Fulton Financial Corp
NASDAQ:FULT
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Fulton Financial Corp
Earnings Call Analysis
Q3-2023 Analysis
Fulton Financial Corp
Investors would be pleased to know that the company has delivered a robust performance with operating earnings of $0.43 per share this quarter. The foundation of this solid performance is attributed to growth in both deposits and loans alongside a stable net interest margin, signaling the company's effective management of its financial resources. However, there is a note of caution as the company did report a 4% downturn in pre-provision net revenue.
The company experienced a rise in operating expenses during the quarter, primarily fueled by increased technology and staffing costs. Mindful spending appears to be on the agenda for the forthcoming quarter, as the company has forecasted a decline in core operating expenses, which could potentially bolster profit margins moving forward.
The company manifested moderate loan growth, especially in commercial loans, and a more considerable increase in deposits. The loan-to-deposit ratio has also improved, sitting comfortably within target ranges. This is reflective of the company's strategic approach toward originating loans that account for risk-adjusted spreads in a high-interest-rate environment.
Investors might take comfort in the company's asset quality, with net charge-offs only amounting to $5 million this quarter. Well-defined concentrations in commercial real estate and ongoing investments in new financial centers highlight the company's commitment to long-term organic growth while maintaining asset robustness.
Operating net income available to common shareholders reached $72.2 million, with a noteworthy slow in loan growth that aligns with the company's anticipation. Both commercial and consumer lending have shown moderation, in tune with market conditions and strategic pricing decisions.
Interest-bearing deposits have seen a substantial increase, although this was somewhat offset by a decline in noninterest-bearing balances. The company's net interest margin has held steady at 3.40%, with a minute sequential increase in net interest income highlighting a controlled financial spread management strategy.
The company remains cautious, with a slight increase in the allowance for credit loss as a percentage of loans. Further scrutiny into noninterest income elements reveals both upward and downward trends, with wealth management revenues experiencing a rise and mortgage banking revenues facing downward pressures due to rate increases and market conditions.
Investors might find reassurance in the company's strong capital position that exceeds regulatory minimums, even when considering the impact of accumulated other comprehensive income. The concrete tangible common equity ratio and extensive liquidity reserves afford the company considerable flexibility and security in capital management.
Looking ahead, the company has shared its guidance for the remainder of 2023, which anticipates another rate hike and projects ranges for net interest income, credit loss provisions, noninterest income and expenses, and the effective tax rate. The guidance reflects the company's strategic anticipation of economic conditions and its impact on financial performance.
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Ladies and gentlemen, thank you for standing by. Welcome to the Fulton Financial Third Quarter 2023 Results. [Operator Instructions] Please be advised that today's conference is being recorded.
I would like now to turn the conference over to Matt Jozwiak, Director of Investor Relations. Please go ahead.
Thank you, Michelle, and good morning, and thanks for joining us for Fulton Financial Corporation's conference call and webcast to discuss our earnings for the third quarter, which ended September 30, 2023.
Your host for today's conference call is Curt Myers, Chairman and Chief Executive Officer. Joining Curt is Mark McCollom, Chief Financial Officer.
Our comments today will refer to the financial information and related slide presentation included with our earnings announcement, which was released yesterday afternoon. These documents can be found on our website at fult.com by clicking on Investor Relations and then on News. The slides can also be found on the Presentations page under our Investor Relations website.
On this call, representatives of Fulton may make forward-looking statements with respect to Fulton's financial condition, results of operations and business. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, and actual results could differ materially. Please refer to the safe harbor statement on forward-looking statements in our earnings release on Slide 2 of today's presentation for additional information regarding these risks, uncertainties and other factors. Fulton undertakes no obligation, other than as required by law, to update or revise any forward-looking statements.
In discussing Fulton's performance, representatives of Fulton may refer to certain non-GAAP financial measures. Please refer to the supplemental financial information included with Fulton's earnings announcement released yesterday as well as Slides 16 through 20 of today's presentation for a reconciliation of those non-GAAP financial measures to the most comparable GAAP measures.
