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Analyzing Wells Fargo’s Earnings from the Community Banking Segment

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Wells Fargo’s business segments

Wells Fargo & Company (WFC) declared its 4Q15 earnings on January 15. In this part of our post-4Q15 earnings series on the banking and mortgage lending giant, we’ll dig deeper into the performance of its different business segments.

Wells Fargo operates under the following three broad operating segments, which the company divides up according to product types and target costumers:

  • Community Banking
  • Wholesale Banking
  • Wealth and Investment Management

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Segmental analysis of Wells Fargo’s 4Q15 earnings

Wells Fargo’s Community Banking segment is similar to any standard commercial bank in that it offers a diversified range of products and services for consumers and small businesses. These products and services include the following:

  • savings accounts
  • debit and credit cards
  • small business lending
  • auto and student loans

Wells Fargo’s community banking segment is the largest contributor to its total revenues. In 4Q15, the company reported revenues of $12.3 billion, which showed an increase of 1% over the previous year, due to higher interest income and market sensitive revenue. The net income for the community banking segment came in at $3.3 billion, which is 1% lower than in 4Q14.

Operating metrics for Wells Fargo’s Community Banking segment

Wells Fargo’s primary consumers in checking increased by 5.6% over the year. The company’s debit card purchase volume was up by 8% on a YoY (year-over-year) basis, reaching $73 billion. Meanwhile, auto lending improved by 13% YoY to $7.6 billion, and mortgage originations came in at $47 billion, but this was down from the $55 billion it saw in the previous quarter. Overall, however, the operating metrics of Wells Fargo’s community-banking segment improved in 4Q15.

That said, Wells Fargo’s shares lost 3.6% on January 15, after the release of its 4Q15 earnings results. By comparison, JP Morgan Chase & Company’s (JPM) and Citigroup’s (C) 4Q15 results beat analyst expectations and lost 2.0% and 6.4%, respectively, on January 15. Other competitors expected to report earnings soon are Bank of America Corporation (BAC), and Goldman Sachs Group (GS). These banks together constitute ~28% of the Financial Select Sector SPDR ETF (XLF).

Now let’s analyze how Wells Fargo’s wholesale banking business did in 4Q15.

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