Comerica Inc. of Detroit has won favorable attention for its expansion efforts and control over credit quality.
On Monday, Fred A. Cummings, an analyst with KeyCorp's KeyBanc Capital Markets, raised his estimate of Comerica's second-quarter earnings by 14 cents a share, to $1.19, and his full-year estimate by 17 cents, to $4.62.
The $50.8 billion-asset company seems "headed in the right direction" as it increases the contribution of its small-business/retail banking and wealth management units, he wrote in a research note.
Having stumbled in 2002 in commercial credit quality, Comerica has worked harder in the last 12 months to transform itself from a business bank into a full-service relationship bank.
According to Mr. Cummings, whose note followed a recent meeting with management, the company is making headway. He expects it to generate 35% of its earnings from its wealth management and retail banking units this year, up from 27% last year.
He also estimated 2006 earnings at $4.75 a share.
Mr. Cummings said that his forecast "reflects a continued reduction in loan-loss reserves," and that he expects Comerica to avoid deals for now, both as a buyer and a seller.
The company reported first-quarter profits of $199 million, 23% more than a year earlier. Per-share earnings of $1.16 beat the average of analysts' estimates by 6 cents.
Average loan balances rose 4%, to $42.2 billion, while deposits were flat at $39.8 billion. Comerica also reported a loan-loss provision of $636 million, down 20% from the first quarter of 2004.
Chief financial officer Elizabeth Acton said April 20 on its earnings conference call that Comerica is still concentrating on building branches in Texas, Arizona, and California. In November it hired Connie Beck, a former SouthTrust Corp. executive, to oversee its small-business and personal financial services unit.
"All of that says we want to continue to try to improve our capabilities related to deposit gathering," Ms. Acton said.
On Monday, Comerica said it expects 35% of earnings to come from wealth management and retail banking, as Mr. Cummings does, but declined to say more about his note.
Mr. Cummings wrote that Comerica has "significant opportunities" to do a better job of increasing core deposits, originating home equity loans, making small-business loans, and reducing the cost structure of the retail business. Its plans for new branches should allow it to reach its goals, he wrote; it opened 17 branches last year and plans to open a similar number this year.
Gary Townsend, an analyst at Friedman, Billings, Ramsey & Co., also expressed optimism about Comerica.
The company's first quarter benefited from margin improvement, continuing growth in the balance sheet, and its ability to keep credit quality and expenses under control, Mr. Townsend said Monday.
Mr. Townsend, who visited Comerica last week, said executives "exuded optimism with respect to how this year is going and feel that they had taken care of the problems they had."
Still, the company is "spread-dependent," Mr. Townsend said. A failure of short-term rates to rise as fast as expected could hurt earnings, he said. He expects modest margin expansion for the rest of the year.
Shares of Comerica rose 0.07% on Monday.
