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Making Bank With U.S. Bancorp (USB), Wells Fargo & Co (WFC), Comerica Incorporated (CMA) & First Republic Bank (FRC)?

To maintain profit growth, Wells Fargo & Co (NYSE:WFC) must continue expanding its loan portfolio, especially on the commercial side, as well as continue to improve its “cross sell” from its already outstanding 6.1 accounts per customer. I do not look for 20% plus profit growth to continue, but do expect near double digit growth profit growth over the next several years, and with Wells Fargo & Co (NYSE:WFC)’s continuing stock buyback plan and generous 3.2% dividend yield, I believe this bank is a winner for income-oriented investors.

The ranks of large banks headquartered west of the Mississippi is thin indeed.  The only other such bank with over $50 billion in assets and majority U.S ownership is Dallas-based Comerica Incorporated (NYSE:CMA) . In the first quarter Comerica Incorporated (NYSE:CMA) posted earnings of $134 million, or $0.70 per share, up about three percent from the same period of 2012. This bank has significant exposure in Florida and Michigan, two states still suffering economically relative to the rest of the country. Comerica Incorporated (NYSE:CMA)’s loan portfolio increased about one percent over the course of the year, led by a $600 million, or two percent, growth in commercial loans. But this was not enough to compensate for Comerica’s dismal net interest margin, which stood at 2.88%, down 31 basis points from a year earlier. But non-interest expenses fell $11 million over the course of the year, and the provision for loan losses fell another $6 million, or 27% from the year before.

Comerica Incorporated (NYSE:CMA)’s 0.85% return on assets shows that it has a long ways to go to catch up with its larger peers. Writing loans providing a wider interest rate spread would be high on my agenda. Until Comerica Incorporated (NYSE:CMA) shows signs of substantially widening that interest rate spread, I would look elsewhere.

To discuss another western bank, one must dip below the $50 billion asset threshold. San Francisco’s First Republic Bank (NYSE:FRC) is a roughly $35 billion bank that has performed strongly the past few years, and it continued to do so in the first quarter. Earnings came to $122 million, or $0.85 per share, an improvement of 34% from the first quarter of 2012, and well above the $0.73 per share that analysts had expected. The bank had a return on assets of 1.42%, and was helped along by an efficiency ratio of 53.3%. Most of this bank’s earnings increase had to do with non-interest revenue gains in investment advice and on the sale of loans. Certainly not all of that is sustainable, and in fact analysts are not looking for any growth in First Republic’s earnings in 2014 after what is likely to be a very strong 2013. I would like to see more sustainable revenue growth before committing funds to this company.

Conclusion

Even with Warren Buffett as a major shareholder, there simply is not enough upside for me to recommend U.S. Bank to investors. I urge investors to pass on U.S. Bank at this time. Wells Fargo’s expected double digit profit growth over the next several years, along with its continuing stock buyback plan and generous 3.2% dividend yield, do make it an attractive buy for income investors. Investors should avoid Comerica until it shows signs of substantially widening that interest rate spread. Meanwhile, investors should look for more sustainable revenue growth before buying First Republic Bank (NYSE:FRC).

The article Can These 4 Large Western Banks Make You Money? originally appeared on Fool.com and is written by Bill Edson.

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