Now I'd like to turn the call over to your host, Curt Myers.
Thanks, Matt, and good morning, everyone. Today, I'll provide a summary comments on our company, including comments on our financial results, our growth and an overview of the credit environment. Then Mark will share more details on the financial results and step through our outlook for the remainder of 2023. After our prepared remarks, we'll be happy to take any questions you may have.
We were pleased with our third quarter results. Operating earnings of $0.43 per share were solid. We saw deposit and loan growth. Our net interest margin was stable, and we maintained solid asset quality. Our pre-provision net revenue was down 4% as fee income on an operating basis was down linked quarter. We generated strong results in Wealth Management that helped offset a decline in capital markets income this quarter.
Operating expenses were higher during the quarter, largely driven by additional technology expense as well as higher salaries and benefits expense. Our core operating expenses are expected to decline in the fourth quarter from the third quarter levels. We are focused on our current level of core operating expenses and are committed to realizing the full benefit of recent technology investments, continuing to generate smart growth and obtaining staffing efficiencies to drive core operating expenses to average assets down in future periods.
In addition to our solid operating results, we repurchased 2.2 million shares in the third quarter and continue to monitor deployment -- capital deployment opportunities. As of September 30, $29 million remains from our $100 million 2023 repurchase authorization.
Turning to growth. Total loan growth moderated this quarter, growing $133 million or 2.5% annualized. These results were in line with our expectations as communicated in prior quarters. Commercial loans experienced modest growth and a mix shift occurred as commercial mortgage loans moved from construction to permanent status. Consumer loan growth was driven by residential mortgages. However, that growth continues to moderate as expected. Overall, we are focused on originating loans at the appropriate risk-adjusted spreads and acknowledge the impacts of a higher for longer interest rate environment and current economic conditions may have on this loan growth.
Deposit growth outpaced loan growth and was [ $215 million ] for the quarter. This was driven by seasonal inflows of municipal deposits of $270 million. As a result, our loan-to-deposit ratio benefited declining from declining to 98.9%, this remains well within our long-term target range of 95% to 105%.
We continue to invest in long-term organic growth. During the quarter, we opened 1 new financial center in Philadelphia, in addition, we have financial centers targeted to open in the Philadelphia, Richmond and the Wilmington MSAs in the fourth quarter. We also recently opened a loan production office in Norfolk, Virginia in order to further accelerate growth in that market.
Turning to credit quality. Our credit quality metrics remained stable. Net charge-offs were $5 million or 10 basis points annualized. Credit size and class loans declined, nonperforming assets declined and delinquencies remained historically low. We have again provided detail on our loan portfolio and specifically on office portfolio on Slides 4 and 5. I'd like to note our overall concentration in commercial real estate is approximately 185% of total capital well below our proxy peer average.
Overall, we remain pleased with our credit metrics. However, we acknowledge the market trends and their potential impacts on credit quality.
Now I'll turn the call over to Mark to discuss the details of our third quarter financial performance and our 2023 outlook in a little more detail.
Thanks, Curt, and thank you to everyone for joining us on the call this morning. Unless I knew it otherwise, the quarterly comparisons I will discuss are with the second quarter of '23. And the loan and deposit growth numbers I'll be referencing are annualized percentages on a linked quarter basis.
Starting on Slide 6. As Curt noted, operating earnings per diluted share this quarter was $0.43 on operating net income available to common shareholders of $72.2 million. This compares to $0.47 of operating EPS in the second quarter of 2023.
Moving to the balance sheet. As we anticipated, loan growth slowed in the third quarter to $133 million, or 2.5% annualized. On the commercial side, growth moderated to $47 million or 1.4% and was a mix of certain categories offsetting others during the quarter. Consumer loan growth also moderated to $86 million or 4.7% during the quarter. While mortgage lending remained the majority of our consumer loan increase, the third quarter growth rate slowed considerably from prior quarters due to higher loan pricing and overall demand.
