In its first nine months of operation, an industrial loan company with an unconventional business model has already amassed nearly $200 million of loans and is on pace to exceed its goal of having $282 million of assets by Oct. 31.
MagnetBank, of Salt Lake City, opened for business last September with offices in its hometown and in Atlanta and Raleigh. It has moved into two additional markets - Boise, Idaho, and Tampa - and is searching for the talent that can get it into others.
"We anticipate growth to continue because we are getting more recognition in our markets," said Darrell Pittard, the founder, chairman, and chief executive officer. "And success breeds success."
Most ILCs are affiliates of corporations, such as Merrill Lynch & Co. or BMW Group, and are used as deposit-gathering vehicles to fund their parent companies' activities. MagnetBank's chief focus is business lending.
It opened with $48 million of start-up capital, and by June 30 it had $270 million of assets and $196 million of loans. Officials at MagnetBank say the early growth is an affirmation of their business model, which is to find experienced lenders in high-growth markets and open loan offices there.
Since ILCs are unable take deposits from retail customers, MagnetBank has to rely on expensive brokered deposits to fund its loans. But management says it is able to justify its higher-than-average cost of funds because it has no branch network to support.
MagnetBank is not yet making money. It lost $1 million in the first quarter and $141,000 in the second quarter, and because it is in what it calls "high-growth mode," executives would say only that they expect it to be profitable "in the near future."
It aims to be the "second bank" for business owners. Its target customers keep cash management and payroll accounts at their primary banks but go to MagnetBank for financing.
Ann Hester, a banker with two decades of experience in the Boise market, joined MagnetBank to head its expansion into the market. She said she liked the company's unique approach.
"In this day and age, with the way banking is evolving, you've got to do something different than what the bank up the street is doing," she said.
Chris Worel, MagnetBank's president and chief operating officer, said Boise was not initially on the bank's radar screen, because its executives were not too familiar with the market. But in a June news release announcing the opening of the Boise office, he said the opportunity to hire someone with Ms. Hester's credentials "was too good to miss."
"That's how we intend to grow," Mr. Worel said. "The market has to be strong, of course, but we look for the best people, first and foremost."
Darven Erickson, MagnetBank's managing principal for the Utah region, said that since the bank does not have branches, it is "able to be nimble and move quickly into a market."
Mr. Pittard said it took bank organizers more than two years to obtain their industrial loan charter. They may have gotten it in the nick of time - on Friday the Federal Deposit Insurance Corp. announced a six-month moratorium on approvals of ILC applications. That closes the door at least for now on start-ups or acquisitions of ILCs.
"It was a long journey and I'm glad we got the charter," Mr. Pittard said.
