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Comerica Incorporated (CMA) Q3 2018 Earnings Conference Call Transcript

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Comerica Incorporated (NYSE: CMA)
Q3 2018 Earnings Conference Call
Oct. 16, 2018, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Regina and I will be your conference operator today. At this time, I would like to everyone to the Comerica third quarter 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. If you would like to ask a question during this time, simply press * then the number 1 on your telephone keypad. If you would like to withdraw your question, press the # key.

I would now like to turn the conference over to Darlene Persons, Director of Investor Relations. Ma'am, you may begin.

Darlene Persons -- Director of Investor Relations

Thank you, Regina. Good morning and welcome to Comerica's third quarter 2018 earnings conference call. Participating on this call will be our Chairman, Ralph Babb; President, Curt Farmer; Chief Financial Officer, Muneera Carr; and Chief Credit Officer, Pete Guilfoile.

During this presentation, we will be referring to slides which provide additional details. The presentation slides and our press release are available on the SEC's website, as well as in the Investor Relations section of our website, comerica.com.

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This conference call contains forward-looking statements, and in that regard, you should be mindful of the risks and uncertainties that can cause actual results to vary materially from expectations. Forward-looking statements speak only as of the date of this presentation, and we undertake no obligation to update any forward-looking statements. I refer you to the Safe Harbor statement in today's release and Slide 2, which I incorporate into this call, as well as our SEC filings for factors that could cause actual results to differ. Also, this conference call will reference non-GAAP measures, and in that regard, I direct you to the reconciliation of these measures within this presentation.

Now I'll turn the call over to Ralph, who will begin on Slide 3.

Ralph W. Babb, Jr. -- Chief Executive Officer

Good morning, and thank you for joining our call. Today, we reported third quarter earnings of $318 million, or $1.86 per share. Excluding $20 million in security losses, revenue grew 2%. Our credit metrics remain strong and expenses were well controlled. This drove an ROE of over 16% and an ROA of 1.77% for the quarter.

Relative to the third quarter of last year, our earnings per share increased 48%, and net income is up 41%. This increase is due to our management of loan and deposit pricing, as interest rates have moved higher, improved credit quality, and continued successful execution of our GEAR Up initiatives, as well as a lower tax rate.

On Slide 4, we have provided details on the adjustments related to certain items. We realized $23 million in discrete tax benefits, primarily related to the 2017 tax reform law. The bulk of the proceeds were used to reposition a portion of our securities portfolio into Treasuries, which yield about $4 million in additional interest per quarter. The repositioning resulted in a loss in the securities sold. We also incurred restructuring charges related to our GEAR Up initiatives.

Turning to Slide 5 and an overview of our third quarter results, a seasonal decline in national dealer services and typical summer slowdown in middle market contributed to a $641 million decline in average loans compared to the second quarter. This was partly offset by a seasonal increase in Mortgage Banker, and continued growth in Technology & Life Sciences, specifically Equity Fund Services.

As far as deposits, average balances increased $263 million. Our deposit rate increased 9 basis points, as we remain focused on our relationship approach to manage deposit pricing to attract and retain customers.

Net income increased $9 million, with a net benefit from increased interest rates contributing $13 million. Our net interest margin decreased 2 basis points to 3.60%, as the benefit of rates rising was offset by nonaccrual interest recoveries and higher excess liquidity. We continued to have strong credit quality with a decline in problem loans, and 13 basis points in net charge-offs. The charge-offs for the quarter were fully covered by our existing allowance and as a result, there was no provision for loan losses.

Non-interest income increased $6 million, or over 2%, excluding the $20 million in losses on securities that I have previously mentioned. We have maintained our expense discipline, and our efficiency ratio dropped to just under 53%.

Now that we are no longer subject to CCAR, our Board is able to more efficiently and effectively take capital actions with a focus on reducing our robust capital ratios to a level that is reflective of our business strategy. In the third quarter, we meaningfully increased our payout to shareholders to a record level. We repurchased $500 million in shares, and increased our dividend 76% to $0.60 per share. Our estimated CET1 capital ratio decreased 23 basis points to 11.66%. Now I'll turn the call over to Muneera, who will go over the quarter in more detail.

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

Thanks, Ralph. Good morning, everyone. Turning to Slide 6. Third quarter average loans declined $641 million, compared to the second quarter, primarily due to seasonality. Our Auto Dealer portfolio decreased $400 million. Dealers typically reduce inventory in the third quarter in preparation for delivery of the new models. In addition, this year Dealer has been impacted by M&A activity, with a few of our customers taking the opportunity to sell a portion of their franchises at attractive valuations.

Summer slowdowns in Middle Markets resulted in a $225 million decline in average balances. We had a few large loan payoffs in the second quarter in private banking, as I mentioned on our last earnings call. This has resulted in a $191 million decline in the third quarter average loans.

Also, we remain selective in the large corporate space, maintaining our pricing and underwriting standards in a highly competitive environment. Partly offsetting Mortgage Banker grew nearly $180 million with a normal pickup in summer home sales. Our portfolio continues to benefit from the fact that it is heavily weighted to hold purchases with 89% purchase versus refi, compared to the industry average of 75%.

We continue to have solid growth in Technology & Life Sciences, particularly Equity Fund Services. Totally period-end loans decreased $782 million, with seasonal declines in Mortgage Banker and Dealer Services. Commitments at period end were up $650 million, driven by increases in most business lines, led by Technology & Life Sciences, and general Middle Market.

Overall, the sentiment was positive, reflective of the strong economy. Yet customers continue to be cautious, given recently imposed tariffs and evolving trade discussions, as well as constraints due to available labor.

On a year-over-year basis, we have grown loans in many of our specialty areas, such as Technology & Life Sciences, National Dealer Services, Commercial Real Estate, and Environmental Services. This has been offset by reductions in Energy, which has declined over $300 million, as well as decreases in Large Corporate and Private Banking.

