Southern Bancorp Balances Profits with Purpose to Elevate Underserved Families and Communities

In a Nutshell: Congress created the Community Development Financial Institution (CDFI) designation in the 1990s to encourage financial institutions to reach out to families and communities overlooked by traditional banks. Southern Bancorp, headquartered in Little Rock, Arkansas, was among the first banks to receive CDFI certification. Southern strives to meet customers wherever they are on their financial journey with the capital and resources to move forward. In rural and urban areas across Arkansas and neighboring states, Southern creates economic opportunity and counsels those in need to help everyone achieve the American Dream.

The profit motive isn’t ideal if the objective is to correct the financial inequities in American history. Withholding financial services from minority and low-income communities through redlining and other forms of economic and racial exclusion is part of the American legacy, and banks tied to shareholder interests — even the most well-intentioned — can do only so much to close the persistent wealth gap.

That’s why the Community Development Financial Institution (CDFI) designation is critical to broadening financial inclusion in America. CDFI banks receive federal support to offer services to low-income communities and people lacking financial access.

Congress created CDFIs in the 1990s during President Bill Clinton’s administration. Southern Bancorp, headquartered in Little Rock in Clinton’s home state of Arkansas and serving families and communities in several Southern states, was one of the first banks to receive the designation.

But it’s more than that. Southern was one of the banks that spurred the CDFI idea. In the 1970s, ShoreBank in Chicago pioneered an urban outreach model to overcome redlining’s damages. In the 1980s, Clinton — then the Arkansas governor — advocated applying the approach to rural regions in his state. Southern’s success helped President Clinton make the case to Congress for CDFIs.

Clinton didn’t do it alone. Nonprofits and business leaders, including Rob Walton, son of Sam Walton, founder of Walmart, and Walter Smiley, founder of the Systematics financial technology company, were integral in forging a path for Southern in Arkansas.

Today, CDFIs work to provide financial services in low-income communities and to people who lack access to financing. CDFIs serve Native American communities, Hispanic communities, and urban and rural Americans nationwide.

Southern is still at the top of its game, in growth mode as a force for community economic development. Currently managing more than $2.6 billion in assets, the bank aims to double that figure within the next few years.

“President Clinton went to Washington with incredible stories about the impact of this work, helping underserved rural or minority businesses and families get their first infusion of capital,” said Nathan Pittman, Chief Brand Officer at Southern. “The CDFI designation provides a structure to show that this is our focus and we are held accountable to it.”

Redlining was a form of systemic refusal by some private and public lending institutions and insurance companies to issue mortgage loans or insurance on property in certain neighborhoods they regarded as deteriorating. Congress passed the Fair Housing Act in 1968 to ban redlining based on race, color, religion, national origin, sex, handicap, or familial status. Southern and other CDFI banks work to provide historically marginalized populations with opportunities most communities take for granted.

At Southern, that means offering high-quality personal and business banking services, loans, and mortgages with a mission of inclusion. A novel corporate structure helps the bank extend opportunity to more who deserve it.

Southern Bancorp, Inc., is a holding company that houses Southern’s corporate functions. Southern Bancorp Bank is the organization’s traditional FDIC-insured CDFI. Southern Bancorp Community Partners (SBCP) is a nonprofit loan fund that works with Southern Bancorp Bank to offer lending, financial development services, and advocacy to further the organization’s mission.

“SBCP is a nonprofit financial development organization and lending institution that works alongside Southern’s other entities to expand access to capital while also providing financial development services, such as financial coaching, credit counseling, and homebuyer counseling,” Pittman said. “They also advocate for issues that impact underserved families.”

SBCP adds flexibility to the Southern organization by giving customers additional lending options. For example, an entrepreneur may have their finances lined up to start a business but lack the credit score to qualify for a traditional loan.

SBCP has resources either through financial development services or supplemental programs to help get the customer loan ready either at the bank or through SBCP itself.

The bank and the nonprofit sometimes collaborate to extend credit. Other times, SBCP steps up with an opportunity based on personal relationships and community cohesion. A staff of financial development, credit, and homebuyer counselors is always ready to do what it takes to put customers in the best position to succeed.

