Fulton Financial Corp
NASDAQ:FULT
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Fulton Financial Corp
Earnings Call Analysis
Q3-2024 Analysis
Fulton Financial Corp
In the third quarter of 2024, Fulton Financial delivered record-breaking operating earnings of $0.50 per diluted share, translating to an operating net income of $91.3 million. This reflects a growth of $0.03 from $0.47 in the prior quarter, showcasing robust business momentum and effective management in terms of integrating the Republic acquisition. The company has been proactive about maximizing this integration, with notable growth in both loans and deposits.
During this quarter, Fulton achieved modest loan growth of $70 million, equating to a 1% annualized rate. This growth was driven by both commercial and consumer loans, although a noticeable runoff of $41 million in the indirect auto portfolio is projected to cause a slight moderation in future consumer loan growth. On the deposit side, total deposits surged by $592 million, reflecting a 9% linked quarter increase. Notably, deposit growth included a strong seasonal inflow of municipal deposits. The focus remains on customer retention and growth.
Fulton's net interest income rose by $16 million to reach $258 million, with the net interest margin increasing by 6 basis points to 3.49%. This expansion is largely attributed to the beneficial impacts of the Republic acquisition and strategic balance sheet restructuring. The bank has thus far maintained a favorable liquidity position, with cash and securities comprising 18.9% of total assets.
Fulton's strategic initiatives, particularly the "Fulton First" program, aim to enhance quality and ensure a seamless integration process for the Republic acquisition. This initiative includes the successful consolidation of 16 financial centers and aims for a significant annual cost saving of over $50 million, fully realized by 2026. In the immediate term, approximately $25 million in expense savings is expected in 2025, with more than $10 million to be reinvested into future growth initiatives.
For the fiscal year of 2024, Fulton Financial provided guidance for net interest income in the range of $925 million to $950 million, predominantly leaning towards the higher end due to the favorable third quarter performance. The estimates reflect a prudent approach to manage potential interest rate reductions, anticipated to include a 50 basis point cut plus two future 25 basis point reductions. Provision for credit losses is projected in the range of $40 million to $60 million.
The bank demonstrated stable asset quality, with net charge-offs holding steady at $11 million or 0.18% of loans. However, nonperforming loans saw a slight uptick to 0.84% of total loans as the economic environment poses challenges for certain borrowers. This increase is managed across a diverse portfolio, emphasizing Fulton's diligent credit monitoring practices.
The overall noninterest expense increased slightly by $1.3 million, reflecting the ongoing costs associated with the Republic transaction. However, early indicators show improved efficiency and cost savings, part of which is tied to Fulton First initiatives. The bank is also strategically managing deposit costs in light of declining market rates, indicating a disciplined approach to financial management going forward.
Fulton's capital strategy remains focused on supporting organic growth and carefully assessing potential acquisition opportunities post-integration with Republic Bank. The management expresses cautious optimism regarding M&A activities, contingent upon favorable market conditions and integration readiness.
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Good day, and thank you for standing by. Welcome to the Fulton Financial Third Quarter 2024 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.
I would now like to hand the conference over to Matt Jozwiak, Director of Investor Relations. Please go ahead.
Good morning, and thanks for joining us for Fulton Financial's conference call and webcast to discuss our earnings for the third quarter ending September 30, 2024. Your host for today's conference call is Curt Myers, Chairman and Chief Executive Officer. Joining Curt today is Rick Kraemer, Chief Financial Officer Designee; and Betsy Chivinski, Interim Chief Financial Officer.
Our comments today will refer to the financial information and related slide presentation included with our earnings announcement, which we 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 the 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 the forward-looking statements in our earnings release and 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 and Slides 20 through 26 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.
Well, thanks, Matt, and good morning, everyone. For today's call, I'll be providing highlights on our performance for the quarter, updates on several key initiatives and a few overall comments on the company. Then I'll turn the call over to Rick Kraemer to review our financial results in more detail and step you through our 2024 guidance. After our prepared remarks, we'd be happy to take any questions you may have.
