Fulton Financial Q3 2023 Earnings Call Transcript

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October 18, 2023

There are 10 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Fulton Financial Third Quarter 2023 Results. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would like now to turn the conference over to Matt Jozbeck, Director of Investor Relations.

Operator

Please go ahead.

Speaker 1

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 Q3, which ended September 30, 2023. Your host for today's conference call is Curt Myers, Chairman and Chief Executive Officer. Joining Kurt is Mark McCollum, 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.

Speaker 1

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.

Speaker 1

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 Slide 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 call the turn over to your host, Curt Myers.

Speaker 2

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 We were pleased with our Q3 results. Operating earnings of $0.43 per share were solid.

Speaker 2

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.

Speaker 2

Our core operating expenses are expected to decline in the 4th quarter from the 3rd 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 2,200,000 shares in the 3rd quarter and continue to monitor deployment capital deployment opportunities. As of September 30, dollars 29,000,000 remains from our $100,000,000 2023 repurchase authorization. Turning to growth, total loan growth moderated this quarter growing 133,000,000 were 2.5% annualized.

Speaker 2

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.

Speaker 2

Deposit growth outpaced loan growth and was $215,000,000 for the quarter. This was driven by seasonal inflows of municipal deposits of $270,000,000 As a result, our loan to deposit ratio benefited declining from 98 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.

Speaker 2

In addition, we have financial centers targeted to open in the Philadelphia, Richmond and the Wilmington MSAs in the 4th 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 remain stable. Net charge offs were $5,000,000 or 10 basis points annualized. Criticized and classified loans declined, non performing assets declined and delinquencies remained historically low.

Speaker 2

We have again provided detail on our loan portfolio and specifically on our office portfolio on Slides 45. I'd like to note that 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 broad market trends and their and potential impacts on credit quality. Now I'll turn the call over to Mark to discuss the details of our Q3 financial performance and our 2023 outlook in a little more detail.

Speaker 3

Thanks, Kurt, 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 Q2 of 2023. 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 were $0.43 on operating net income available to common shareholders of 72,200,000 This compares to $0.47 of operating EPS in the Q2 of 2023. Moving to the balance sheet, As we anticipated, loan growth slowed in the Q3 to $133,000,000 or 2.5 percent annualized.

Speaker 3

On the commercial side, growth moderated to $47,000,000 or 1.4 percent and was a mix of certain categories offsetting others during the quarter. Consumer loan growth also moderated to $86,000,000 or 4.7% during the quarter. While mortgage lending remained the majority of our consumer loan increase, the 3rd 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% 8.5% depending on product and borrower specific criteria. Total deposits grew $215,000,000 during the quarter.

Speaker 3

Interest bearing deposits grew $506,000,000 or approximately 13% with seasonal growth in our municipal deposit portfolio contributing $270,000,000 of that total. This growth was offset by a decline and our non interest bearing DDA accounts. Non interest bearing balances declined $290,000,000 during the period, which was down from a $538,000,000 decline in the 2nd quarter and a $603,000,000 decline back in the 1st quarter. This moderation in the mix shift from non interest bearing to interest bearing deposits was slightly better than our expectations and helped increase our NII guidance I will provide at the end of my comments. As Kurt mentioned, our loan to deposit ratio ended the quarter at 98 9% down from 99.2% at the end of last quarter.

Speaker 3

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 non interest bearing deposit percentage. We believe we should end the year between 23% and 4% non interest bearing deposits, down from 27.7% at June 30th and 26% at September 30th. This estimate assumes that we'll have an additional deposit shift of approximately $350,000,000 to $400,000,000 into interest bearing deposits during the Q4 of 2023. Our investment portfolio declined approximately $200,000,000 during the quarter, closing at 3,700,000,000 Going forward, we expect our investment portfolio to migrate upward as market conditions dictate, ultimately equaling about 15% of our balance sheet.

