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Fifth Third Bancorp  (NASDAQ:FITB)
Q4 2018 Earnings Conference Call
Jan. 22, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

See all our earnings call transcripts.

Prepared Remarks:

Operator

Good morning, my name is Chelsea and I will be your conference operator today. At this time, I would like to welcome everyone to the Fifth Third Bancorp Q4 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. Mr. Chris Doll, you may begin your conference.

Chris Doll -- Head, Investor Relations

Thank you, Chelsea. Good morning and thank you for joining us. Today we'll be discussing our financial results for the fourth quarter of 2018. Please review the cautionary statement in our materials, which can be found in our earnings release and presentation. These materials contain information related to the proposed merger with MB Financial, reconciliations to non-GAAP measures along with information pertaining to the use of non-GAAP measures and forward-looking statements about Fifth Third's performance. We undertake no obligation to and would not expect to update any such forward-looking statements after the date of this call.

This morning, I'm joined by our President and CEO, Greg Carmichael; CFO, Tayfun Tuzun; Chief Operating Officer, Lars Anderson; Chief Risk Officer, Frank Forrest; and Treasurer, Jamie Leonard. Following prepared remarks by Greg and Tayfun, we will open the call up for questions. Let me turn the call over now to Greg for his comments.

Gregory Carmichael -- Chairman, President, Chief Executive Officer

Thanks, Chris and thank all of you for joining us this morning. Earlier today, we reported a full-year net income available to common shareholders of $2.1 billion (ph) or $3.06 per share. Full-year adjusted net income of $1.8 billion was a record for the bank as we continue making significant progress to improve profitability and better position Fifth Third for success. In addition to the record net income, we've generated our best full-year adjusted ROA, ROE, ROTCE and efficiency ratio in over a decade. We returned nearly 100% of earnings to shareholders through repurchases and two (ph) dividend increases as we raised the dividend nearly 40% in 2018.

Additionally, we significantly improved our key credit quality metrics throughout the year. Fourth quarter 2018 net income available to common shareholders was $432 million and earnings per share of $0.64. Included in these results are three notable items which had a negative impact of $0.05 on reported EPS. Excluding these items, adjusted earnings were $0.69 per share in the fourth quarter.

Our financial results were very strong. During the quarter, we generated record loan originations and fee revenue in our commercial business, continued to properly grow the balance sheet, and diligently manage our expenses while continuing to invest for future growth. Since the fourth quarter of 2017, we have significantly improved all of our key financial metrics on an adjusted basis with ROA increasing 30 basis points, ROTCE increasing 440 basis points, and the efficiency ratio declining more than 300 basis points. As we approach the third and final year of our NorthStar Project, the fourth quarter of 2018 results should provide a great deal of confidence in our ability to achieve our enhanced targets.

Before discussing our key strategic priorities and highlights for the quarter, I'd like to share some observation on the macroeconomic environment. The overall US economic backdrop continues to be generally positive. While global growth pressures exist and geopolitical risks remain elevated, we expect this business cycle to expand in 2019 as underlying economical fundamentals remain solid. We are cognizant of the rising probability of a downturn in the next couple of years, we feel good about how we have positioned our balance sheet and our sales force to take advantage of growth opportunities while prudently managing our exposures. We will continue to maintain our disciplined focus on credit quality and profitability.

Moving on to our strategic priorities. At Fifth Third, we are positioned to drive improved profitability well beyond Project NorthStar horizon which concludes at the end of this year. First, we are committed to achieving our targeted financial results by the end of 2019 as outlined in our previous discussions. The continued improvement throughout 2018 reinforces our confidence in our ability to achieve our goals. In fact, our fourth quarter adjusted ROTCE of 15.4% is the highest since before the financial crisis. Second, we are focused on successfully integrating MB Financial. We are well-prepared for the integration of MB's operations into Fifth Third. We are working diligently to deliver the financial results associated with the acquisition and to make sure we get it right for our customers. We have completed all required filings and are now simply waiting for the necessary approvals. We continue to expect to close the transaction by the end of this quarter.

We were also pleased that the regulators did not object to our resubmitted capital plan including the pro forma impact of MB Financial. Also, we remain very confident in our ability to achieve our post-merger financial targets. It is clear that we are acquiring a high performing franchise as shown in their fourth quarter earnings published this morning, MB generated strong returns (inaudible) solid NIM expansion and sound credit results with improvements in both NPAs and credit losses. We are excited to combine the talent and complemented capabilities of our two organizations. Third, we continue to invest in organic growth opportunities including the previously communicated branch network optimization. Our plans are staged over multiple years and include the roll out of a state-of-the-art proprietary (ph) design.

Our next-generation branches will be 40% smaller than our legacy network and will be highly automated. In 2018, optimization efforts led to the opening of 12 branches and the closing of 45 branches. We expect to decrease our network another 10 branches in 2019. Beginning 2020, we expect branch builds in our high growth markets to exceed our closures.

In addition, we're expanding our middle market business in select, high growth markets where we can combine strong talent with local market knowledge and our enhanced product capabilities to successfully grow the portfolio. Following the very successful launch of our California middle market team, over the next 12 months, we'll be expanding to the Denver, Dallas and Houston markets. We already have existing teams of commercial bankers in our national corporate banking business in these markets.

Our track record of hiring strong talent and successfully growing our middle market franchise gives us a high degree of confidence executing on our current expansion plans. We also plan to continue adding to our sales force in our existing footprint. We are particularly focused on strategic acquisitions that would generate higher fee revenue to drive additional ROE growth. In fact, we are already seeing the financial benefits of our investments in talent over the last two years especially in our capital markets, M&A advisory, and wealth and asset management businesses.

Fourth, we remain focused on accelerating our digital transformation and delivering innovative solutions for our customers. We've invested heavily over the last several years, both through our in-house technology capabilities and with select fintech partnerships. These investments are focused on delivering a more personalized relationship banking experience. Our goal is to ensure interactions with the customers are simple, seamless and of course, secure. Our efforts continue to be recognized, Bank Director recently rated us as the number one bank for overall technology strategy, highlighting our ability to deliver innovative products as well as our organizationwide technology expertise.

Our clearly defined (inaudible) strategic priorities are designed to enhance revenue growth as well as generate expense efficiencies in order to meet our financial and strategic objectives. We have achieved significant expense efficiencies over the last two years as reflected in our improved efficiency ratio. As we have discussed previously, our goal is to consistently achieve positive operating leverage.

Moving on to the highlights for the quarter, I'll review some key aspects of the results and then Tayfun will discuss the quarter in greater detail.