Let me start by thanking our new Republic teammates as well as a dedicated Fulton team for an exceptional effort this year. We are delivering for our customers, communities and for you, our shareholders. Our team's impact is evident in our record-setting results this quarter, and we are making great progress on several key initiatives. We're excited about the strategic steps we're taking, and I'd like to illustrate that by sharing some highlights of the quarter.
Operating earnings of $0.50 per diluted share this quarter was a record for the company. We were especially pleased to see the momentum continuing following a strong second quarter. We saw loan growth in line with our expectations. Deposit growth exceeded our expectations driven in part by growth in the Republic deposit portfolio. Through 5 months, Republic deposit balances remain comfortably within our original modeling.
Our net interest income and net interest margin exceeded our expectations. On a linked quarter basis, the net interest income grew by $16 million, while net interest margin increased 6 basis points. These increases were attributable to a full quarter impact of the Republic transaction, the benefit of recent balance sheet restructurings and our organic growth.
Noninterest income grew $1.5 million linked quarter when excluding the bargain purchase gain adjustment. Most categories were up linked-quarter and noninterest income remains a meaningful and stable component of our overall revenue stream. Operating noninterest expense increased $1.3 million or 2.7% on an annualized basis. This increase includes a full quarter of Republic expenses offset by a decline in Fulton organic expenses.
Provision expense declined to $11.9 million and was relatively in line with recent quarters. As a result, operating net income grew $9 million, to $91.3 million.
During the quarter, as part of the Republic integration and the Fulton First initiative, we consolidated 16 financial centers, which exceeded our original estimate. Additionally, as part of Fulton First, we announced several leadership appointments within commercial banking, business banking, credit and market leadership. These appointments bring increased focus to core areas of our business and positions us for continued growth.
Our performance allowed us to increase our already healthy capital levels, grow our tangible book value, reinvest in our business and deliver strong results for our shareholders. Overall, another strong quarter for our company.
Now let me provide a bit more detail on our growth. Third quarter deposit growth was $745 million or 12% annualized when excluding $153 million planned reduction in brokered deposits. We delivered growth in both the legacy Republic deposit portfolio as well as growth in the Fulton portfolio. This growth was further enhanced by our seasonal inflow of municipal deposits. As always, we remain focused on customer retention and customer growth.
Loan growth for the quarter was $70 million or 1% annualized slightly below recent periods. As part of our Fulton First initiative, we evaluated and exited our indirect auto lending channel during the quarter as we're focused on higher-margin and relational products.
Our loan-to-deposit ratio ended the quarter at 92.4%, below our long-term operating target of 95% to 105%. We continue to feel it is appropriate in this environment to operate below our long-term targets.
Now let me provide some comments on credit. Net charge-offs of $11 million or 18 basis points was stable on a linked-quarter basis. Nonperforming loans increased $30 million or 12 basis points to 0.84% of total loans. This increase was due to a mix of borrowers, geographies and loan types and not concentrated in any one portfolio or industry. Certain customers continue to struggle in this higher interest rate and higher cost environment. We continue to be diligent on our credit monitoring and are managing the portfolio closely.
Now moving forward, I will provide updates on 2 key corporate initiatives. First, we are focused on the timely and effective integration of the Republic transaction. We accomplished a lot in a short amount of time and anticipate systems conversion in the fourth quarter. This will be the last major milestone of the integration process. We expect to have all material integration benefits implemented by year-end, and we remain confident in our 40% cost savings estimate.
Next, let me turn to Fulton First. Fulton First is a transformational change to how we operate. Accordingly, implementation requires a thoughtful and paced approach over time. We're encouraged by early results and optimistic about the impact to our growth and our efficiency over the short and long term. It's important to reinforce a few key themes that drive this initiative. This is a critical step in our journey to be the bank of choice for not only who we are, but also how we operate. This initiative deepens our commitment to our purpose, our vision and our strategic execution by simplifying our operating model, focusing on core relationships and improving productivity across the bank.