Speaker 3

Putting together those balance sheet trends on Slide 8, net interest income was $214,000,000 a $1,000,000 increase linked quarter. Our net interest margin for the 3rd quarter was 3.40 percent consistent with 3.4% in the 2nd 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 Turning to credit quality on Slide 9, our non performing loans decreased $6,300,000 during the quarter, which led to our NPL to loans ratio decreasing to 67 basis points at September 30 versus 70 basis points at June 30.

Speaker 3

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 30th to 1.38% at quarter end. Turning to non interest income on Slide 10, our wealth management revenues were $19,400,000 up from $18,700,000 for the Q2. We continue to invest in our wealth business and it now represents about a third of our fee based revenues. The market value of assets under management and administration declined $17,000,000 during the quarter to close at $14,200,000,000 Commercial Banking fees declined to $19,700,000 during the quarter.

Speaker 3

Reduced loan originations tempered capital markets revenue and 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 $3,000,000 in other fee income related to our final transition from LIBOR to SOFR. In order to minimize Customer disruption and rewriting certain loan and swaps 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.

Speaker 3

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 3rd 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, Non interest expenses were $171,000,000 in the 3rd quarter, a $3,000,000 increase from the 2nd 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.

Speaker 3

On Slides 1213, we are continuing to provide you with and expanded metrics on capital and liquidity. 1st 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 and the impact of accumulated other comprehensive income. Our tangible common equity ratio was 6.8% atquarterend, 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 and derivatives.

Speaker 3

This totaled $374,000,000 after tax on a total AFS portfolio of $2,900,000,000 On Slide 13, including the loss on our held to maturity investments, which is $203,000,000 after tax on an HTM portfolio of $1,300,000,000 our tangible common equity ratio would be 6.2% at September 30th, still representing over $1,600,000,000 intangible capital. On Slide 14, we provided you with a comprehensive look at our liquidity profile. When 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 $8,700,000,000 at September 30. In addition, we maintain over $2,500,000,000 in Fed funds lines with other institutions. On Slide 15, we are providing our updated guidance for the remainder of 2023.

Speaker 3

Our guidance now assumes a final 25 basis points 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, dollars 845,000,000 to $855,000,000 We expect our provision for credit losses to be in the range of $55,000,000 to $65,000,000 We expect our core non interest income excluding securities gains to be in the range of 220 $230,000,000 but we are trending to the higher end of this range. And we expect our core non interest expenses to be $665,000,000 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.

Speaker 3

With that, we'll now turn the call over to the operator for your questions. Michelle?

Operator

Thank you. The first Question comes from Daniel Tamayo with Raymond. Your line is now open. Daniel, your line is now open. Daniel, can you hear us?

Operator

Your line is open. Please stand by for the next question. The next question will come from Chris McGratty with KBW. Your line is open.

Speaker 4

Hello, good morning. Hey, Chris. Hey, good morning. Kurt, maybe starting with you on capital. You talked about the slowing of the balance sheet, which is Reflective in H8 trends.

Speaker 4

But you tipped at the buyback. How do we think about, I guess finishing it, additional buybacks, Other uses of capital given the, I

Speaker 1

would say still uncertain economic environment?

Speaker 2

Yes. So our capital strategy remains the same. We're going to support organic growth as we look in the Q4 here first. And then we would look at other alternatives like buybacks. We do have $29,000,000 remaining In that authorization and we're active in the Q3, we make those determinations based on Pricing and capital use.

Speaker 4

Okay, great. And then maybe 2 follow ups. Mark, I think you said you have A November hike in the guide.

Speaker 5

I think the market is

Speaker 4

kind of fifty-fifty if we get it. Can you just remind us what each 25 is? I think you provided it On a monthly basis in the past?

Speaker 3

Yes. I would say that if we don't get that, you have Just under $9,000,000,000 of variable rate loans that would reprice. So if you don't get that benefit, that Ends up being a little bit north of $20,000,000 annually, so a little bit under $2,000,000 a month. But then obviously, The wildcard question is, what if we don't get that, does that change that your glide upward in deposit costs? Yes.

Speaker 3

So there'll be some offset to that.

