Comerica Inc. said Wednesday it agreed to buy Los Angeles-based Metrobank for $120 million in stock, a move that will increase the Detroit- based bank's California assets by 50%.
Comerica will pay 1.7 times Metrobank's book value. The Los Angeles bank has $1.3 billion in assets and seven branches in Southern California.
The deal will bring Comerica $1.1 billion of deposits in the Los Angeles area, where it already has three branches. The transaction will still leave Comerica Bank-California with less than a 1% deposit share in the nation's largest metropolitan market.
But Comerica chairman and CEO Eugene A. Miller said Metrobank "gives us an important outpost there to grow our style of business."
Comerica is known outside Michigan as more of a corporate lender than a retail bank. Mr. Miller pointed out that metro Los Angeles contains four times more businesses than Detroit.
"There's a great opportunity for us to practice our style of lending, which is predominately small business and middle market," Mr. Miller said.
Comerica, which has $34 billion of assets, will acquire Metrobank in a purchase accounting transaction that is scheduled to close next January, following regulatory and shareholder approvals. Mr. Miller said the deal will be accretive to Comerica in 1996, since Metrobank plans to take $30 million worth of loan chargeoffs and restructuring charges on its own books in the fourth quarter.
Donaldson, Lufkin & Jenrette analyst Frank R. DeSantis Jr. said Comerica would have to take on some goodwill from writing down Metrobank's assets in this manner. But he said this was not a significant issue for the Detroit- based superregional.
"It looks to me like they can get the earnings of Metrobank up reasonably quickly," Mr. DeSantis added.
Metrobank was hurt by the recent economic recession in California, but maintained its profitability better than many of its peers. It earned $2.4 million in the first quarter, for a 1% return on assets and a 13.4% return on equity. Its 2.36% ratio of nonperforming loans to total loans is relatively low by California standards.
Metrobank CEO David L. Buell said a friendship with one of Comerica's executives and admiration for the Detroit bank's way of doing business led him to begin negotiating exclusively with Comerica in early March, hiring J.P. Morgan for a fairness opinion.
"We're a mirror image of their culture," Mr. Buell said.
Metrobank has two branches in Long Beach and one each in West Los Angeles, Woodland Hills, Torrance, Newport Beach, and San Diego. Mr. Miller said Comerica would cut $8 million, or about 15%, from Metrobank's annual expense base.
Comerica entered California in 1991 with the purchase of two specialty business banks: Plaza Commerce Bancorp, San Jose, with $500 million of assets, and Inbancshares, parent of Bank of Industry, a $200 million-asset institution based in City of Industry near Los Angeles.
Comerica Bank-California currently has assets of $2.6 billion and 33 branches, mostly located in the northern part of the state.
Comerica's stated goal in California has been to position itself as a super community business bank, occupying a niche between the state's major institutions and local, independent banks.
The California expansion is part of Comerica's larger strategy, which dates back to the 1980s and seeks stronger growth markets in Sunbelt states. While 80% of its assets remain in Michigan, Comerica now has subsidiaries in California, Texas, Illinois, and Florida.
