U.S. Treasury sends $237 million Christmas gift to Arkansas CDFI Southern Bancorp

December 27 - January 2, 2022

By Wesley Brown 

Fast-growing Southern Bancorp Inc. has received a huge Christmas equity investment from the U.S. Treasury that the Arkansas bank’s CEO called a game changer.

On Dec. 15, U.S. Secretary of the Treasury Janet L. Yellen and Vice President Kamala Harris announced the deployment of more than $8.7 billion in investments through the Emergency Capital Investment Program (ECIP) to increase lending to small and minority-owned businesses, and low- and moderate-income consumers in underserved communities, including rural areas.

Yellen said the huge capital investment from the Biden administration will dramatically increase the work of 186 community financial institutions. Begun in 2020 and passed in early 2021, the ECIP is part of the federal government’s response to the COVID-19 pandemic and designed to provide direct funding to Community Development Financial Institution (CDFI) or a Minority Depository Institution (MDI).

“This historic investment is a transformational game-changer for mission-driven banks like Southern Bancorp,” said Southern Bancorp CEO Darrin Williams. “We intend to put this capital to work by increasing our lending to small and minority-owned businesses and to low- and moderate-income customers in underserved communities. This investment will also allow us to reach deeper into the underserved communities in which we presently work, as well as expand our impact into new markets that can benefit from our unique blend of financial development services.”

CDFIs like Southern Bancorp, Hope Credit and People’s Trust in Little Rock focus their efforts on increasing access to capital in traditionally underserved markets such as minority or rural communities. This investment into mission-driven financial institutions has the potential to be transformational for marginalized communities across the nation, said Yellen.

“We know that the communities hurt most by COVID-19 have often been communities of color, and Treasury has implemented relief legislation with equity in mind,” said Yellen, the former Federal Reserve chair under Presidents Barack Obama and Donald Trump. “Today, we’re seeing one result of that effort: Treasury, through the Emergency Capital Investment Program, is injecting nearly $9 billion into CDFIs and MDIs.”

Of that total, five Arkansas CDFIs will get a share of the ECIP funds, including Southern Bancorp, Southeast Arkansas Bank Corp. in Lake Village, Southeast Financial Bankstock Corp. in McGehee, Helena Bancshares, and Texarkana-based Commercial Bancshares. For its part, Southern Bancorp is eligible to receive a $237.5 million equity investment through the program.

“A historic investment calls for a historic level of impact, and that’s exactly what we intend to pursue,” said Williams. “We were founded to be ‘wealth builders for everyone,’ and this investment will let us greatly expand on that mission.”

According to Treasury Department officials, the Treasury is offering an ECIP investment to banks across 36 states, the District of Columbia and Guam. The states with the largest number of institutions being offered ECIP investments include Mississippi, Louisiana, North Carolina, California and Texas. Among the institutions recommended for an ECIP investment, approximately 54% are banks and 46% are credit unions. The ECIP investments will range in size from over $200 million to less than $100,000. A total of $3.1 billion in ECIP investments is being offered to 57 MDIs.

Williams told The Daily Record that the Treasury Department’s investment with Bancorp South will be in perpetual preferred stock, treated as tier one by banking regulators and will carry a dividend rate of 0% for the first two years. It carries a maximum rate of 2% after the first two years with an opportunity to reduce the rate annually to as low as 0.5%. The annual rate reduction will be determined by an evaluation of the percentage of lending originated in qualifying areas and to targeted communities. After year 10, investment recipients will be able to lock in the rate at 2% or lower depending on the percentage of their qualifying lending activity during the previous years. 

 “The equity investment will allow us to grow our markets and expand our outreach to communities that could benefit from our unique blend of lending and financial development services,” said Williams. “While we can’t disclose any acquisition activity at the moment, we anticipate opportunities for growth both in our traditional markets and non-traditional areas such as urban minority communities.

For example, Williams said the Arkadelphia-based CDFI that operates a bank holding company, one of the nation’s largest rural development banks, and a nonprofit development finance and lending arm under “Southern” banner recently submitted applications with the bank department to open a branch in Little Rock’s 12th Street Substation sometime in 2022.

“This is an area that has not had a local financial institution focused on increasing access to capital in that area for several decades. There are many communities like this around the mid-South, and we’ll be looking at options in the coming months and years to see where our services would be a good and impactful fit,” said Williams, noting that Southern now has total assets of $2.05 billion and 51 bank locations across Arkansas and Mississippi.

The huge cash infusion from the U.S. Treasury finishes out a strong 2021 for Arkansas largest CDFI. In June, Silicon Valley-based Square Inc. said it will invest $25 million of its $100 million commitment in CDFIs and minority-owned banks with Southern to increase their capacity to make loans to local small business owners. Square is the owner of CashApp and other digital payment and financial services businesses.

In September, JPMorgan Chase also announced that Southern Bancorp was one of 14 CDFIs to receive a multi-million-dollar equity investment as part of the company’s $100 million commitment to minority-owned and Black-owned banks. Terms of the deal were not disclosed, but the nation’s largest financial conglomerate said the investment with the Arkansas bank was part of its $30 billion racial equity commitment first announced after the George Floyd murder in the summer of 2020.

Southern also received a similar investment Bank of America announced in late 2020, which included a $50 million commitment toward acquiring approximately 4.9% of common equity in 10 CDFIs and minority-owned banks, including Little Rock-based Southern Bancorp. These investments were part of Bank of America’s $1 billion-plus commitment to racial equality and economic opportunity following the George Floyd protests a year ago.

In keeping its focus on minority and Black-owned businesses, Williams said Southern has founded the Minority Business Empowerment Fund, a first-of-its-kind venture fund launched with Simmons Bank, the Winthrop Rockefeller Foundation, Fifty for the Future and Little Rock Mayor Frank Scott.

“We anticipate other businesses and nonprofits joining in supporting this effort to create, strengthen and expand minority businesses throughout central Arkansas by providing them with small business technical assistance, training and access to flexible, patient growth capital.” said Williams.

In October, Southern unveiled an introductory website at the Black Founders Summit in October with the goal of launching the first cohort of 50 entrepreneurs in January. Williams said Southern has received strong interest from over 50 local small businesses and is currently having each of them go through an intake process to determine whether they’re immediately eligible for a loan, capital investment or technical assistance available to help them grow their businesses and prepare for capital access.