First, we continue to benefit from our improved balance sheet resiliency. Our key forward-looking credit metrics continued to improve as criticized loans declined for the seventh quarter to the lowest level in nearly 20 years. Our non-performing assets have declined nearly 50% (ph) over the past two years and today stands at the lowest level since 2000. We maintained the same disciplined approach to client selection, underwriting standards, and credit risk appetite during the quarter while growing the loan portfolio. And in fact, we (technical difficulty) originations both in middle market and corporate banking at the highest credit quality in several quarters. While we have maintained strong underwriting standards, our loan yields and net interest margin have continued to expand. We believe our strong credit profile should allow us to outperform through business cycles.

We generated profitable relationship growth in both our commercial and retail businesses. We continue to focus on expanding our relationships with our clients on both sides of the balance sheet. Loan growth was fully funded by core deposits during the quarter and the year. Compared to the fourth quarter of last year, we grew commercial loans by 4% including C&I growth of 6%. Even with very strong loan growth, our total (inaudible) growth of over 3% and deposit growth of 4% resulting in the lowest loan to core deposit ratio in the past 15 years. Furthermore, we managed our expenses and outperformed relative to our guidance. Excluding merger related items, our expenses declined 2% from the prior quarter. As a result, we were able to continue to generate positive operating leverage for the quarter and the full-year. I want to reiterate our expectations for stand-alone adjusted expense growth of only 1% in 2019.

Our results show that we remain on track to achieve our enhanced NorthStar financial targets. During the fourth quarter, we generated an adjusted return on tangible common equity of 15.4%, an adjusted return on assets of 1.34%, an adjusted efficiency ratio of 56.8%, which is already better than our stand-alone fourth quarter of 2019 target. We remain very confident in our ability to achieve our long-term financial targets and outperform through the cycle. We remain committed to holding ourselves accountable for delivering strong financial results on the prevailing macroeconomic interest rate, regulatory and legislative environment.

I would like to once again thank all of our employees for their hard work, dedication and for always keeping the customer at the center. I was pleased that we were again able to deliver strong financial results and our NorthStar initiatives are delivering the outcomes as planned. With that, I'll turn it over to Tayfun to discuss our fourth quarter results and our current outlook.

Tayfun Tuzun -- Chief Financial Officer

Thanks, Greg. Good morning and thank you for joining us. Well, let's move to the financial highlights on slide four of the presentation. Our fourth quarter results were very strong. This momentum bodes well for our 2019 performance and should help us achieve our year end goals. As Greg mentioned, the pre-closing integration work related to MB is progressing very well on both ends. We are very optimistic that the transaction will close this quarter and as you can see from the earnings disclosures, some of the expenses related to the integration have started to impact our financials.

These expenses are part of the total merger related expenses that we discussed with you when we announced the transaction. At this time, there is no change to the financial outlook we shared with you previously with respect to the combined company. We remain very confident that the acquisition will improve ROTCE by 2%, ROA by approximately 12 basis points, and the efficiency ratio by 4% in year two.

Since we have not disclosed the transaction yet, our current 2019 guidance will only reflect the stand-alone Fifth Third performance expectations. Once we close the transaction, we will update you on the combined outlook in more detail, but hopefully our guidance on the performance metrics gives you a very good perspective on the outlook for the combined company.

Before discussing results for the quarter, I would like to highlight as we have noted throughout our earnings materials, that our current and historical financial results presented today reflect the change in accounting policy related to investments in affordable housing. Adopting this new accounting policy allows our financials to be more comparable to peers.

We have also provided a summary reconciliation of the change on page 30 of the release. This change had no meaningful impact on our fourth quarter EPS. Reported results were negatively impacted by the notable items on page two of our release, including $21 million after-tax in merger-related expenses incurred in advance of our pending acquisition of MB Financial and a $17 million after-tax charge reflecting the mark-to-market on our GreenSky equity stake, partially offset by a $6 million after-tax benefit from the Visa total return swap.

Excluding these items, pre-provision net revenue increased 9% sequentially and 14% year-over-year. All of our adjusted return metrics were higher while loan growth and deposit growth exceeded our guidance. Strong revenue growth and disciplined expense management have continued to lower our efficiency ratio and generated positive operating leverage on a sequential and year-over-year basis, which we expect will continue in 2019.

Our credit performance was solid. We reported the strongest forward-looking credit metrics in nearly 20 years. Our provision for loan losses exceeded charge offs as a result of the strong loan growth.

In his opening comments, Greg reiterated our priorities for long-term success. Our goal is to carry the revenue momentum forward while maintaining tight expense control. We will continue to manage balance sheet risk by remaining cognizant of the environmental factors impacting our business and maintain a prudent approach to capital management with the ultimate goal of rewarding our shareholders today and in the future.

Moving to slide six, our recent loan growth trend is beginning to provide a clearer picture of our longer term growth potential. We remain very confident in our ability to achieve higher overall loan growth going forward compared to the past couple of years. This quarter, average total portfolio loans were up 2% compared to the prior quarter mostly reflecting growth in C&I loans. We grew total loans 3% on a year-over-year basis, again reflecting strength in commercial. End of period commercial loan growth was 3% sequentially, which significantly exceeded previous guidance of modest growth. Our success in generating profitable growth in both national, corporate and regional middle market lending reflects both the impact of our investments in our sales force as well as the increased efficiency in our mid-office and back office functions.

Total commercial loan production was up 27% relative to last quarter and up 17% relative to last year's fourth quarter. Production levels in both regional middle market as well as national corporate businesses were higher relative to both previous quarters. Total commercial line utilization was up a little less than 1%. Despite a very strong quarter for commercial loan growth, our leverage loan balances continued to decline in the fourth quarter. Total leverage loan exposure declined 5% sequentially. End of period commercial real estate balances, including construction loans were flat compared to last quarter. CRE balances as a percentage of total risk based capital were at a peer group low of approximately 63%, significantly below the next lowest peer. We will continue to maintain a cautious approach to commercial real estate at this point in the cycle.

We currently expect average total commercial loans to grow by about 1% on a sequential basis in the first quarter with continued strength in C&I partially offset by declines in commercial construction and large-ticket, non-relationship commercial lease portfolios. For the full year, we expect average total commercial loans to increase approximately 5% compared to 2018. Average and end of period consumer loans were flat both sequentially and compared to the year ago quarter as growth in our credit card portfolio and unsecured personal loans was offset by declines in home equity lending and residential mortgages.

As we discussed last quarter, our indirect auto loan balances are no longer declining as origination levels are now outpacing lower amortization in the portfolio. We are deliberately choosing active (ph) portfolio fixed rate conforming mortgage loans in the current rate environment. In the first quarter, similar to the fourth quarter, we expect total average consumer loan balances to be relatively flat with the same portfolio dynamics that I discussed for the fourth quarter. For the full year, we expect average total consumer loans to increase approximately 1% compared to 2018. Combining the commercial and consumer portfolios, we currently expect full year 2019 average total loans to grow 3% to 3.5% compared to 2018.

