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Wells Fargo 2Q15 Earnings: The Community Banking Segment

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Wells Fargo (WFC) declared its 2Q15 earnings Tuesday, July 14. In this article, we will dig deeper into the performance of its business segments. Wells Fargo operates under three broad operating segments, divided according to its product types and target costumers:

  • Community Banking
  • Wholesale Banking
  • Wealth, Brokerage, and Retirement
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Analysis of earnings

Wells Fargo’s Community Banking segment is similar to any standard commercial bank. It offers a diversified range of products and services for consumers and small businesses, including checking and savings accounts, debit and credit cards, small business lending, as well as auto, consumer, and student loans.

This segment is the largest contributor to the bank’s total revenues. In 2Q15, it reported revenues of $12.6 billion, increasing slightly year-over-year due to higher net interest income, as well as trust and investment fees. However, this was offset by lower gains from trading activities and debt securities.

Non-interest expenses increased by 2% to $7.16 billion, compared with 2Q14. This increase was due to higher personnel expenses and operating losses. The bank’s provision for credit losses increased by $84 million due to a lower reserve release by $181 million. Overall, net income at $3.36 billion was down 2% year-over-year.

Performance of products and services

Wells Fargo’s primary consumer checking increased by 5.6% over the year, while primary business checking was up 5.3% year-over-year. Credit card penetration increased to 42.6% from 39% in 2Q14.

Auto lending improved 5% year-over-year and 15% quarter-over-quarter to $8.1 billion, mainly due to seasonality. Mortgage originations were $62 billion, a 32% increase compared with 2Q14 and a 27% increase over the last quarter. Overall, operating metrics of the Community Banking segment improved in 2Q15.

Wells Fargo shares were trading up by 0.93% on July 14 after the results. Meanwhile, JPMorgan’s 2Q15 results exceeded analysts’ expectations and rallied 1.51% on the same day, outperforming the Financial Select Sector SPDR ETF (XLF), which added 0.24%.

Other competitors expected to report earnings this week are Bank of America (BAC), Citigroup (C), and Goldman Sachs (GS).

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