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Seacoast Banking Corp. of Florida in Stuart hopes to shake off its post-crisis malaise by transforming its banking model.
Key parts of the $2.3 billion-asset company's strategy are a new type of commercial loan office and increased use of data analytics that management hopes will help it more precisely identify revenue opportunities.
The moves are intended to counter the stagnant economic growth and stubbornly low interest rates that have frustrated bankers in recent years. Seacoast is one of many community banks trying to reform its business model while keeping a watchful eye on the cost of long-term investments.
"The transformation of the whole industry is so significant that it's requiring us to rethink every process in the bank," said Denny Hudson, Seacoast's chairman and chief executive. "We are investing in a massive transformation. In five years we will need to have a massively different expense structure than we have today."
Seacoast's central initiative involves its commercial loan offices. It has opened five offices, which it calls "Accelerator Fuel Cells," in three Florida markets: Orlando, Fort Lauderdale and Boca Raton. The offices designed to be low-cost, high-tech and nimble have no more than four loan officers and a credit officer, allowing for quick loan decisions. Seacoast also has relationships with local professionals, such as real estate lawyers, who make themselves available to provide consultations with customers.
At 1,500 square feet, the branches are roughly a third the size of the typical bank branch, and the interiors are designed to encourage more collaboration among employees. Seacoast looks for space in commercial centers like strip malls, and tries to target space near high-end restaurants with busy lunchtime traffic among professionals.
Loan officers "used to be on the seventh floor in a mahogany offices," Hudson said. "Now, 100% of people in the field are customer-facing."
Seacoast has invested more than $4 million in the offices, which Hudson considers relatively cheap given that a traditional branch could cost up to five times as much. The lending offices recently passed the breakeven mark.
"We can be nimble," Hudson said. "If it doesn't work, we'll pick it up and move it."
Seacoast has gotten used to reinventing itself. The company, largely family owned since Hudson's grandfather founded it in 1936, ended up selling a large ownership stake to CapGen Capital in 2009.
The latest initiative is a significant investment for a company that, like many Florida banks, suffered mightily when the housing market crashed and the financial crisis set in. Seacoast lost more than $200 million from 2008 to 2010. The company, which returned to profitability more than three years ago, earned $4.2 million during the first half of this year.
Despite its recovery, Seacoast still lags other banks when it comes to delivering for its shareholders. Its return on equity was 3.85% during the first half of this year, compared to a 9.25% industry average, according to the Federal Deposit Insurance Corp. The company also has a relatively high efficiency ratio, which stood at 85.81% at June 30.
Seacoast's investments are "admirable," but may not help much in the short run, said Stephen Scouten, an analyst at Sandler O'Neill. "While it's a good longer-term play and probably the right thing to do, it's not fast enough that it helps right now," he said.
Still, the new offices are contributing to loan growth. Originations tied to the new offices account for about 70% of Seacoast's $58 million commercial loan pipeline, Scouten wrote in a recent note to clients.
Management is optimistic that a reliance on data analytics will also help the company add revenue. Seacoast, which began using analytics about two years ago, ramped up its efforts and added more-sophisticated technology in the past year.
"Data analytics is not helping us refine what we've been doing," Hudson said. "It is helping us do something we never did before."
Seacoast sends daily promotions that are targeted to each customer, for instance, rather than sending the same promotion to everyone a change Hudson compared to hunting with a rifle rather than a shotgun. The shift lets the company identify its most valuable products and customers and market to them directly.
"There are so many revenue opportunities that we're finding that it's hard to prioritize," Hudson said. "We know so much about our customers and most of what we know we don't use."
The effort is a smart long-term play, but such investments are tricky to assess quantitatively, Scouten said.
"Data analytics sounds good, but I don't know how you can attribute growth or calculate the payback on the investment," he said. "It's hard to know if a specific loan was made due to data analytics."
Seacoast is tapping the brakes on investment for now to let revenue catch up to its recent efforts, Hudson says. The company has ample customer data, and plans to spend time looking at ways to use the information. After opening five commercial loan centers, it has no plans to open additional ones.
"The business model we've operated for three generations or more is not nimble, and is largely fixed in its cost structure," Hudson said. "This is one of our earliest attempts to redesign the model."