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Wells Fargo’s Earnings from the Community Banking Segment

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Wells Fargo’s segments

Wells Fargo (WFC) declared its 3Q15 earnings on Tuesday, October 14, 2015. The next few parts of this series will dig more deeply into the performance of its business segments.

Wells Fargo operates under three broad operating segments divided according to product types and target costumers. These segments include the following:

  • Community Banking
  • Wholesale Banking
  • Wealth, Brokerage, and Retirement

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Analysis of earnings

The Community Banking segment is similar to any standard commercial bank and offers a diversified range of products and services for consumers and small businesses. These products and services include savings accounts, debit and credit cards, small business lending, and auto and student loans.

Community Banking is Wells Fargo’s largest contributor to total revenues. In 3Q15, the segment reported revenues of $13.6 billion, increasing 7% compared to last year due to higher net interest income and a gain from the sale of equity investments. Non-interest expenses increased by 2% to $7.2 billion due to a donation made to the Wells Fargo foundation and high personnel costs.

Operating metrics

Primary consumer checking increased by 5.8% over the year, while primary business checking was up 5.0% year-over-year. Credit card penetration increased to 42.9% from 39.7% in 3Q14.

Auto lending improved 10% year-over-year and 2% quarter-over-quarter to $8.3 billion. Mortgage originations were $55 billion, down from $62 billion in 2Q15. Overall, operating metrics of the Community Banking segment improved this quarter.

Wells Fargo’s shares were trading up by 1.9% on October 15, a day after the results. J.P. Morgan’s 3Q15 results disappointed Wall Street (SPY) analysts’ expectations and fell 2.8% on the day after its earnings report.

Other competitors reporting earnings this week are Bank of America (BAC), Citigroup (C), and Goldman Sachs (GS). These banks constitute ~28% of the Financial Select Sector SPDR ETF (XLF).

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