Unfortunately, I do not look for Comerica’s profit goals to be achieved in the next 12 to 24 months, as the sluggish economy and interest rate spread flatness makes growing revenues a difficult chore for nearly all banks. Comerica Incorporated (NYSE:CMA) returned 80% 2012 earnings to shareholders in forms of dividends and share buybacks. Comerica Incorporated (NYSE:CMA) already has capital levels well above even Basel III standards, but I would like to see that ratio trend down closer to 60%. The current interest rate environment will not be here forever, and by the next three to five years, Comerica is in an excellent position to reward patient investors.
Huntington Bancshares Incorporated (NASDAQ:HBAN)’ Midwest concentration hit it hard last decade, but it has more or less recovered fully. In 2012 profits came to $641 million, or $0.71 per share, up about 18% from 2011. The earnings allowed for a 1.15% return on assets, compared with 2011’s 1.01%. The earnings increases were due to a surge in mortgage income allowing for non interest income to advance 12%, or by $117 million. Net interest income also rose 5% on a 3 basis point jump in the net interest margin along with a modest 2% growth in loans. Loan growth was held down due to Huntington’s sale of $2.5 billion of auto loans during the year. Management looks for more modest loan growth in 2013. But I see revenue growth as a real struggle, and a likelihood Huntington will have to post higher loan loss reserves in 2013 than it did in 2012 as reasons to be skeptical of earnings growth in 2013. Further beyond, I see Huntington having lower upside than other large banks, as it never has had a return on assets much over 1.3%.
Obviously, I have a similar, less than optimistic prognosis on the above three banks. Is there any Midwest bank I see having a chance for strong profit growth in the 2013 – 2014 time frame? Yes indeed, and it is Akron, Ohio based Firstmerit Corp (NASDAQ:FMER) . First it has a history of steady, if not spectacular profitability. As of the close of 2012 it returned a profit in the past 55 quarters. Second it reported steady progress during 2012, finally in the fourth quarter achieving a return on assets of 1.03%.
But what really stands out for FirstMerit is that it finessed its way into purchasing Michigan based Citizens Republic Bank in the third quarter of 2012. As a Michigan focused bank Citizens has only recently returned to profitability after several years of steep losses, and the $900 million, all stock purchase was done on the cheap. It may take through all of 2013 to overcome the dilution of the deal, but the former Citizens will have a sharply increasing profit curve in coming quarters, and by sometime in 2014 FirstMerit’s earnings, and stock price, will be the better for it. The time though is now to invest in the probable winner.
The article A Tour Of 4 Midwestern Regional Banks originally appeared on Fool.com and is written by Maxwell Fisher.
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