Wells Fargo (WFC) Q1 2015 earnings summary

Executive summary

• Q1 earnings were $5.8B, or $1.04 per share; revenue rose 3% YoY to $21.3B on growth in net interest and non-interest income.

• Diversified operations supported 7% YoY core loan growth, 9% growth in period-end deposits, and strong credit quality.

• Returned $3.3B to shareholders and maintained strong capital and liquidity positions.

Financial highlights

• Net interest income on a tax-equivalent basis rose $396M, or 4%, YoY, with average earning assets up $170B, or 12%.

• Non-interest income grew $282M, or 3%, YoY; fee income rose 3% despite market-sensitive revenue declining 22%.

• Net income benefited from a $359M discrete tax benefit, primarily from resolution of prior-period tax matters; Q1 2014 included a $423M discrete tax benefit.

• Expenses fell $140M QoQ; Q1 included $452M in seasonal employee-benefit costs and $236M in annual equity awards to retirement-eligible employees.

• Mortgage banking revenue increased $32M QoQ; servicing income fell $162M, including a $127M decline in mortgage servicing rights results.

Outlook and guidance

• 2015 net interest income is expected to grow versus 2014 even if rates remain low.

• FY 2015 efficiency ratio target remains 55%-59%; management said revenue growth or higher rates could bring the ratio lower within the range.

• Q2 mortgage funding volumes are expected to rise given the $44B application pipeline and seasonal spring home-buying activity.

• Q2 gain-on-sale ratio is expected near the high end of the 140-206 bps range seen over the prior five quarters.

• Margin direction remains dependent on deposit and loan growth, securities investment, and interest rates; no quarterly compression forecast was offered.