Total core deposits were up 4% on a year-over-year basis and up 3% compared to the prior quarter. We are very pleased with these results. Our loan to core deposit ratio has declined to the best level in 15 plus years. Our ability to fund incremental loan growth with core deposits is and will continue to be a very powerful factor supporting our growing overall profitability. In the current environment, there is a fine balance between growing core deposits and managing interest expense. We believe that our model strikes the right balance as we are not exposing the balance sheet to rates paid on hot money accounts as we emphasize relationship debt when making pricing decisions, which tend to create more balance and price stability.

Moving on to slide seven, compared to the prior quarter, NII increased 4% or $38 million and the NIM expanded 6 basis points, both of which exceeded our previous guidance. About 2 basis points of the NIM expansion reflected a few items that were seasonal in nature. Average yields on our loan portfolio expanded 20 basis points, which outpaced a 14 basis point increase in interest bearing core deposits during the quarter. Compared to the year ago quarter, net interest income increased $122 million or 13%. The results from the year ago quarter included $27 million negative impact related to the change in tax law. Adjusting for this item, NII increased $95 million or 10% with NIM expanding 19 basis points from the fourth quarter of 2017, a very strong performance relative to peers. As you know, based on our previous disclosures, while achieving these results, we continue to hedge our downside risk taking advantage of very attractive entry points last fall. Our long term interest rate risk philosophy is not to tilt our exposure too far in either direction. We believe this is a prudent approach at this point in the cycle.

Our cumulative beta leading up to the December 2018 Fed hike was approximately 35% with consumer in the low 20s and commercial in the high 50s (ph). The September rate hike resulted in a beta of 58%. We expect the deposit beta from the December rate hike to be consistent with the impact from the September hike over the next six months, which would result in a cumulative deposit beta below 40%.

Today's guidance does not assume any additional Fed rate increases in 2019. We expect the full year 2019 NII to grow approximately 3% over 2018 without any rate hikes. We expect our first quarter NII to decline about 1.5% to 2% sequentially based on day count and the impact of non-recurring fourth quarter seasonal items, partially offset by the benefit from the December rate hike and loan growth. Our estimate is about 6.5% above first quarter of last year's NII. We expect a NIM on a full year basis to expand 2 basis points to 3 basis points in 2019 despite the assumption of no additional rate increases. If the Fed were to raise rates, given our balance sheet position, we would expect the NIM to benefit 1 basis point to 2 basis points in 2019 per rate hike.

Moving on to slide eight, excluding the impact of the listed items, non-interest income increased 2% compared to both the year ago and the prior quarter. Record corporate banking revenue was driven by highest ever M&A advisory fees as well as increased syndication revenues. Our corporate banking fees were up 69% compared to the year ago quarter and were up 30% compared to the prior quarter. We currently expect our corporate banking revenue to grow about 25% compared to last year's first quarter.

Our near term performance and our 2019 expectations demonstrate our success in implementing our NorthStar initiatives over the past three years.

Card and processing revenue increased 5% compared to the year ago quarter and increased 2% compared to the prior quarter due to higher transaction volumes partially offset by higher rewards. Year-over-year performance also reflected strength in wealth and asset management although we had lower revenues in the fourth quarter due to lower asset valuations. Mortgage banking revenue was up 10% in the fourth quarter, origination volume was $1.6 billion, gain on sale margin was 159 basis points, the lowest seen (ph) in the business. Deposit service charges decreased 2% compared to the year ago quarter and decreased 3% compared to the prior quarter predominantly due to higher earnings credit rates in (ph) corporate treasury managements. For the first quarter, we expect total non-interest income to be stable relative to the adjusted first quarter of 2018, and for the full year, we expect total non-interest income to increase approximately 2% from the adjusted 2018 non-interest income.

Moving on to slide nine, the 1% increase in reported non-interest expenses this quarter reflected a $27 million pre-tax impact from merger related expenses. Excluding the merger item, expenses decreased $20 million or 2% sequentially. Results reflected the benefit of the elimination of the FDIC surcharge which was about $12 million and the actions we have taken to manage our expense base. We are very pleased with these results and will maintain the same focus on expense management in 2019 while continuing to invest in our company.

Our adjusted efficiency ratio for the fourth quarter was 56.8%. We have achieved positive operating leverage this quarter both on a quarter-over-quarter and year-over-year basis and expect to continue to improve in the foreseeable future. First quarter expenses excluding any MB acquisition related expenses are expected to be up about 1.5% to 2% from the first quarter of 2018. The largest item driving the year-over-year growth is a $15 (ph) million change in our unfunded commitment provision expense, which reflects growth in commitments associated with strong loan growth.

Included in this guidance is also the impact of our acquisitions in 2018 in wealth and asset management and capital market, which is about 0.5% of our total expense base. Excluding these items, year-over-year expenses in the first quarter are actually expected to be lower than last year's first quarter, including the impact of the change in FDIC deposit insurance expense. It is also worth noting that our first quarter expenses are impacted by seasonality associated with the timing of compensation awards and payroll taxes. We continue to expect our stand-alone expenses, excluding the notable items disclosed in our earnings materials to be up approximately 1% year-over-year in 2019.

Turning to credit results on slide 10, fourth quarter credit results continue to be benign in line with our expectations and reflect the impact of actions that we executed over the last three years. The criticized assets ratio continue to improve decreasing to 3.34%, near a 20-year low from 3.45% last quarter. Net charge offs were $83 million or 35 basis points up 5 basis points from the prior quarter. The commercial charge off rate of 19 basis points continues to be the lowest since before the crisis. The consumer net charge off ratio of 61 basis points increased slightly compared to last quarter and reflected larger than usual recoveries in the prior quarter. NPLs of $348 million decreased 20% from last year and are down 14% from the previous quarter. As a result, our NPL and NPA ratios continue to decline to levels not seen before the crisis.

The provision for loan and lease losses totaled $95 million in the current quarter compared to $67 million in the year ago quarter and $86 million in the prior quarter. The resulting coverage ratio was 1.16% with allowance in excess of NPLs of nearly 320%. As we remind you every quarter, the current economic backdrop continues to support a relatively stable credit outlook with potential quarterly fluctuations given current low absolute levels of charge offs.

Turning to slide 11, capital levels remained very strong during the fourth quarter. Our Common Equity Tier 1 ratio was 10.2% and our tangible common equity ratio, excluding unrealized gains and losses was 8.71%. The cumulative impact of our accounting change resulted in an 11 basis point reduction to our current CET 1 ratio, which merely reflects a timing difference from accounting related to the recognition of losses.