Our loan yield increased 11 basis points. Short-term rates increased at a much slower pace in the third quarter. For example, average 30-day LIBOR increased 14 basis points, compared to 32 basis points in the first two quarters this year. Therefore, the rate benefit of 15 basis points was muted relative to the second quarter. Also, higher loan fees in the margin added 2 basis points to our yield.

Finally, non-accrual interest recoveries, which were elevated in the second quarter, decreased $8 million, reducing the yield by 6 basis points. As you can see on Slide 7, average deposits were up $263 million in the third quarter, with growth in nearly all business lines, led by increases in interest-bearing deposits in Technology & Life Sciences, and Wealth Management. We expect average deposits to increase in the fourth quarter consistent with normal seasonal patterns, but not at the same magnitude that we have seen in years past.

Period-end deposits were impacted by the timing of monthly federal benefit activity in our government prepaid card business. Of note, relative to the third quarter 2017, average municipal deposits are down nearly $1 billion. Deposit pricing for the third quarter increased 9 basis points, as we remain focused on our relationship approach to manage deposit pricing to attract and retain customers.

Slide 8 provides details on our securities portfolio. As Ralph mentioned, we repositioned $1.3 billion of Treasuries at the end of the quarter. We have enhanced our future earnings, as the higher yield on the purchased securities resulted in an additional $4 million per quarter of net interest income.

The loss taken on the securities sold was offset by the discrete tax benefits which resulted from the new tax laws. As far as the portfolio's third quarter performance, the yield on the portfolio continued to trend up, and there was no significant change in the duration or the relatively small unrealized loss position. Yield on recent MBS purchases have been in the 3.30s, 3.60s, which was well above the average rate of 2.28% on the $465 million in paydowns we received in the quarter.

Turning to Slide 9. Net interest income increased $9 million, while the net interest margin declined 2 basis points. Our loan portfolio added $13 million and 8 basis points to the margin. Increased interest rates provided the largest benefit, along with one additional day in the quarter and higher loan fees. This was partly offset by an expected decline in non-accrual interest recovery from an unusually high level in the second quarter, as well as lower loan balances.

Deposits at the Fed added $10 million, reflecting the benefit from the higher Fed funds rate, as well as an increase in average balances. The higher level of excess liquidity drove a negative impact of 3 basis points to the margin. Higher yield on the securities book added $2 million and 1 basis point to the margin. On the funding side, deposit costs increased $7 million, primarily due to increased pay rates. This had a core basis point impact.

Also, we issued $850 million in senior debt at the end of July, primarily to fund our share repurchase program, and pre-fund some debt that's maturing in the first half of next year. The higher debt balances, together with the increase in short-term rates added $9 million in wholesale funding costs, and 5 basis points to the margin. In summary, the net impact of increased rates contributed $13 million or 8 basis points to the margin.

Credit quality remains strong, as shown on Slide 10. Our net charge-off ratio was 13 basis points. Gross charge-offs remained low at $25 million. Recoveries were $10 million, following an unusually high level in the second quarter. Total criticized loan declined $95 million or 5%, and now represent 3.4% of total loans at quarter end. This included a decrease in non-accrual loans, which comprise only 47 basis points of our total loans. Energy criticized and non-accrual loans continue to decrease. The positive credit migration resulted in a reserve release and a reserve ratio of 1.35%. The economy is strong, and our customers are performing well. At this point, we're not seeing any concerning trends.

Turning to Slide 11. Excluding the securities losses which I previously discussed, non-interest income grew $6 million on over 2%. This included good customer activity in both interest rates and energy derivatives. Investment Banking also increased with a pickup in M&A activity. Also, we had smaller increases in card and brokerage fees. This was mostly offset by decreases in syndication fees, following robust activity in the second quarter, as well as letter of credit fees.

In addition, we had increases in bank-owned life insurance, with the receipt of the annual dividends, as well as deferred comp, which is offset in non-interest expenses. You may recall that in the second quarter, we incurred a charge to increase the reserve for a derivative contract related to Visa Class B shares.

Expenses remain well controlled, and our efficiency ratio dropped below 53%, as shown on Slide 12. Salaries and benefits increased $4 million, as the impact of higher contract labor related to technology projects, deferred comp, as well as one additional day in the quarter, were partly offset by a reduction in our workforce. Relative to our year ago, our workforce is down nearly 2%, and we have implemented our GEAR Up initiatives driving increased productivity and efficiency across our organization. GEAR Up restructuring charges were $12 million, an increase of $1 million from the second quarter.

In the third quarter, we repurchased a record $500 million or 5.1 million shares under our equity repurchase program, as you can see on Slide 13. In addition, we increased our dividends 76% to $0.60 per share. Together with dividends, we returned $600 million to shareholders. We have a target to repurchase up to $500 million in shares in the fourth quarter, and expect to facilitate this through an accelerated share repurchase program.

Our estimated CET1 declined 23 basis points to 11.66%. Our goal is to reach a CET1 ratio of 9.5% to 10% by the end of 2019. Careful consideration will be given to earnings generation, capital needs, and market conditions as we determine the pace of the share buyback.

Turning to Slide 14. Our balance sheet is well positioned to benefit from increases in rate. Approximately 90% of our loans are floating rate, with the bulk tied to 30-day LIBOR. Also, we have a favorable deposit mix, with the majority being non-interest bearing. Combine this with careful management of pricing, and we have been able to drive a cumulative loan beta of 89%, and a cumulative deposit beta of 21%.

In conjunction with the September Fed rate action, we increased our standard deposit rates on select products. We believe average deposit costs will increase approximately 12 to 15 basis points in the fourth quarter. Deposit rates are expected to continue to increase as short-term rates increase; however, with some variability depending on the competitive environment, among other factors. We are closely monitoring our deposits, as well as the market.

