A small Utah start-up seems to be establishing a new business model for the industrial loan company charter.
Most Utah industrial loan companies are one-office operations used mostly to gather deposits and finance their parent companies' activities - think Volkswagen Bank or GMAC Automotive Bank.
But MagnetBank opened in September with $48 million of capital and a plan to be a "second lender" to businesses in high-growth markets. It has already set up loan production offices in Salt Lake City, Atlanta, Orlando, and Raleigh and plans to open another in the Southeast by May.
"We're going back to the good old days when the lender was there to make a loan," said Darrell Pittard, its founder, chairman, and chief executive.
Mr. Pittard came up with the idea of using an ILC for commercial lending while working as a consultant in 2004. (He had been the CEO of Premier Bancshares Inc. in Atlanta until BB&T Corp. bought it in 2000.)
One advantage of the ILC charter, he said, is "the ability to fund with wholesale deposits and to avoid the expensive infrastructure costs associated with a branch network."
Industrial loan companies are barred from gathering demand deposits from retail customers, so MagnetBank relies entirely on brokered deposits. Though it has to pay up for them, Mr. Pittard said doing so is much cheaper than building a branch network big enough to meet its lending goals.
The bank plans to make loans of $2 million to $10 million. That is "typically too large for a community bank but too small for a national bank," Mr. Pittard said.
His bank is also looking to team up with community banks on loans that exceed their lending limits.
So far, he said, the model is working. "We could close at $100 million in assets during our first 90 days of operation," he said.
MagnetBank's strategy for entering markets is first to find lenders with good reputations and extensive business contacts in their community.
When MagnetBank wanted to move into the Raleigh-Durham market in North Carolina, for example, it contacted John Lowe, who was then a lending executive at the $14.6 billion-asset First Citizens Bancshares Inc. in Raleigh.
"He is extremely well thought of in Raleigh and has a very loyal following," Mr. Pittard said.
Mr. Lowe said he was not looking for a new job but was intrigued by the business plan. He is now the managing principal at MagnetBank's Raleigh loan production office, which opened in October.
"We want to be your second bank," Mr. Lowe said. "You keep your operational account, payroll account, and cash management business at your current bank and let us be your secondary account for your funding needs."
Christopher Worel, the bank's president and chief operating officer, said most bankers find lending the most enjoyable part of their jobs, so a bank committed exclusively to commercial lending is attractive.
"In recruiting, that's something folks get awful excited about," he said.
MagnetBank's single-mindedness also means it can process loans faster than its competitors, Mr. Lowe said. "We don't have a lot of hoops to jump through," he said. "It's just the bank, the customer, and a timely turnaround."
This fall, when a Utah developer needed $6.9 million to buy land for a condominium project, it first turned to the $211 billion-asset U.S. Bancorp, which had lent it money in the past.
Just getting the application to the right U.S. Bancorp credit officer took six weeks, the client said in a testimonial MagnetBank provided. Mr. Pittard said his bank closed the loan in three weeks.
"We have stolen some very high-quality business from some very large national banks in our first 90 days, because we have very experienced loans officers and we act quickly," he said.
