Updated with market close and total return information.
NEW YORK ( TheStreet) -- Many banks are trying to grow their commercial and industrial loan books, which is of prime importance to investors as other loan balances continue to shrink.
"Banks covet C&I loans because it is the area showing the earliest growth as we emerge from the recession," says Jefferies analyst Ken Usdin, "and many banks that previously had commercial real estate loans concentration are looking to remix their loan portfolios.
Usdin says that non-real estate commercial and industrial loans are "generally more of a variable rate product, so a lot of banks are hoping that when rates eventually go up, they will benefit from expanded net interest margins, as the loans adjust to higher rates."The net interest margin is the difference between a bank's average yield on loans and investments and its average cost for deposits and borrowings. While many banks are seeing solid growth in non-interest bearing checking account deposits, net interest margins are still being pressured by the prolonged low-rate environment. Growing C&I loan balances and building varied relationships with the borrowers -- including business checking accounts, for example -- is very important for banks preparing for the eventual rise in interest rates. Usdin on Wednesday highlighted a number of community banks showing impressive C&I loan growth, although it is probable that "some was spurred by seasonality" and the expiration of capital expenditure tax credits. "As such, we would expect the pace of loan growth to be lower in 1Q," he said. Among the largest banks in the Jefferies coverage universe growing commercial loans, Comerica (CMA - Get Report) of Dallas stood out, with C&I loan growth of 8% during the fourth quarter, to $25.0 billion as of Dec. 30, while total loans grew 3.5%, to $42.7 billion. Usdin said that "growth in C&I led the way as CMA experienced a strong quarter in its dealer finance and mortgage banker businesses," but that Comerica's "forward guidance is fairly cautious given the company is only calling for 2%-5% average loan growth in 2012." The analyst rates Comerica a "Hold," with a $28 price target, and estimates the company will earn $2.40 a share in 2012, followed by EPS of $2.50 in 2013.
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