During the quarter, we completed $400 million in share repurchases. At the end of the fourth quarter, common shares outstanding were down almost 15 million shares or 2% compared to the third quarter of 2018 and down 47 million shares or 7% compared to the last year's fourth quarter.

Following the Fed's non-objection to our CCAR resubmission, we will be able to repurchase another -- an additional $900 million in share buybacks through June 2019 and increase our dividend another $0.02 in the second quarter of 2019. This is in addition to the $0.04 increase we just declared in the fourth quarter. Our near term and long term capital targets remain the same as before as we continue to target a CET1 ratio of between 9% and 9.5%.

Slide 12 provides a summary of our current outlook on a stand-alone basis as well as our financial expectations from the MB Financial acquisition. We expect our stand-alone full year 2019 tax rate to be in the 21% to 22% range. The higher than previously disclosed tax rate guidance simply reflects the change in accounting policy I mentioned earlier.

In summary, I would like to reiterate a few points. We reported very strong financial results for the fourth quarter and remain focused on our key strategic priorities to drive the company forward and to outperform through various business cycles. We are focused on successfully executing against our strategic priorities and remain confident in our ability to achieve our enhanced financial targets. We remain focused on seamlessly integrating the MB acquisition and successfully generating the financial benefits as discussed previously. We continue to position the company to enhance our financial returns through organic profit opportunities. And lastly, we are accelerating the digital transformation for future outperformance all within our stated goal of generating positive operating leverage. With that, let me turn it over to Chris to open the call up for Q&A.

Chris Doll -- Head, Investor Relations

Thanks, Tayfun. Before we start Q&A, as a courtesy to others, we ask that you limit yourself to one question and a follow up and then return to the queue if you have additional questions. We will do our best to answer as many questions as possible in the time we have allotted this morning. During the question-and-answer period, please provide your name and that of your firm to the operator. Chelsea, please open the call up for questions.

Questions and Answers:

Operator

(Operator Instructions) Your first question comes from the line of Geoffrey Elliott with Autonomous Research.

Geoffrey Elliott -- Autonomous Research -- Analyst

Good morning. Thanks for taking the question. First, just quickly to clarify, did you say something on corporate banking fees and your expectation for 1Q?

Tayfun Tuzun -- Chief Financial Officer

Yes, I think we said it's going to be up 25% relative to last year's first quarter, Geoffrey.

Geoffrey Elliott -- Autonomous Research -- Analyst

Thanks. So, I guess the question would be, if corporate banking is up 25% relative to last year, you've got some benefit from the acquisitions coming in as well. What is it that kind of holds back the overall picture to keep it much closer to stable given that strength in corporate banking?

Tayfun Tuzun -- Chief Financial Officer

Yes, clearly, corporate banking continues to be very strong, it was very strong in '18, it will be again, we expect to be strong in '19. We are being cautious in the mortgage banking business as we are not expecting a significant improvement in the environment. Clearly, if the environment improves, then we would expect to exceed the contribution from mortgage banking. Similarly, although from a fundamental activity perspective, we are seeing great success in our wealth and asset management business. We're not necessarily forecasting a significant change in market levels. In addition to that, as you know, we last year -- early last year announced that we were going to reduce our outstandings in large-ticket leasing business which has an impact on operating lease income. So that is driving some of the headwind. And then also last year in 2018, we had some private equity gains, those are difficult to predict as we sit here today in the beginning of the year. So those are some of the headwinds, but relative to other pre (ph) line items including corporate banking, clearly we're not only benefiting from the acquired revenues, but also from just organic growth opportunities.

Geoffrey Elliott -- Autonomous Research -- Analyst

Thank you.

Operator

Your next question comes from Ken Usdin with Jefferies.

Ken Usdin -- Jefferies -- Analyst

Hi, good morning. Hey, Tayfun, can you help us understand some of the actions that you took in the quarter? You mentioned in the appendix a bunch of the changes in the swap portfolio. First of all, I guess, could you help us understand if there was any benefits from that in the fourth quarter and then also just how does that work through and impact the NIM and NII going forward? Thanks.

Jamie Leonard -- Treasurer

Hey Ken. It's Jamie. What we did in the quarter from a swap perspective was we added, let's say, $4 billion of spot starting swaps in October and early November and then mid-November, we added a forward -- one year forward starting swap for a total of $5 billion of swaps and then we added floors at a 225 (ph) strike that were also one year forward starting. Net of all of that, it was about $4 million benefit or 1 bps benefit to NIM in the fourth quarter and then given the rate outlook for more stable one month LIBOR, we would expect that benefit to continue. The other action we took related to swaps was then later in the quarter after the bond market rally, we did terminate $3.1 billion of swaps that were set to mature in 2019, which that termination loss just becomes crystallized and locked in over the course of 2019. So, not a real impact to NIM other than if rates were to sell off, we would not be impacted by that related to those $3 billion in swaps.

Ken Usdin -- Jefferies -- Analyst

So I guess as a follow-up, I'm just trying to understand, talking about 3% stand-alone NII growth with really good balance sheet growth especially toward the end of the year and so can you kind of help us understand, is it the impact of that that would hold you back to only 3% or just how does the NII traject I guess as you look past the first quarter? Thanks.

Tayfun Tuzun -- Chief Financial Officer

Yes, I think, Ken, I mean, we're obviously -- we've had great growth in the fourth quarter and our guidance reflects a 1% type increase in commercial loans, average commercial loans into the first quarter. We are maintaining a relatively cautious approach as we look into 2019. We're not trying to increase our expectations based on obviously our success in the fourth quarter, but if we achieve better than our current cautious expectations, that will have an impact on NII on the positive side.

Ken Usdin -- Jefferies -- Analyst

Okay, thank you.

Operator

Your next question comes from John Pancari with Evercore.

John Pancari -- Evercore -- Analyst

Good morning.

Gregory Carmichael -- Chairman, President, Chief Executive Officer

Hi, John.

John Pancari -- Evercore -- Analyst

Just wanted to get a little bit color on what drove the large increase in the commercial -- it looks like commercial interest checking deposits in the quarter pretty substantial leg up and just how sustainable that would be as you look out? Thanks.

Tayfun Tuzun -- Chief Financial Officer

Yes, thanks for the question. What we've seen on the commercial front has been continued migration from a client preference standpoint from DDA to IBT. So that certainly drives a little bit of that, but more importantly for us, we've had a very successful fourth quarter in both new client acquisition on the commercial side as well as getting a better share of wallet of the deposit book from our existing customers. So we were really pleased with the deposit growth in our commercial book and it was very widespread across our regions as well as in several of our verticals including the retail vertical, TMT and entertainment and lodging. So, overall very good outcome and we expect that to continue into 2019.

