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U.S. Bancorp (NYSE:USB)
Q3 2018 Earnings Conference Call
October 17, 2018, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to U.S. Bancorp's third quarter 2018 earnings conference call. Following a review of the results by Andy Cecere, Chairman, President, and Chief Executive Officer and Terry Dolan, U.S. Bancorp's vice chairman and chief financial officer, there will be a formal question and answer session. If you would like to ask a question, please press * then 1 on your touchtone phone and press the # key to withdraw. This call will be recorded and available for replay beginning today at approximately noon, eastern daylight time through Wednesday, October 24th at 12:00 midnight eastern daylight time. I will now turn the conference call over to Jenn Thompson, Director of Investor Relations for U.S. Bancorp. Please go ahead.

Jenn Thompson -- Director, Investor Relations -- Analyst

Thank you, Casey. And good morning to everyone who has joined our call. Andy Cecere and Terry Dolan are here with me today to review U.S. Bancorp's third-quarter results and to answer your questions. Andy and Terry will be referencing a slide presentation during their prepared remarks. A copy of the slide presentation, as well as our earnings release and supplemental analyst schedules, are available on our website at usbank.com.

I'd like to remind you that any forward-looking statements made during today's call are subject to risk and uncertainty. Factors that could materially change our current forward-looking assumptions are described on Page 2 of today's presentation, in our press release, and in our Form 10-K and subsequent reports on file with the SEC. I'll now turn the call over to Andy

Andrew Cecere -- Chairman, President and Chief Executive Officer -- Analyst

Good morning, everyone. And thank you for joining our call. Following our prepared remarks, Terry and I will be opening up the call to Q&A. Let me begin on Slide three. In the third quarter, we reported record net income and earnings per share driven by record revenue and positive operating leverage. In line with our expectations, loan growth accelerated in the third quarter, supported by continued strength in consumer lending and a pickup in commercial loan growth. On the right slide of slide three, you can see that credit quality improved into the third quarter and our book value per share increased by 5.3% from a year ago. During the third quarter, we returned 78% of our earnings to shareholders through dividends and share buybacks. Slide four highlights our best in class performance metrics including a 19.9% return on tangible common equity. Our efficiency ratio, return on average assets, and return on average common equity all improved sequentially and on a year-over-year basis.

Now, let me turn the call over to Terry who will provide more detail on the quarter as well as forward-looking guidance.

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Thanks, Andy. If you turn to slide five, I'll start with a balance sheet review and follow up with a discussion of earnings trends. Average loans grew 0.9% on a linked quarter basis and increased 1.8% On a year-over-year basis, excluding the impact of a student loan portfolio sale in the second quarter. We saw continued growth in retail portfolios such as mortgage and retail leasing. Credit card loan growth was supported by expansion in both the number of active accounts and the sales per active account. We are seeing good momentum in digital acquisitions across platforms. As expected, commercial loan growth accelerated in the third quarter, following modest growth in the first half of the year.

Pipelines remain strong, and we are seeing CapEx investment and M&A activity among our corporate clients. Alternative funding sources, such as the capital markets and Companies-owned cash balances are limiting the client's need to access the loan markets but to a lesser extent than during the last several quarters. As investment spending gains traction and companies work through their cash balances and tax repatriation, we expect commercial loan growth to continue to improve. Consistent with the past several quarters, commercial real estate loans declined, reflecting our decisions not to extend credit at unfavorable terms and continued pay downs as customers seek alternative financing. This quarter, excluding the impact of the student loan sale, commercial real estate contributed a 27 basis point drag to linked quarter growth and 122 basis point reduction to year-over-year loan growth. While pay down activity remains a headwind, it is gradually diminishing in intensity. And we expect the trend to continue.

Turning to slide six, deposits declined 1.4% on a linked quarter basis. This included the impact of an anticipated balance migration related to the business merger of a large financial client which represents about half of the balance decline. This impact is expected to moderate in the fourth quarter. About a half of our deposits are retail customer balances within our consumer and business banking business line where we saw a 0.7% linked quarter increase in average deposits driven by a 2.7% increase in noninterest-bearing deposits. Within corporate and commercial banking, our business customers are deploying positive balances to support growth and are migrating balances to alternative investment vehicles. This drove some of the decline this quarter. Additionally, our corporate trust business saw seasonal declines in deposit balances associated with the timing of the receipt and distribution of funds. These deposit flows are consistent with our asset liability modeling expectations.

Slide seven indicates that credit quality improved in the third quarter due to improving economic conditions with customer pay downs resulting in pressure on loan balances but an improved credit profile. Notably, our nonperforming assets declined 8% compared with the second quarter and decreased 19.7% compared with the third quarter of 2017. Slid eight provides highlights of third-quarter earnings results including a 3.9% increase in diluted earnings per share on a linked quarter basis. On slide nine, linked quarter and year-over-year net interest income growth was supported by higher interest rates and earning asset growth which was partly offset by a shift in deposit and funding mix. Year-over-year growth was negatively impacted by tax reform which reduced the taxable equivalent adjustment benefit related to tax-exempt assets. In the third quarter, the net interest margin was 3.15%, up two basis points linked quarter and one basis point compared with a year ago.

The impact of tax reform on taxable equitable earning assets hurt year-over-year net interest margin expansion by two basis points. Our interest-bearing deposit betas continue to perform in line with our expectations during the few rate hikes. As future rate hikes continue, we continue to expect our deposit beta will trend toward 50% which compares with the current level of about 45%. The betas on our commercial and trust deposit basis which represents about half of our total deposits are in line with our estimated terminal betas. We expect that movement in the overall beta going forward will primarily be driven by our consumer deposit base. Slide 10 highlights trends in non-interest income.

On a year-over-year basis, we had strong growth in payments revenue and trust and investment management revenue partially offset by a decrease in commercial product revenue, mortgage banking revenue, and treasury management fees. Commercial product revenue pressure reflected market dynamics in corporate bond underwriting and loan syndications. Mortgage revenue was affected by lower refinancing activity and lower gain on sale margins. Despite lingering market headwinds, we expect the year-over-year decline in mortgage banking revenue to moderate in the fourth quarter. We are well-positioned as a waiting refi market transitions to a more robust purchase mortgage market. We are optimistic that gain on sale margins in this business have stabilized and will expand as excess capacity leaves the origination market. The decline in treasury management fees reflect the impact of changes in earnings credits which is typical in a rising rate environment.

