Wells Fargo (WFC) Q1 2014 earnings summary

Executive summary

• Record Q1 net income of $5.9B and EPS of $1.05, both up 14% YoY; 17th consecutive quarter of EPS growth and 12th consecutive record EPS quarter.

• Broad-based loan and deposit growth, improving credit quality, expense reductions, and diversified fee income supported results.

Financial highlights

• Net income rose 5% QoQ to $5.9B; EPS increased 5% QoQ to $1.05.

• Period-end loans grew $28B, or 4% YoY; deposits increased $83.8B, or 8% YoY.

• Expenses fell $452M, or 4% YoY, and $137M QoQ; revenue was evenly split between net interest and noninterest income.

• Tax-equivalent net interest income increased $157M YoY despite a 29-bp decline in net interest margin.

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

Outlook and guidance

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

• Q2 efficiency ratio expected within the 55%-59% target range; Q2 expenses likely to rise in certain categories, including salaries, professional services, and advertising.

• Mortgage originations expected to benefit from seasonal Q2 purchase activity; Q1 pipeline ended at $27B after $36B of originations.

• Loan growth expected to continue across businesses; management anticipated further reserve releases absent significant economic deterioration, while noting releases will not continue indefinitely.

• Tax rate expected in the low 30% range for the remainder of the year, subject to earnings; Q1 benefited from a discrete tax item.