Hello, everybody, and welcome to Univest Financial Corporation to hold Fourth Quarter 2022 earnings call. If you would like to ask a question during today's presentation, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two. I would now like to turn the conference over to Jeff Schweitzer, President and CEO. Please go ahead.
Thank you, Drew, and good morning and thank you to all of our listeners for joining us. Joining me on the call this morning is Mike Keim, our Chief Operating Officer and President of Univest Bank and Trust, and Brian Richardson, our Chief Financial Officer. Before we begin, I would like to remind everyone of the forward-looking statements disclaimer. Please be advised that during the course of this conference call, management may make forward-looking statements that express management's intentions, beliefs, or expectations within the meaning of the federal securities laws. Univest's actual results may differ materially from those contemplated by those forward-looking statements. I would refer you to the forward-looking cautionary statements in our earnings release and in our SEC filings. Hopefully, everyone had a chance to review our earnings release from yesterday. If not, it can be found on our website at univest.net under the investor relations tab.
We reported net income of $23.8 million during the fourth quarter, or $0.81 per share. The highlight of the quarter was our continued strong organic loan growth. Loans grew $274 million, or 18.8% annualized excluding PPP loans during the quarter, and $842.8 million or 16% for the year. This strong growth, along with the increasing interest rate environment during the year, resulted in net interest income increasing 25.5% in 2022 compared to 2021 excluding PPP activity. We are very happy with our results for the quarter and 2022 as a whole, as we reported solid growth and financial results while also investing in long-term strategic initiatives in our digital strategy and expansion into Western Pennsylvania and Maryland.
Before I pass it over to Brian, I would like to thank the entire Univest family for the great work they do every day and for their continued efforts serving our customers, communities, and each other. I will now turn it over to Brian for further discussion on our results.
Thank you, Jeff. I would also like to thank everyone for joining us today. As Jeff indicated, we are very pleased with our performance throughout 2022. I would like to touch on four items from the earnings release. First, we continued to see the benefit of our strong loan growth in recent years, coupled with our asset sensitivity in the rising rate environment. Reported margin of 3.76% increased 9 basis points compared to last quarter. Net interest income increased $3.7 million or 6.3% on a linked quarter basis. During the quarter, deposits grew $116.8 million or 8% annualized. This included growth of $69.1 million in non-interest-bearing deposits. During the quarter, we recorded a provision for credit losses of $5.4 million.
Our coverage ratio was 1.29% at December 31st, compared to 1.28% at September 30th. Net charge-offs for the quarter totaled $908,000, or 6 basis points annualized. For the year, net charge-offs totaled $3.9 million or 7 basis points. Consistent with the prior quarter, despite general concerns regarding the economy, we are not seeing signs or indications of credit quality deterioration in our portfolio. During the quarter, we continued to see stability in non-performing assets and criticized classified loans. Third, non-interest income increased $1.3 million or 6.6% compared to the fourth quarter of 2021.
The fourth quarter of 2022 included $1.2 million adjustment related to investment advisory income, $1.2 million of swap fees related to the conversion of certain LIBOR-based loans to SOFR, and $526 thousand of BOLI death benefits. Offsetting these items was continued pressure on wealth management revenue driven by reduced assets under management and supervision due to market volatility and reduced gain on sale income from our mortgage banking business due to the current interest rate environment. Fourth, non-interest expense increased $4 million or 9.2% compared to the fourth quarter of 2021. This includes $434 thousand related to our digital transformation initiative, $370 thousand of incremental expense resulting from the inclusion of the Paul I.
Sheaffer Insurance Agency, which was acquired in December of 2021, $430,000 of fraud losses, $318,000 related to our expansion into Western PA and Maryland, and $184,000 of restructuring charges related to the planned consolidation of 2 financial centers. Excluding these items, non-interest expense increased $2.3 million or 5.5% versus the fourth quarter of 2021. I believe the remainder of the earnings release was straightforward, and I would now like to focus on 5 items as it relates to 2023 guidance. First, for 2022, net interest income totaled $218.3 million.
For 2023, we expect loan growth of approximately 12%-14%, and we expect this to result in net interest income growth of approximately 13%-15% off the base of $218.3 million. This assumes 1 25 basis point increase in February. Each additional 25 basis point increase is expected to result in annualized net interest income of approximately $250,000-$500,000. Second, the provision for credit losses will continue to be driven by changes in economic forecast and credit performance of the portfolio. At this time, we expect the provision for 2023 to be approximately $18 million-$20 million. Third, for 2022, non-interest income included $977,000 of BOLI death benefits.