Turning to our payments business, we had strong growth in credit and debit card revenue and double-digit growth in corporate payment revenue, each reflecting higher sales volumes. As we have been signaling for several quarters, merchant processing revenue returned to a mid-single-digit face in the third quarter as we lapped the impact from the exit of joint ventures in the second quarter of 2017. Merchant acquiring sales volume growth continues to be strong. We expect merchant processing revenue to continue to strengthen the fourth quarter of 2018. Trust and investment management revenue growth was driven by business growth as well as favorable market conditions.

Turning to slide 11, noninterest expense decreased 1.3% on a linked quarter basis, partly reflected typical seasonality and increased 1.5% on a year-over-year basis. Compensation expense increased, principally due to the impact of hiring to support business growth and compliance programs, merit increases, and higher variable compensation related to business production. Notably, within non-personnel expenses, professional services expense declined from a year ago primarily due to fewer consulting services as compliance programs near maturity. We expect compliance related cost to continue to moderate through the year. Other expense decline from a year ago due to lower deposit insurance and litigation costs as well as a reduction in costs related to tax advantage projects as we syndicate tax credits in the secondary market. Slide 12 highlights our capital position. And September 30th, our common equity tier one capital ratio estimated using the Basel III standardized approach was 9%.

This compares to our capital target of 8.5%. I'll now provide some forward-looking guidance. For our fourth quarter, we expect fully taxable equivalent net interest income to increase in the low-single-digits on a year-over-year basis, strengthening from the third quarter growth rate. We expect fee revenue to increase in the low- to mid-single-digits year-over-year. On a year-over-year basis, we expect to deliver positive operating leverage on a quarterly basis in the fourth quarter and for the full year of 2018. We expect credit quality to remain relatively stable compared to the third quarter. Now, I'll hand it back to Andy for closing remarks.

Andrew Cecere -- Chairman, President and Chief Executive Officer -- Analyst

Thanks, Terry. The second half of 2018 is shaping up as we had anticipated. And momentum is building in our core businesses as we head into the end of the year. We expect loan growth to continue to accelerate in the fourth quarter and our fee businesses to remain on a good trajectory. Merchant acquiring revenue growth is gaining momentum. And our other two payments businesses, retail card issuing and corporate payment services are firing on all cylinders. In wealth management and investment services, we are benefiting from favorable market conditions, even as we continue to grow new accounts and reap the benefits of our strong market position in corporate trust. We remain diligent in our focus on managing expenses for whatever revenue environment we are operating in. And we are committed to delivering positive operating leverage in the upcoming quarter for the full year 2018 and 2019. We manage our company for the long-term while balancing shorter-term financial objectives.

This approach means that we will be prudent with expense management but continue to make traditional investments in our businesses and accelerate investments to enhance our digital and payments capabilities. In terms of more traditional investments, we recently announced the expansion of our middle market commercial banking team in the New York metro area where we have a strong presence and a large corporate space for over ten years, and we'll be able to leverage that existing platform. On a technology and innovation front, we announced the creation of a new fully digital capability for small businesses to apply for and receive a loan or line of credit. The application of funding time is often less than an hour, improving on a process that can take weeks within the industry. During the third quarter, we acquired electronic transaction systems which enhances our integrated software capabilities within our merchant processing business.

It expands us into the municipality industry vertical where we can leverage our government banking relationships within corporate and commercial banking. These investments and future investments will enable us to stay at the forefront in banking and will drive improved operating leverage over the next several years. We understand the value we create for our shareholders starts with the value we create for our customers. As the banking industry evolves in this new era of digital capabilities, we continue to look for ways to use technology and innovation to make our customers' financial lives simpler and more productive while at the same time protecting their data, their personal information, and their privacy.

If we do it right -- and we will do it right -- our customers win, our employees win, and our shareholders win. In closing, I'd like to thank our U.S. Bank team members across the country for bringing their A game to work every day to deliver on the promise of one US Bank and driving outstanding results for each of our shareholders. That concludes our formal remarks. Terry and I will now be happy to answer your questions.

Questions and Answers:

Operator

Thank you. At this time, I would like to remind everyone, if you would like to ask a question, please press * followed by the No. 1 on your telephone keypad. Once again, that's * then 1 if you would like to ask a question. And your first question comes from John McDonald with Bernstein. Please go ahead. Your line is open.

John McDonald -- Sanford C. Bernstein & Co., LLC -- Analyst

Hi. Good morning, guys. Wanted to ask a little bit about the positive operating leverage. You had a nice print on positive operating leverage this quarter. Looks like about 80 basis points. Just wondering how much help you got on the expense line this quarter from some of the accrual reversals and any other one-timers that you mentioned. And then more importantly, as you look out into next year, Andy, I think you've talked about shooting for operating leverage gap of 1% to 1.5% next year. What do you see as the drivers for that to accelerate next year to that range you talked about?

Andrew Cecere -- Chairman, President and Chief Executive Officer -- Analyst

I'll have Terry start. Then I'll jump in.

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yeah, John. Let me talk a little bit about the expense question that you had. Again, our focus is around being able to deliver that positive operating leverage. But if you end up looking at expenses, we're focused on a lot of different areas. You mentioned the litigation accruals. That actually is not a very big driver of the overall change. If you think about it, on a year-over-year basis, the biggest drivers is that -- one is relate to tax credit amortization costs which are lower this year versus last year.

And if you think about it with tax reform and us having lower tax expenses, the capacity that we generate in tax credit production allows us to generate both fee revenue through tax credit syndication but also reduce our tax credit amortization. And that's something that we believe is both sustainable over the long haul. The second things that we've talked about -- our FDIC insurance is a little bit lower than what we expected. And then if you think about our mortgage servicing costs, we continue to just as the refi market has changed, etc., the mortgage servicing type of costs will come down in foreclosure-related costs, etc. So, those are probably the biggest drivers. On a linked quarter basis, the tax credit amortization represents the majority of the change. So, those are things I would focus on.

