Comerica Inc. of Detroit is looking to bulk up in California through acquisitions.
"We're certainly out there poking around actively," said J. Michael Fulton, president and chief executive of San Jose-based Comerica Bank California. "We are still very small and embryonic. There's a need to get bigger in the state."
The bank's "No. 1 target area" for expansion is greater Los Angeles, followed by the northern San Francisco Bay area and Sacramento, Mr. Fulton said. He said he is looking for a bank with roughly $400 million to $500 million of assets.
"We're still the new kid on the block. We're still trying to let a large portion of the markets we're in know who we are," he said.
Comerica entered California in 1991, when it bought Plaza Bank of Commerce in San Jose. Today it has 30 branches and $4.3 billion of assets in the Golden State, where it focuses almost exclusively on relationship- style banking for companies with annual sales ranging from $1 million to $150 million.
But according to Mr. Fulton, the California bank controls only 1% to 3% of deposits in the markets in which it operates. It is now looking to beef that up through an acquisition, taking advantage of the recent strength in the stock of the $36.6 billion-asset parent company.
Mr. Fulton said "the deals have slowed up in the past couple of years" as Gene Miller, Comerica Inc.'s president, chairman, and chief executive, worked to boost its price-to-earnings ratio.
"Now that it's up so well," Mr. Fulton said, that "we're ready for deals from a currency standpoint."
The company's estimated 1999 price-to- earnings ratio is 15.5%, up from 12% in June 1997.
"Their level of financial performance has moved them into the category of high-performing banks," said Joseph C. Duwan, an analyst at Keefe Bruyette & Woods.
Any acquisition candidate would have to fit some rather specific parameters, Mr. Fulton said. It would have to be in or near an urban center and fit Comerica Bank California's commercial lending focus.
Mr. Fulton said he has "looked at several banks' books," but he declined to name them. An analyst said Comerica considered purchasing San Diego's Bank of Commerce, but the $638 million-asset bank struck a deal with U.S. Bancorp of Minneapolis last month.
Of the roughly two dozen takeover targets that fit Mr. Fulton's requirements, several analysts pointed to North County Bancorp, a San Diego-area bank with $337 million of assets and a small business focus, as a potential target.
"That is a very, very strong candidate that has been on every hit list," said Charlotte A. Chamberlain of Jefferies & Co. in Los Angeles.
Other candidates mentioned by analysts included: San Jose National Bank Financial Corp., with roughly $350 million of assets; Professional Bancorp of Santa Monica, with about $230 million of assets; and $469 million-asset Foothill Independent Bancorp of Glendora.
Western Bancorp of Newport Beach, with $2.6 billion of assets, is larger than Comerica is seeking, but some analysts said that the small business focus of the bank would fit well.
"To me, that's the prettiest girl at the dance in Southern California," said R. Jay Tejera, an analyst with Ragen MacKenzie Inc. in Seattle.
Mr. Fulton has a good deal of experience with acquisitions. The 28-year bank veteran was a part of the Detroit-based team that spearheaded Comerica's 1988 entree into Texas.
After acquiring Grand Bancshares in Dallas, Mr. Fulton, Comerica's mergers and acquisitions chief, turned his attention to California. Extensive research and "200,000 frequent-flier miles" led Mr. Fulton to conclude that the state was rich with opportunity and full of business customers that were unhappy with the way the local big banks were treating them.
"The large banks were not really well-perceived by small and middle- market businesses-our core businesses," he said.
Mr. Fulton visited Plaza Bank in 1989 and found it to be a strong takeover candidate. Unfortunately, it was in the midst of a merger of equals with Silicon Valley Bancshares of Santa Clara.
"We said if anything happens and your deal doesn't come to pass, it would be great to get a phone call," Mr. Fulton said. "Three months went by and we got a phone call."