Excluding these BOLI death benefits, non-interest income totaled $76.9 million in 2022. 2023, we expect non-interest income growth of approximately 4%-6% off the base of $76.9 million. Fourth, we reported non-interest expense of $186.8 million for 2022 and expect growth of approximately 7%-9% in 2023. This includes core expense growth of approximately 5%-6% plus 2%-3% related to our expansion markets. Lastly, as it relates to income taxes, we expect our effective tax rate to be approximately 20%-20.5% based on current statutory rates. That concludes my prepared remarks. We'd be happy to answer any questions. Drew, would you please begin the question and answer session?
Yes, of course. We will now start today's Q&A session. If you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. Our first question today comes from Tim Switzer from KBW. Your line is now open.
Hey, good morning. I'm on for Michael Perito. Thanks for taking my questions.
Morning, Tim.
Can we start with your loan growth expectations? I think you guys kind of raised it just a little bit from, well, I guess sort of in the same range of 13%-15%. Can we talk about kind of like the main drivers you're seeing and, you know, what did anything help with like the acceleration to 19% annualized this quarter? You know, like, is there still upside you think to maybe your guidance if, you know, economic trends don't deteriorate?
This is Mike. Hi, Tim. Good morning. I think the range that Brian communicated is an appropriate range for where we're looking at. You know, we continue to grow our teams in our existing markets, and that's helping us to maintain volume. In our new markets in western PA and Maryland, we believe that that's allowing us to have upside growth relative to our peers. You know, in our mortgage operation, we had put on hybrid ARMs in 2022. We believe that'll occur, continue to occur at a rate in 2023, but we'll see where rates go, and we would because we much prefer to get back to our primary mode, which is selling and reaping the gain on sale on our mortgage production while retaining the servicing rights.
All in all, I come back to the fact that we're comfortable with the range that Brian communicated. I would not say we have dramatic upside to that, but we're confident in what we're doing, and as we move forward here.
Okay. Could you talk about kind of the trajectory of that in the NIM? I know it might be hard to hit like actual, like an actual like target or number on the NIM itself, but can you help us think about how like the rising deposit costs are going to help? Last quarter you guys, you know, mentioned it would probably peak this quarter or next and then move back into like the 350-355 basis points range. Is that range higher now?
This is Brian Richardson. We're really holding in that same range. We expect the NIM behaved exactly as we would have expected in the fourth quarter. We do expect this to be the peak and expect it to pull back in that mid-single-digit basis point range next quarter and in the subsequent quarters and settling probably right in that mid 350- 360 basis points range is where I think where we'll end up. Really the function of the deposit beta, current cycle to date, looking on interest-bearing, we're at roughly 28%. If you look all in on deposits, we're up closer to 15%. Historical norm on interest-bearing for us would be in that 40%-45% range. We still have some room to go there.
If we're looking at historical norm on total deposits, that'd be closer to the 30% range. Again, about halfway there on the deposit side. I do think contraction will continue to occur for the next several quarters.
I gotcha. Okay. A little bit of NIM contraction next few quarters, then it kind of stabilizes hopefully with Fed pausing or something. I think the last question I had for you guys, you know, your guide for $18 million-$20 million on the provision, if you kind of annualize the number you guys had this quarter, it's a little bit above that. The, like, charge-offs and NPAs are still, like, pretty solid. What kind of drove the provision this quarter?
Yeah. We look at our coverage ratio. You look at specific assets. There's various things that play in there. I mean, as I indicated, it is event-driven. There will be some moving parts that would continue as we navigate forward. Again, we think that $18 million-$20 million range is appropriate.
Okay.
Especially given the loan growth that we're projecting.
Right. Yeah. I mean, the loan reserve percentage didn't really move up all that much. Just wanted to ask. All right. Thank you.
Yep. Thank you.
Just to reiterate, if you would like to ask a question on today's call, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. We have no further questions at this time. I'll hand you back over to Jeff Schweitzer.
Thank you, Drew. Thank you everyone for listening in on our call today. As I said in my comments, we're very pleased with our results for 2022. A lot of strong financial performance, a lot of growth, and we're excited about the momentum we carry into 2023, even with, you know, pending economic concerns out there. We're in great markets with great people and really strong customers, so we look forward to a successful 2023 and talking to you at the end of the first quarter. Have a great day.
That concludes today's Univest Financial Corporation Fourth Quarter 2022 earnings call. You may now disconnect your line.