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AloStar Hits the Five-Year Mark: Reflects on Lessons Learned

Date: Apr 14, 2016 @ 07:00 AM
Filed Under: Company Profile

The spring of 2011 was not an ideal time to start a new bank. But after more than 28 years in finance, I knew there was truth in the adage that within every crisis is opportunity. And opportunity is what Mike Gillfillan and I saw as we looked over the financial landscape.

For years I had been seeking a way to deliver specialty lending in a service-driven, customer-oriented model, but it wasn’t until the Great Recession that circumstances aligned. Five years later we have created one of the nation’s most innovative finance companies by blending a legacy deposit and correspondent banking institution with a new, high-energy specialty lending team. We were able to do this with carefully selected industry professionals and a culture of versatility and across-the-board service.

The story of our growth offers lessons for bankers, lenders and leaders across the industry.

How it Started

Our as-yet-unnamed entity was the only bank chartered in 2011. What happened between 2008 and 2011 doesn’t need to be recounted here, but let’s just say there weren’t a lot people starting new banks – in fact, more than 157 U.S. banks closed in 2010 alone.

As small banks failed, big lenders pulled back and credit was tightened. Middle-market businesses weren’t the large banks’ priority, and many smaller banks were hamstrung by a variety of regulatory challenges. We saw catering to this underserved market as a tremendous opportunity – if we could establish the right platform.

Photo of Andy McGhee - President & CEO - AloStar

The first challenge was finding the right banking partner, preferably one with relationships with other community banks whose customers would be potential clients, but more importantly, one that would align with our vision and core values. After researching 75 different banks, we found Nexity Financial Corp. in Birmingham, Ala.

Settling on Nexity was only the beginning, of course, amid the regulatory environment and market chaos. For a full year we worked with regulators and creditors with the intent of buying Nexity’s assets on an open basis, with no federal government assistance for the bad loans in the portfolio. Three-fourths of the way through the process, however, we had to change course and apply for a shelf charter.

Our shelf charter was granted, and on April 15, 2011 we closed on Nexity in an FDIC assisted deal, re-opened as AloStar Bank of Commerce, and immediately began to add staff to handle our loss share portfolio and establish our business credit division.

I firmly believe the reason we aligned with Nexity from a vision and values standpoint is because of the talented professionals that were living and breathing the brand every day. Many of them stayed with us and continue to provide an unmatched level of customer service.

By fall 2011, business credit was the core revenue generator for AloStar. We staffed the business credit operation with industry veterans and trusted faces from the marketplace, a strategy we have continued to use.

Fortunately for us, we were able to create a team of talented industry professionals – bankers who understood our strategy of seizing opportunity that was available during a down market. The strategy has worked: By the end of 2015, our business credit division had grown to $1.1 billion in loan commitments, and over $690 million in funded loans.

We launched our lender finance business in 2013 with a similar strategy, beginning with hiring respected industry leaders to head the department. We encouraged them to share their knowledge and expertise beyond the confines of the lender finance division, thereby empowering our entire team to provide comprehensive and informed counsel to all of our clients.

Business credit and lender finance services became linchpins of our business, and by 2014 we had established ourselves as a middle-market lender to be reckoned with.

In 2015 we expanded into commercial real estate lending with the intention of becoming a niche provider of interim financing. We avoided more speculative construction or land acquisition financing in favor of under-construction projects that have cash flow but aren’t ready for the institutional market.

This approach has been successful; within the first six months, our commercial real estate lending portfolio expanded to over $120 million. While our roots are in asset-based lending, a diversified portfolio is an important part of our plans for the future.

Lessons Learned

Our talented staff and uncommon business model have helped us prosper. In fact, our insistence on hiring experienced leaders, avoiding traditional “large bank” silos and building an entrepreneurial but disciplined culture has driven nearly all of our decisions, from business model to marketing. Character, accessibility, and timeliness have characterized our team since day one, and five years later those principles are reflected in our bottom line.

The market that we planned for in the early stages of launching AloStar in 2009 was markedly different from the one we walked into in 2011, and, yes, our markets have been under constant pressure since day one. Our trusted staff’s ability to broker mutually beneficial transactions has allowed us to prosper during difficult times.

The idea that a financial institution would serve as a client’s “trusted advisor” is a cliché in our industry. However, it is true that AloStar clients seek counsel and guidance as well as financing. Several years ago we visited a potential client in the Midwest to bid on a transaction. We didn’t win the business but we felt that the offer we made was right for us, so we stuck to it. To this day I regularly speak with the owner of the business about his challenges, goals, and strategies. Even though we didn’t win the business, our expertise and comprehensive market knowledge shined through.

At the five-year mark, we are looking back on our accomplishments and forward to our future. We began with two employees, a name that no one knew, and the acquisition of a failed bank. Today, we have $893 million in assets and nearly 100 employees in Birmingham, Atlanta, and across the country.

Over the next five years, we will expand our product set and continue to bring value to our clients. We will continue diversifying the business and revenue streams while retaining a leadership position in asset based lending. We will lower deposit costs and aim for an efficiency ratio by the end of 2016 that is on par with most large banks in the country. Our plan to reduce the ratio even further in 2017 is unheard of for a mid-market player.

AloStar’s first five years provide valuable lessons. Specialized expertise is always in demand, even when markets change dramatically. Today’s highly regulated lending market requires bankers who are service-oriented and creative within the guardrails established by a talented asset quality team. We’ve learned that a laser focus on your strengths makes you a comprehensive resource for your clients. We understand that shared purpose and vision must be voiced and reinforced constantly in today’s marketplace.

With these lessons in mind, we look forward to another half-decade of growth.

Andy McGhee
Vice Chairman | White Oak Commercial Finance
Andy McGhee serves as the Vice Chairman of White Oak Commercial Finance and leads its Lender Finance vertical and is active in the growth of the broader ABL initiatives for the firm. Andy previously served as Founder, President and CEO of AloStar Capital Finance, which he co-founded in 2011. He has over 30 years of commercial banking and asset-based financing experience and has held senior leadership roles at SunTrust Bank, Bank of America and Citicorp. McGhee serves on the Terry College of Business Alumni Board at the University of Georgia. He is a member of the Board of Directors for Piedmont Hospital of Atlanta. Mr. McGhee serves on the SFNet Board of Directors and previously served on the Atlanta ACG Board. Additionally, he is an Elder at Peachtree Presbyterian Church. He received a BA in Economics from the University of Georgia and resides in Atlanta.
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