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On Mar 20, 2013, we reiterated our Neutral recommendation on Comerica Incorporated (CMA - Analyst Report) based on its better-than-expected fourth-quarter results. However, we are concerned about a decline in the net interest income.

Why Neutral?

Comerica’s fourth-quarter earnings of 68 cents per share beat the Zacks Consensus Estimate by 4 cents. Better-than-expected results reflected growth in its top line along with reduced expenses. Further, growth in average loans and average deposits coupled with improved credit metrics were positives in the quarter. However, a decline in the net interest income was a headwind.

Following the fourth-quarter results, the Zacks Consensus Estimate for 2013 advanced by a penny to $2.72 per share over the last 60 days. The Zacks Consensus Estimate for 2014 also increased by a penny to $2.78 per share over the same time frame. Hence, Comerica now has a Zacks Rank #3 (Hold).

Comerica remains focused on maintaining steady capital levels. This is further evident from the clearance of the 2013 stress test and the approval of its capital plan. Further, the company has been relentlessly trying to realign its balance sheet in accordance with the regulatory changes, post the meltdown, to remain afloat. All these initiatives are expected to go a long way in improving the company’s financials in the subsequent quarters.

We are also impressed with its continuous geographic diversification beyond its traditional and slower-growing Midwest markets, which could help drive growth over the next cycle. Moreover, we also remain encouraged by Comerica's profit improvement plan that focuses on revenue enhancements and expense reduction initiatives. Additionally, the incremental benefits from the Sterling acquisition and revenue synergies should position the company well for future growth.

However, Comerica’s pressurized net interest margin is a cause for concern. Further, the company derives the major part of its total revenue from Calif. and slower-growth Mich. where the economic environment has been increasingly challenging over the past few years. This has adversely affected its results. Further, loan growth has moderated over the past year, and growth in fee income remains modest.

While commercial and industrial loans are picking up, the run-off of the commercial real estate is likely to limit overall growth of the loan portfolio. We are also concerned about the company’s top-line growth, which continue to be impacted by the low rate environment and sluggish economic recovery.

Other Banks Worth Considering

Other banks that are performing better than Comerica and are worth a look include Meta Financial Group, Inc. (CASH - Snapshot Report), Flagstar Bancorp Inc. (FBC - Snapshot Report) and First Defiance Financial Corp. (FDEF - Snapshot Report). All these stocks carry a Zacks Rank #1 (Strong Buy).

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