SBA Field Gets More Crowded with Bank's National Push

State Bank Financial in Atlanta knows an opportunity when it sees one.

The $3.5 billion-asset company recently hired a nine-person team that focuses on Small Business Administration lending. The Durham, N.C., group, which has closed $500 million in SBA loans, became available when their employer, Community & Southern Holdings, agreed to sell itself to Bank of the Ozarks.

State Bank, which is planning to launch a national operation, has become the latest banking company to ramp up its SBA dealings, joining a crowded field.

During its last fiscal year, which ended Sept. 30, the SBA approved a record $23.6 billion in 7(a) loans. Seven months into fiscal 2016, it has guaranteed $12.9 billion of loans – a 9% rise from a year earlier. For now, the SBA is hopeful that it will not need congressional approval to raise its lending authority beyond its current $26.5 billion.

Still, State Bank's move speaks to the growing popularity of SBA lending.

United Community Banks in Blairsville, Ga., made a big leap into SBA lending after hiring a team in Columbia, S.C., in May 2014. United, as a result, recorded $6.3 million in gains from selling SBA loans last year.

Likewise, Berkshire Hills Bancorp in Pittsfield, Mass., recently bought 44 Business Capital, an SBA lender, from Parke Bancorp in Washington Township, N.J.

State Bank appears to be following a similar trajectory.

While the company regards itself as a business bank, it largely avoided SBA lending during its first five years of existence. Things began to change in October 2014, when State Bank bought Bank of Atlanta, which was an active 7(a) lender.

Impressed with Bank of Atlanta's operations, State Bank decided to build on it.

"We were aware of the potential," said Alan Thomes, who became State Bank's president of SBA banking in February 2015. "We knew it would give us the option to offer SBA as a meaningful line of business."

Fast forward 18 months, and State Bank has joined the ranks of the country's largest SBA lenders. In the first half of the SBA's 2016 fiscal year, State Bank originated 46 7(a) loans totaling $43.1 million – just cracking the agency's list of top 50 lenders.

For State Bank, hiring the North Carolina lenders, led by veteran banker Brad Turner, promises to add significant scale.

While Turner, who was named SBA national operations officer, and his team have barely had time to change their stationery, Joseph Evans, State Bank's chairman and chief executive, made it clear he is counting on big things from them.

"This addition expands our geographic reach [and] adds significant expertise in some lending verticals," Evans said during a conference call to discuss quarterly results. "We look forward to a meaningful increase in SBA revenue going forward."

State Bank's SBA operation generated $1.5 million of income in the first quarter.

After his group's decision to leave C&S became public, Turner said, his team was courted by "four or five institutions," and it weighed a variety of factors before deciding to join State Bank. "They're well capitalized, comfortable with the national platform we've become accustomed to, and they have a credit culture that meshes well with ours," Turner said.

Thomes said the decision to hire Turner's team was an easy one. "It adds immediate scale and … lets us step out of our footprint," he said.

While nonbank alternative lenders are always a potential challenge, Turner said he did not see them as competition for the types of deals his team pursues.

"Fintech loans are typically smaller, short-term, unsecured and characterized by streamlined underwriting," Turner said. "We deal with larger transactions, probably outside the current product offerings of lenders like OnDeck or Kabbage."

Still, Turner said, his goal is to give clients an answer within 48 hours. "Sometimes a quick 'no' is as valuable as a 'yes,' " he said.