In total, we estimate $285 million in additional net interest income in 2018, resulting from the full-year impact of the three rate hikes last year, plus the three rate increases so far this year. We have incorporated the lower pace of recent short-term rate movement, as well as our deposit cost estimates in determining the expected net benefit of $15 million from a third quarter rate increase, of which $1 million is already in the run rate.

Of course, the outcome depends on a variety of factors, such as the pace at which LIBOR moves, deposit betas, and balance sheet movement. It's likely that the Fed could raise rates in December, as well as continuing tightening next year, and we stand to further benefit with our well-positioned balance sheet. We have not yet added hedges to change our asset sensitivity. Our asset liability committee continues to assess our position to determine the appropriate path, given balance sheet movement and our outlook for rates.

Now, I will turn the call back to Ralph to provide an update on our outlook for the fourth quarter.

Ralph W. Babb, Jr. -- Chief Executive Officer

Thank you, Muneera. Assuming continuation of the current economic environment, we expect loans to grow through the end of the year. We believe this rebound will result in average loans being stable relative to the third quarter. Seasonality in the fourth quarter typically drives an increase in National Dealer Services, and a decline in Mortgage Banker.

Supported by increased commitments, we anticipate growth in several businesses, such as Middle Market, and Technology & Life Sciences, primarily Equity Fund Services. Also, in Large Corporate, we continue to be selective, maintaining our pricing and underwriting discipline.

Regarding net interest income, as Muneera indicated, we continue to expect to continue to see the net benefit of the recent rise in short-term rates. In addition, the securities portfolio repositioning adds about $4 million. We expect headwinds in the form of higher debt costs resulting from the full-quarter impact of the late July debt issuance, as well as lower non-accrual interest recoveries and loan fees.

We remain well positioned to benefit from future interest rate increases, though this outlook does not include a December rate hike. We expect continued strong credit quality to result in a $10 to $20 million provision. Putting aside the third quarter loss on securities, the BOLI dividend and deferred comp income, which is difficult to predict, our fee income is expected to be relatively stable.

Our GEAR Up initiatives should continue to drive growth in card fees and fiduciary income. Mostly offsetting this growth is a possible reduction in derivative income and investment banking from strong third quarter levels. Expenses are expected to increase modestly. We expect a small increase in technology project costs, as well as typical and inflationary pressures. We continue to be on track to fully realize our GEAR Up savings.

Finally, we expect our effective tax rate to be approximately 23%. All together, we expect our pre-tax, pre-provision net revenue to grow, while we continue to achieve positive operating leverage, and drive our efficiency leverage lower.

In closing, our third quarter results were solid. We continue to focus on revenue growth, as well as maintaining favorable credit metrics and well-controlled expenses. Through a significant increase in our share repurchases and dividend, we were able to meaningfully increase the capital return to our shareholders. We expense to maintain our robust return of capital, while properly managing our capital base to support growth and investment in our businesses.

With a solid pipeline, as well as increased loan commitments, along with seasonal factors, we expect loan growth to trend positive into the end of the year. We remain well positioned to meaningfully benefit from rising rates, as we manage loans and deposit pricing. In addition, we have been executing our GEAR Up initiatives and delivering on the efficiency and revenue opportunities. Our return on assets, return on equity and efficiency ratios clearly demonstrate our commitment to enhancing shareholder value. And now, we'd be happy to take your questions.

Questions and Answers:

Operator

As a reminder, in order to ask a question, simply press * followed by the number 1 on your telephone keypad. We'll pause for a moment to compile the Q&A roster. Our first question will come from the line of Ken Zerbe with Morgan Stanley. Please go ahead.

Kenneth Zerbe -- Morgan Stanley -- Analyst

Thanks, good morning.

Ralph W. Babb, Jr. -- Chief Executive Officer

Good morning, Ken.

Kenneth Zerbe -- Morgan Stanley -- Analyst

Just wanted to clarify one really quick thing. I think Muneera said the, was it interest-bearing deposit costs are going to be up 12 to 15 basis points next quarter, or was that total deposit costs?

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

Interest-bearing deposit costs, Ken.

Kenneth Zerbe -- Morgan Stanley -- Analyst

Okay, perfect. That helps. Then maybe a little bit more broadly, can you just talk about how you view debt or long-term debt as part of your funding mix from here? Because presumably if you do have further reductions in non-interest bearing, are you going to be more active in issuing more net debt, like X any kind of pre-fundings?

Ralph W. Babb, Jr. -- Chief Executive Officer

Muneera?

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

Thank you, Ralph. Ken, first of all, our deposits, as you can see, we talked about the fact that in the fourth quarter we'll continue to see an increase in line with seasonal patterns. Beyond that, as far as funding is concerned, we have a lot of active sources of funding. We can raise market index deposits fairly easily. We have FHLB funding that essentially is about a 30-day LIBOR rate, more or less. That's sort of the second source that we can go to, if necessary. Clearly, we can also approach the market. All of that will mean that loan growth is doing really well, so overall, Comerica should benefit.

Kenneth Zerbe -- Morgan Stanley -- Analyst

Gotcha, OK. The debt you issued in July was purely a pre-funding of a debt that's maturing?

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

That's right, and also for the share repurchases.

Kenneth Zerbe -- Morgan Stanley -- Analyst

Gotcha, OK. Then just last question really quick. Let's call it the loan-yield beta calculated at about 48%. Was that purely due to where average LIBOR was or are you guys seeing any signs at all of spread compression in the market? Thanks.

Ralph W. Babb, Jr. -- Chief Executive Officer

Curt?

Curtis C. Farmer -- President

Yes. I would say that nothing that is unusual on the lending side. It remains a highly competitive market, and remain very disciplined and very relationship focused. We have pricing models that really take into consideration client-by-client overall credit risk and profitability of the client relationship.

Kenneth Zerbe -- Morgan Stanley -- Analyst

Okay. So, are you saying the loan yield beta should go back to more of the 80%-90% next quarter because the LIBOR goes up? Is that what you're implying?