We have raised new loan rates across the board with most new loan yields falling between 7% and 8.5% depending on product and borrower-specific criteria. Total deposits grew $215 million during the quarter. Interest-bearing deposits grew $506 million or approximately 13% with seasonal growth in our municipal deposit portfolio contributing $270 million of that total. This growth was offset by a decline in our noninterest-bearing DDA accounts.
Noninterest-bearing balances declined $290 million during the period, which was down from $538 million decline in the second quarter and a $603 million decline back in the first quarter. This moderation in the mix shift from noninterest-bearing to interest-bearing deposits was slightly better than our expectations and helped increase our NII guidance that I will provide at the end of my comments.
As Curt mentioned, our loan-to-deposit ratio ended the quarter at 98.9%, down from 99.2% at the end of last quarter. We had no net broker deposit purchases during the quarter and that component of our funding remains low at only 4% of total deposits.
Moving to Slide 7. Last quarter, we shared with you this 33-year history of our noninterest-bearing deposit percentage. We believe we should end the year between 23% and 24% noninterest-bearing deposits, down from 27.7% at June 30 and 26% at September 30. This estimate assumes that we'll have an additional deposit shift of approximately $350 million to $400 million of interest-bearing deposits during the fourth quarter of 2023.
Our investment portfolio declined approximately $200 million during the quarter, closing at $3.7 billion. Going forward, we expect our investment portfolio to migrate upward as market conditions dictate, ultimately equaling about 15% of our balance sheet.
Putting together those balance sheet trends on Slide 8, net interest income was $214 million, a $1 million increase linked quarter. Our net interest margin for the third quarter was 3.40%, consistent with 3.4% in the second quarter. Our loan yields expanded 20 basis points during the period, increasing to 5.72% versus 5.52% last quarter. Cycle-to-date, our loan beta has been 46%. Our total cost of deposits increased 24 basis points to 1.56% during the quarter. Cycle-to-date, our total deposit beta has been 29%.
Turning to credit quality on Slide 9. Our nonperforming loans decreased $6.3 million during the quarter, which led to our NPL loans ratio decreasing to 67 basis points at September 30 versus 70 basis points at June 30. Loan delinquency remains historically low at 1.12% at September 30 versus 1.05% last quarter. Our allowance for credit loss as a percent of loans increased from 1.37% of loans at June 30 to 1.38% at quarter end.
Turning to noninterest income on Slide 10. Our wealth management revenues were $19.4 million, up from $18.7 million for the second quarter. We continue to invest in our wealth business, and it now represents about 1/3 of our fee-based revenues. The market value of assets under management and administration declined $17 million during the quarter to close at $14.2 billion.
Commercial banking fees declined to $19.7 million during the quarter. Reduced loan originations, tempered capital markets revenue in our customer swaps business coming off of a very strong second quarter. Other categories within commercial fees were solid as both merchant and card revenues have exceeded our expectations year-to-date.
During the quarter, we recorded a charge of $3 million in other fee income related to our final transition from LIBOR to SOFR. In order to minimize customer disruption and rewriting certain loan and swap contracts, this resulted in a valuation difference that must be recorded this quarter. This unrealized accounting loss will be recouped over the expected life of the underlying swap contracts.
Consumer Banking fees were up modestly for the quarter, with pickups in credit card revenues and overdraft fees. Mortgage banking revenues picked up linked quarter as an increase in volume offset a slight decrease in gain on sale spreads in the third quarter. Application volumes, however, were down 6% year-over-year as rate increases and low housing inventories influenced applications, originations and overall loan sale volumes.
Moving to Slide 11. Noninterest expenses were $171 million in the third quarter, a $3 million increase from the second quarter. The following items contributed to this increase, higher base salary expense, due to one additional calendar day in the quarter and higher outside services costs associated with certain technology initiatives.