During the quarter, we've made progress towards implementation of this strategic Fulton First initiative. We've created one credit organization to streamline underwriting processes and deliver prudent and faster credit decision, which will provide a platform to support long-term growth as well as deliver near-term efficiency. We've realigned our commercial segments to focus our talented teams with specific customer segments to drive customer value and growth at an even faster pace. We further invested in our business banking segment. We have over 65,000 business banking customers and a market opportunity of more than 1.5 million.
With enhanced focus, we will attract, serve and grow even faster in this highly attractive segment. These actions will position us to accelerate our growth and improve how we operate. Overall, we are making progress on all strategic initiatives, and we are pleased with our results year-to-date.
Before I turn the call over to Rick to discuss our financial performance and 2024 guidance in more detail, I'd like to say a special thank you to Betsy Chivinski. Betsy served in many roles with the organization for over 30 years, most recently as Interim CFO. Thank you, Betsy, for your dedicated service to our company, your commitment to this organization and the positive impact that you have made.
Now I'll turn things over to Rick for more details on our financial results.
Thank you, Curt, and good morning. Unless I note otherwise, the quarterly comparisons I discuss are with the second quarter of 2024. Loan and deposit growth numbers I will be referencing are annualized percentages on a linked quarter basis.
Starting on Slide 5. Operating earnings per share diluted was $0.50 or $91.3 million of operating net income available to common shareholders. This compares to $0.47 of operating EPS in the prior quarter. As Curt noted, loan growth was modest during the quarter, growing $70 million or 1%. Loan growth was split between commercial and consumer lending with $29 million and $41 million, respectively.
On the consumer side, we saw $41 million runoff in our indirect auto portfolio. We expect this portfolio runoff to moderate consumer loan growth slightly going forward. This portfolio was $430 million at September 30, with an average duration of approximately 2.5 years.
Total deposits increased $592 million or 9% linked quarter. Growth in time deposits, money market products and interest-bearing demand accounts offset declines in noninterest-bearing products and broker deposits. Our noninterest-bearing DDA balances ended the quarter at $5.5 billion or 21% of total deposits.
Our NII guidance for 2024 assumes we will continue to see migration from noninterest-bearing deposits into interest-bearing products, but at a moderating pace. On balance sheet, liquidity increased to 18.9% of assets and included an increase in cash and securities of $406 million. The impact of these positive balance sheet trends are shown on Slide 6.
Net interest income was $258 million, a $16 million increase linked quarter, while net interest margin increased by 6 basis points to 3.49%. These increases were primarily driven by the full quarter effect of the Republic transaction, the second quarter investment portfolio restructuring and the previously mentioned balance sheet growth.
Loan yields increased 8 basis points linked quarter, growing to 6.2%. Included in the loan yield is $13.7 million of accretion attributable to the interest rate marks on the acquired loan portfolio. Additionally, the non-PCD discount accretion was approximately $815,000 during the quarter, however, is excluded from our operating earnings calculation.
Actual interest rate discount accretion will be driven by the pace and magnitude of paydowns, payoffs, prepayments and other decreases in acquired balances.
Our cost of total deposits increased 10 basis points to 2.24% linked quarter, primarily due to strong growth in interest-bearing categories. Given the robust funding profile, combined with declining market rates, we expect greater flexibility around funding costs in future quarters.
In anticipation and as a result of the Fed's easing of 50 basis points in late September, we were prepared to manage deposit costs prudently on key products. Post that announcement, we began lowering pricing on our more rate-sensitive products. We will continue to actively manage our deposit costs.
Turning to noninterest income on Slide 7. Noninterest income for the quarter was $59.7 million. This included a fair value adjustment to the bargain purchase gain attributable to the Republic transaction. The original estimate of the bargain purchase gain recorded in 2Q '24 remains subject to potential revaluation for up to 12 months post close of the transaction. Excluding this adjustment, fee income was strong for the quarter, increasing $1.5 million from the second quarter.
Wealth Management revenues of $21.6 million increased $606,000 linked quarter, primarily due to increases in market value of assets under management. Wealth Management AUM equals approximately $16 billion at quarter end and represents a new record high for the company.