Andrew Cecere -- Chairman, President and Chief Executive Officer -- Analyst

And John, Andy. As we look at next year, I would highlight a couple of things. As we've talked about, we've lapped the merchant revenue issue. And you saw that that's growing 4%. We continue to expect that to accelerate as we go into next quarter and next year. Mortgage revenue which has been a little bit of a headwind in the industry I think will start to come back. We're seeing accelerated loan growth, continued economic growth. And then across all our businesses, we're seeing increase in market share and customer acquisition. So, those are all things that pose positive opportunities for 2019 revenue.

John McDonald -- Sanford C. Bernstein & Co., LLC -- Analyst

Okay. And Andy, just a quick follow-up. Is the 1% to 1.5% still a good target as you sit here now and look out to '19 for the operating leverage that you're gonna shoot for?

Andrew Cecere -- Chairman, President and Chief Executive Officer -- Analyst

Yes, it is.

John McDonald -- Sanford C. Bernstein & Co., LLC -- Analyst

Okay. And then one quick follow-up, Terry. The FDI insurance fees lower that you mentioned, what was the driver of that? And do you still have a step down coming from the end of the surcharge later, either fourth quarter or next year?

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yeah. The biggest driver is really the FDIC rate as much as anything. And as we make capital decisions and other things, and then if you think about our risk profile, we are getting an FDIC benefit from a rate standpoint. That's probably the biggest driver. And then I think your second question was really related to the surcharge. If you think about the surcharge -- so, think about the fourth quarter. We expect the surcharge to continue. And until it ends, we're gonna continue to expect it to be there. So, we'll wait for that decision. The impact to us on a quarterly basis is about $20 million related to that surcharge. So, that gives you a sense in terms of the size of it as well as you're thinking about that for the future.

Andrew Cecere -- Chairman, President and Chief Executive Officer -- Analyst

And John, importantly, we're not assuming that surcharge goes away as we think about positive operating leverage in 2019.

John McDonald -- Sanford C. Bernstein & Co., LLC -- Analyst

Great. Thanks, guys.

Operator

Your next question comes from John Pancari with Evercore. Please go ahead. Your line is open.

John Pancari -- Evercore ISI -- Analyst

Good morning. On the loan growth front -- and I heard you're on the expectation that we're gonna see some good acceleration and growth in coming quarters or at least for next quarter. What is really driving that view? What is changing that you're calling out? Is it more about the pay down abatement that you think is gonna continue or the bond market flow finding its way back to bank low market? Or is it more about just outright demand? Thanks.

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yeah. I think it's actually a combination of all of those things if you think about it. We've been talking about the fact that our pipelines have been getting stronger and M&A activity has been picking up. We've seen in our corporate payment businesses the spend by businesses in both discretionary and CapEx getting stronger. So, I think a part of it is demand, at least in terms of what we are seeing. We're also seeing the pay downs that we saw in late 2017 and in the first half of this year. Those starting to moderate. They're still continuing. But I think they are moderating. And so, it is a combination of all those different activities. I also think that as the long end of the curb has moved up, the opportunity within the capital market space, that dynamic has changed a little bit. So, I think it's a combination of all those different things. As we think about the third quarter, linked quarter, was .9%. The fourth quarter will get a little stronger. And we expect that to get stronger as we move into 2019 as well.

John Pancari -- Evercore ISI -- Analyst

And related to that, the line utilization on slide 16, despite some of those trends, you're still seeing it trend down. Are you signaling an inflection that you expect that we should start to see next quarter?

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yeah. Well, I guess when we end up looking at utilization, we think it's stable. It ends up bouncing up and down. I do believe that when you end up thinking about the optimism and the capital expenditure that we are seeing, I do think that there's the opportunity for utilization to expand. And so, as we think about that, that's a part of the equation, let's say.

John Pancari -- Evercore ISI -- Analyst

Okay, Terry. Thanks. And then just one last thing on the deposit side. How should we think about overall deposit growth trends going forward? I know you flagged the volatility from the customer merger and all that that you flagged. But how should we think about growth from this level going forward on total deposit trends?

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yeah. So, I really point to three things, and I talked about those. But let me just reiterate them. One is that our consumer deposits are growing. They grew nicely both on a linked quarter and year-over-year basis. So, I think that that's good. And that tells us that from a pricing standpoint, we feel pretty good about that. And what we're seeing in that market is good. The large customer or the financial customer that was a part of a business combination, we've known and we've anticipated that those balances are gonna be migrated. And we've been working with that customer to know and understand timing.

But to give you some perspective, on a year-over-year basis, the decline is nearly 100% related to the fact that customer migration is occurring. On a linked quarter basis, it represents about half of it. So, when we take that into consideration, we know that that's gonna moderate in the fourth quarter. When we look at the fourth quarter and we think about 2019 in particular, we actually think that it's gonna moderate and allow us to be able to grow deposits again.

John Pancari -- Evercore ISI -- Analyst

Got it. Thank you, Terry.

Operator

Your next question comes from Matt O'Connor with Deutsche Bank. Please go ahead. Your line is open.

Matthew O'Connor -- Deutsche Bank -- Analyst

Good morning. Another one on loan growth because you're one of the few banks that had accelerating loan growth this quarter and seem a bit more optimistic than others. Any idea why maybe you're seeing a slowdown in pay downs and a couple of other of your peers have pointed to an acceleration? Is there something different in the mix? Or is it just the way that the lumpiness in that business can be?

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yeah. I think, again, it's probably a combination of different things. It could be lumpiness. We're in different markets. We end up having a much bigger community banking market than maybe some of the other competitors have been describing. So, it probably is a combination of things. It's not necessarily one thing that we can pinpoint. Let's put it that way.

Matthew O'Connor -- Deutsche Bank -- Analyst

Okay. And then when you talk about accelerating loan growth in 4Q, is that versus the 4% annualized growth that you had in 3Q versus 2Q? Or are you talking about on a year-over-year basis where loans were only up 1% in the third quarter?

Andrew Cecere -- Chairman, President and Chief Executive Officer -- Analyst

Matt, this is Andy. We're talking about the .9% accelerating to a higher number on a linked quarter basis.

Matthew O'Connor -- Deutsche Bank -- Analyst

Okay. Got it. All right. Thank you.

Operator

Your next question comes from Ken Usdin with Jefferies. Please go ahead. Your line is open.