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

Ken, looking at our loan yields and the cumulative beta that they're picking up, that's an all-in calculation of how our yields are benefiting. It includes a non-accrual recovery, as an example. But purely for rates, you can see that our loan yield benefited 15 basis points when LIBOR was moving, on average, 14 basis points. So, the pull-through it there, there aren't any issues on the spread front. We are maintaining our pricing disciplines.

Kenneth Zerbe -- Morgan Stanley -- Analyst

All right, perfect. That helps. Thank you very much.

Ralph W. Babb, Jr. -- Chief Executive Officer

Thank you.

Operator

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

Ralph W. Babb, Jr. -- Chief Executive Officer

Good morning, Erika .

Brandon -- Bank of America -- Analyst

Good morning. This is Brandon on behalf of Erika. How are you?

Ralph W. Babb, Jr. -- Chief Executive Officer

Good morning. Good.

Brandon -- Bank of America -- Analyst

Similar to Ken's question, I just wanted to ask more about the competition within commercial lending. How much business would you guys estimate you guys are losing to alternative lending? Said another way, how competitive is structure and pricing?

Ralph W. Babb, Jr. -- Chief Executive Officer

Curt, do you want to take that one?

Curtis C. Farmer -- President

Yeah, Brandon, it is obviously a competitive environment, and that competition extends not only to traditional banks, but the non-banking or shadow side of things as well. We are definitely seeing some deals that are more highly leveraged and more covenant-like. Having said that, we've got a great client base. This past quarter, 40% of our new originations were to new customer opportunities, and we've still been in a net acquiring mode with new customers. So, it is a competitive environment, but we feel like we are trying to stick to the market to lines of business we serve, and we still have opportunities to grow.

Brandon -- Bank of America -- Analyst

Great, thank you. My follow-up question is, can you guys tell us what your exposure is to syndicated leverage lending or sponsor-backed transactions?

Ralph W. Babb, Jr. -- Chief Executive Officer

Pete?

Peter W. Guilfoile -- Executive Vice President, Chief Credit Officer

Yeah, it's less than 5% of the portfolio.

Brandon -- Bank of America -- Analyst

Great, thank you very much.

Ralph W. Babb, Jr. -- Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of John Pancari with Evercore. Please go ahead.

Ralph W. Babb, Jr. -- Chief Executive Officer

Good morning, John.

John Pancari -- Evercore -- Analyst

Morning. A question on your interest rate sensitivity on Slide 14. I know you talked about it. You're indicating to a degree that your asset sensitivity is coming down a bit over time with these modifications to that sensitivity. How much of that is tied to deposit betas? And as you dial that into your assumptions? If it is tied to deposit betas, is it all surprising you? Because we would've assumed that you've got higher betas already assumed in your scenarios. Thanks.

Ralph W. Babb, Jr. -- Chief Executive Officer

Muneera?

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

All right. If you're specifically talking about our expectations for the September benefit and how we're computing that, it all depends on a variety of different factors. How is LIBOR moving? And LIBOR has been slow in the way it moved in the third quarter. And building that same slow pace in the fourth quarter, and certainly the other variable is deposit cost. For that, I gave a range of 12 to 15. We picked our most likely scenario of where the deposit costs will turn out. And all of that is pulled in together in that $15 million estimate that you see. A little bit of the decline is also because we did have a debt issuance, and that takes away a little bit of the benefit as well.

John Pancari -- Evercore -- Analyst

Okay. So there's no real wholesale change in your assumptions tied to your deposit betas? Is that fair to say?

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

That is fair to say. From a deposit beta standpoint, we have to monitor the competitive environment and make adjustments accordingly. I talked about the fact that we made a standard pricing change early in October, and that is part and parcel of those costs that I mentioned.

John Pancari -- Evercore -- Analyst

But I'm assuming you would've expected that you would be making that pricing change.

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

Exactly, yes.

John Pancari -- Evercore -- Analyst

Okay, all right. Then separately, on the expense front, I believe last quarter on the call you had indicated a low single-digit outlook approximately for the growth rate in expenses for 2019. Is that still a fair assumption as we go into '19? And also, how would you view the efficiency ratio for the full year coming off of the 2018 level? Thanks.

Ralph W. Babb, Jr. -- Chief Executive Officer

Muneera, do you want to take that?

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

Okay. The comprehensive update on where they're going on expenses on 2019 both come in our January earnings call, but a little bit of color on what to expect. Our GEAR Up program will sunset at the end of 2018. We will continue to benefit from many of its initiatives and we have the last little bit of benefit of about $35 million for next year that will be folded into our overall outlook. That includes both expenses, as well as income benefit. Beyond that though, we won't incur restructuring charges next year, so that will be a tailwind.

Similarly, FDIC charges should be a tailwind next year as well. Offsetting this will be your typical increases that you'd see for merit or inflationary pressures, or outside processing that typically goes up with an increase in revenue. Overall, I would say that we fully expect to generate positive operating leverage and we expect to continue to drive the efficiency ratio in the right direction.

John Pancari -- Evercore -- Analyst

Okay. Thank you, Muneera.

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

You're welcome.

Operator

Your next question comes from the line of Scott Sievers with Sandler, O'Neill & Partners. Please go ahead.

Ralph W. Babb, Jr. -- Chief Executive Officer

Good morning, Scott.

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

Good morning, guys. I was hoping you could just spend a moment talking about overall loan growth. Because I know back at the beginning of the year the hope was to approximate kind of real GDP growth. At this point though, it looks like this year will come in a little lighter than that. But just as you look at the next several quarters, what would it take for loan growth to reaccelerate toward a number that pretty much approximates the real GDP rate? Just in your guys' view.

Ralph W. Babb, Jr. -- Chief Executive Officer

Curt, do you want to take that?