Commercial Banking fees increased $879,000 driven mostly by an increase in commercial customer swap income. All other commercial categories were relatively in line with the past quarter. Consumer banking fees increased modestly to $14.9 million and are largely transaction-based income items. Mortgage banking revenues declined $809,000 based on a combination of lower volumes and spreads.
Moving to Slide 8. Noninterest expense on an operating basis was $196.2 million, an increase of $1.3 million linked quarter. We are beginning to see the cost saves realization of the Republic transaction and early efficiency benefits from Fulton First.
As noted on Slide 8, linked-quarter organic Fulton operating expense declined $4.6 million. Republic cost saves remain on track, looking down approximately 20% based on our starting point. We expect the remainder of cost savings related to the Republic transaction to be fully realized beginning in January of 2025.
Material items excluded from operating expenses as listed on Slide 8 were charges of $14.2 million of acquisition-related expenses, $9.4 million of Fulton First implementation and asset disposal expense and $6.3 million of core deposit intangible amortization. As previously mentioned, nonoperating expenses related to both Republic Bank and Fulton First should abate over the next year. Specifically, we expect to achieve our full cost saves run rate for Republic Bank in January of 2025 and remain confident in our original 40% cost-save projection.
Turning your attention to Slide 9. I'd like to walk through some additional information regarding Fulton First. This transformational program, which began over a year ago is beginning to accelerate. The implementation cost to date of approximately $24 million have been attributable to a combination of consulting costs, real estate disposition and severance charges.
As outlined in the deck, we expect additional charges of approximately $10 million in 4Q '24, followed by materially lower implementation costs in 2025. Importantly, we expect to see a fully realized annual recurring cost saves benefit of more than $50 million. We expect to realize that full amount in 2026. In the shorter term, we anticipate cost savings of approximately $25 million realized in 2025.
Worth noting, our $25 million in expected saves in 2025 is net of more than $10 million being reinvested back into the bank for future growth initiatives. While we are not providing official 2025 expense guidance until we close out 2024, we feel comfortable suggesting that total operating expenses for 2025 should remain largely in line with where we finished 2024.
Turning to asset quality. As Curt mentioned, net charge-offs were relatively stable at 18 basis points. The nonperforming loans to loans ratio increased by 12 basis points to 84 basis points at quarter end. Our coverage ratios remain near historical highs with our ACL to total loans ratio at 1.56% and ACL to nonperforming loans at 186%.
Slide 11 shows a snapshot of our capital base. As of September 30, we maintained solid cushions over the regulatory minimums and on a linked-quarter basis, most of our ratios expanded nicely. Additionally, our tangible capital ratio benefited from an OCI reversal of approximately $67 million linked quarter.
On Slide 12, we are confirming our operating earnings guidance. However, we do note a change in the interest rate forecast. Our guidance now incorporates the 50 basis point decrease in Fed funds in September and 2 additional 25 basis point cuts, 1 in November and 1 in December.
Our 2024 operating guidance remains unchanged as follows: we expect our net interest income on a non-FTE basis to be in the range of $925 million to $950 million, however, coming in at the high end of our guidance. We expect our provision for credit losses to be in the range of $40 million to $60 million, which excludes the $23 million CECL day 1 provision in the second quarter.
We expect our noninterest income, excluding securities gains and bargain purchase gain to be in the range of $240 million to $260 million. We expect noninterest expense on an operating basis to be in the range of $750 million to $770 million for the year. As stated in past quarters, this estimate excludes potential nonoperating charges we may incur during the fourth quarter and excludes CDI amortization.
And lastly, we expect our effective tax rate to be in the range of 16% to 18% for the year, excluding the impact of the bargain purchase.
With that, we'll now turn over the call to Liz for any questions.
[Operator Instructions]
Our first question comes from the line of Frank Schiraldi with Piper Sandler.
I wondered if you guys could just, Rick, I think you said the NII now is expected at the high end of that range. And just wondered if you could talk a little bit about that in terms of, I guess, that's driven by the strong quarter and then because I would still think that all else equal, additional rate cuts are -- would be a negative, a slight negative to NII. I guess they're coming later in the year, but could you just confirm that. Maybe just talk about how sensitive you are in terms of asset sensitivity to the first few rate cuts here?
