Wells Fargo (WFC) Q1 2014 earnings summary

Executive summary

• Record Q1 net income of $5.9B and EPS of $1.05; EPS rose 14% YoY, marking the 17th consecutive quarter of EPS growth.

• Broad loan and deposit growth, improving credit quality, and lower expenses supported higher returns and capital generation.

• Revenue sources were evenly split between net interest income and noninterest income, with mortgage origination declines offset by strength in other fee businesses.

Financial highlights

• Net income was $5.9B, up 14% YoY and 5% QoQ; EPS was $1.05, up 14% YoY and 5% QoQ.

• Period-end loans increased $28B, or 4% YoY; core loans excluding the liquidating portfolio grew $40.8B, or 6% YoY.

• Average deposits rose $91.1B, or 9% YoY; total deposits increased $83.8B, or 8% YoY.

• Noninterest income fell $750M YoY, mainly on lower mortgage banking; excluding mortgage banking, it rose $534M YoY.

• Expenses fell $452M, or 4%, YoY; Q1 included seasonal employee benefit costs and annual equity rewards.

Outlook and guidance

• Net interest income expected to grow through the remainder of 2014 from the Q1 level; fewer quarter days reduced NII by $120M-$130M.

• Q2 efficiency ratio expected within the 55%-59% target range; salary, merit, professional services, and advertising expenses expected to rise from Q1.

• Mortgage originations expected to benefit from the normal seasonal spring purchase market; the unclosed pipeline was $27B at quarter-end.

• Loan growth outlook remained positive across businesses; management expected NII growth and anticipated further reserve releases absent significant economic deterioration.

• Tax rate expected in the low 30s for the rest of the year, versus 27.9% in Q1 after a discrete benefit.