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Will Wells Fargo’s Loan Portfolio Drive Q2 Earnings Growth?

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Wells Fargo’s loan portfolio

Wells Fargo has the largest loan portfolio in the financial sector (XLF). Its bedrock foundation is its mortgage portfolio. Although it has cut back on mortgage lending in the last few years due to low interest rates, mortgage lending is still its strongest growth area.

Wells Fargo has a healthy balance of consumer and commercial loans. In 2015, its loan portfolio reflected strong organic growth and benefitted from the acquisition of loans from GE Capital.

In 1Q16, the company had a loan portfolio worth $947 billion—the largest among its peers. Bank of America (BAC) had a loan portfolio of $901 billion, while JPMorgan Chase, and Citigroup (C) had loans of $847 billion and $619 billion, respectively.

Loan growth has been a key revenue driver for the bank. While net interest yields on Wells Fargo’s loan portfolios remain low due to prolonged low interest rates, substantial loan and deposit growth has offset this effect and even boosted overall net interest income.

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Wells Fargo’s loan growth is among the highest in the banking sector (VFH). From 2014 to 2016, Wells Fargo’s loan portfolio grew 13%. This growth was only second to J.P. Morgan’s (JPM) loan growth of 16%. In comparison, loan portfolios for Citigroup (C) and Bank of America (BAC) contracted 3% and 7%, respectively.

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