Sure. Yes. Thanks for the question. So yes, look, we are confirming the guidance range and at the high end. The reason for that, Frank, is really, given the early cuts in September, if we look at our sensitivity based on rate shocks, so think about a 25 basis point rate shock, that would equal on an annualized basis, roughly $7 million to $8 million of NII headwind.
So with those cuts somewhat front-loaded, we do anticipate some near-term pressure. That said, I would suggest that our sensitivity has declined dramatically, and we're moving closer to neutral. So on a year-to-date basis, we've cut our asset sensitivity by almost 45%. And that's driven really by a combination of a couple of things. Obviously, Republic transaction helped that, but then adding to a little bit of duration on the asset side from investment securities portfolio, too. So we've -- I think year-to-date, we're up about $900 million and have continued some of that in early October.
So I think if you compared us to about a year ago, far more neutral in comparison. I would also add that while very early on, we've seen good reaction and good movement on our deposit costs. So I think we're certainly being diligent there. But yes, the magnitude in the fourth quarter with potentially 100 basis points does add some near-term pressure.
Okay. And then just as a follow-up, just had a couple of quick questions on Fulton First. You got the $25 million in expense saves in 2025 and then another $25 million, I guess, beyond that. So is that all expense saves? And then is there some revenue enhancements as well that you would expect to pick up there? Or is that a smaller number? Or I just want to make sure I understand that part of it.
Yes, Frank, it's Curt. So we're implementing the various strategies and cost saves over a period of time. So really, the 25 impact next year is the impact as we implement these throughout the year. So the things that we've already implemented, having the full year benefit of that and the new initiatives having a partial year benefit of that. So that's really the ramp up.
We've done the design phase and we're working through the implementation at this point. So it's really a timing of how those costs hit the -- or saves hit the P&L. And they are all efficiencies and cost saves. We do have revenue targets that we were working on. We will build that into guidance as we move forward. So this is a growth and efficiency initiative, and you'll see both of those over time.
Great. Okay. And then just lastly on that same front, I just want to make sure I heard you correctly, Rick, on the expense outlook. I mean, not specific guide, but you talked about and you talked about in the deck about expenses -- operating expenses being about in line. I just want to make sure I'm understanding what that's in line with when I think about 2025. So is that operating expenses for the full year 2024? Or is that where you're going to be at the end of the year 2024? Any sort of clarification there?
No. So it's going to be -- well, it will be where we end the total of 2024. So given we affirmed our guide, think about the midpoint guidance there and expect on a core basis or ex CDI, that's a pretty good run rate for next year.
Our next question comes from the line of Daniel Tamayo with Raymond James.
I apologize for going back to the expenses, but I just want to make sure that we have this correctly here in terms of how we should be thinking about it. So just kind of running through the numbers, you guys had [ $202.5 ] million, right, kind of on a core basis by my calculation. And so the midpoint of the guidance suggests that would just come up a bit next quarter and then to be able to get that flattish for the year number, then we have a step down in 2025, and you mentioned kind of some in the first half and some in the second half.
And so should we think about that as being relatively on a step-wise basis in 2025, where you're seeing a little bit more benefit each quarter and that absolute number of expenses on a core basis that you're talking about comes down every quarter through 2025? Or is it more lumpy, but just want to make sure that I'm thinking about that process correctly?
Yes. Daniel, let me go back to the beginning, real quick. So the $202 million you referenced, that's including CDI. So our guidance is ex CDI for service. So we can let get everybody on the same page.
What we're thinking about is, on a year-over-year basis, the '25 compared to '24 continuing to be in that rough midpoint of the range. I don't expect it to be lumpy because there's a portion of those $25 million in saves, technically already in the run rate, right? So we'll continue to see a progression in that. I think what we laid out is roughly 45% in the first half and then the balance in the second half of the year. Does that clarify?