Jamie Leonard -- Treasurer

Yes, in a changing, John, environment like we're going through with rising rates, one of the benefits of our model and the kinds of relationships we have with our client is, we're able to get in there, have deep relationships, bring them liquidity solutions and some of those liquidity solutions have added to a migration over to -- from DDA to interest bearing transaction accounts, these are still relationship based, but we're really pleased with the execution of a strategy that we put out there and frankly, we're able to fully fund the commercial bank's loan growth for the year. We would expect that would continue as we head into 2019 as we're going to stay very close to our clients in a changing environment.

John Pancari -- Evercore -- Analyst

Okay, all right. Thank you, that's helpful. And then separately on the expense side, I just want to confirm what your guidance implies in terms of full year '19 total expenses including MBFI, if you look at your guidance for stand-alone, it implies about $3.9 billion assuming 1% organic growth and then if we add in consensus numbers for MB expenses and then adjust for 50% of the cost saves of $255 million (ph) come out to about $4.35 billion, want to see if that's fair to assume.

Tayfun Tuzun -- Chief Financial Officer

Well, at this point, I really don't want to comment on the MB acquisition. Obviously, timing of the closing will play a role, but I mean our assumptions have not changed in terms of our cost saving assumptions. By the end of year one, we assume that all 100% of cost savings will be realized such that we go into the year two with full benefit of those. In terms of ours, I mean, we're pretty clear on what we expect from the adjusted base so that approximately 1% type expense that we discussed last call still holds in terms of what we expect from Fifth Third's stand-alone.

John Pancari -- Evercore -- Analyst

Okay, thank you.

Operator

Your next question from Marty Mosby with Vining Sparks.

Marty Mosby -- Vining Sparks -- Analyst

Thanks. Hey, good morning. I wanted to ask you about this middle market expansion into California and Denver and Dallas. I mean, these are all areas where there are already existing competitors and people providing these services, but what are we adding into this process that gives us a competitive advantage as we kind of expand out of our core markets into these areas.

Jamie Leonard -- Treasurer

Yes, so, Marty, first of all, I think we already have a competitive advantage within the markets in which we're operating and I think that we're proving that out. Number of the NorthStar investments that we've made, the acceleration that you've seen in our middle market business this year, we've had three linked quarters of acceleration there of over $1 billion of middle market growth in 2018 and we continue to complement that with additional capital markets treasury management capabilities. Those capabilities, along with our value proposition, we found that we've been very successful in California in expanding into those markets, we know those markets well already. However, one of the key parts to executing, I think, effectively here is to have a very high quality, talented, experienced leadership and bankers in those markets.

We were able to accumulate, I'll tell you, a really first class team in California and we're already seeing some very positive momentum there. We already have a leader for Texas that will be coming on board here shortly. We expect to duplicate that same process and execute there. I do have a history in Texas and know that market pretty well. We'll be able to leverage that. And the Denver market, we also operate in today, again, we have insights and we will replicate that in those markets. I don't have any reason to believe we can't deliver our middle market value proposition like we have in 2018 in these expansion markets.

Gregory Carmichael -- Chairman, President, Chief Executive Officer

And Marty, this is Greg. The only thing I would add also is, we also expanded into Greenville, South Carolina which is out of footprint. In addition to that, we have a St. Louis middle market operation. Both of those have done extremely well and it's really -- the cornerstone of that is finding the right talent that knows the market. Couple that with our go-to-market strategy, our product capabilities and so forth, and it's worked extremely well of us, but we're very selective on which market the opportunity looks like, and once again it depends on finding the right leadership and talent in that market before we make that move. So, I think Lars and team have done a fantastic job, we've had (ph) a lot of success, we'll continue to be very prudent in how we approach those opportunities, but I think to date, we're very pleased with the outcomes.

Jamie Leonard -- Treasurer

Yes, well, one last thing I tag on, if you look at our California middle market portfolio today, this is not about buying into participations, this is about true lead relationships where we have close relationships with management.

Marty Mosby -- Vining Sparks -- Analyst

And I guess as a follow up, there's the two-prong thing is, one, are we getting the talent from kind of bigger money center banks in these areas or super regional banks that are having this process? And as you're kind of getting out of this mark -- out of your markets, that's where we've kind of stumbled in the past, how do we ensure that that's not the selection bias that the growth -- is creating incremental growth but we're getting the growth that's going to eventually be the one that falls once we get into the stress period?

Jamie Leonard -- Treasurer

Yes, so, first of all, we're not taking our eye off the ball of our core franchise. We have a lot of focus, we put a very seasoned leader into a position leading middle market for our company. He spends a lot of time on our core franchise. I couldn't feel better about our positioning there and we're seeing the outcomes of the successes in our core franchise. You can see it in our credit metrics, you can see it in the growth and you can see it in the talent. As I speak to California and beyond, the talent tends to come from your larger regional banks, but as we continue to expand into Texas, I would expect that we would continue to build out that same type profile. Individuals that have experience in middle market, individuals that understand not transactional, but really core relationship banking and how to leverage the capabilities that we've invested in NorthStar and beyond.

Marty Mosby -- Vining Sparks -- Analyst

Very helpful. Thanks.

Jamie Leonard -- Treasurer

Thank you.

Operator

Your next question comes from Peter Winter with Wedbush Securities.

Peter Winter -- Wedbush Securities -- Analyst

Good morning.

Jamie Leonard -- Treasurer

Good morning, Peter.

Peter Winter -- Wedbush Securities -- Analyst

In the opening remarks, you mentioned that the leveraged loans were down 5%. I was wondering, can you just give an update on the size of the lending, leveraged lending exposure and how you go about managing that risk?

Frank R. Forrest -- Executive Vice President & Chief Risk Officer

Hey, good morning, this is Frank. Our balances actually are down 55% over the last three years and our commitments are down 46% and as we stated before, we took an early, I think a very appropriate look at reducing risk in that portfolio. Also, I'll add that our criticized assets in the leverage book are down 25% over the last three years. Our funded exposure today is just over $3 billion. We control that with a number of metrics, KRIs, and we feel very good about it. I also will caution you when trying to compare leveraged portfolios, it's very difficult to do that because there is no standard definition, so everybody has their own definition, but we believe ours is a conservative definition and that's a pretty small overall concentration relative to our total book. So, we've been very assertive over a longer period of time in reducing the exposure given what we anticipated with potential rising rates and where we are in the cycle and we think that will pay off for us if we hit a downturn here over the next 12 months to 24 months.