Curtis C. Farmer -- President

Scott, we historically had talked about loan growth more in line with GDP. I think as we've gone into 2018 and the current environment that we're operating in, you look at things like H8 data across the industry, there seems to be less correlation to GDP right now. A lot of that is, I think due to many of the factors that I've already spoken to, including the competitive landscape, both from a bank and non-bank or shadow banking scenario. That's why our customers are definitely I think more optimistic that they have been.

We still are not seeing a lot of accelerated capex spending. I think some of that hesitancy, as Muneera alluded to, is around just tax reform, the positive that customers are sitting on more cash right now, and in some cases they're deleveraging. Then I think beyond that, there's some hesitancy on their part around just trade issues, mid-term elections, just the unknowns that might be out there.

We have obviously booked a lot of new businesses, but we're seeing utilization rates moderate to down overall. In the end, I think part of that is customers are sitting on a lot of cash. The third quarter for us is often a down quarter because of the seasonality that Muneera and Ralph both alluded to earlier.

We are optimistic about the fourth quarter, seeing some growth overall through the end of the year. Our pipelines are pretty strong, and commitments are up for us about $650 million in the third quarter. And so we would expect to see growth in Middle Market, Technology & Life Sciences, as well as the buildup in Dealer that we normally see in the fourth quarter. Some of that would be offset by the seasonal decline in Mortgage Banker finance.

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

All right, perfect. I appreciate that color. If I could switch sides on the balance sheet for just a second, as we look at the base of non-interest bearing deposits, the growth has just been so extraordinary over the last few years. As a percent of your total deposit base, it's so kind of out of bounds with where it would've been under what you would call a typical cycle in the past. Do you guys have a view just sort of at a very top level as to where that ultimately ends up flushing out? In other words, will it just structurally be much higher than it's been in call it decades past or does it trend back down more meaningfully?

Ralph W. Babb, Jr. -- Chief Executive Officer

Curt?

Curtis C. Farmer -- President

Yes, you are right. We have seen a lot of growth in non-interest bearing deposits. A lot of that has to do with the nature of our client base, given the heavy commercial orientation to the base. As customers start eventually to utilize some of that cash, you would expect some of that to come down. And then as we continue to see interest rates, there will be some eventual movement of deposits potential into interest-bearing overall.

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

Okay, all right. Thank you guys very much.

Ralph W. Babb, Jr. -- Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Ken Usdin of Jefferies. Please go ahead.

Ralph W. Babb, Jr. -- Chief Executive Officer

Good morning, Ken.

Ken Usdin -- Jefferies & Co. -- Analyst

Hi, good morning, Ralph. Another question just on the deposit side. Muneera, you mentioned that you'd through the standard October pricing. And it seems like we're kind of on a every-six-months or so where you put through the standard. How are you guys monitoring the need and the speed of what you need to put through that standard? Because you had the very fast repricing in the second quarter, then it was slower in the third. Now you're saying it's faster in the fourth following the October. So, can you get away with doing them every six months or so? Or is the dynamic of the pricing environment changing quicker now than it would've been previously?

Ralph W. Babb, Jr. -- Chief Executive Officer

Muneera?

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

All right. Ken, you're right. I think I've been signaling this for a few months now. But I've said it's not going to be a near progression. It's not going to be this is the pay rate and that's some sort of a systematic increase over time. A lot of this depends on what's happening with loan growth. How much funding do you need? What's happening in your markets with competition?

So we look at what's happening in our own deposit base, what's happening outside with the competition, where is loan growth going, and then all of that is then factored into doing what we think we need to do to both attract deposits and retain our customers. I would say if you look at our total deposit costs so far and how our deposit base has reacted, that our pricing strategy is working so far.

Ken Usdin -- Jefferies & Co. -- Analyst

I think that's fair. Thanks for that. On the other side of the balance sheet to your point about watching loan growth in terms of that pricing, obviously with loan growth being slower than initially expected, you haven't seen a lot of growth in the other buckets. So, the cash balances continue to build and the securities book has been pretty stable too. Can you just talk about how you're thinking about your earning asset mix as you go forward? If we get a little bit of loan growth, do you start to put some of that cash into the loan book? Do you start to buy securities given that we're finally at a steeper point of the yield curve? How do you think about usage of that excess cash that's been building up and weighing on the NIM?

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

All good points that you're making. I would say from overall cash, we look at the balance sheet movements. Loan growth clearly would be our top choice in how we want to put our cash to use. Beyond that, it is nice to see long-term yield moving up, which allows us the possibly of investing in securities. But we're happy with the size of our portfolio right now.

When I look at the fact that we have a debt maturity coming up next year, some of the cash is going to be utilized for that. Some of the cash is going to be utilized to grow loans. We're not really looking at the present time to change the size of our securities book.

Ken Usdin -- Jefferies & Co. -- Analyst

Fair. Last thing, could you just tell us about the magnitude of that debt maturity, and what it's yielding relative to the portfolio?

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

The debt maturity is 350. It's going to be 6 months LIBOR plus, I want to say about a few basis points, about 4 basis points or so. 42 basis points, I'm sorry.

Ken Usdin -- Jefferies & Co. -- Analyst

Six months plus 40-ish basis points? Okay.

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

Yes.

Ken Usdin -- Jefferies & Co. -- Analyst

Thank you.

Ralph W. Babb, Jr. -- Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Steven Alexopoulos. Please go ahead.

Ralph W. Babb, Jr. -- Chief Executive Officer

Good morning, Steve.

Steven Alexopoulos -- JP Morgan -- Analyst

Good morning, everybody. Ralph, I wanted to start on the loan growth side, and given the very strong growth you've had in commitments which Pete called over the past two quarters, I'm surprised the outlook for the fourth quarter isn't stronger. Are you just being very conservative with the guidance, or are you really not looking for these mid-market companies to draw on the lines they've taken out?