On Slides 12 and 13, we are continuing to provide you with expanded metrics on capital and liquidity. First, on Slide 12, as of September 30, we maintained solid cushions over the regulatory minimums for all of our regulatory capital ratios. We've also provided you with an alternative view of our regulatory ratios, including the impact of accumulated other comprehensive income. Our tangible common equity ratio was 6.8% at quarter end, down from the prior quarter due to higher long-term interest rates and the related impact on OCI. Included in tangible common equity is the accumulated other comprehensive loss on the available-for-sale portion of our investment portfolio in derivatives. This totaled $374 million after tax on a total AFS portfolio of $2.9 billion.
On Slide 13, including the loss on our held-to-maturity investments, which is $203 million after tax on an HTM portfolio of $1.3 billion, our tangible common equity ratio would be 6.2% at September 30, still representing over $1.6 billion in tangible capital.
On Slide 14, we provided you with a comprehensive look at our liquidity profile. We're combining cash committed and available FHLB capacity, the Fed discount window and unencumbered securities available to pledge under the Fed's bank term funding program, our committed liquidity is $8.7 billion at September 30. In addition, we maintain over $2.5 billion in Fed fund lines with other institutions.
On Slide 15, we are providing our updated guidance for the remainder of 2023. Our guidance now assumes a final 25 basis point Fed funds increase at their November meeting. Based on this rate outlook, our 2023 guidance is as follows: we expect our net interest income on a non-FTE basis to be in the range of 855 -- sorry, $845 million to $855 million. We expect our provision for credit losses to be in the range of $55 million to $65 million. We expect our core noninterest income, excluding securities gains, to be in the range of $220 million to $230 million but we are trending to the higher end of this range. And we expect our core noninterest expenses to be $665 million, plus or minus, for the year. And lastly, we expect our effective tax rate to be in the range of 17.5%, plus or minus for the year.
With that, I'll now turn the call over to the operator for your questions. Michelle?
[Operator Instructions] The first question comes from Daniel Tamayo with Raymond. Daniel, can you hear us?
The next question will come from Chris McGratty with KBW.
Curt, maybe starting with you on capital. You talked about the slowing of the balance sheet, which is reflective in [indiscernible] trends but you tipped at the buyback. How do we think about, I guess, finishing it, additional buybacks, other uses of capital given the -- I would say, still uncertain economic environment.
Yes. So our capital strategy remains the same. We're going to support organic growth as we look in the fourth quarter here first, and then we would look at all, other alternatives like buybacks. We do have $29 million remaining in that authorization. And we're active in the -- in the third quarter, we make those determinations based on pricing and capital use.
And then maybe 2 follow-ups. Mark, I think you said you have a November hike in the guide. I think the market is kind of 50-50 if we get it. Can you just remind us what each 25 is? I think you provided it on a on a monthly basis in the past?
Yes. Yes, I would say that if we don't get that, you have just under $9 billion of variable rate loans that would reprice. So if you don't get that benefit, that number ends up being a little bit north of $20 million annually, so a little bit under $2 million a month. But then obviously, the wildcard question is what if we don't get that? Does that change your glide upward in the deposit costs? So there'll be some offset to that.
And then maybe my last, there was a report overnight about Interchange making its way through regulation again. Can you just remind us, obviously, you're above $10 billion, but just what the potential -- or remind us what the impact was previously and how much might be at risk if we get more regulation?
Yes, Chris, we really didn't look at the numbers yet because we don't know what will happen. I mean we have the sensitivity on it. We are in it. So we benefit and have cost offsets with that as well. So we have to model on both sides of that, depending on what plays out from a legislative standpoint or from a market standpoint, pricing with customers. So we do benefit in some regards, and then we would have an offset. It was a net reduction for us previously when Durbin was put in place originally but not a material reduction for us at that time.
Our next question comes from Feddie Strickland with Janney Montgomery.
