Signet Banking Corp. said yesterday that it earned $118.3 million last year -- up 41 percent from 1994 -- as the company's consumer lending strategy started to pay off.
Adjusting for special restructuring charges incurred in 1994, and for the spin-off of its credit card subsidiary, Signet earned $1.98 a share last year, up from $1.45 in 1994.
The Richmond, Va.-based company earned $31.8 million in the fourth quarter, up 33 percent from 1994, or 53 cents a share, compared with 42 cents for the same period in 1994.
"They are executing their strategy," said Alex Hart, a banking analyst with Ferris, Baker Watts Inc. "It was a nice quarter." The company performed better than Mr. Hart expected. "They were two pennies ahead of my estimate," he said.
Based on the performance, Mr. Hart revised his earnings estimates for this year to $2.44 a share, up from $2.39.
"I tried to be on the conservative side for '96, and now that I have seen that they have executed reasonably well, I feel more comfortable," he said.
Signet is in the throes of transforming its business from that of a regional bank into that of a nationwide financial services company that offers consumers products by mail and telephone based on information it collects on individuals.
Robert M. Freeman, Signet's chairman and chief executive, said the 1995 results are proof that the strategy is working.
established, and continue to pursue, very aggressive performance objectives for the company," he said.
Mr. Freeman noted that performance ratios have markedly improved since the year before. The company's return on equity -- the return on the stake investors hold in the company -- increased to nearly 15 percent.
The company's efficiency ratio, which shows how much the company spends to earn $1 in profits, dropped to 63 percent from the high 70s.
"More important, however, are the strides we have made toward creating a new kind of financial institution," Mr. Freeman said. "We reshaped virtually all aspects of our business, and after extensive testing, we began marketing consumer installment-loan and investment products nationwide through direct-response channels."
But there are risks to the strategy. In late 1994, Signet began test-marketing a "loan by check," which a consumer receives in the mail for a certain amount that can be used with no questions asked. Recipients who use the money repay the bank, with interest.
Signet's charge-offs jumped to $15.6 million in the fourth quarter, up from $1.7 million in the same period the year before. The
increase is partly due to the "loan by check" experiment, said Teri Schrettenbrunner, a Signet spokeswoman.
"The losses are looking right where we want them," Ms. Schrettenbrunner said. "We have been predicting them the whole way."
She said another batch of loan checks has been mailed and that she expects more favorable results. "We learned an awful lot in that risk test," she said.