By Emily Bary
Shares of Square Inc. rose 3.7% in after-hours trading Monday after the company said that its industrial bank has started operations.
The first step for the bank, called Square Financial Services, will be to underwrite and originate loans taken out by Square /zigman2/quotes/205989440/composite SQ -2.65% sellers through the company’s Square Capital program.
The main purpose of Square’s in-house bank will be “to offer business loan and deposit products,” the company said in a statement, with the bank serving as the chief source of financing for Square Capital loans.
Square received conditional approval from the Federal Deposit Insurance Corp. and the Utah Department of Financial Institutions to operate a bank late last year.
“Bringing banking capability in-house enables us to operate more nimbly, which will serve Square and our customers as we continue the work to create financial tools that serve the underserved,” Square Chief Financial Officer Amrita Ahuja said in a statement.
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Square plans to operate Square Financial Services under an asset-light business model by selling loans to third-party investors in order to minimize the balance-sheet impact of the industrial bank. Square doesn’t anticipate that the bank will have a material impact on its balance sheet, net revenue, gross profit or adjusted earnings before interest, taxes, depreciation and amortization this year, it said in its statement.
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Square shares have rallied 189% over the past 12 months as the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.36% has added 32%.