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Wells Fargo’s Wealth and Brokerage Outperforms Other Segments

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Apr. 17 2015, Updated 12:08 p.m. ET

Community banking net income declines year-over-year

Wells Fargo’s (WFC) Community banking segment’s net income increased in 1Q 2015 compared to the previous quarter but declined year-over-year. While the segment’s revenues increased 2% from a year ago, its net income declined by $179 million on account of higher expenses.

Non-interest expenses increased 4% from a year ago, driven by higher personnel expenses and operating losses. The provision for credit losses increased $198 million from a year ago, as a lower reserve more than offset the improvement in net charge-offs.

The above graph compares Wells Fargo’s segmental net income in 1Q 2015 with the previous quarter as well as with 1Q 2014.

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Wholesale banking

Contrary to the Community Banking segment, Wells Fargo’s Wholesale Banking segment’s net income declined compared to the previous quarter, though it increased year-over-year. The segment’s net interest income decreased by 6% compared to the previous quarter, as strong loan and other earning asset growth was more than offset by the impact of two fewer days in the quarter and lower loan resolution income.

Non-interest income increased 1%. Non-interest expense increased 3%, driven by seasonally higher personnel tax expense and insurance commissions. The provision for credit losses increased $33 million from the prior quarter due to lower recoveries.

The segment’s average loans increased 12% from a year ago. Investment banking fees increased 44% from a year ago.

Peer bank J.P. Morgan (JPM) also reported higher investment banking fees in the quarter.

Purchase of commercial mortgage

Wells Fargo announced the purchase of $9 billion in commercial real estate mortgage loans from GE Capital last week. The bank also agreed to provide $4 billion of financing to Blackstone Mortgage Trust for the purchase of a commercial mortgage portfolio. Wells Fargo is the largest commercial real estate lender in the US.

Wealth, Brokerage, and Retirement

The Wealth, Brokerage, and Retirement (or WBR) segment’s net income grew 18% from a year ago and 9% from 4Q 2014. This is Wells Fargo’s smallest segment, and it has a lot of growth potential. The segment recorded double-digit year-over-year loan growth, for the seventh consecutive quarter.

You can invest in the big four banks—JPM,WFC, Bank of America (BAC), and Citigroup (C)—through ETFs like the Financial Select Sector SPDR ETF (XLF). Together, these banks form ~27% of XLF.

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