Ralph W. Babb, Jr. -- Chief Executive Officer

I think it's a combination of the two. The companies are getting prepared for growth, but they're watching very carefully, as Curt was mentioning early, what's going on in the markets from a tariff standpoint, as well as the other competitive parts. As it grows, they're prepared, and that's the positive side to compete. The commitments, as you mentioned, and as Pete has talked about, went up in the second quarter and third quarter nicely. So they are prepared for that growth. And GDP has been stronger as well. I think all of the signals are a little more positive than they have been. Pete, do you want to add anything to that? Curt?

Peter W. Guilfoile -- Executive Vice President, Chief Credit Officer

Steve, we're definitely not approving commitments that we don't expect to use. That's not a very profitable business for us. It really is utilization is lower than we normally would expect to see.

Steven Alexopoulos -- JP Morgan -- Analyst

Okay. That's helpful. Maybe for Muneera regarding the 12 to 15 basis point increase in deposit rates in 4Q. Can you give more color on this standard increase you're talking about here for October? Was that to all customers over a certain balance size or was it more widespread? Are you seeing competitors do more widespread increases at this point?

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

It was select customers in select markets. But the pricing changes were different in each. I think that this is sort of what we see others doing as well, and we respond based on what we see in our different markets, and how we see our customer base react depending on what type of products they're using and what level of balances they have with us.

Steven Alexopoulos -- JP Morgan -- Analyst

Okay. That's helpful. If I could ask you one more. The decline in the non-accrual interest took a couple of basis points off in this quarter. It looks like you're calling that out again as a headwind for 4Q. Can you quantify that headwind still to come? Thanks.

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

Yeah, it's about -- normal we say $1 to $2 million. That's what we would expect to pick up every single quarter. We picked up about 4-ish this quarter. So, I'd say a couple million dollars, $1 to $2 million.

Steven Alexopoulos -- JP Morgan -- Analyst

Okay, great. Thanks for all the color.

Ralph W. Babb, Jr. -- Chief Executive Officer

Thank you.

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

You're welcome.

Operator

Your next question comes from the line of Geoffrey Elliott with Autonomous Research. Please go ahead.

Ralph W. Babb, Jr. -- Chief Executive Officer

Good morning, Geoffrey.

Geoffrey Elliott -- Autonomous Research -- Analyst

Good morning. Thanks for taking the question. Back to this point on non-interest bearing deposits and mix shift. Thanks for the comments around expecting some decline and some shift into interest-bearing over time as rates go higher. But can you help us understand how you understand how you think about quantifying that? I guess the data points that we look at, pre-crisis that was something like 25% of deposits, and it climbed to mid-50s, and has started to come down. Are there reasons why it should not go back to that level over time if rates increase? Are there reasons why it could go lower? Reasons why it should stay higher? How do you think about quantifying that when you're looking out over the next few years?

Ralph W. Babb, Jr. -- Chief Executive Officer

Muneera, do you want to take that?

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

Yeah, sure. I think it's really important for us to make sure that we are clear about what we are seeing in our deposit base. When you look at either year-over-year or quarter-over-quarter increases, our interest-bearing balances are going up because we have new money coming in. There is a little bit of mix shifting, so I don't want to say that that's not what's happening, but at least as far as our actual deposit base and the activity that we're seeing, we see new money coming interest-bearing, and on the non-interest bearing side, we either see our customers putting their money to work, whether that's M&A or reducing leverage, or in some instances, we see a little bit of maybe one or two customers that might have tried, nothing systemic over there. The movement in balances is going to happen as rates continue to increase. I don't want to say that's not what's transpiring, it is just very difficult to predict. I'm just trying to give you some color on what we're actually seeing in our deposit base.

Ralph W. Babb, Jr. -- Chief Executive Officer

The number of products that a customer has could also affect the amount of deposits they have.

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

And Ralph makes a good point with that as well.

Geoffrey Elliott -- Autonomous Research -- Analyst

Understood, thanks. Then I think you made the comment in the prepared remarks that average deposits should be seasonally higher in the fourth quarter, but less of an impact than usual. What is it about this year that means you're expecting to see a smaller impact?

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

If you go back and study our deposit base for the last, I don't know, five to six years, fourth quarter is usually a good quarter for us. People build, window dress their balance sheet. We see money coming in. The magnitude of fourth quarter deposit increases tends to be substantial. We're expecting a fairly similar seasonal pattern as we approach fourth quarter this year as well.

Geoffrey Elliott -- Autonomous Research -- Analyst

Great. Thank you.

Ralph W. Babb, Jr. -- Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Peter Winter with Wedbush Securities. Please go ahead.

Ralph W. Babb, Jr. -- Chief Executive Officer

Good morning, Peter.

Peter Winter -- Wedbush Securities -- Analyst

Good morning. Could you just provide an update on some of the earnings benefits and strategies, given that you're no longer subject to LCR?

Ralph W. Babb, Jr. -- Chief Executive Officer

Do you want to take that, Muneera, on the LCR?

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

Yeah. On the LCR front, I mean, the one big benefit is that we do have liquidity coming from our securities portfolio that we can then deploy. If loan growth picks up, it is another added source of liquidity that we have. We can repurpose some of those dollars and instead of reinvesting them there, move them to loans. Beyond that, we still have to do our own internal liquidity stress testing, and make sure that we are carrying appropriate levels of liquidity to take care of our customers.

Peter Winter -- Wedbush Securities -- Analyst

Okay. And I guess there's a lot of opportunities then, I guess, as you said, to pay down debt as well?

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

Not really, because the debt that we have, as you can look at our debt pricing, it's pretty efficiently priced. So, I would say not really.

Ralph W. Babb, Jr. -- Chief Executive Officer

But it does give us flexibility.

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

We have the flexibility if we choose to.

Peter Winter -- Wedbush Securities -- Analyst

Okay. Then on a separate question, the capital ratio is still high at 11.66%. You've given that capital target of 9.5% to 10%. Could we assume that you're going to continue to do about $500 million share buybacks per quarter next year?