Kenneth Usdin -- Jefferies & Company, Inc. -- Analyst

Hey. Good morning, guys. How are you? First question just on the balance sheet and repricing characteristics. So, it's getting harder to talk about sequential betas, per se. So, deposit cost up 10 basis points. How would you characterize that in terms of your expectations of the rate of change in terms of what you saw this quarter and how that might go forward? In the context of that, you had previously talked about NIMs continuing to expand. So, can you help us to understand that dynamic within?

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yeah. So, maybe a couple things. When we end up looking at net interest margin, of course, how it expands, how much, etc., is always a function of how your balance sheet ends up changing, what sort of loan mix you have, etc. Certainly, as we think about deposits or funding costs -- well, let me step back. I think there's other reasons. Our investment portfolio continues to be accretive as we see roll off. And that will continue at least through the vast majority of next year. So, I think there's a couple of things on the asset side that's positive.

On the positive side, I really think that -- and we talked about this -- deposit betas, they're at about 45%. We think they'll migrate up to 50% whether it's this next rate hike or the following. But it's slowly moving in that direction. And our corporate trust and our wholesale deposit pricing is pretty much at terminal levels. So, the movement of the deposit beta is really gonna be more a function of how fast consumer deposits end up moving. And we are maybe seeing a little bit more competition in that particular space. But it hasn't been significantly greater. And so, I think it's just a function of all of those different things.

Andrew Cecere -- Chairman, President and Chief Executive Officer -- Analyst

And Terry, our deposit beta assumptions have been consistent with what's happening.

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yup. Exactly.

Kenneth Usdin -- Jefferies & Company, Inc. -- Analyst

Yup. Fair. And Terry, to that point you mentioned on the asset side, can you help us dig in a little bit? Can you talk to us about front book, back book on the securities yield and also the types of loan growth you're expecting to see increase? Is that also the types of stuff that's also accretive to the existing loan yield? Thanks.

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yeah. So, on the investment side of the equation, if you think about our investment portfolio, it has a duration of around four years which is what we've talked about. We are seeing a fairly significant amount of low-yielding treasuries and those types of securities that are now rolling off. It's pretty consistent with what we talked about last quarter. That roll off is accretive at 100 to 125 basis points. So, that continually gives you the opportunity to be able to see some accretion with respect to that particular portfolio. On the loan side, again, I would point to the fact that we've seen nice growth in residential, and we've seen nice growth in our credit card and our consumer type of products. And that type of mix would be beneficial to us as we look in the future. And we would expect and anticipate that to continue.

Kenneth Usdin -- Jefferies & Company, Inc. -- Analyst

Okay. Got it. Thanks, guys.

Operator

Your next question comes from Erika Najarian with Bank of America. Please go ahead. Your line is open.

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

Yes. Thank you. Good morning. So, my first question is a follow-up to the competitive aspects for commercial. The bond market was brought up, but I'm wondering if you could give us a sense of how much competition non-banks like private equity firms -- how much competition that's posing to U.S. Bancorp. And as an add-on to that, what is your on-balance sheet exposure to broadly syndicated leverage lending and private equity back transactions?

Andrew Cecere -- Chairman, President and Chief Executive Officer -- Analyst

Why don't you start on that second question, Terry?

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yeah. So, with respect to leverage lending, that is something in terms of our balance sheet we have never really had any significant amount of lending in that particular space. And so, it's an area that we manage pretty tightly. And again, it is reflective of our credit risk profile. So, as we think about the next downturn, we feel like we would be in a pretty good spot from a leverage lending point of view.

Andrew Cecere -- Chairman, President and Chief Executive Officer -- Analyst

And then, Erika, on your question on private equity or non-bank competition, I would say that is evident in some of the wholesale categories. I think it's probably most prominent in our commercial real estate category where some of the pay downs that are occurring are because of non-bank competition coming into the marketplace. But as we said, and as Terry said in his remarks, that is starting to abate her as we come into the third and fourth quarter.

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

Got it. And another follow-up question on the expense side. I wanted to make sure I understood the run rate, in particular, for other expenses. So, as I think about the three-year average for other expenses, the average is about $450 million. And it was $414 last quarter and $377 this quarter. Terry, am I right to think that that's all the tax credit amortization expense that you were discussing earlier? And I'm wondering if that $377 is a good run rate for us to think about and whether or not there is an offset in the tax rate line that we need to consider.

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yeah. Well, it's already incorporated into the tax rate that we have because when you think about -- when you establish your tax rate for the year, you think about the entire year in terms of what your tax credit reduction's gonna be. So, it's already in the tax rate. Here's the way that I would think about it, Erika. I do think that the tax credit amortization is gonna be an opportunity. It's gonna be something that's gonna continue. But also, it has a quarterly cycle to it. The third and fourth quarter happened to be your strongest production quarters. And so, tax credit amortization and the impacts associated with it tend to be more dramatic in the third and fourth quarter. So, there's a little bit of a seasonality. I guess if I were looking at it, I think the $377 might be a little bit on the lower end of that range but reasonable.

Andrew Cecere -- Chairman, President and Chief Executive Officer -- Analyst

And the fourth quarter, Terry, is actually higher than the third quarter on tax rates. So, we'll see a little bit of an increase in that in the fourth quarter because of that.

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yeah. Last year, it went up about $60 million. This year, it's probably closer to $40 million that it'll increase just because of tax rate amortization.

Andrew Cecere -- Chairman, President and Chief Executive Officer -- Analyst

Third quarter to fourth quarter, Erika.

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yup.

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

Got it. And just a follow-up question for you, Andy. I think that the performance in bank stocks lately have seemed to reflect some revenue concerns rather than credit concerns for 2019. Although, of course, you bucked the trend in loan growth this quarter. And I'm wondering what your message is on that positive operating leverage on 1% and 1.5%. So, I guess this is a two-part question. Where is the company in terms of its less traditional investment spend? So, let's talk about technology, for example. And if the revenue environment is less robust for the whole industry than we'd hope, will you still be able to deliver that positive operating leverage for '19?

Andrew Cecere -- Chairman, President and Chief Executive Officer -- Analyst

The short answer to your question, Erika, is yes. The longer answer is we do expect credit to continue to be favorable. It's 46 basis points [inaudible] The loan growth is the only reason we added to our reserved credit quality. Underlying that is very stable. But we had good loan growth. So, we add it to reserve as we have done in the path. As we think about next year, in terms of the revenue, we have some positives, as I talked about earlier. It's both a combination of fewer headwinds as well as continued momentum in certain businesses. But as we've also said, we'll manage expenses consistent with what we see from the revenue side of the equation, like what we did in this quarter. So, we expect a accelerated revenue opportunity next year. And we're managing expenses with that in mind. If the revenue doesn't happen as we think, we'll manage expenses more prudently.

