Troubled Timberland Bank of El Dorado announced Thursday that it will be acquired by Southern Bancorp of Arkadelphia in a deal that is expected to close within 90 days.

Southern Bancorp is paying between $5 million and $6 million in cash for the bank – about half its book value, according to Southern CEO Phil Baldwin. But it is also allowing Timberland Bank’s holding company, Timberland Bancshares Inc., to retain in the form of a dividend some $5.8 million worth of nonperforming assets. (In a letter to shareholders, Timberland characterized the price as “book value on the date of closing.”)

Timberland Bancshares “will not be a bank holding company anymore. It will be a commercial business whose job will be to try to collect those loans,” Baldwin said. Collections on those assets will increase the purchase price realized by the shareholders of Timberland.

Timberland had $12.4 million in equity capital as of Dec. 31.

Timberland was chartered in 2000 and has about $135 million in assets, three branches and 44 employees. It will become part of Southern Bancorp Bank of Arkansas (formerly Elk Horn Bank & Trust) of Arkadelphia, one of Southern Bancorp’s three similarly named bank charters.

Baldwin said some of the job functions at Timberland will be consolidated into the Arkadelphia bank, but “we don’t anticipate any reduction in staff because of the merger.” Employees were told of the sale on Wednesday, he said.

Timberland lost almost $3 million in 2008 after charging off more than $5.6 million worth of loan assets, according to its call report filed with the Federal Deposit Insurance Corp. The nonperforming loans Timberland Bancshares is retaining are different from the loans that were charged off, Baldwin said.

“This acquisition will solve any short-term issues facing our financial institution and provide long-term stability to our employees and customers; plus it will provide additional resources to southern Arkansas,” Timberland CEO Tandy Menefee said in the news release announcing the sale. “We are very excited about our future with Southern Bancorp and look forward to providing the best in community banking to our existing customers and the new opportunities ahead for our banks.”

Last summer, the FDIC ordered Timberland to correct what it called “unsafe or unsound banking practices.”

Timberland’s assets exceeded $163 million in 2007 but had declined to $139 million at the end of 2008.

Southern Bancorp is the largest rural development bank in the country, and its nonprofit projects include the Southern Good Faith Fund and Southern Financial Partners. It is also the parent company of Southern Bancorp Bank of Helena and Southern Bancorp Bank of Ruleville, Miss.

“The unique mission of Southern Bancorp will benefit Union County through our high quality community banking emphasis coupled with innovative approaches aimed at community revitalization,” Southern Bancorp CEO Phil Baldwin said in the news release.