Ralph W. Babb, Jr. -- Chief Executive Officer

Go ahead, Muneera.

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

Okay. The way I think about it is for next year, clearly we've given you a target. We know where we want to go by the time 2019 comes to an end. We've talked about the fact that we want to do a buyback at a measured pace. We are going to look at our earnings generation. A large part of what we give back is going to be what we generate in earnings. Then beyond that, it'll be whatever it takes to get from our current capital ratios to our target. So that's how you should think about it.

Peter Winter -- Wedbush Securities -- Analyst

Okay, thanks.

Operator

Your next question comes from the line of Brett Rabatin with Piper Jaffray. Please go ahead.

Ralph W. Babb, Jr. -- Chief Executive Officer

Good morning.

Brett Rabatin -- Piper Jaffray -- Analyst

Hey, good morning, everyone. I wanted to go back to the margin and think about the excess liquidity. Should we not expect at least a few basis points of improvement in the margin from a liquidity drainage in the fourth quarter? Maybe Muneera, can you talk about the effect of that in 4Q, and what happens to that position in the current quarter?

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

Well, in my comments, I said that we are expecting to grow deposits in the fourth quarter, which generally means that it's good for us in the sense that we will make more net interest income in dollars, but because the excess liquidity is going to be at the Fed, it means that it's from a yield standpoint, dilutive to margins. If that helps you.

Brett Rabatin -- Piper Jaffray -- Analyst

Okay. Then I want to go back to deposits. Obviously, the prepaid card timing was in effect on 3Q. What else affects seasonality in the fourth quarter in terms of deposits?

Curtis C. Farmer -- President

This is Curt, Brett. Just a normal buildup that we see with customers building deposits at year-end. You see a buildup in the fourth quarter, and then in the first quarter a lot of that gets utilized as they pay taxes and distributions to employees for bonuses, thing of that nature. So, it's just the normal, seasonal flow that we see, especially given our heavy commercial orientation as a company.

Brett Rabatin -- Piper Jaffray -- Analyst

Okay. But I mean, if you exclude that from the third quarter, your deposit trends would've been kind of flattish this quarter. And it sounds like you're saying look, they'll be a little bit better in the fourth quarter despite customers using excess cash. Is that a function of you growing your core customers' deposits or new customers? How do we think about what you're doing in terms of the net flows and deposits?

Curtis C. Farmer -- President

I think it's a combination of both. In the fourth quarter, again, we see a normal seasonal buildup. But we have been in a net client acquisition mode, as I alluded to earlier. 40% of our new loan originations in the third quarter were to new customers. With every new customer -- we're a relationship bank -- we expect deposits and Treasury management and other things to come with that. So even though customers utilizing cash and deleveraging, etc. are using it for M&A purposes, fourth quarter typically seasonally higher, and then we continue to be, we believe, in a net client acquisition mode.

Brett Rabatin -- Piper Jaffray -- Analyst

Thanks for all the color.

Ralph W. Babb, Jr. -- Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Steve Moss with B. Riley FBR. Please go ahead.

Ralph W. Babb, Jr. -- Chief Executive Officer

Good morning, Steve.

Stephen Moss -- B. Riley FBR -- Analyst

Good morning. I just want to start on expenses or go back to expenses here. In particular, tech spending was a little bit of a driver for incremental quarter-over-quarter expenses. Just wondering how we should think about tech spend into 2019?

Ralph W. Babb, Jr. -- Chief Executive Officer

Muneera, you want to take this?

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

Yes. Overall, our tech spend or our investments in technology are going to be stable. Even for this year, they really are stable. What you're seeing is a little bit of I would say a push to getting certain projects completed toward the back end of the year. It's not really because we are increasing the amount of technology budget, but we have a spend that we have. This think the overall spend is at a good level. We're making the right investments and right changes that we need to make that our customers and colleagues will find useful.

Ralph W. Babb, Jr. -- Chief Executive Officer

That was a big part of the GEAR Up process as well, was investing in technology.

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

Yes, Ralph is absolutely right. Whether that is in our E2E CRM platform, or whether it was moving our applications to the cloud. It was all part and parcel of our GEAR Up initiative as well.

Stephen Moss -- B. Riley FBR -- Analyst

Okay, that's helpful. Then just on the loan loss reserve here. It's come down slightly. Perhaps looking for a little bit more of a decline. I'm wondering how we think about that reserve over the next 12 months or so.

Ralph W. Babb, Jr. -- Chief Executive Officer

Pete, you want to take that?

Peter W. Guilfoile -- Executive Vice President, Chief Credit Officer

Yeah. We've got three reserve releases over the last three quarters that's totaled about $16 million. I think the opportunity to release more reserves would probably be around energy, where it's still 16% criticized there. So to the extent that energy continues to improve, there's a little bit of an opportunity there. Charge-offs have been very low. The extent of the charge-offs continue to remain low. There's still more opportunity there as well. I think the risk would be ex-energy. The rest of the portfolio is pretty much at record low levels of criticized. So, we're saying provision in the $10 to $20 million next quarter from a guidance standpoint. And that would assume that reserves remain fairly level.

Stephen Moss -- B. Riley FBR -- Analyst

All right. Thank you very much.

Ralph W. Babb, Jr. -- Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Gary Tenner with D.A. Davidson. Please go ahead.

Ralph W. Babb, Jr. -- Chief Executive Officer

Good morning, Gary.

Gary Tenner -- D.A. Davidson & Co. -- Analyst

Good morning. I just want to talk about loan growth for a second. You talked about the frequent and obviously now you've got some seasonal businesses that drive some fluctuations there. But there wasn't much conversation around the energy portfolio, other than a trailing view of it. I was just wondering where the appetite is for that business today, given the rebound in oil prices?

Ralph W. Babb, Jr. -- Chief Executive Officer

Curt? He's talking about the energy portfolio.