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

That's helpful. Thank you.

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

And Erika, maybe one thing that I would just add to that. I think when you end up looking at our business mix -- and this is one of the things that we talked about in the past, the business mix having the strong fee-based sort of businesses and payments, etc., and with consumer spend continuing to get stronger, I just see that as something that differentiates us as we think about the future.

Operator

And your next question comes from Scott Siefers with Sandler O'Neill & Partners. Please go ahead. Your line is open.

Scott Siefers -- Sandler O'Neill & Partners -- Analyst

Good morning, guys. Thanks for taking the question. Just wanted to go back to the deposit dynamics for a quick second first, just to make sure I understand the large customer migration you talked about. That just went from deposits out of deposits, right? Rather than a move within the categories of total deposit?

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yeah. Those are deposit outflows from the company. And if you think about it, it was acquired by another financial institution. And they wanted to bring those deposits onto their balance sheet. And it's something that we have been anticipating. It's been a part of our NIM and our asset liability modeling process for well over a year.

Scott Siefers -- Sandler O'Neill & Partners -- Analyst

Yeah. Okay. Thank you for that. And then just within the categories, same directional trend. It's you guys versus others which is money coming out of noninterest-bearing into other categories. But the order of magnitude seems a little larger for you guys than I've seen in others. So, 1) You guys are a little unique in terms of business mix with corporate trust in there, for example. So, there's an element of apples to oranges. But if maybe you could just briefly walk through how you guys differ from just a typical bank and then, more importantly, how will that dynamic flush out or play out here as we move forward just given the uniqueness of your business mix?

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yeah. Well, again, the thing that we end up really focused on in terms of the uniqueness is our corporate trust business. And within those trust structures, as yields have gone up, they continue to look for opportunities to be able to get as much yield as they can within that structure. And so, migration from noninterest-bearing to interest-bearing is something that we anticipated and expected. There is a portion of those structures though that is very operational in nature and is sticking within the noninterest bearing. So, while that migration has been occurring, I don't know whether that will continue to be as strong as it has been in the past. Andy, if you could --

Andrew Cecere -- Chairman, President and Chief Executive Officer -- Analyst

Yeah. So, the corporate trust business is not only a great fee business, but it's a great deposit gathering business. And, as Terry mentioned, there's two components to it. One is operational in nature and the flows that occur will continue to occur regardless of the rate environment because it is a flow between the bond issuer and the bondholder. The second component are what I would call more short-term investments. And that's where we're seeing more of the volatility. But it's as we expected. And it's particularly in this rate environment as new investment opportunities present themselves. So, bottom line, Scott, I don't think it's anything that we didn't anticipate. We're gonna be a little bit lumpier because of that second component. But it's in line with what we expect.

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yeah. The other thing is that because of the corporate trust business, the size of our total deposits as a percentage of our total funding cost, that even though our deposit pricing might be a little bit higher, our total funding cost was very competitive. Excuse me.

Scott Siefers -- Sandler O'Neill & Partners -- Analyst

Okay. That's perfect. Thank you, guys, for the color. And then if I can ask one last tic-tac question, you had the ton unit sale that you had announced a few weeks back. And any revenue or expense impact as we look into '19 that you guys would call out from the loss of that business or sale, I should say?

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yeah. So, that sale is still in proce -- maybe, I can just step back a little bit. That is very specific to third-party ATM processing. And it's also the sale of our money pass and debit card network. And so, it's not related to our payments business, as I -- there was a little bit of confusion on that early. So, I just wanna make sure that that's clear.

Andrew Cecere -- Chairman, President and Chief Executive Officer -- Analyst

It actually rose up to consumer banking and payments, right?

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yup. If you end up dimensioning it -- so, 2017 revenue for that business on an annualized basis was $170 million on a quarterly basis. Third quarter, I believe the revenue was around $45 million. And then the efficiency ratio of that business pretty similar to the rest of our company maybe is slightly higher but pretty similar to the rest of our company. So, if you take that information, you can get some sense both in terms of fourth quarter and 2019. From a fourth quarter perspective, right now, we anticipate that the sale will close at the end of October. But if not the end of October, then the end of November. And we just have to wait and see based upon regulatory approval.

Scott Siefers -- Sandler O'Neill & Partners -- Analyst

Okay. All right. That's great. Thank you, guys, very much.

Operator

Your next question comes from Betsy Graseck with Morgan Stanley. Please go ahead. Your line is open.

Betsy Graseck -- Morgan Stanley -- Analyst

Hey. Good morning. Andy, could you talk a little bit about the different levers that you've got on the expense side when we're thinking about the operating leverage for next year? I know we talked through some of the revenue line items already, but what's in your back pocket there?

Andrew Cecere -- Chairman, President and Chief Executive Officer -- Analyst

Well, one of the things we talked about is we are investing. We're investing in both traditional, as we talked about, the expansion in our commercial banking business as well as more of the digital and payments businesses. So, we made an acquisition in the third quarter, as we talked about. We are continuing to expand our capabilities on our mobile application, our capabilities in terms of sales activity on that application. And everything you think about from a investment standpoint has a little bit of a digital focus on it. So, that will continue. We do have continued opportunity in terms of optimization of different business processes which we are working across the company in terms of our branch optimization across structures and where we are in space and so forth. So, we have a number of initiatives we're working on. And on a high level, Betsy, I would describe it as continuing to invest in the future while recognizing that some of the things that we've done in the past, we can do better or do less of.

Betsy Graseck -- Morgan Stanley -- Analyst

And your tech investment spend, am I right in thinking it's around $1.5 billion? Is that accurate?

Andrew Cecere -- Chairman, President and Chief Executive Officer -- Analyst

Yeah. So, the CapEx related to technology's about $1.2 billion. And as Terry and I have talked about in the past, our operating expense related to that is probably another $1.2 billion, $1.5 billion. So, if you combine the two, it's just over $2.5. But the CapEx that we talked about is at $1.2 billion.

