It has been a tumultuous week for Wells Fargo that included a leadership change at the top following the sudden retirement of Chairman and CEO John Stumpf over the bank's opening of 2 million unauthorized accounts.
Wells Fargo’s President and COO Tim Sloan was elected the new CEO by the bank’s Board of Directors. Stephen Sanger, the Board’s Lead Director, was chosen to serve as the Board’s non-executive Chairman, and independent director Elizabeth Duke was selected to serve as Vice Chair.
It remains to be seen how these leadership changes will affect Wells Fargo’s earnings for the fourth quarter, but on Friday, the bank reported solid earnings for Q3 . In the third quarter, Wells Fargo posted a net income of $5.6 billion and diluted earnings per share of $1.03, down slightly from $5.8 billion and $1.05 in Q3 2015.
Mortgage banking income fared well in Q3 for Wells Fargo. Mortgage banking noninterest income was $1.7 billion, an increase of about a quarter billion from the previous quarter. The driver of the increase was net gains on mortgage loan origination/sales activities. Residential mortgage loan originations totaled $70 billion in Q3, up by $7 billion from Q2’s total of $63 billion. The production margin on residential held-for-sale mortgage loan originations increased from 1.66 percent in Q2 up to 1.81 percent in Q3.
“Wells Fargo reported solid results for the third quarter, reflecting the benefits of our diversified business model, our strong balance sheet and improved credit performance,” Chief Financial Officer John Shrewsberry said. “Revenue increased linked quarter on higher net interest income, driven by growth in earning assets and increased investment in our securities portfolio, as well as solid mortgage banking results. While expenses increased from second quarter, credit results improved from the prior period led by strong performance in consumer real estate and improvements in our oil and gas portfolio. Capital remained strong and our net payout ratio was 61 percent in the quarter, as we returned $3.2 billion to shareholders through common stock dividends and net share repurchases. We will continue to monitor impacts from the recent sales practice settlements to our business activity levels.”
The third quarter for Wells Fargo included a $185 million penalty from regulators on September 8 over the opening of unauthorized accounts. The ensuing controversy rocked the U.S. financial industry and forced Stumpf to retire after 34 years with the bank.
The bank’s focus for the near term will be on rebuilding its reputation, according to the new CEO.
“I am deeply committed to restoring the trust of all of our stakeholders, including our customers, shareholders, and community partners,” President and CEO Tim Sloan said. “We know that it will take time and a lot of hard work to earn back our reputation, but I am confident because of the incredible caliber of our team members. We will work tirelessly to build a stronger and better Wells Fargo for generations to come.”
Click here  to view Wells Fargo’s Q3 earnings report.