It looks as though we may be getting more new banks this year than we have in long time. Both community bank and industrial loan company (ILC) applications are receiving provisional approvals.
Ford and GM are both in the latter category. The FDIC approved both for deposit insurance coverage in January, but with strict requirements.
It has been a long time since we’ve had any real activity on the ILC front, so let’s take a refresher to bring us all up to speed.
Controversial Industrial Loan Charter Back in Play
The FDIC approved two deposit insurance applications last week, which aimed a fresh spotlight on the Industrial Bank/Loan Charter (ILC). Industrial banks are state-chartered and state-supervised, but only a handful of states allow them. The majority are in Utah (see page 5).
The history of the ILC goes back to 1910, when average wage earners could not obtain a loan from a commercial bank. ILCs operated like small, limited purpose, finance companies, but that all changed in the 1980s (like the rest of banking).
ILCs evolved… and grew. Between 1987 and 2006, total assets held at ILCs increased from $4.2 billion to $213 billion. Manufacturers, retailers, auto makers, and brokerage firms, all wanted an ILC. For some, it was to facilitate financing of the products they sold; others just wanted the FDIC deposit insurance they offered.
In any case, when Wal-Mart and Home Depot filed applications for ILCs in 2005, there was tremendous backlash. There was so much public outcry that both applications were withdrawn. A moratorium was then placed on most ILC applications which lasted through January 2007.
Since then, three ILCs have been chartered. The first in 2020: 5-Star Nelnet Bank, Draper, UT (59205), which specializes in student loans. In 2021, 5-Star Square Financial Services, Inc., Salt Lake City, UT (59177), followed. It focuses on small business cashflow.
The third was 4-Star Thrivent Bank, Salt Lake City, UT (59286). There was long and circuitous road that led here. Thrivent Bank was first established in 1998 as AAL Trust Company, FSB, Appleton, WI. In 2001, AAL Trust changed its name to AAL Bank & Trust, FSB and acquired two credit union affiliates: AAL C.U. and AAL Member C.U.
The following year, 2002, AAL B&T acquired LB Community B&T, FSB. It changed its name again shortly thereafter to Thrivent Financial Bank. A decade passed, and in 2012, the bank was split, literally. Most assets went to newly chartered Thrivent F.C.U. and the remainder to Thrivent Financial, a Trust Bank.
That was it until June 2025 when the company did another significant reorganization, Thrivent converted from a credit union to a digital ILC, operating under the umbrella of Thrivent, a Fortune 500 Company.
That was it for new ILCs… until now. Last week, the FDIC gave its conditional approval to both Ford Motor Company and General Motors to obtain FDIC Deposit Insurance for their proposed banks (Ford Credit Bank and GM Financial Bank, both of Salt Lake City, UT).
The requirements are quite hefty. Both are required to maintain a tier 1 capital ratio of at least 15%. GM must have at least $667 million in paid in capital and Ford is required to have at least $1.5 billion. To put that into perspective, the last new community bank was required to maintain a leverage capital ratio of 8% and raise paid in capital of $23 million.
(That last community bank was Echelon Bank (in organization), Clearwater, FL, which expects to be opening in the near future. Seven other applicants have received conditional approval from the FDIC but are also still pending. We hope this bodes well for the state of de novos in 2026.)
As for ILCs, the addition of Thrivent brought the total number of ILCs in operation today to 24. (You can find them all on page 5.) While most entities hold onto their ILC charter once they are fortunate enough to obtain one, USAA decided to let its ILC, USAA Savings Bank, Las Vegas, NV (34351), go. This also was part of a major corporate overhaul.
In 2023, the OCC and the State of Nevada, approved the company’s application to merge the industrial bank into 3-Star USAA Federal Savings Bank, San Antonio, TX (32188) and move the headquarters from San Antonio to Phoenix. At the time of the merger, June 1, 2024, the ILC (USAA SB) ceased to exist.
The ILC had roughly $2.6 billion in assets reported on its final call report, none in the form of loans. It was profitable and was rated 5-Stars. The corporate restructuring was such that some of the surviving (USAA FSB) bank’s assets had already been stripped away. That continues today. Instead of an increase of $2.6 billion, USAA FSB lost over $5 billion in the year after the merger. In the time since the merger, it has reduced its workforce by more than 11% (roughly 1,700 employees). USAA FSB is now profitable, and its capital ratios are rising. Both are good signs.
Another ILC changed its name, not its charter. In October 2023, LCA Bank Corporation, the banking arm of Lease Corporation of America, rebranded to 4-Star Milestone Bank, Salt Lake City, UT (58148). The new name highlights the fact that Milestone Bank had financed more than $1 billion in small ticket equipment loans and leases for more than 150,000 businesses during its existence.
The rebranding also came at a time when the ILC was expanding its lending. Since then, Milestone Bank’s loan portfolio has grown 25%, primarily in the form of Commercial & Industrial loans. The interest income generated has helped increase the ILC’s net income. While there has been an uptick in delinquencies, overall loan quality is good.
It has been over 2 years since we reported on the ILC industry. This should bring you up to date, at least for now.
