OREANDA-NEWS. Wells Fargo & Company (WFC) reported \\$5.8 billion in net income for a return on assets (ROA) of 1.32%, up \\$77 million from last quarter. Earnings were supported by both spread income and non-interest income growth, as well as controlled expenses. This was partially offset by an increase in provision expenses, though at only 31 basis points (bps) of average loans, provisioning still remains below historical averages for the company. Fitch Ratings views these results as in line with expectations for WFC, one of the strongest and most consistent earnings profiles in the industry.

WFC also announced an agreement to acquire GE's commercial distribution finance and vendor finance businesses, as well as certain corporate finance loan and leases, with assets totaling \\$32 billion or roughly 3.5% of WFC's total loans. The loan and lease portfolios are predominantly U.S. and Canada-based, and the transaction is expected to close in 1Q16.

While the terms of the deal were not disclosed, Fitch views this transaction as a complement to WFC's existing Equipment Finance and Capital Finance divisions. WFC also recently announced acquisitions of GE's railcar and locomotive-leasing units, and previously purchased a portfolio of CRE loans. Operating from a position of strength, WFC has been able to benefit by taking advantage of these opportunities, while some of its similarly sized peers have needed to de-lever since the financial crisis.

Spread income increased almost 2% on a linked-quarter basis, primarily supported by growth in loans and securities, as well as one additional day in the quarter. Core loan growth was 2% on a linked-quarter basis, while securities balances grew 1.3%. The net interest margin was fairly flat during the quarter, falling 1bp in 3Q15 to 2.96%.

Non-interest income was higher during the quarter due to growth in market-sensitive revenues, deposit service charges, and card fees. This was partially offset by lower mortgage banking, insurance and trust and investment fees. Linked-quarter and prior-year comparisons also reflected a significant increase in Other income driven by the accounting impact of lower interest rates related to hedges on WFC's own issued debt, higher income on investments accounted for under the equity method, and the gain on sale of the Warranty Solutions business.

Market-sensitive revenues, which include gains and losses on equity investments, trading activities, and debt securities, increased a substantial 25% on a linked-quarter basis due to very strong equity gains. WFC indicated that the gains were from a number of venture capital, private equity, and other investments. These market-sensitive revenues, combined with investment banking fees, were around 6% of total revenues, and can be volatile from quarter to quarter.

Mortgage banking revenues fell 7% on a sequential basis, expected given ending application and pipeline balances at the prior quarter-end. Revenues declined as lower origination income was only partially offset by stronger net servicing income.

Expenses were fairly flat on a sequential basis, primarily due to lower employee benefit expenses, which were partially offset by higher salaries reflecting the one additional day in the quarter. Operating losses remained stable, but include still elevated litigation accruals. WFC expects to operate at the higher end of its targeted 55% to 59% efficiency ratio for the full year 2015. The company's efficiency ratio was 56.7% in 3Q15, improving from the prior quarter.

For the first time in over five years, WFC reported the absence of a reserve release with provision expenses equaling net charge-offs (NCOs). WFC attributed no reserve release to continued improvement in residential real estate, offset by deterioration in the energy sector. Overall O&G loans represent less than 2% of total loans. WFC is in the process of the fall borrowing base-redetermination process, with reserve-based loans performing as expected. WFC's exposure to oilfield services is under more pressure, while WFC is also closely monitoring MSAs whose economies are more closely tied to oil production.

Total loan losses ticked up 1bp to a still low 31bps during the quarter due to seasonally higher auto losses. Non-accrual balances fell 7% on a linked-quarter basis reflecting improvement in both consumer and commercial loan categories.

WFC continued to extend the duration of its balance sheet this quarter, albeit at a slower pace than last quarter, as it prepares for the medium- and long-end of the curve to remain lower for an extended period of time, irrespective of changes on the short-end. WFC remains asset sensitive, and expects to grow spread income over the long-term even if the rate environment remains challenging.

The estimated Common Equity Tier 1 under Basel III,, fully phased-in, increased roughly 12bps to 10.7% at quarter-end. WFC began using the Advanced Approach, following regulatory approval last quarter.