Tayfun Tuzun -- Chief Financial Officer

And I think Peter, the change compared to last quarter as well as last year also gives you some indication going forward as we would expect our originations elsewhere will exceed originations obviously in leverage lending.

Peter Winter -- Wedbush Securities -- Analyst

All right. And then just a follow up. Greg, you mentioned also in your opening remarks that you'd be interested in some fee income acquisitions. I was just wondering if you could elaborate on that?

Gregory Carmichael -- Chairman, President, Chief Executive Officer

We've been -- we've had a lot of success (inaudible) wealth and asset management business and obviously our capital markets capabilities. We're really looking at strategically franchise opportunity that would benefit our client base that would feed into our book of business and we've had (ph) a lot of success there. So, we'll continue to evaluate those opportunities as they materialize. Once again, it gets down to finding the right opportunity that fits into our model in a geography that we're banking in. I mean, if we find that combination and we think it's a good fit for Fifth Third, we'll consider those opportunities going forward, but I'll also restate, job one for us is MB Financial, getting that done. So we won't do anything that distracts us from being able accomplish that successfully. So we're being very mindful of what's on our plate and how we move forward.

Jamie Leonard -- Treasurer

Yes, Peter, I think the reference to MB is important because MB Financial clearly expands our commercial reach. We are adding relationships significantly with MB to existing relationships. So, if there are any opportunities there with respect to certain products and services that would benefit that expanded commercial client base, we would take a look at it.

Peter Winter -- Wedbush Securities -- Analyst

Great. Thanks very much.

Operator

Your next question comes from Ken Zerbe with Morgan Stanley.

Ken Zerbe -- Morgan Stanley -- Analyst

Great. Thanks. Good morning.

Gregory Carmichael -- Chairman, President, Chief Executive Officer

Good morning.

Ken Zerbe -- Morgan Stanley -- Analyst

I guess you guys seem very positive about the commercial growth in the expansion markets. When we think about the commercial growth, specifically in 2019, how much of the -- I think it was 5% growth comes from these expansion markets and the new lenders they are hiring versus the existing or maybe in footprint portfolio?

Jamie Leonard -- Treasurer

Yes, so Ken, without giving specifics about the contributions of each of these groups, I would tell you this, first of all, we're getting substantial growth out of our existing franchise. That's the key driver for our company in 2018 and will be for 2019. If you look at the Midwest, Indiana continues to be a standout, but the southeastern states continue to grow at a very attractive rate. We really feel good about our ability to continue that momentum into 2019 and for the expansion initiatives for us to be additive to that strength in 2019 and beyond.

Ken Zerbe -- Morgan Stanley -- Analyst

Got you. Okay. That's helpful. And then just a clarification question, in terms of the net interest margin, to make sure I got my numbers right here. So, for the full year, it's 3.22% (ph), guidance is up 2 basis points to 3 basis points, but you ended at 3.29%. Now I understand there's 2 basis points of seasonal items in that NIM, sounds like maybe a little bit from the swap portfolio as well but it seems to imply that there's still downward pressure on NIM so that we could see NIM contraction over the course of 2019. Is that correct?

Jamie Leonard -- Treasurer

It's Jamie, how I would think of it is, if you adjust the fourth quarter for the seasonally elevated items, we had a nice performance of 3.27% from a NIM perspective. Our outlook -- our outlook, and just to be transparent on the underpinnings of the outlook, we have I would say perhaps a little conservative outlook on the NIM given that we have no rate hikes obviously as Tayfun said a June hike would add 1 bps or 2 bps to NIM. We do assume one month LIBOR to Fed funds spread declines from the 7 basis points in the fourth quarter to 2 basis points in the first quarter. Again, if that were not to happen that would be additive 1 bps or 2 bps and we use the yield curve as of January 2nd so that if rates and the curve were to steepen back out, that would add another 1 bps or bps to NIM. And then perhaps one item that's overlooked because this forecast is a stand-alone forecast for Fifth Third, but we're taking action in advance of the MB acquisition on our balance sheet that does have a NIM depressing impact on Fifth Third, but not on the combined organization. So the securities we've added to be LCR compliant, the debt issuances that we've completed and have in the forecast to complete in 2019 on the Fifth Third side, what that translates to is that the MB NIM performance, back at acquisition, we had talked about that being 5 basis points to 7 basis points of NIM additive. Now, given how this forecast lines up, it will be at the higher end of the range because the Fifth Third balance sheet is bearing the cost of those items. So that helps to explain our NIM outlook but our balance sheet in the absence of rate moves should be relatively stable.

Ken Zerbe -- Morgan Stanley -- Analyst

All right. That helps a lot. Thank you very much.

Operator

Your next question comes from the line of Erika Najarian with Bank of America.

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

Hi, good morning.

Gregory Carmichael -- Chairman, President, Chief Executive Officer

Very good morning.

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

Thank you for the clarification on the margin outlook and I'm wondering as we think about the expansion into new market as well as MBFI being dilutive to the loan to deposit ratio, could you give us a little bit more color beyond what you've told us in the prepared remarks about how the deposit strategy could look like with these expansion plans and the combined company, especially in light of a prolonged Fed pause?

Tayfun Tuzun -- Chief Financial Officer

Look, Erika, I think it is clear that with respect to expansions, those initial years tend to be loan heavy. No question about that, but at the same time, we are looking at the momentum that we currently have in place with respect to both consumer as well as commercial deposits in our existing footprint in our existing businesses. We are encouraged that we can continue to fund loan growth including the expansion markets with our existing ability to grow deposits and then, after a year or two, those markets actually tend to catch up fairly quickly because as Lars mentioned, the approach in these expansion markets is not -- it goes through participations, but establish direct customer relationships so without necessarily creating imbalance between asset growth and deposit growth. And then obviously, in this market, we are trying to be more selective in terms of relationships that carry higher deposits. In addition to that, we are also looking to expand our deposit gathering activity nationally with a more focused approach within the commercial business, specific sales force dedicated to growing deposits. Deposits in either a down environment or up environment with respect to rates will continue to be a priority for us because we do believe that, as I said earlier, that core profitability depends upon our ability to fund asset growth through core deposits. So regardless of what the Fed environment may look like, our focus on deposit growth will not change.

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

Got it and if Fifth Third is no longer subject to CCAR LCR, how does that change how you manage capital? And also Jamie, with 128% (ph) LCR, if you could remind us if any meaningful impact from MB and how differently you would manage your liquidity if you no longer had to adhere to a modified LCR?