“We like to say that we’re wealth builders for everyone,” Pittman said. “The collaborative nature of the Southern organization helps us underscore that anyone in our market — no matter where they are on their financial journey, even with no credit or credit history — can walk into Southern Bancorp and be heard.”

It may take time because there are no quick fixes. But as a CDFI, Southern takes that time to work in the customer’s best interests.

“When someone comes in not ready for a loan on day one, our lenders don’t like to say no; they like to say not yet,” Pittman said. “If you’re willing to put in the work, we’ll help you onto the path and stick with you for the journey.”

Like any business sector, banking is traditionally concerned with serving the customer quickly and moving on to the next one. That’s not the approach at Southern, where lenders take a long-term view where warranted.

“We’ve had lenders who have worked with customers for years getting them ready,” Pittman said. “As a CDFI, we exist to take that time and help folks get on that path.”

It’s a constant battle against exploitative financial services and a culture of stasis in some markets. For example, high-cost payday lenders in rural Mississippi dominate the landscape, Pittman said, even outnumbering fast-food restaurants. At one point, more than a dozen payday lenders operated within a mile radius of the Southern branch in Clarksdale.

These payday lenders offer fast cash at high rates, check cashing with extremely high fees, and title loans, which are becoming a big industry.

Southern reaches out through its mission and through innovation. TeamWALT is the brainchild of Chief of Enterprise Operations and Integration Vance Smiley, son of Walter Smiley, who helped bring Southern to Arkansas. TeamWALT introduces tech solutions to help people reach beyond payday lending and move toward constructive solutions.

MOD (Money on Demand) is one app from TeamWALT. MOD helps users form sound credit-building habits by advancing cash in graduated stages that can increase as the user demonstrates the ability to repay. Advances start at $25 and can increase to $400. MOD is a positive alternative to payday loans in an economy where most consumers lack the funds to tide them over in an emergency.

A brief initial pilot project for MOD saw more than 50,000 downloads, demonstrating the need.

“Many families in our markets have parents or grandparents that banks turned away — they weren’t made to feel welcome,” Pittman said. “Our focus is on creating environments where everyone feels welcome and encouraged to build a strong financial future for themselves and for future generations, no matter their ZIP code.”

President Clinton envisioned Southern as a financial solutions provider for rural Arkansans. The bank has focused on rural markets for most of its history. But it recognizes that the need for these services isn’t limited to those areas, which is why it is today expanding its work to more urban areas, such as Little Rock, Arkansas; Jackson, Mississippi; and Memphis, Tennessee, where large swaths of city dwellers live and work in financial deserts.

Financial deserts are areas where bank branches are scarce or absent. They exist throughout Southern’s service footprint. For example, while branches are common in mainly middle-class, white areas in Little Rock, an interstate highway that bisects the city also divides it in terms of race, class, and the prevalence of financial services.

“People say, well, there’s a bank a mile north, across the interstate — customers can go there,” Pittman said. “We counter that to truly serve a community, banks should be part of the community. We want people in underserved communities to walk into our branches and feel that we’re there to serve them.”

An area in Little Rock with a predominantly Hispanic population is an expansion target. Southern recently hired a Hispanic Strategy Executive to spearhead the bank’s Hispanic outreach. Part of the strategy is to issue marketing materials in Spanish. Spanish-speaking lenders are also available.

“It’s good that we’re increasing opportunity, but the flip side is that this opportunity only exists because folks have not had access to capital,” Pittman said. “As we grow, we target areas where we can provide local financial access, from credit counseling and financial development to funding the next million-dollar business. We want to create generational change.”

Part of that strategy aims to reenergize the mortgage market among underserved populations. Southern recently hired a mortgage executive with extensive experience lending in underserved areas. Certified homebuying counselors are on staff to handle nuts and bolts. SBCP is there to broaden access with down payment assistance and other support. The puzzle pieces are in place to help Arkansas and surrounding states push forward to greater prosperity.

“Unfortunately, there’s no shortage of need for the work that CDFIs do,” Pittman said. “But Southern Bancorp, along with its CDFI partners across the country, is tackling that need head on and creating new pathways for economic prosperity.”