Comerica Beats But Margin Narrows Sharply (Update 1)

• Fourth-quarter EPS of 68 cents beats the consensus estimate of 65 cents.
• Noninterest expense declines significantly as restructuring costs subside.
• Average commercial loans grow by 3% in the fourth quarter and 17% year-over-year.
• Net interest margin narrows to 2.87% from 2.96% the previous quarter.

Updated with afternoon market action, and comment from Jefferies analyst

NEW YORK (TheStreet) -- Comerica (CMA) of Dallas on Wednesday reported improving earnings, with declining restructuring expenses and solid commercial loan growth.

The company lender reported fourth-quarter net income attributable to common shares of $128 million, or 68 cents a share, increasing from $116 million, or 61 cents a share in the third quarter, and $95 million, or 48 cents a share, in the fourth quarter.

The fourth-quarter results came in ahead of the consensus estimate of a 65-cent profit, among analysts polled by Thomson Reuters.

Comerica's shares were up 3% in early afternoon trading, to $32.85. The the broad indexes were mixed and the KBW Bank Index (I:BKX) was up slightly to 53.51, after both JPMorgan Chase (JPM) and Goldman Sachs (GS) reported strong fourth-quarter results..

The main factor in Comerica's bottom-line improvement was a reduction in merger and restructuring charges, which declined to $2 million in the fourth quarter, from $25 million the previous quarter and $37 million a year earlier. The company acquired Sterling Bancshares of Houston in July 2011.

Comerica in the fourth quarter grew its average (non-real estate) commercial loans by 7% sequentially to $27.462 billion. This was the same pace that the commercial portfolio grew in the third quarter. Average commercial loans grew 17% from a year earlier.

Average total loans grew 1% sequentially and 6% year-over-year, to $44.119 billion in the fourth quarter.

Comerica's net interest income declined to $424 million in the fourth quarter, from $427 million in the third quarter and $444 million in the fourth quarter of 2011. The net interest margin -- the spread between the average yield on loans and investments and the average cost for deposits and borrowings -- narrowed to 2.87% in the fourth quarter, from 2.96% the previous quarter and 3.19% a year earlier.

The company said that the margin "was negatively impacted by the continued shift in mix in the loan portfolio (4 basis points), lower yields on mortgage-backed securities (3 basis points), the decline in LIBOR (2 basis points), the increase in excess liquidity (2 basis points), and lower accretion on the acquired Sterling loan portfolio (1 basis point)."

The narrowing margin is in line with the industry trend, as banks continue to experience very strong deposit growth. The Federal Reserve has kept its short-term federal funds target rate in a range of zero to 0.25% since the end of 2008, meaning that banks have already seen most of the benefit on the cost side. Meanwhile, the Fed continues its efforts to hold long-term rates down, through massive monthly purchases of long-term securities.

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