Speaker 4

Okay, great. And then maybe my last, there was a report overnight about interchange Making its ways to regulation again. Can you just remind us, obviously you're about $10,000,000,000 but just what the potential remind us what the impact was Previously and how much might be at risk if we get more regulation?

Speaker 2

Yes, Chris, we really didn't look at the numbers Yes, because we don't know what will happen. I mean we have the sensitivity on it. We are an issue. So we benefit and Have cost offsets with that as well. So we have to model both sides of that depending on what plays out from a legislative standpoint or from a market standpoint pricing with customers.

Speaker 2

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 That's on.

Speaker 6

Okay. Thanks. Thanks a lot.

Operator

Our next question comes from Fady Strickland with Jamie Montgomery, your line is open.

Speaker 5

Hey, good morning. Hey,

Speaker 6

Barry. Hey, Barry.

Speaker 7

Just wondering if you can talk about upcoming maturities in the loan portfolio over the next couple of quarters. And ballpark, what's the rate on those On average as they come off,

Speaker 2

as they mature versus renewal?

Speaker 3

Yes. I would say on ones that are maturing, I mean, again, it's going to be a pretty wide swath, Betty, depending on the category. But I mean, it could be as I mentioned, our new loans are going to be anywhere from 7% to 8.5% that we're putting on right now. Yes, maturities are coming off anywhere from sort of that 5.5% to 7% range, depending on one loan category.

Speaker 7

Got it. And then can you remind us 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. It's Those are generally higher rate, right?

Speaker 3

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 in that portfolio has crept up to 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 consistent around like that $300 ish like we saw this past quarter increase in the 3rd quarter. And then in the Q4, you tend to see a similar amount in the last 2 years.

Speaker 3

3 years ago, it used to be a little more, but right now it's more about $200,000,000 to $300,000,000 of outflows.

Speaker 7

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?

Speaker 2

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.

Speaker 7

Understood. Thanks for taking my questions. Thank you.

Operator

Please stand by for our next question. The next question comes from David Bishop with Hubby Group. Your line is open.

Speaker 5

Hey, good morning.

Speaker 2

Good morning, Dave. Good morning, Dave.

Speaker 8

Hey, 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

Speaker 5

are well above that.

Speaker 8

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?

Speaker 2

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 we need in this environment. So it is an opportunity for us and that's how we're looking at it.

Speaker 8

Got it. And then within the, I appreciate the disclosures regarding office CRE and central business district exposure. Any sort of intra quarter weakness there or any update in terms of what you're seeing in terms of credit trends within that portfolio?

Speaker 2

Yes. The portfolio has been pretty stable. We're closely monitoring that 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 is a challenge overall Environment.

Speaker 8

Got it. Let me 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 a mark maybe a good run rate for that other income line on a go forward basis? Thanks.

Speaker 3

Yes. So that's going to creep back in actually in NII over time and that there'll be approximately 5 years.

Speaker 6

Got it. Thanks.

Operator

Please standby for our next question. The next question comes from Manuel Nieves with D. A. Davidson. Your line is open.

Speaker 6

Hey, good morning. Good morning, David. I just wanted to have some updated thoughts on the NIM direction from here. Also, thoughts on the broker deposits, like when do you have to kind of seek to replace them? It looks like the CD engine is working quite well.

Speaker 6

So Just kind of some updates on those areas.

Speaker 3

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 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%.

Speaker 3

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 4th 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 that 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 Q4, we still have about $300,000,000 of CDs maturing at about a 2% rate, whereas by the middle of next year, You have $600,000,000 of CDs, but they're maturing at a $420,000,000 rate.

Speaker 3

So your replacement rate becomes much narrower, which will then help to slow down that margin impression as well.

Speaker 6

I appreciate that. Is that we kind of drift up on the loan to deposit ratio to the higher end of the range over the next couple of quarters?

Speaker 2

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.

Speaker 6

Okay. You've 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, you're getting CDs? Can you kind of just talk through that a bit?