Betsy Graseck -- Morgan Stanley -- Analyst

Got it. Okay. And so, that line holds in. But then the headcount or occupancy associated with these other things you're talking about pull back. That's the push/pull in the line items?

Andrew Cecere -- Chairman, President and Chief Executive Officer -- Analyst

Yeah. That's a fair way to think about it. And just to be clear, we've been at that spend level for a year and a half, two years. So, that's in the numbers as we think about what we're reporting today.

Betsy Graseck -- Morgan Stanley -- Analyst

Got it. And then could I shift gears a little bit and just ask thoughts around CCIL? I know that's not coming into play until 1Q20, but I'm sure you're prepping for it and going parallel around next year. So, maybe you can give us some thoughts as to how you're thinking about it from an early look perspective.

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yeah. As you said, we're still in the process of dimensioning it. 2019 is our parallel year. If you end up looking across the entire industry, the entire industry is really in the process of refining their models that they'll use as part of that particular process. I would anticipate that we'll have better dimension around what the size of that is later this year. And of course, one of the factors that comes into play is what is your outlook with respect to the economy, etc., as you get closer to the adoption of it. So, a lot of moving parts. But we're on track. We feel good about at least the position that we're in in terms of us being able to adopt it.

Betsy Graseck -- Morgan Stanley -- Analyst

And are there areas you think there's a little giveback? Because some of these ratios look pretty high. Part of it is because we've got very low losses right now. But I'm also wondering if there's some parts of the portfolio which could be a net give or a reserve as opposed to a taker.

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yeah. That's the interesting thing about CCIL is it is very product dependent within a company in terms of what the impact of it's going to be to the extent that you have longer life or longer duration assets like mortgages and that type of a product. You're gonna actually have a bigger negative impact or a increase in the reserve that's gonna come into play. To me, it's a little bit counterintuitive, but commercial real estate is one of those, especially on a construction site, where you tend to get a little bit of a benefit. But we really have to look at the total mix. It's a little bit of a moving dynamic.

Betsy Graseck -- Morgan Stanley -- Analyst

Got it. Okay. Thank you.

Operator

Your next question comes from Mike Mayo with Wells Fargo Securities. Please go ahead. Your line is open.

Mike Mayo -- Wells Fargo Securities -- Analyst

Hi. You mentioned digital banking quite a bit and the digital platform. You've disclosed that you have 18 million customers, if that's correct, in prior annual reports. Can you tell us the percentage of customers who are online and the percentage of customers that use mobile banking? I think your other five large bank peers all disclosed this. And it'd be great if you could give that to us if not now, then sometime in the future.

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

I can give it to you now. So, we have 18 million total customers. If I exclude single-service customers, so some of our mortgage customers, card customers, and indirect customers who, outside our market, aren't what I would call full banking customer, we're about 11 million. And of the 11 million, about 50% use our digital platform.

Mike Mayo -- Wells Fargo Securities -- Analyst

And what percent mobile?

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

The majority of that is mobile.

Mike Mayo -- Wells Fargo Securities -- Analyst

Okay. Great. Got my wish. And as far as -- and you got one price for doing well and one price for not doing so well. Just follow-up on those two other issues. So, when it comes to deposit growth, and when we look year-over-year, it still doesn't look great. So, I guess that would neutralize the seasonal aspects. And so, I get the one-off merger of a client you lost in deposits and then some other ins and outs. Is there anything else going on there? Maybe just what's your forecast for deposit growth over the next year or so?

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yeah. I think we've covered the dynamic there taking place. On a year-over-year basis, again, the decline is 100% related to this particular customer. Consumer deposits are growing. When we think about 2019, we do expect growth in deposits. And I think that'll be consistent with low-single-digits. It'll be tied to economic growth, etc. But I don't think that there's any unusual dynamics that we haven't talked about.

Mike Mayo -- Wells Fargo Securities -- Analyst

Okay. Then on the positive side, the commercial loan growth, I know there's been a lot of questions on that. And I'm just trying to think of the main takeaway. Are you executing better? Are you taking more risks? Or is it simply mix? If you were to characterize that, what's the main take because veterans are a lot more cautious.

Andrew Cecere -- Chairman, President and Chief Executive Officer -- Analyst

Yeah. I wanna be real clear on one thing. It's not taking any more risks. Our credit box has not changed at all. And we've been very prudent and strict around that and disciplined for a long time. And that is not changing at all. I think it's a function of all the things we talked about. It's expanding our customer base, gaining market share, it's our diversified portfolio. It's not in any one area or geography. It's a function of all those things. And that's why we're feeling pretty good about it going forward.

Mike Mayo -- Wells Fargo Securities -- Analyst

And you opened up a new office in the New York area. Are there some other newer offices that are getting traction that's helping with that commercial loan growth?

Andrew Cecere -- Chairman, President and Chief Executive Officer -- Analyst

Yeah. We've opened up a few offices in the south, the Dallas area, and the southeast, New York. We'll look at other opportunities like this. And it's typically leveraging presence that we already have in the market. And we talked about that also, thinking about our consumer expansion doing the same, building that customer base that we already have.

Mike Mayo -- Wells Fargo Securities -- Analyst

Great. All right. Thank you.

Operator

Your next question comes from Marty Mosby with Vining Sparks. Please go ahead. Your line is open.

Marty Mosby -- Vining Sparks -- Analyst

Thanks. Two questions. 1) if you look at merchant processing, it's kind of an anomaly in the growth rates. If you look at over last year, it's 4% growth quarter-over-quarter. If you look at sequentially annualized, it's a 5% growth. So, it looks like an acceleration there. But if you look at year-to-date, it's only growing 3%. So, it's strange how those three numbers are all working. But is the momentum finally picking up here in the sense that we are seeing same-store sales and we're seeing some retail purchases and we're getting that lift from the economy we've been waiting on for so long?

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yeah. If you end up looking at the dynamics, we certainly are seeing a lift from consumer spending getting stronger. Our sales volumes have been quite strong, in that 8% range, if you will. The biggest issue in terms of both year-over-year growth and then how it's starting to accelerate is really the fact that a year ago, we're starting to overlap the joint ventures that we had that we've talked a little bit about. But the overall business, we've been making some investments in terms of both capabilities, industry verticals, a variety of different things which, I think, as we think about the future is gonna continue us to enable us to be able to expand revenue.