Tayfun Tuzun -- Chief Financial Officer

So, let me make a capital comment and then I'll turn it over to Jamie to comment on the liquidity side. Our near to medium term goal obviously is to get down to the 9% to 9.5% capital. At this point, Erika, we're not quite sure exactly what the regulatory environment will look like, but that goal is independent from what happened on the regulatory side. Clearly, there may be some process changes et cetera, but we will continue to maintain a focus on managing our exposure to downturns and riskier environments and at this point, we believe that 9% to 9.5% is the right level regardless of what may happen on the regulatory side. And Jamie, on the liquidity side?

Jamie Leonard -- Treasurer

Yes, Erika, on year-end LCR for Fifth Third, you can see the strength in the 128% number which is elevated beyond our targeted operating range of 110% to 115% is where we would like to operate the company but we've had to add Level 1 HQLA in advance of the MB acquisition because their portfolio simply is not invested in Level 1 given that they're not subject to the LCR. So post MB, until the LCR were to go away, we will operate in that 110% to 115% range, but as a result of the build up in our securities book, we're at a roughly 23% of securities to total assets post acquisition. That number will decline probably to the 21% of total asset range as a result of the build up on our side, therefore freeing up some liquidity post combination.

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

Okay, thank you.

Operator

Your next question comes from Gerard Cassidy with RBC.

Gerard Cassidy -- RBC -- Analyst

Good morning. Hi, Tayfun, can you guys share with us, obviously credit quality is spectacular for you guys than many of your peers. As you mentioned, you got to go back 20 years to see similar numbers and back then, Fifth Third was always considered a very strong underwriter. Is there -- what's making it so good today? It's obviously, I know your underwriting standards, but what else is contributing that you guys see to make credit so good today for you folks that again you've got to go back 20 years to find comparable numbers?

Frank R. Forrest -- Executive Vice President & Chief Risk Officer

Hey, this is Frank. Let me take that. Again, we've been very deliberate over the last three years to four years to reposition our portfolio and as Greg has said since he took over as CEO, our objective is to make sure that we are very, very good through cycles. If you look from a historical perspective, going back prior to that through the downturn, that wasn't necessarily the case. So, we know how important it is to be consistent and be very good and so a lot of it is repositioning to make sure that we've got the proper balance between both the consumer and the commercial side and also to make sure that those areas where they tend to spike up due to cyclicality following a downturn that we are better positioned. Commercial real estate, for example, as we've talked about before, we have less commercial real estate by any measurement than all of our peers. And leverage, we've been working that down to I think a very appropriate level over the last three years and Lars is doing a really good job of growing the middle market book, which provides more granularity against the corporate book that's performing exceptionally well, primarily investment grade. So, very intently focused by the entire management team here to make sure that we're delivering through consistent cycles with one probably coming up in the next couple years and we've done that again by I think a very disciplined approach in managing the portfolio through concentration limits and KRIs and a better distribution of risk.

Gregory Carmichael -- Chairman, President, Chief Executive Officer

The only thing I would add, as we went into 2016, we made a conscientious decision to be good through the cycle and we had to take -- make some hard decisions and we pushed out over $5 billion commercial loans, a lot that was leveraged loans, commodity lending and so forth that we exited that didn't meet our risk and return profile and you're starting to see the outcomes of that not only just in our credit but also in our yields and the relationships that we're banking today. So, it's very different than what we were doing in the past. Higher quality, more -- higher sustainability, more consistent performance through the cycle.

Tayfun Tuzun -- Chief Financial Officer

Yes, you know, one of the things I'd add on that and one of the benefits of that balance sheet optimization was freeing up resources so that we could become more productive. And we're seeing that in improved operating leverage, in fact our relationship managers' productivity is up about 15% in 2018, over '17 (ph), that's the third year in a row where we've been able to reallocate resources as we continue to see asset quality strengthen and we can put more on the line with our clients while still staying very disciplined on client selection managing that portfolio.

Gerard Cassidy -- RBC -- Analyst

And as a follow up on credit, what kind of influence do you think the CCAR process has had on you, not so much your peers because you obviously can't comment on NIM, but going through the CCAR, has that contributed to the strength as well in your guys view?

Tayfun Tuzun -- Chief Financial Officer

Yes, absolutely. Hi, this is Tayfun, I will answer that very, very confidently. It has been a positive influence because we've been able to look at different portfolios and the contribution of those portfolios to future losses and the impact on capital. We've made some good decisions to exit certain businesses because from what we've seen in terms of what it would mean to capital ratio. So, that all hangs together and I have to tell you that that's the reason why we would not abandon our stress analysis even in the absence -- if the regulators decide to change the current process.

Gerard Cassidy -- RBC -- Analyst

Great. And then just as a second question, obviously, speaking of 20 years ago, profitability for the industry, you guys -- was much higher, we all recognize that return on equity levels due to the extra capital you and your peers have to carry post the financial crisis will probably not be reached at the levels that we saw back in the late 1990s. The ROAs back then you know for you folks, at one point, you got into the 2s (ph), what do you think peak ROA could be for you guys? I wouldn't expect to be in the high 1%s, but is there still movement upside into the mid 1s (ph) for a profitability number?

Tayfun Tuzun -- Chief Financial Officer

Well, our expectation is that we would reach mid 1s (ph) right. So when you look at it including the MB acquisition, unless the environment significantly changes, we would expect to reach the mid 1s (ph). Beyond that, it becomes difficult because then you get into the point in cycle with respect to credit and interest rates but we'll take it, the year end time and we'll try to achieve our targets but we clearly are on the upward swing.

Gregory Carmichael -- Chairman, President, Chief Executive Officer

Gerard, the only thing I would add is we've communicated earlier that the combined franchise with MB Financial, as we look at that in 2020, the ROA range we put out there is 1.55% to 1.65% to give you some indication where we think we're heading.

Gerard Cassidy -- RBC -- Analyst

Great. Appreciate the color, gentlemen. Thank you.

Tayfun Tuzun -- Chief Financial Officer

Yes, thank you.

Operator

Your next question comes from Christopher Marinac with FIG partners.

Christopher Marinac -- FIG Partners -- Analyst

Thanks. I also had a credit quality question just to follow up on Gerard's comments here. Do you think that the economic outlook this year allows classified and criticized to fall? Or is it more of a stable year with just modest changes as time progresses?

Frank R. Forrest -- Executive Vice President & Chief Risk Officer

Hi, this is Frank. It's hard to imagine that it's going to get much better than it is. When you get to a below (ph) 4% criticized base, based on my long history, your -- that's about as good as it's probably going to look. If you get well below that, then you're probably not classifying your loans correctly. So the outlook right now for 2019 for us is steady state. We might see a slight uptick depending on where rates are and where the economy goes, but we're in a much better place than we were, I mean 2.5 years, 3 years ago, we were running at close to 7.5% criticized, which was one of the highest among all of our peers. Today, our number at 3.3% (ph) is one of the very best of all of our peers. So, again I think it speaks highly of the deliberate case that we've had to make sure that we reduce the risk in our portfolio and we feel good about it, but below 4%, it's hard to imagine it would get much better than that from an industry perspective.