Yes, that's helpful. Yes, sorry. You're absolutely right on this. My number did not include the CDI. Okay. All right. Yes, that's helpful.
And then I guess, secondly, just switching back over to the NII discussion. And so the guidance for the fourth quarter obviously implies a step down there. You talked about -- you've got the headwind on the margin from rate cuts, but the deposit growth was certainly strong in the third quarter. You had some benefit from the munis, the seasonality there, but curious how we should think about kind of balance sheet growth or deposit growth going forward and how that impacts the total number just given the headwind on margin.
Yes. So on the loan growth side, we expect to continue to have modest loan growth as we look forward. Our pipelines and originations are consistent. But we are in a low growth environment. Customers continue to be cautious as we move forward. So we feel good about our organic business. But where we are in this environment and cycle, we expect kind of that low single-digit loan growth to continue. It was a little lower this past quarter as we added that headwind of the consumer indirect runoff, which will continue as we move forward, but we would expect low single digit on the loan side.
On deposits, we have the seasonal change from third quarter to fourth quarter on municipals. So we get a municipal rundown in the fourth quarter, but we expect our deposit flows to be as anticipated. The growth will not be as significant, certainly as the third quarter, but we expect a consistent move from third to fourth quarter.
So you're saying basically the -- you think deposit growth matches loan growth on a kind of rolling 12-month basis going forward? Is that the right expectation?
Yes. I mean we -- deposit growth has far exceeded loan growth so far this year. I think on just a normal quarter, we're trying to target loan growth and deposit growth in line with each other in that low single digit.
Okay. Perfect. And just remind...
Without the seasonal effects of muni. We're looking at the underlying customer nonseasonal activity.
Right. Yes. And my last question was just what -- remind us if you will, what that number you would expect to be in the fourth quarter, the seasonal impact?
So it's going to be approximately $300 million of runoff. It was about a $400 million in growth during the quarter.
Correct.
Our next question will come from the line of David Bishop with Hovde Group.
Sticking with that, maybe same line of question as Daniel. I think I heard cash and investments were over 18%, maybe 18.4% this quarter. Do you think you see some rundown in some of that short-term liquidity given some of those -- some of the deposit flows you are expecting this quarter?
Yes. I think that's reasonable, you could take a small step back. But generally speaking, we hope to manage that ratio roughly in line.
Got it. And then I know in the preamble, there was some discussion in terms of some of the puts and takes and the increase in nonaccruals. Just curious if there's any more detail. I think there was in the earnings slide, it looked like it was more concentrated in the commercial real estate segment. Any commentary there in terms of the types of credits or industries or sectors that might have been seeing some struggles here that were alluded to in the commentary?
Yes. So the linked quarter increase there is really pretty diverse. So C&I and commercial real estate, we really didn't see any trends in a certain industry or a certain portfolio. Really, the commonality is in a higher cost, higher interest rate environment. Certain borrowers are struggling or in a bad position, we continue to work with them. So it's really more of the macro environment and individual borrowers being able to navigate that. But there really are not any themes in that migration from quarter-to-quarter.
Got it. And one final question. I saw in the narrative the increase on an organic basis from Republic Bank. It looks like they saw sequential growth. Did that sort of match in terms of the types of deposit segments the overall bank in terms of driven by the CDs now and money market. Just curious any commentary where the growth came from?
Yes. Thanks for that. We were really encouraged by that. We saw growth in the quarter. Now they have a muni book as well. So that part of that portfolio is municipal. So you get a little bit of seasonality. There's not quite as much seasonality in that book as the core Fulton one, but there was a little impact there. But just overall trends around customer behavior and retention has really moderated to the point where we're seeing stabilization and growth. It was a really good outcome for the quarter.
Great. Appreciate the color.
Our next question will come from the line of Manuel Navas with D.A. Davidson.
Given that you're approaching a little bit more neutral positioning, is there kind of updated thoughts on when NII could trough in the next couple of quarters? Is it just really depending on rate cuts? Just kind of any color on that kind of topic?
