2021 CSBS Community Bank Case Study Competition Journal

2021 COMMUNITY BANK CASE STUDY COMPETITION

Part I: Loan Portfolio Concentration Southern Bancorp Bank is a community bank headquartered in Arkadelphia, Arkansas. It is included in the peer group consisting of banks with $1 billion to $3 billion in assets. This section discusses SBBs loan portfolio and how it differs from peer banks. Panel A of Table 1 lists SBBs loan portfolio between 2016 and 2020. Real estate loans comprise the largest share of loans, representing 73.2 percent of the loan portfolio at year-end 2020 which is 1.4 percentage points above the peer ratio. During the previous five years, the real estate loan share increased steadily from 72.4 percent at year-end 2016 to a peak of 76.3 percent at year-end 2019. The drop in the real estate loan share between 2019 and 2020 was due primarily to a 2-percentage point decrease in 1-4 family residential loans. The commercial and industrial (C&I) loan share was stable through 2019 at about 13 percent of loans. SBB, however, reported a 4.49 percentage point increase in C&I loans in 2020 due to the Paycheck Protection Program (PPP). In contrast, the agricultural loan share has trended downward from 7.29 percent of loans in 2016 to 4.73 percent in 2020. The loan share, however, is 3.34 percentage points above the peer ratio. Consumer loans, which include credit card and auto loans, has also trended downward over the years and it accounts for 3.3 percent of loans in 2020. Within the real estate loan portfolio as shown in Panel B of Table 1, loans secured by farmland comprise 13.28 percent of total loans, 8.19 percentage points higher than peers, and their

SBB lends intensively in underserved communities, and a disproportionate number of loans are for small dollar amounts.

Since its creation, SBB has expanded to 49 branches across the Mid-South, but the mission remains the same, “to create economic opportunity in rural and underserved communities by providing responsible and responsive financial products and services that balance profits with purpose.” As shown in Figure 1, Southern Bancorp Bank operates in areas with high poverty. According to the United States Census Bureau, the United States poverty rate was 12.3 percent in 2019, and the Arkansas and Mississippi poverty rates in the same year were 16.2 percent and 19.6 percent, respectively. 4 The poverty rate in the 21 counties where SBB has deposits (Figure 2) is 24.8%. SBB lends intensively in underserved communities, and a disproportionate number of loans are for small dollar amounts. Roughly 90% of the $1.7B in loans it originated in 2020 were to borrowers in CDFI tracts, 42% of the loans had principal amounts under $10,000, and 12% had principal amounts less than $1,000. 5

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