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VOL. 123 | NO. 27 | Friday, February 8, 2008

Magna Bank Invests in Growth Despite Flailing Economy

By Eric Smith

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1st Trust Bank for Savings officially became Magna Bank in May after the executives and directors of the eight-year-old institution decided the original name didn't stand out, but merely blended in with all the other financial institutions containing "1st" in their titles.

The bank since has undergone a massive, million-dollar rebranding campaign to publicize the changes to its name and logo. With that mission accomplished, Magna has started another new chapter in its relatively short lifespan.

Almost a year later, those same executives and directors say they've spent enough time, money and energy on telling people about the bank's changes in appearance. Now, they've turned their focus inward as they migrate from retail banking toward the commercial and private side, as they expand their footprint to capture more market share.

"We're evolving into a different direction," said Magna CEO Bill Menkel. "Now it's really just execution more than anything. The name change was about image. People judge banks by execution, by how they deliver. Now we want to differentiate ourselves and remove ourselves from a thrift bank to more of a commercial bank."

'Time will tell'

To achieve that, Magna is adding commercial lenders and locations. The latest example is a new branch on an outparcel of the Oak Court Mall on Poplar Avenue, set to open next month - weather permitting.

It comes on the heels of the recently opened Wolf River branch in Germantown. Another branch, at Poplar and Forest Hill-Irene Road in Germantown's Stonecreek Centre, will open in the spring. That brings Magna's total to six branches to go along with assets of $434 million and deposits of $288 million, according to the latest Federal Deposit Insurance Corp. data.

"So far, so good," Menkel said. "We've almost doubled the bank in the last two years. Footings look great; profitability's not quite where we need it to be because we're building branches and they cost money. But I've been pleased with the balance of the growth."

Menkel is especially pleased with the location of his newest branch, which is in the heart of East Memphis along the busy Poplar corridor in front of a popular mall.

"East Memphis is one of those gems that everybody wants to be in," Menkel said. "It's somewhat of a challenge with the density of that area, but I think we've got the best site in East Memphis. You've got a light there, you've got visibility, there's a huge amount of traffic there. I think it's going to be our flagship branch."

But aggressive branch addition brings an array of pros and cons, said Andrew Gibbs, vice president at the Memphis-based financial advisory firm Mercer Capital. While the new high-profile locale is good for exposure, brick-and-mortar additions cut into the bottom line.

"The branch build-out is a way to give them greater visibility and convenience, which should help them attract more retail deposits," Gibbs said. "Time will tell as to the expansion's impact on Magna's profitability."

Evading the credit specter

Another impact on profitability for Magna - indeed all banks - is a shaky U.S. economy, highlighted by a slumping residential housing market and possible recession. Rapid expansion during such times can be a dubious venture.

"With the weakness in the real estate market, particularly on the residential side, caution is probably warranted at the present time," Gibbs said. "The bank would need to focus on its borrowers' ability to weather a potential disruption to the economy. After all, one bank's new customer could be another bank's problem customer, which it isn't too disappointed to lose."

Still, Menkel said the bank is poised to add one or two more branches during the next couple of years, likely in the booming Walnut Grove-Houston Levee area and maybe another along the Poplar corridor.

Growing at a faster pace than the economy relies on one thing, Menkel said.

"We can spend a little too much on a branch, or hire too many people, whatever we might do, but we can't have credit problems," he said. "Those are what's fatal. We're not going to end up being unscathed, because everybody's going to get a bruise here and there. You just don't want to blow a knee out.

"There's a difference between pain and injury. A little pain is fine. That injury gets you."

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