Georgia bank saw increase in problem SBA loans before it failed

• Key insight: SBA's move to tighten lending standards following a rise in delinquent loans and credit costs appears to have had a positive impact on overall credit quality and the agency's finances.
• Expert quote: "An unacceptable number of loans made during the 'Do-What-You-Do' era are just proving to be not that good." — National Association of Government Guaranteed Lenders CEO Tony Wilkinson
• Supporting data: Community's failure will cost the FDIC's Deposit Insurance Fund nearly $100 million. 

Community Bank & Trust — West Georgia, which last week became the second U.S. bank to fail in 2026, had scores of impaired Small Business Administration loans on its books, agency records show.

Though the Federal Deposit Insurance Corp. did not provide an explanation Friday for why the $288.2 million-asset bank failed, an SBA database indicates that 58 loans originated by Community carried noncurrent designations as of March 31. When those loans were originated, they totaled more than $70 million, though it's not clear how many of them were on Community's book at the time the bank failed.

A number of the problem credits were variable-rate loans originated in 2020 and 2021, prior to the spike in interest rates that started in 2022.

Another problematic loan cohort arose in the summer of 2023, after the SBA liberalized its lending rules. The agency removed a number of long-standing underwriting requirements, permitting lenders to use their own in-house standards instead. It labeled the policy 'Do What You Do.'

The SBA reversed course in spring 2025 after disclosing substantial increases in delinquencies and credit costs.

LaGrange, Georgia-based Community, a longtime SBA and U.S. Department of Agriculture lender, had moved to deepen its existing involvement in government-guaranteed lending in January 2025 by launching a lending and servicing subsidiary.

The new unit, Phoenix Lender Services, helped the bank climb the ranks of SBA lenders. Indeed, the company reported in a November 2025 press release that it "facilitated the origination and underwriting" of more than $200 million in SBA loans during the agency's 2025 fiscal year.

The trend continued into 2026. In a February press release, Community stated it closed nine SBA loans totaling $19.6 million during the first month of the year.

"Our momentum sends a clear message: We don't retreat during challenging times, we lean in," CEO Jeremy Gilpin said in the release.

Gilpin did not respond to a request for comment. 

Community's more active involvement in government-guaranteed lending was accompanied by a steep increase in the level of problem loans on its books. Its ratio of noncurrent loans to total loans, which stood at 0.60% at year-end 2022, had surged to 10.15% three years later, according to FDIC statistics. 

The increase caught the attention of regulators at the Federal Reserve. Last month the agency imposed a cease-and-desist order, which required Community to improve board oversight, strengthen its senior management ranks and consider a capital raise. The intervention came too late to reverse the downward trend, however.

While plenty of other banks have expanded their involvement in SBA lending in recent years, few have ramped up as quickly as Community, according to James Ballentine, founder and CEO of the Washington, D.C.-based consulting firm Ballentine Strategies.

"It seems to have been not only timing, but a very aggressive approach by this lender," Ballentine, a onetime SBA associate deputy administrator, told American Banker on Thursday. 

Tony Wilkinson, president and CEO at the National Association of Government Guaranteed Lenders, attributed the SBA's recent asset-quality problems to a relatively small number of institutions — including Community — that combined use of the revised credit standards with increased volume. 

"An unacceptable number of loans made during the 'Do-What-You-Do' era are just proving to be not that good," Wilkinson told American Banker.

SBA officials did not respond to a request for comment by deadline. 

The tighter underwriting standards put in place last year have led to reductions in both noncurrent loans and credit costs, according to Wilkinson. "We've got the guard rails in place,' he said. "I anticipate that the loans going forward are going to perform [well], and we'll be just fine."

Community's failure will cost the Deposit Insurance Fund about $97 million, according to the FDIC. The bank's deposits, which totaled $268 million at year-end 2025, were assumed by the $571 million-asset Anchor Bank in Palm Beach Gardens, Fla.