Tayfun Tuzun -- Chief Financial Officer

Yes and Chris, I also want to highlight, we do actually quote this almost every opportunity we find, but we have the lowest CRE exposure among the peer group. So when you think about where we are in the cycle and the asset classes that would be subject to a deterioration depending upon how that cycle moves forward, that is not getting enough attention from our perspective. That significantly alters the behavior of our balance sheet today relative to our experience going into and past the crisis.

Gregory Carmichael -- Chairman, President, Chief Executive Officer

The other point I'll make on CRE, as we've talked about before and it's primarily a portfolio of both national and large regional developers who have very diversified large balance sheets. So, we are very confident based on the client selection that we've focused on larger things, focused on in the last two years to three years that we're banking the right people that would be successful through cycles. We do have exposure in local levels, but we don't have significant exposure to smaller developers who could have liquidity issues in a very quick period of time. So we feel very good about one, the quality of the book; and two, we've been very deliberate that we're comfortable with where we are relative to the total exposure of that book today.

Tayfun Tuzun -- Chief Financial Officer

Yes, and I'd say, Chris, if you look at our construction portfolio, you saw that, that was stable on a linked quarter basis. Our commercial mortgage was up slightly, but that is not an area that we would see contributing significantly in the future in '19 to the growth of the commercial bank. In fact, you could see that begin to decline as the number of asset classes, such as urban luxury living, a big portion going back a number of years ago will continue to mature, pay off and move to the permanent market and that construction portfolio will begin to decelerate.

Great, guys. Thanks very much for the background. Appreciate it.

Operator

Your last question comes from Kevin Barker with Piper Jaffray.

Kevin Barker -- Piper Jaffray -- Analyst

Good morning. Just a follow up on credit, one more time. I noticed that you mentioned that there was no real change or outlook on your credit mark for MBFI last quarter, but this quarter we're starting to see a pick up in non-performing and problem loans, and MBFI, in fact, they were up roughly 25% quarter-over-quarter are up (ph) excluding purchase accounting accretion, about 50% since the deal was announced. Could you give a little bit of comment on your expectations for the credit mark, if that has changed or the credit outlook at MBFI?

Tayfun Tuzun -- Chief Financial Officer

Not at this point, not until we close on the transaction, I don't think it would be appropriate to do it. What I will say is that again, this portfolio is a fairly small one, it's a very diversified portfolio compared to ours, it's like one-seventh the size of our book. They are mostly small balance lower end business banking and middle market loans, so very granular. It's something that we still feel very comfortable with and we can manage and fold it into our credit disciplines as we go forward, but really do not want to comment on another public company until we close relative to the specifics of your question.

Kevin Barker -- Piper Jaffray -- Analyst

Okay. That's all I had. Thank you.

Operator

Your last question comes from Matt O'Connor with Deutsche Bank.

Matt O'Connor -- Deutsche Bank -- Analyst

Hi, good morning.

Tayfun Tuzun -- Chief Financial Officer

Good morning.

Matt O'Connor -- Deutsche Bank -- Analyst

I know you guys have been trying to grow the credit card and kind of all other consumer book. Can you just remind us the targeted customer base there and how big you've got those two portfolios, they're obviously quite small, but they do kick off a higher yield and a little bit higher charge off. Just remind us the strategy there and any kind of concentration limit that you might put in place?

Tayfun Tuzun -- Chief Financial Officer

Yes, Matt, our target audience continues to be prime super type of range. So that there is no change with respect to the credit exposure profile. With respect to targets, concentration targets, as you said, that these levels are very low and as a matter of fact, as you know, our total consumer book has been declining and we've been trying to achieve a better balance between consumer and commercial exposures. Credit cards have a significant room to grow. We're a little over $2 billion unsecured (ph) loans due as well. We do have, as you may remember so the $2 billion type of target with respect to the GreenSky loans, but these levels do not create any concerns with respect to exposure limits in unsecured consumer lending given especially the profile of the borrowers.

Matt O'Connor -- Deutsche Bank -- Analyst

Can you just remind us how big is the GreenSky book and of the $2.2 billion other consumer, what else is in there?

Tayfun Tuzun -- Chief Financial Officer

$1.22 billion, it was the balance at the end of the quarter in GreenSky.

Matt O'Connor -- Deutsche Bank -- Analyst

Okay and anything else (multiple speakers)?

Tayfun Tuzun -- Chief Financial Officer

And the other stuff, we have basically a collection of unsecured exposures that have been organically created, exposures in our private banking with respect to borrowers from that side as well.

Matt O'Connor -- Deutsche Bank -- Analyst

Okay all right. That's helpful. And obviously like that mix shift is one of the drivers of the NIM that we've been seeing as you've been running off some of the other consumer and growing those portfolios?

Tayfun Tuzun -- Chief Financial Officer

But remember though that's been deliberate, right, because when we decided to reduce auto loan exposures from where we were in 2015, the concern was that we were not getting paid in that business appropriately and we were also, as we reiterated, we're not portfolio in conforming mortgage loans. So, all of that clearly play a positive role with respect to NIM expansion. So, yes, that (multiple speakers).

Matt O'Connor -- Deutsche Bank -- Analyst

Yes, understood. Okay. Thank you.

Tayfun Tuzun -- Chief Financial Officer

Thank you, Matt.

Chris Doll -- Head, Investor Relations

Thank you everyone for your interest in Fifth Third. If you have any follow up questions, please feel free to contact the IR department and we'll be happy to assist you.

Operator

This concludes today's conference call. You may now disconnect.

Duration: 72 minutes

Call participants:

Chris Doll -- Head, Investor Relations

Gregory Carmichael -- Chairman, President, Chief Executive Officer

Tayfun Tuzun -- Chief Financial Officer

Geoffrey Elliott -- Autonomous Research -- Analyst

Ken Usdin -- Jefferies -- Analyst

Jamie Leonard -- Treasurer

John Pancari -- Evercore -- Analyst

Marty Mosby -- Vining Sparks -- Analyst

Peter Winter -- Wedbush Securities -- Analyst

Frank R. Forrest -- Executive Vice President & Chief Risk Officer

Ken Zerbe -- Morgan Stanley -- Analyst

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

Gerard Cassidy -- RBC -- Analyst

Christopher Marinac -- FIG Partners -- Analyst

Kevin Barker -- Piper Jaffray -- Analyst

Matt O'Connor -- Deutsche Bank -- Analyst

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