Early returns from Signet Banking Corp.'s use of information-based technology in its commercial bank suggest the company's loan growth this year could be stronger than many on Wall Street expect.
Dean Witter analyst Anthony R. Davis, who met with Signet executives last week in New York, said he now believes the Richmond-based bank can produce loan growth of between 23% and 25% this year, mostly on the retail side. That compares to only 4% growth in 1994, when the company allowed a runoff of unprofitable middle-market commercial loans.
"The early results are very encouraging," Mr. Davis said. "With telemarketing and direct-mail, they're making it very easy to bank with Signet. That's why they're seeing such tremendous growth."
Wall Street consensus estimates suggest Signet will earn $1.90 a share this year and $2.26 in 1996. But Mr. Davis believes $2 and $2.45 respectively are more likely, given the company's expected 15% revenue growth.
Much of the Signet loan growth is coming from a "loan-by-check" product being marketed in 12 states. Customers who receive a direct-mail solicitation are invited to apply for installment loans of between $3,500 and $10,000 simply by signing the form and mailing it in.
Loan amounts and terms vary according to the customer's risk profile, with $7,500 being the typical size. If the offer is accepted, Signet transfers the funds via Fed wire to the customer's checking account at his local bank.
Signet is able to market this preapproved credit on an unsecured basis by using the same kinds of "information-based technology" that proved so successful in its credit card program. The technology involves generating a data base of creditworthy customers for particular products and then following up with direct-mail solicitations.
The loan-by-check program helped boost Signet's total installment loan portfolio last year from $100 million to $400 million by yearend, according to a recent Dean Witter report. Mr. Davis expects the total to reach $600 million by the end of this year.
Signet also is applying the technology - which a bank spokeswoman describes as being "still in the test stages" - to home equity, student and small business loans. Some of the bank's most innovative work is being done with deposit products, such as certificates of deposit, where different customers are offered different rates depending on their "demand elasticity."
In addition to generating loan growth, Mr. Davis said he believes Signet's information-based technology will help the bank reduce its expense base by $15 million, or 3.5%, to about $430 million this year.
If that happens, Signet's efficiency ratio - the amount of operating revenue absorbed by noninterest expense - could decline to about 65% at yearend from the fourth quarter's 77%.
"A neat thing about an information-based strategy is that you don't need 250 branch offices necessarily to sell that stuff," Mr. Davis said. "Over time, you could see a large cutback in the branch network too."
Mr. Davis said he believes Signet, which has $12.9 billion of assets, could close up to 40 branches in Virginia, Maryland, and Washington, D.C. over the next two years.
Signet first began experimenting with information-based technology at its credit card unit in the late 1980s. The results were so positive Signet spun the unit off to its shareholders as a separate company earlier this year.
But performance at Signet's core commercial bank lagged while so much attention was being paid to credit cards. Last year, chief executive Robert M. Freeman announced plans to revive the core bank by applying information- based technologies to that unit.