Speaker 2

Yes. So we're working both. So we are adding customers and are focused on deposit customers, but customers overall And we are working hard at cross sell on existing customers to bringing in Money that may be at other institutions and we're their primary relationship, but we don't have all of the relationship. We're hyper focused on That share of wallet for current customers to bring in deposits that way and loans.

Speaker 6

And my last question is on expenses. You're bringing them down a little bit in the Q4. Can you 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.

Speaker 2

Yes, we're really focused on core operating expenses. We said that Expenses will come down in the Q4. 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.

Speaker 6

Thank you very much.

Speaker 2

You're welcome.

Operator

Please standby for our next question. The next question comes from Matthew Breese with Stephens. Your line is now open.

Speaker 5

Hey, good morning.

Speaker 4

Good morning, Matt. Hey, Matt.

Speaker 5

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?

Speaker 2

Yes, we're really focused on 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 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.

Speaker 5

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 a current level. Is that how we should be thinking about it?

Speaker 2

Yes. 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 two things in as we move forward. So we have items like our corporate real estate expense.

Speaker 2

We will bring that expense down. Other areas we need to look at revenue opportunity relative to Expense opportunity. So we're doing both things.

Speaker 5

Okay. And then maybe going back to The NII guide, which suggests in the Q4, 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 quarterly basis to kind of sync up with your NIM outlook, which stabilizes and call it mid-twenty 24. Is that a decent way

Speaker 7

to think about this?

Speaker 3

Yes, yes. I think that's fair, Matt.

Speaker 5

Okay. And do you have any idea where you think the NIM or NII might stabilize at that point without any additional rate movement?

Speaker 3

We haven't given guidance yet for 2023. I mean, I'm comfortable Given that broad guidance or ESR for 2024. But when we come out next quarter, for 2024, WAP should be giving guidance for the full year at that time.

Speaker 5

Okay. With some of the better than expected deposit results this quarter, could you provide some updated thoughts around expectations around terminal Positive beta, as we get into 2024 and perhaps at the end of this cycle?

Speaker 3

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 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.

Speaker 5

Okay. Last one for me is it 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?

Speaker 2

Yes, Matt. Our Shared National Credit portfolio is a balance of about $325,000,000 right now, so less than 2%. It's customers that 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.

Speaker 2

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.

Speaker 5

Any sub industries within it that have more of the pie than others?

Speaker 2

No, not really. It's pretty evenly split CRE and C and I and we have 5, 6 different categories. So it's pretty diversified within the C and I categories As well.

Speaker 5

I will leave it there. I appreciate you taking all my questions. Thank you.

Operator

The next question comes from Frank Schiraldi with Piper Sandler. Your line is open.

Speaker 9

Good morning.

Speaker 3

Hey, Greg.

Speaker 9

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 careful eye on the expense side and see where revenues flush out for next year?

Speaker 2

Yes, Frank, I appreciate the question and we're really focused on efficiency ratio and Excluding expenses around expenses to assets, we have not been public with a 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.

Speaker 6

Okay.

Speaker 9

And then on non interest 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 a higher for longer Great scenario. Obviously, bottoms out 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?

Speaker 3

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.

Speaker 6

Got you.

Speaker 9

Okay. I appreciate it. Thank you.

Operator

The next question comes from Daniel Tamayo with Raymond James. Your line is open. Daniel, your line is now open. Daniel, your line is now open. Please stand by for the next question.

Operator

The next question comes from Manuel Nieves with D. A. Davidson. Your line is open.

Speaker 6

Hey, I just want 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 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.

Speaker 2

So right now we have 205 Financial Centers. We're consistently managing that network, consolidating We're 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. At D. C, we opened a loan production office in the second quarter.

Speaker 2

So that kind of Pro 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.

Speaker 6

Okay. I appreciate that. Thank

Speaker 4

you. You're welcome.

Operator

I show no further questions at this time. I would now like to turn the call back to Curt Myers for closing remarks.

Speaker 2

Well, thank you again for joining us today. We hope you'll be able

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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