Just wonder if you can talk about upcoming maturities in the loan portfolio over the next couple of quarters in ballpark, what's the rate on those -- on average as they come off as they mature versus renewal?
Yes, I would say on ones that are maturing, I mean, again, it's going to be a pretty wide swath steady depending on the category. But I mean, it could be -- as I mentioned, our new loan anywhere from 7% to 8.5% that we're putting on right now, maturities are coming off anywhere from sort of that 5.5% to 7% range depending on loan category.
Got it. And then can you remind us of the timing of when those public funds flow back out and what the rate was on those? Because I'm assuming when they flow back out at some point in 2024, the margin benefits a little bit is -- those are generally higher rate, right?
They are lower than our marginal cost of borrowings. Obviously, like right now, because I mean in our municipal business, I mean, we do have a lot of the core operating accounts for those municipalities. Over the last year, with the increase in rates, the overall yield on that portfolio has crept up to where it's a little bit under 2% today, about 1.9%. And our normal cyclicality there, what we've seen in the last 2 years has been a consistent around like that 300-ish like we saw this past quarter, increase in the third quarter. And then in the fourth quarter, you tend to see a similar amount in the last 2 years. Three years ago, it used to be a little more, but right now, it's more about $200 million to $300 million of outflows.
Got you. Just one last one for me. We've seen steady growth in wealth fees for, I think, 3 quarters now. Do you feel like that trajectory could continue? Or do we see a bit of a pullback in future quarters?
We consistently grow that business. It is market sensitive in some of the products but it's a recurring fee business, and we grow the underlying assets under management. So while it will ebb and flow with the market, those changes should be muted. And if you look at the long-term trends in growth in wealth, we expect those to continue.
The next question comes from David Bishop with Hovde Group.
I appreciate the commentary with regard to the percent of capital allocated to commercial real estate. I think you said 185%. Clearly, in the Northeast, a lot of your peers are bumping up against that 300% threshold, some are well above that. Do you see that -- does that give you any opportunity here in the near to intermediate term to maybe take market share? Are you seeing some of the competitors migrate out good credits that you guys could all stop up here with some excess capacity?
Yes. We are being very strategic about that. It does create opportunities for us. We've kept our commercial real estate team intact, and we are getting opportunities that may not have been available to us. We are being disciplined around credit and pricing and it's an opportunity for us from a high-quality customer standpoint, but also to get the pricing credit parameters that that we need in this environment. So it is an opportunity for us, and that's how we're looking at it.
Got it. And then within the -- I appreciate the disclosures regarding [indiscernible] Central business district exposure. Any sort of inter-quarter weakness there or any update in terms of what you're seeing in terms of credit trends within that portfolio?
Yes. The portfolio has been pretty stable. We're closely monitoring that portfolio. And you can see from the disclosures that the metrics are pretty consistent. Office continues to have stress. We're working with making sure we understand borrowers understand the outlook as we move forward. But really not any material changes quarter-to-quarter, but we continue to monitor the macroeconomic environment for office. It is a challenged overall environment.
Got it. And then maybe just one more last question here. In terms of the impact from the SOFR to LIBOR transition, I think you said you're going to accrete that back into other income over time. Just curious maybe what sort of Mark maybe a good run rate for that other income line on a go-forward basis?
Yes. So that's going to creep back in actually in NII over time, and that will be approximately 5 years.
The next question comes from Manuel Navas with D.A. Davidson.
Thoughts on that -- I just wanted to have some updated thoughts on the NIM direction from here. Also thoughts on the brokered deposits. Like when do you have to kind of seek to replace them? It looks like the CD engine is working quite well. Just kind of some updates on those areas.
Yes. We think that we're going to continue to see our margin drift down. We were pleased that we held constant from 2Q to 3Q. I think last quarter, we had told folks at the time that we -- our margin was 3.40 for the quarter and ended the quarter at that same number. In the month of September, our margin was 3.38, so to give you an idea that we will expect to see -- and again, with some of those public funds outflows and replacing some of that with some higher cost borrowings in the fourth quarter, I'd see that number drift down a little bit.