Yes. I mean it really depends on what rates do as we move forward. We did take some interest rate sensitivity off the table and moving that to a more neutral position, which we think is prudent given the current expectations, but it's really hard to give a prediction because we just don't know where rates are going at this point. We're trying to be as neutral as positive -- or as neutral as possible so that we don't have a lot of fluctuation in earnings.
CD growth was a big part of deposit growth. Are you seeing that demand on your side peak? Is that going to drive a little bit higher deposit costs next quarter? Can you talk through that use of that CD book?
Yes. It's really in a higher rate environment, the CD product is just more popular. It is a product for folks to get increased yields. So we really manage things on a client-by-client basis to meet what their expectations are. If they can tie their money up for a period of time, it's a really good product. So it's natural to see more CD origination in an environment like this.
We have a lot of CD maturities in the fourth quarter. Rick can probably walk you through those numbers just to see from a linked quarter what we expect on an overall growth. But that trend of customers seeing the value in a CD will continue and we'll manage that appropriately.
Yes. I might just add, Manuel. So we do have about $1.4 billion maturing in the fourth quarter at a rate of around 4.91%. So some of our efforts in the third quarter were truly intended on getting ahead of that and pulling a little bit of that forward. So I'll also throw out there, in the first quarter of '25, we have another $1.3 billion at around 4.80%. So depending on what happens from a Fed perspective, obviously, significant downward repricing opportunity there.
And what did the CDs that were added this quarter kind of roughly get added at in terms of rate?
Yes, roughly low 4s. So it depends on whether they were new or renewals, but low 4% -- anywhere wider range, but call it 4.20%.
Okay. That's helpful. On the Fulton First initiative, is there any like give or take on kind of the pace? Could you advance revenue? Could you advance cost saves? How do you feel that -- how much flexibility could you have with that initiative over time?
Yes. So I mean, we have a very detailed plan. We'll work through the process and timing as appropriate for implementation. We really haven't built any growth in. We'll build that into our targets for next year. I mean we just want to be clear about the point that it is focus and growth orientation and not just the cost saving initiatives. Really transformation on how we're doing things, how we're focusing and moving forward. So the implementation that have cost impact will be done as we can over time, then we'll build the revenue into our targets on an overall basis.
I appreciate that. My last question is just capital building. Can you just reset your position on capital deployment? What are your updated thoughts there across any use of capital?
Yes. So our capital strategy remains the same, support organic growth, support any corporate initiatives that would require capital. And then we have a buyback program in place. I think we've been pretty direct about we would not use that for the remainder of the year, do not anticipate using that for the remainder of the year, and then we'll look into '25 in what is appropriate, but that is our third use of capital.
Our next question comes from the line of Chris McGratty with KBW.
Curt, just on the capital. Was M&A kind of bucketed into that second corporate initiative? Is that something that's even on the table given what you're doing with Republic and the initiative on Fulton First?
Yes. So they would certainly be in that bucket. There's lots of different things that we could do, but bank or full bank M&A would be in that bucket. We are focused on full integration of Republic right now. That's our primary focus. But we've kept the Fulton First initiative progressing as intended, while we stepped in and did the Republic acquisition. So we would be able to do that again some point next year if opportunities -- if we want to pursue any opportunities. We certainly would not do anything until next year.
And then on the ideal kind of candidate. What would it look like assuming you don't find a transaction like the Republic again? Remind me, the footprint size metrics, kind of that stuff?
Yes. So that strategy is the same as well. We kind of think about it in 2 different buckets. The community bank, $1 billion to $5 billion similar operating model as us. We provide more capacity, maybe more product and would be a good upstream partner for them. That, I would say, is probably our primary focus. Republic fit right into that, in-market community bank. So it's a little different structure in how we purchased that organization. But that fit that strategy and is a prudent strategy for us, we feel.
And then we do look at the $5 billion to $15 billion banks as well. There are very few of those, but we feel we could be a good partner for banks of that size, and would evaluate that. But again, our primary focus is the $1 billion to $5 billion community bank.