Marty Mosby -- Vining Sparks -- Analyst

We saw one of your peers yesterday, actually, announce a restructuring and a securities portfolio to accelerate that 100 to 125 basis points of net difference between the market and the portfolio rates. Any consideration since that's already being taken out of tangible value anyway in the mark to market that you just go ahead and realize that loss, take it there's an extraordinary toward the end of this year, and then accelerate the benefit in the sense of what you get from what the market's gonna give you over the next couple of years?

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yeah. Short answer is we really don't have any plans to restructure our investment portfolio at this time.

Andrew Cecere -- Chairman, President and Chief Executive Officer -- Analyst

And we've been managing to optimize it all along, right?

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yup.

Marty Mosby -- Vining Sparks -- Analyst

You have. You have excess capital. So, given the excess capital that you have, it is a way to temporarily deploy it and actually accelerate the benefit while locking in rates. We wake up six months from now, and all of the sudden, rates have somehow fallen back down, you lose that opportunity or that window. So, I just was curious since it's already marked in, you got the extra capital anyway, if that wouldn't be something that couldn't lock in those higher rates while you got them.

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yeah. Well, like I said, we don't necessarily have any particular plans to do it.

Marty Mosby -- Vining Sparks -- Analyst

Okay. Thanks.

Operator

Once again, ladies and gentlemen, if you would like to ask a question, please press * followed by the No. 1 on your telephone keypad. Your next question comes from Kevin Barker with Piper Jaffray. Please go ahead. Your line is open.

Kevin Barker -- Piper Jaffray -- Analyst

Good morning. Just a follow-up on some of the deposit flows and some of the deposit questions you mentioned. The movement out of noninterest-bearing deposits, specifically around the commercial deposits -- do you have any offsets on fee income, specifically around treasury management that could increase fee income as some of the balances come off of noninterest-bearing deposits?

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yeah. I can't necessarily point to something like that. I do think that when you end up looking at -- and a lot of people end up talking about compensating balances as being that offset or whatever. But our core treasury management growth is about a little under 1%. And the drag is really related to the rising rate environment. But there's nothing that I would specifically point to, Kevin.

Kevin Barker -- Piper Jaffray -- Analyst

Okay. And then just a follow-up on the expense side. Your expense growth was below your long-term target this quarter on a year-over-year basis. I think you pointed to about 3% to 5% long-term target on a year-over-year. And then obviously, there's some puts and takes associated with the tax cr -- and the amortization. But when you look out into the first half of '19 and maybe even full-year '19, do you think it's possible you could see expense growth run below your long-term target and maybe see that for the foreseeable future?

Andrew Cecere -- Chairman, President and Chief Executive Officer -- Analyst

Kevin, it depends a bit on the revenue side of the equation. So, we're managing the company for positive operating leverage. And we'll manage expenses as we think about it consistent with the revenue opportunities. So, the numbers aren't gonna be specific. It's gonna be relative to what we think on the revenue side.

Kevin Barker -- Piper Jaffray -- Analyst

Okay. All right. That's all I have. Thank you.

Operator

Your next question comes from Vivek Juneja with JPMorgan. Please go ahead. Your line is open. Vivek Juneja with JPMorgan, please go ahead. Your line is open.

Vivek Juneja -- JPMorgan Chase & Co -- Analyst

Yeah. Can you hear me? Sorry.

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yes, we hear you, Vivek. Thank you.

Vivek Juneja -- JPMorgan Chase & Co -- Analyst

Okay. Sorry. Thank you. Sorry to go back to the expense question. Just trying to understand Andy, Terry, the $377. It'll go up $40 million or so for the seasonal increase. So, should we think of that $377 as a good run rate going forward? Is there anything like -- you talked about legal accrual changes. Is there anything like that that's unusual that we need to factor in as we think about -- I know beyond '18 -- is this really the new base?

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yeah. I think Erika talked a little bit about the averages associated with other expenses. Other expenses tends to be a little bit lumpy. It depends upon what businesses are growing, foreclosure or costs, and those types of things in terms of how those are changing. So, I would say that the $377 is probably on the lower end of that band. And so, when you think about the future, I really think looking at the average as associated with other expenses is probably a reasonable way to look at it.

Vivek Juneja -- JPMorgan Chase & Co -- Analyst

Okay. Great. Similar one on the other income side. You called out private equity gains. That number's also running above if you look at last six quarter average which is more like $191. You're $226. Again, how much of it was private equity, and what's a good run rate to think about?

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yeah. So, more of that was really related to the tax credit syndications that we were able to do in the third quarter. And, again, in the third quarter, in the fourth quarter, those tend to be a little bit stronger, will tend to be a little bit stronger. Now, we have the opportunity to be able to do that if you think about it on a full-year basis because of the fact that that we have a very good and strong production base of tax credit and because we don't have the capacity to use all of them, we have the option to be able to syndicate them. So, I think when you think about it on a full-year basis, there's a little bit of a step-up associated with it. But it tends to be a little lumpy in the third and fourth quarter because of just the timing of when that production occurs.

Vivek Juneja -- JPMorgan Chase & Co -- Analyst

Okay. Great. One last thing. At the Barclay's conference, you raised your long-term return on average common equity target by 100 basis points. When we do the math on the tax form benefit, the benefit to you is 150 basis points. So, is there a plan to catch up on that additional 50 basis points at some point?

Andrew Cecere -- Chairman, President and Chief Executive Officer -- Analyst

At the high level, Vivek, when we announced it, the tax improvement in the fourth quarter of '17, we also announced the step-up on some spend activity, particularly related to digital and payments and so forth. So, the numbers that we talked about incorporate both sides of the equation which is what we're seeing right now.

Vivek Juneja -- JPMorgan Chase & Co -- Analyst

Okay. All right. Thanks.

Operator

Your next question comes from Saul Martinez with UBS. Please go ahead. Your line is open.

Saul Martinez -- UBS -- Analyst

Hey. Good morning, guys. A couple questions, just changing gears a little bit. Wanted to ask you how you're seeing the regulatory environment quarrels, has indicated that a preference for credential regulations to be based more on complexity than size. You highlighted that very recently. But do you feel like once we get the proposals out of the way for the $100 to $250 billion asset banks, you could see some relief for banks of your size and complexity as well?

