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Wells Fargo Posts Strong 3Q15 Results in Tough Macro Environment

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3Q15 earnings beat expectations

Wells Fargo’s (WFC) 3Q15 earnings surpassed expectations, as the bank continued to display consistent financial performance despite a volatile macro environment. Chairman and CEO (chief executive officer) John Stumpf commented, “Wells Fargo’s strong third quarter results reflected the ability of our diversified business model to generate consistent financial performance in an uneven economic environment while continuing to meet our customers’ financial needs.”

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Income statement

Net interest income increased 5% to $11.5 billion driven by strong loan growth and the full benefit of the General Electric (GE) capital loan purchase. Net interest margin, however, fell by 1 basis point to 2.96% as higher loan growth was offset by an even higher deposit growth.

Non-interest income gained 1% from 3Q14, driven by higher equity investment gains, deposit service charges, lease income, and card fees. Mortgage banking, however, was a drag, as income from this segment was down to $1.6 billion. Non-interest expense fell $70 million from the prior quarter to $12.4 billion, primarily due to lower deferred compensation expense in employee benefits.

High loan growth

Much of Wells Fargo’s earnings were driven by high core loan growth of 9% year-over-year to $849 billion. This may be attributed to the current low-interest-rate regime. Investors are looking for opportunities to enter the credit market while rates still remain low. Loan growth was primarily driven by high commercial and industrial loan growth of 15%.

Loan yields, however, inched downward to 4.1%, as much of the commercial loans grew at lower spreads.

Other major US banks (SPY), including Citigroup (C), Goldman Sachs (GS), Bank of America (BAC), and J.P. Morgan (JPM), have also reported their third-quarter earnings this week.

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