Wells Fargo (WFC) reported mixed fourth-quarter results on Friday. But the bank demonstrated a stellar bottom line, while committing to much-welcomed share buybacks in the current quarter. Total revenue fell 6% year-on-year, to $19.66 billion, missing analysts’ expectations for $19.98 billion in revenue. Earnings-per-share of 67 cents exceeded estimates of 59 cents per share. Included in this figure was a 70-cent headwind resulting from legacy issues, another 15-cent hit due to equity impairment charges largely related to the venture capital business, and a 7-cent impact resulting from severance expenses in the home lending business . A partial offset to these negative factors was a 13 cent per share discrete tax benefit. Shares of Wells Fargo initially plummeted by as much as 5.5% earlier in the day before rebounding on comments from CEO Charles Scharf, who said the bank would spend carefully and become more efficient this year. Wells Fargo was trading up more than 3% Friday afternoon, at $44.20 a share. WFC 1D mountain Wells Fargo (WFC) 1 day performance Bottom line In line with our thesis, higher interest rates resulted in a significant increase in net interest income (NII) as the net interest margin – the spread between what the bank pays on deposits and charges on loans – continued to expand. Sequentially, the biggest driver was higher interest rates. Annually, the benefit from higher loan balances and lower mortgage-backed securities premium amortization. Unfortunately, this was partially offset by a decline in fee-based noninterest income, which was down on both a sequential- and annual basis. In addition to the solid bottom-line performance, we are highly encouraged to see that management will begin to buy back shares in the current quarter. Looking to the full year, while the net interest income forecast came in below expectations, the expense guidance excluding operating losses indicates an annual decline, welcome news given that peers are looking at higher expenses in 2023. Additionally, Scharf said Friday that while the bank has earmarked a good deal of money for additional investments in growth, they are by no means planning to spend those funds “at all costs.” That commentary was welcome news to investors. Key company metrics Net interest income: $13.43 billion, up 11% quarter-over-quarter and 45% year-over-year, outpacing analysts’ forecasts of $12.99 billion. Net interest margin: 3.14%, compared with 2.11% during the same period a year prior, and above the consensus estimate of 3.02%. Non-interest income: $6.23 billion, down 16% quarter-over-quarter and 46% year-over-year, missing expectations of $7.03 billion. Non-interest expense: $16.20 billion, up 23% year-over-year and up 13% over last quarter, versus a $15.73 billion consensus estimate. That figure includes $3.3 billion in operating losses related to the bank’s legacy issues, without which total expenses would have been flat annually and up 5% sequentially. Return on average tangible common equity (ROTCE)*: 7.6%, below analysts’ forecasts of 8%. Heavily impacting performance was a $3.3 billion operating loss related to litigation, regulatory, and customer remediation matters, $1 billion of equity security impairments, $353 million in severance expenses, and $510 million in discrete tax benefits. Excluding these items, adjusted ROTCE was closer to 16%. Efficiency ratio*: 82%, up from 63% last year and above analysts’ expectations for 79.1%. Average loans: $948.5 billion, up 8% year-over-year and essentially unchanged from the third quarter, below expectations of $957.7 billion. Period end loans increased for the sixth consecutive quarter. Average deposits: $1.38 trillion, down 6% year-over-year, in line with analysts’ forecasts. Tangible book value per share (TBVPS)*: $34.89, down 4% year-on-year and up 2% from last quarter. Provisions for credit losses: $957 million, well ahead of analysts’ expectations for $825 million, and up from $784 million last quarter. Importantly, while net charge-offs increased, management noted that credit quality remains strong. * Financial definitions for bank stocks : ROTCE is a measure of annualized earnings applicable to Wells Fargo common shareholders as a percentage of average tangible common equity. Efficiency ratio is a measure of efficiency that is calculated as total non-interest expenses divided by net revenues. TBVPS is a measure of intrinsic liquidation value that removes intangibles such as goodwill. Segment results Consumer banking and lending total fourth-quarter revenue was $9.46 billion, up 8% over last year and up 2% over last quarter. Consumer and small business banking (CSBB) revenue increased 36% year-over-year, primarily due to higher rates. Within consumer lending, home lending was down 57% from last year, while credit card revenue increased 6% over last year. Auto loan revenue was down 12% year-over-year and personal lending increased 9% from last year. Commercial banking fourth-quarter revenue soared by 38% year-over-year, to $3.15 billion. Middle market banking revenue of $2.08 billion represented an increase of 78% over the same period last year, on the back of higher interest rates and loan balances. Asset-based lending and leasing revenue of $1.07 billion declined 4% year-over-year, as loan growth was more than offset by lower net gains from equity securities. Noninterest expenses increased 9% year-over-year, primarily due to higher personnel expenses and operating losses. Corporate and investment banking fourth-quarter revenue climbed by 18% year-over-year, to $4.14 billion. Total banking revenues increased 22% year-over-year to $1.65 billion thanks to higher interest rates and higher lending revenue on higher loan balances. Investment banking fees were down due to lower market activity. Commercial real estate revenue increased 16% year-over-year, a result of higher rates and loan balances. Markets revenue was up 17% year-over-year thanks to higher trading revenue in equities, commodities, foreign exchange. Municipal products, however, fell 5% sequentially. Noninterest expenses increased 4% year-over-year but were down 3% sequentially, with the annual increase resulting from higher operating costs and salary expenses. Wealth and investment management fourth-quarter revenue was $3.7 billion, up 1% year-over-year. Net interest income surged 69% year-over-year due to higher rates. Non-interest income, however, fell 14% year-over-year as a result of lower asset-based fees driven by a decline in market valuations. Non-interest expenses fell 6% year-over-year due to lower revenue-related compensation and efficiency initiatives. 2023 outlook Looking ahead, management believes that 2023 NII could be as much as 10% higher in 2023, compared with the the $45 billion seen in 2022, though actual results will depend on a slew of factors. This forecast assumes that the federal asset cap remains in place throughout 2023. The implied guidance of $49.5 billion is below the $52.05 billion Wall Street was looking for On the expenses side, excluding the impact of $7 billion in operating losses in 2022 and an expectation for $1.3 billion in “ongoing business-related operating losses in 2023,” management anticipates expenses to decline by about $100 million in 2023 to roughly $50.2 billion, even as competitor banks plan for higher expenses. Moreover, it’s the makeup of the expenses decrease that should be especially encouraging to longer-term investors. Embedded in this guidance is $3.2 billion in efficiency initiatives – meaning that once complete, those expenses should be gone for good – that was partially offset by $1.7 billion in incremental investments, which should aid future growth. Taken all together, the company expects a $1 billion decrease in net expenses, though total expenses excluding operating losses will only be down by about $100 million. While management indicated a desire to make new investments in the business, they also made clear they would proceed cautiously. “If we don’t see revenue growth and if we don’t see payoffs from the things that we’re doing, then we will spend less money, and so that’s the way we’re approaching it. We’re either going to get the efficiency ratio to continue to improve because we’re getting real pay off on some things or we will reduce on a net basis,” Scharf said. “But overall there’s still gross expenses that should come out of the company which gives us the latitude to continue to grow the investments inside the company,” he added. Capital returns Wells Fargo did not repurchase any stock in the fourth quarter, however, management noted that buyback activity will restart in the current quarter. Given that Wells Fargo ended the quarter with a Common Equity Tier 1 (CET1) ratio of 10.6%, up from 10.3% in the prior quarter and well above its regulatory minimum, along with buffers of 9.2%, there is plenty of balance sheet capacity to restart share repurchases without risking the bank’s financial health. (Jim Cramer’s Charitable Trust is long WFC. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . 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Wells Fargo (WFC) reported mixed fourth-quarter results on Friday. But the bank demonstrated a stellar bottom line, while committing to much-welcomed share buybacks in the current quarter.