We expect at this point to see the margin bottom out sometime in the middle of 2024 and then I think back to your question around CDs, yes, we've been -- we do feel our CD engine is pretty strong. And the other reason to comment on when margin will bottom out, is in the middle of 2024 is really where we see our CDs that are rolling off and replacing that, that differential in rate becomes much narrower to today's market rate as like in the fourth quarter, we still have about $300 million of CDs maturing at about a 2% rate, whereas by the middle of next year, you have $600 million of CDs, but they're maturing at a [ 420 ] rate. So your replacement rate becomes much narrower, which will then help to slow down that margin impression as well.
Is the -- I appreciate that. Is the expectation is that we kind of drift up on the loan-to-deposit ratio to the higher end of your range over the next couple of quarters?
We're working hard at balanced growth. Quarter-to-quarter, it's going to ebb and flow within that range, but we don't see a steady increase to the top end of that range. But quarter-to-quarter, it may move up and down as we have different strategies within each quarter.
Okay. You brought up that in the past, you've seen a lot of new account openings. Is a lot of the deposit flows ex the public funds coming from your new accounts? Or are you getting from your current account base your getting CDs? Can you kind of just talk through that a bit?
Yes. So we're working on both. So we are adding customers and are focused on deposit customers. The customers overall and we are working hard at cross-sell on existing customers to bringing in monies that may be at other institutions, and we're their primary relationship, but we don't have all of the relationship, we're a hyper focused on that share of wallet for current customers to bring in deposits that way and loans.
And my last question is on expenses. You're bringing them down a little bit in the fourth quarter. Can you just talk about some of the corporate initiatives you called out in the release and what kind of drove that line to be a little bit higher? And -- is that going to be a little bit elevated into next year? Just some thoughts on that end of the spectrum.
Yes. We're really focused on core operating expenses. We said that expenses will come down in the fourth quarter. We're confident in that. We are also looking broadly in this environment, how we strategically manage expenses effectively. So we'll be messaging kind of each quarter, not only results, but what we're looking at as we move forward, getting that technology, benefit realization and staffing efficiency with smart growth is really how we're looking at all of those things, but we are very focused on bringing down core operating expenses.
The next question comes from Matthew Breese with Stephens.
Just following that line of question, you had mentioned a lower overall NIE to asset ratio. Could you just give us some idea of where you'd like to see that ratio trend next year or over time?
Yes. We're really focused on it. We don't have a target that we're public with at this point, but we're really focused on bringing that down over time. Just with the outlook that we have around maybe a little slower growth, margins more challenged from where we were in the last couple of quarters, really focused on bringing that true expense level down. And we're going to be able to incrementally move that over time.
Okay. So maybe to put a broader point on it, the goal is to bring the absolute level of expenses down from where they are currently versus a lot of expense initiatives where are really utilized to temper growth from the current level. Is that how we should be thinking about it?
Well, we're focused on both. So we do want to look at just core expense levels, but it is a combination of smart growth as well. So it depends on our growth opportunities and opportunities in the marketplace on how we'll be looking at the balance of those 2 things in -- as we move forward. So we have items like our corporate real estate expense, we will bring that expense down. Other areas we need to look at revenue opportunity relative to expense opportunities. So we're doing both things.
Okay. And then maybe going back to the NII guide, which suggests in the fourth quarter, there's a pretty decent step down in terms of quarterly NII. Obviously, that's short term. As we think about 2024, do you expect that trend of NII being down on a quarterly basis to kind of sync up with your NIM outlook, which stabilizes in, call it, mid-2024? Is that a decent way to think about this?
Yes, I think that's fair, Matt.
Okay. And do you have any idea where you think the NIM or NII might stabilize at that point without any additional rate movement?
