• 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.

Despite the Fed's efforts, long-term U.S. Treasury yields have shot up over the past several weeks. UBS analyst Brian Meredith on Monday included Comerica in a list of 10 financial stocks poised to benefit greatly in a rising-rate environment.

Comerica's fourth-quarter non-interest income totaled $204 million, increasing from $197 million in the third quarter, and $182 million in the fourth quarter of 2011, which the company said was "primarily due to increases in customer driven categories."

The company's fourth-quarter return on average assets was 0.81%, improving from 0.74% the previous quarter and 0.63% a year earlier. The return on average equity was 7.36% in the fourth quarter, increasing from 6.67% in the third quarter and 5.51% in the fourth quarter of 2011.

CEO Ralph Babb said that "loan and fee income growth combined with expense control contributed to our 11 percent increase in net income, when compared to the third quarter," and that "in this slow growing national economy, we continue to benefit from our position in growth markets and industry expertise.'

Jefferies analyst Ken Usdin said in a note that Comerica "beat our estimate of $0.66 (ex. merger charges) on lower provision expense, better-than-expected purchase accounting accretion, and decent fee growth. The larger starting point for the balance sheet and the guide for flat provision for credit losses Y-Y should put an upward bias on '13 estimates."

From the stock's reaction on Wednesday, it would seem that investors also expect some upward earnings estimate revision for Comerica in the coming days.

Usdin rates Comerica a "Hold," with a $33 price target. The analyst estimates the company will grow its loan portfolio by 3.5% during 2013, although he noted that Comerica's management "expects reported net interest income to decline in '13."

Comerica's shares closed at $31.87 Tuesday, trading just below their reported Dec. 31 tangible book value of $33.38, and for 12 times the consensus 2013 EPS estimate of $2.65. The consensus 2014 EPS estimate is $2.74.

Based on a quarterly payout of 15 cents, the shares have a dividend yield of 1.88%. With the company repurchasing 10 million shares during 2012, Comerica said it returned 79% of net income to investors.

Interested in more on Comerica? See TheStreet Ratings' report card for this stock.


-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.