Andrew Cecere -- Chairman, President and Chief Executive Officer -- Analyst

I'm hopeful, Saul. As you think about our balance sheet, our business mix, our risk profile, our trading book which is minimal, all those characteristics are more like a small regional bank or medium-size regional bank. They aren't like a large money center bank. So, as you know, 2155 talks about the tailoring shall occur. And if you think about tailoring based on risk characteristics, I'm hopeful that we'll get some relief.

Saul Martinez -- UBS -- Analyst

Okay. And just changing gears, and I hate to beat a dead horse on the other expense question. I just wanna make sure I understand it right. But I think, Terry, you mentioned the $377 should be viewed as at the lower end of what a reasonable range would be. But am I right in saying that that reasonable range should also be lower than maybe what it's been in the recent past which is average, about $450 for some of the reasons you talked about, your change in the tax credit amortization business, lower FDIC surcharges, and whatnot? But is that the right way to think about it, that that range should be a little bit lower than what we've seen historically?

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yeah. Whatever your assumption is with respect to the surcharge in the future, that's where that ends up impacting. Your point is well taken. I think that I wouldn't just focus on other expenses though. I'd focus on how we're managing overall expenses. We've got opportunity with respect to compliance and risk programs and mortgage servicing and a whole variety of different things. So, I know there's been -- and I think my horse might be dead. I wouldn't just focus on other expenses. Let's put it that way.

Saul Martinez -- UBS -- Analyst

All right. No, point taken. Thanks a lot.

Operator

Your next question comes from Gerard Cassidy with RBC. Please go ahead. Your line is open.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Good morning, Andy. Good morning, Terry. Hi. Can you guys share with us -- when we go back and look at your noninterest-bearing deposits to total deposits during the '94-'95 tightening cycle or even the '04-'06 tightening cycle, they held in pretty constant, particularly in '04-'06. You really didn't lose much in noninterest-bearing deposits. Can you give us some color? Do you feel your mix is similar to those time periods? I know, Andy, you've obviously -- and both of you have been at the bank a long time. Maybe share us some comparisons to those time periods.

Andrew Cecere -- Chairman, President and Chief Executive Officer -- Analyst

Yeah, Gerard. I don't think our mix is all that different. I do think in those time periods, we were in the midst of acquiring corporate trust businesses that may have impacted the activity and the deposits because we were growing -- we did 22 acquisitions in corporate trust over the years. Many of them, in the years that you described. So, that may be a factor in the comps.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Very good. And then following up on regulatory, I know you guys have done everything required from your BSA/AML issues. Can you just give us an update on where that stands now?

Andrew Cecere -- Chairman, President and Chief Executive Officer -- Analyst

We have. We completed our activity and our verification from a non-internal out standpoint on June 30th, consistent with our schedule. It now sits with the regulators. And we're hopeful.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Okay. And just one quick question. What's the duration of the securities portfolio?

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yeah. The duration is about four years.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Great. Thank you so much.

Operator

Your next question comes from Brian Klock with Keefe Bruyette Woods. Please go ahead. Your line is open.

Brian Klock -- Keefe Bruyette Woods -- Analyst

Good morning, gentlemen. So, I promise I won't ask anything about other expenses. I know that you guys talked about the average commercial real estate loan growth. And it seems like maybe even some of the headwinds that others have seen in the industry, the pay downs and those sort of headwinds might be abating. But it seems like on a end-of-period basis, if I look at page 20 of your SOP -- and if I'm right, commercial real estate loans is the first time your end-of-period loans have actually grown since the third quarter of '16. And just wondering is there anything that you're seeing -- is this the inflection point when you think about overall end-of-period balance growth going forward?

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yeah. It's a good question. And we certainly hope that it is. If you end up looking at commercial real estate, as we've said, pay downs were particularly strong. Before tax reform, a lot of commercial real estate developers were derisking, taking a lot of things off, a lot of their chips off the table. And they were paying down. And then they had the opportunity to be able to be in the capital market space. So, those were definitely some headwinds. We haven't necessarily changed -- we haven't changed with respect to our credit box. We're not doing anything crazy from a structural standpoint. So, we are optimistic that it is at an inflection point. And a big part of it is just the pay downs that we saw earlier in the year have really started to slow.

Brian Klock -- Keefe Bruyette Woods -- Analyst

Got it. Thanks for that. And just trying to triangulate -- I haven't tried to put it back through my model yet -- but the big pictured guidance you gave for the fourth quarter. It seems like it's implying at least a continued upward trend or at least flattish upward in the NIM. I know you don't give NIM guidance, but is that a fair assumption even with your beta assumptions that the NIM could be better in the fourth quarter than the third?

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

Yeah. Well, as we've said, when we think about the opportunity for NIM to expand, we still think there's opportunity for expansion.

Brian Klock -- Keefe Bruyette Woods -- Analyst

Great. Thanks for your time, guys.

Operator

And there are no further questions at this time. I will turn the call back over to the presenters for any closing remarks.

Jenn Thompson -- Director, Investor Relations -- Analyst

That concludes our earnings call. Thanks for listening. And please contact the investor relations department if you have any follow-up questions.

Operator

And ladies and gentlemen, this concludes today's conference call. You may now disconnect.

Duration: 61 minutes

Call participants:

Jenn Thompson -- Director, Investor Relations -- Analyst

Andrew Cecere -- Chairman, President and Chief Executive Officer -- Analyst

Terrance Dolan -- Vice Chairman and Chief Financial Officer -- Analyst

John McDonald -- Sanford C. Bernstein & Co., LLC -- Analyst

John Pancari -- Evercore ISI -- Analyst

Matthew O'Connor -- Deutsche Bank -- Analyst

Kenneth Usdin -- Jefferies & Company, Inc. -- Analyst

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

Scott Siefers -- Sandler O'Neill & Partners -- Analyst

Betsy Graseck -- Morgan Stanley -- Analyst

Mike Mayo -- Wells Fargo Securities -- Analyst

Marty Mosby -- Vining Sparks -- Analyst

Kevin Barker -- Piper Jaffray -- Analyst

Vivek Juneja -- JPMorgan Chase & Co -- Analyst

Saul Martinez -- UBS -- Analyst

Gerard Cassidy -- RBC Capital Markets -- Analyst

Brian Klock -- Keefe Bruyette Woods -- Analyst

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