We haven't given guidance yet for 2023. I mean I'm comfortable given that -- given that broad guidance [indiscernible] for 2024. But when we come out next quarter for 2024, we'll obviously be giving guidance for the full year at that time.
Okay. With some of the better-than-expected deposit results this quarter, could you provide some updated thoughts around expectations around terminal deposit beta as we get into 2024 and perhaps at the end of this cycle?
Yes. We're not really moving off our prior numbers for terminal beta because, again, for our terminal beta, I mean, we view it as kind of 2 quarters after the Fed stops raising rates. So we still feel like we're going to be around that high 30s to [ 40 ] level that we had communicated in prior quarters. And hopefully, we do end up a little bit better than that. But I think our results this quarter, we still want to take a guarded look on that and understand what customer behaviors are going to be like 6 months from now. we're just not ready to move off that number yet.
Okay. Last one for me is, broadly speaking, it looked like credit trends were benign, very solid. We've been getting more questions around syndicated loans and portfolios. I'm just curious, what kind of exposure do you have, if any, to syndicated loans? And what is the size of that portfolio? And how has performance been?
Yes, Matt, our shared national credit portfolio balance is about $325 million right now, so less than 2%. It's -- customers we know well, and performance has been steady. We don't have any metrics in that portfolio that are different than other portfolios. They are larger accounts. So when you have an item there, it's a little more visible, which I think you see, but it's a pretty limited portfolio and activity for us.
Any subindustries within it that have more of the pie than others?
No, not really. It's pretty evenly split CRE and C&I. And we have 5, 6 different categories. So it's pretty diversified within the C&I categories as well.
The next question comes from Frank Schiraldi with Piper Sandler.
Just in terms of -- to ask the expense question another way. Any thoughts of more normalized efficiency ratio or broad efficiency ratio targets as we kind of keep a careful eye on the expense side and see where revenues flush out for next year?
Yes, Frank, I appreciate the question, and we're really focused on the efficiency ratio and absolute expenses around expenses to assets. We have not been public with the target. We are looking to drive them incrementally. And as we move forward in this environment, we may be in a position to put a target out there in 2024. We're just not positioned to do it right now, but we're very focused on it, and we do want to make incremental change and then potentially even more significant change as we move forward.
Okay. And then on noninterest-bearing balances, Mark, you talked about where you anticipate those balances ending the year as a percentage of total deposits. If we're in sort of higher for longer rate scenario, obviously, bottoms up somewhere. Do you see it kind of continuing to be a slow bleed from those levels? Or do you think it's close to bottoming out here based on the -- where rates are currently?
We're still forecasting there to be some rundown in 2024. But Frank, we anticipate that, that pace of shift will continue to decline. So maybe you're down a couple of percentage points in 2024, but certainly nothing like what we saw in 2023.
The next question comes from Daniel Tamayo with Raymond James.
The next question comes from Manuel Navas with D.A. Davidson.
Yes, I just wanted to hop back on to kind of ask about those new branches. Can you just talk about the regions you're kind of adding branches in? And is that like a similar cadence you might see in other quarters? And is that kind of where you're seeing the most regional opportunity?
Yes. So right now, we have 205 financial centers. We're consistently managing that network, consolidating or reducing offices that aren't performing or can be consolidated while then investing in new locations that are strategic for us. We've been predominantly focused on the Philadelphia, Baltimore, Richmond corridor. In D.C., we opened a loan production office in the second quarter. So that kind of metro corridor is where we've been focused with most of our new financial centers. 3-in-1 quarter is just -- it's a timing thing on the development. So that's not a specific pickup in that activity. It's more just the timing of those branches all coming online at the same time. But you'll see a steady management of that network. So some closures, consolidations and some new investments.
I show no further questions at this time. I would now like to turn the call back to Curt Myers for closing remarks.
Well, thank you again for joining us today. We hope you'll be able to be with us when we discuss the fourth quarter results in January. Thank you all.
This concludes today's conference call. Thank you for participating. You may now disconnect.