Perfect. Maybe just one more modeling question. Rick, do you have the spot -- I might have missed this, the spot IBD costs in the quarter? And then on the broker, the numbers that you gave, I guess, expectations of brokered runoff, would that community be included in that? Or is that totally separate?
The brokered is included in the earlier $1.4 billion and $1.3 billion numbers I gave in the next 2 quarters. So it's about -- just for specifics, it's about a little over $350 million of brokered in 4Q and $300 million in the next quarter.
And in terms of spot rates, yes, so September total deposits ended around 220 bps, so 2.2%. That's down. Obviously, the average for the quarter was [ 224 ]. We kind of peaked out in August. So spot rates actually declined from August about 9 basis points. So pretty appropriately paced moves towards the end of the quarter on some of the richer products out there and happy with, at least the immediate betas we're seeing on those portfolios. So more to come.
[Operator Instructions] Our next question will come from the line of Matthew Breese with Stephens.
Just getting into kind of the nuts and bolts behind the margin. So with the 50 basis point cut and more expected, I was hoping you could talk, one, a little bit about where you have room to reduce deposit costs. You already addressed CDs, but could you give us some sense for how you adjusted money market or higher cost savings deposit rates during the quarter?
And then secondly, I was hoping for some -- I know it's early, some early help on expectations around deposit betas over the next 12 to 18 months?
Sure. So look, I would say in terms of where we made, what I would consider to be considerable progress during the quarter and granted that was basically 5 days or so in the end of the quarter, call it about $10 billion worth of deposits where we moved rates anywhere from 20 to 40 basis points. So that's a fairly meaningful chunk and then obviously a relatively high beta on those portfolios. That's excluding CDs.
I'm sorry, Matt, what was the other part of your question?
Yes. Just given some of those early moves given your deposit beta for the hiking cycle, just some expectations or thoughts around what you think the deposit beta will be on the down cycle?
Yes. Over the long term, I think we're thinking about something closer to 30%, but in the shorter term, really only modeling something closer to 10%. So obviously, given the numbers I just pointed out, we're seeing -- on some larger portfolios, we're seeing better beta than that in the short term. And I might just add, too, the number I threw out earlier in terms of the shock scenario, as you move into a more gradual pacing of rate reductions, so more of a ramp scenario, that annualized number on every 25 basis points gets cut in about half. So it's far more manageable. It's really that pressure comes more upfront just given the magnitude of cuts in September.
Got it. Okay. And then let's switch to the opposite side. So Rick, you had mentioned the bank is incrementally more interest rate neutral and just to level set, I have in my model about 45% floating rate loans. And obviously, that will move with the shorter end of the curve and then [indiscernible] 55% fixed rate or adjustable rate loans.
These appear to be well below market rates. And so for the rate hiking cycle, your loan beta was around 50%. I'm curious what that bogey might be for the downrate cycle. It feels like 50% would be far too heavy, given your commentary around interest rate neutrality. Could you address that a little bit, give us some range there?
Yes. Look, I think what we're anticipating and modeling is similar to what you pointed out, is the upside beta. So around that 50% to 55% beta. Could it be too aggressive? Potentially, right? So there is -- you called out, we have about $9 billion of fixed rate loans now. And then the overnight -- really the overnight pricing, so either so far or prime is just over $6 billion. So that's where you're seeing that immediate impact. But it is possible as rates move down, depending on the cadence, we could see lower betas just given the shift of the balance sheet.
Got it. Okay. The last one is -- and I hate to go back to clarifying on expenses, but the presentation guidance for 2024 as it relates to expenses says it includes CDI. So I wanted to confirm that. And then secondarily, the second part, which is expenses will be flat, essentially from '24 to '25. I would assume that excludes CDI because of the change given Republic First. I just wanted to clarify those moving parts?
Yes, Matt, I'll apologize for the -- maybe the poor choice of wording in the footnote. So excludes nonoperating expenses, including core deposits. That means the inclusion is -- the exclusion is including, right? So it excludes both, it should say excluding core deposit intangible as well.
That concludes today's question-and-answer session. I'd 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 fourth quarter results in January. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.