the Helena area held by Jerry Sims, chairman and CEO of First Delta Bankshares.

“He had been observing our work in Phillips County, and we got together for lunch and talked about partnering opportunities.”

The pending transaction will give Southern Bancorp entry to northeast Arkansas through First Delta’s two banks: First National Bank of Blytheville (Mississippi County) and the Bank of Trumann (Poinsett County).

To help step up the company’s coordination with federal grant programs and funding, Southern Bancorp opened a Washington, D.C., office three months ago.

Ben Steinberg, president of Southern Financial Partners of Helena, is now on the ground as federal government programs coordinator. He works out of space provided courtesy of James Lee Witt Associates.

Profit Predictions
Baldwin describes a working scenario of a public Southern Bancorp generating a profit of 8 to 10 percent yearly backed by shares that pay an annual cash dividend of 3 to 4 percent and a goal of 10 to 15 percent appreciation on the stock.

“That’s after the mission,” he said. “We’re searching for an equilibrium point, and we’re not exactly sure what that is. The market will help us with that when we get serious about selling stock.”

Baldwin anticipates the sizable blocks of stock will be purchased by current Southern Bancorp benefactors such as the Kellogg Foundation and the Walton Family Foundation. A public move is hoped to attract other charitable foundations, such as the Gates Foundation, interested in a social return on investments.

Ahead of the planned IPO, Southern Bancorp already has modified its bylaws to ward off corporate raiders more interested in maximizing returns than doing good works.

The changes basically give the board the authority to reject any tender offer, no matter how lucrative, if it might have a negative impact on the company’s mission.

Southern Bancorp’s successes in Arkansas, especially in Clark and Phillips counties, are well known. But Baldwin concedes there have been disappointments along the way.

“We tried to do a strategic effort in Friars Point, Miss.,” he said. “There just wasn’t the capacity for them to change. They just wanted us to do it all for them.

“We made the decision not to do the program, and it created bad feelings for them. That was a hard lesson: you can’t save every place.”

An important component of the unsuccessful Friars Point effort was the absence of enough local leaders to help make things happen. Making a communitywide impact without motivated local leaders is a mission impossible, Baldwin said.

“We try to be fairly thoughtful, and we will work with anyone,” he said. “But we expect there to be governance and control over what we give, and there is sometimes resistance to that.

“Some people want us to give them the money and leave. We won’t do that. There’s too much of the banker in us.”