Curtis C. Farmer -- President

I didn't quite hear you, Gary. Thank you very much. Obviously, energy is a big part of the Texas economy, and a business that we've been in for a long time. So even though that book of business has managed down for us over time, it's still a business that we want to be in, and a business where we want to take care of our customers.

We feel like it really has started to stabilize for us. It should be less of a headwind than it's been the last two years for us, as we've managed down that portfolio today. It's about a $1.8 billion portfolio. We would see it sort of fluctuating in a relative range around that number. We are seeing some nice new opportunities, some nice new commitments and some nice new relationships that we have brought in. Energy price is certainly helping there. Most of the clients we're working with are a lot stronger than they were. There's more equity and sponsor support out there. There's a lot of equity in the projects that we're working on. There's good hedging in place. As you know, overall retail has been up in 2018.

Gary Tenner -- D.A. Davidson & Co. -- Analyst

So is the right way to view it then, is your point that it will not serve as headwind anymore, but probably won't be additive necessarily to growth?

Curtis C. Farmer -- President

Yeah, I think it will be less of a headwind and then we'll have some opportunity to grow and the portfolio of the company, our loan portfolio overall, growth I would not expect significant growth from here, but more moderate growth.

Gary Tenner -- D.A. Davidson & Co. -- Analyst

Very good. Thank you.

Ralph W. Babb, Jr. -- Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Jon Arfstrom with RBC Capital Markets. Please go ahead.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Thanks, good morning.

Ralph W. Babb, Jr. -- Chief Executive Officer

Good morning, Jon.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Just a follow-up maybe for you, Pete. You mentioned a couple times the 40% of your growth is from new relationships. Can you talk a little bit about the theme behind that? Kind of where and what?

Peter W. Guilfoile -- Executive Vice President, Chief Credit Officer

I think that was Curt that mentioned that.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Curt, sorry.

Curtis C. Farmer -- President

Yes, Jon. We do track that across all of our business lines. We continue really not a new theme for us. Almost every quarter, we are very focused on taking care our existing customers. We're also focused on growing the franchise overall. It really is across almost every business and every market that we serve. Even if utilization is not higher than it is right now, we are booking relationships and booking commitment of where we do feel like they will be borrowing against those facilities at some point in the future.

What it allows us to do is to continue to build our franchise build our franchise across the board with great, relationship-based opportunities where we can sell into the relationship additional products and services that are value-added to the client, so Treasury management, hedging products, card services, etc. So we really think of it as a long-term view of building the value of our franchise. As you know, we're in great business lines where we have a lot of debts and we're in some really great economies throughout the United States.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Okay, so broad-based.

Curtis C. Farmer -- President

Very broad-based, yes.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Okay, then just a 30,000-foot-type question. You guys have done well the last few years with a relatively flat balance sheet. But it feels like some of the rate benefit is fading. And some of the obviously, GEAR Up, you've done well on that, and so you've really performed. But I think from here, we all think you need to grow a little bit faster. I guess, are you bigger picture more optimistic on the growth outlook and is this the kind of environment where Comerica can go back to putting up that mid-single-digit type growth?

Ralph W. Babb, Jr. -- Chief Executive Officer

Curt?

Curtis C. Farmer -- President

Yeah, I think we are very optimistic. A lot of the things you mentioned, a lot of those are now so to speak in our rearview mirror. A lot of the things we went through with GEAR Up were meant to help position us well for a faster growing environment. So, the rework of our underwriting loan origination process that we call end-to-end credit redesign is really all about creating more capacity for our relationship managers to spend more time out call on existing customers and prospects.

Then we've added a lot of technology enablement for our relationship managers, a new CRM platform, sort of digitizing the process around loan underwriting and origination for us. A lot of digital transformation for us in terms of Treasury management products and services. Really trying to make sure our relationship managers have a more mobile approach to everything they do, which we think helps creates capacity longer term. And so we've got liquidity credits really not an issue right now. We're very focused on our calling efforts. And so as we continue to see some optimism building in the economy, and as Ralph mentioned earlier, GDP continues to strengthen, we are optimistic about growth possibilities.

Jon Arfstrom -- RBC Capital Markets -- Analyst

Okay, thanks a lot.

Ralph W. Babb, Jr. -- Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Brock Vandervliet with UBS. Please go ahead.

Ralph W. Babb, Jr. -- Chief Executive Officer

Good morning, Brock.

Brocker Vandervliet -- UBS Securities -- Analyst

Good morning. I think all the hot ones have been asked and answered at this point. However, just wanted to cover Life Sciences and Equity Fund Services -- the pricing and relative competition you're seeing in those segments.

Ralph W. Babb, Jr. -- Chief Executive Officer

Curt?

Curtis C. Farmer -- President

I think that as we've alluded to not only on this call, but the last several quarters, most of the growth that we've seen in Technology & Life Sciences has been in that Equity Fund Services component. We're providing capital call and subscription lines to DC and private equity firms. There's been a lot of strong new fund creation, which you obviously have seen. That feels like that is continuing. We tend to work with some of the best private equity funds out there in terms of strength and ELPs that make up their roster. So, we feel like it's a relatively low-risk business for us, and one where we can be fairly selective, but we also feel like there's still a lot of growth opportunities. It's a business that we've actually only been in now for six or seven years, so we still feel like we've got a pretty good growth trajectory around the business longer term.

On the TLS core side, there is some momentum building there after a little bit of softness the last 24 months or so. We feel like we're getting a lot of new opportunities to look at new transactions. We've still got some solid long-term relationships with venture capital providers. That business has been a little bit softer, but we feel good about the longer-term prospects there.

Brocker Vandervliet -- UBS Securities -- Analyst

With respect to the capital call lines, are you seeing new entrants or sort of the same cast of characters?

Curtis C. Farmer -- President

I think we work with a lot of the same banks and syndicates and bank groups that we have seen previously.

Brocker Vandervliet -- UBS Securities -- Analyst

Got it, OK. Thank you.

Ralph W. Babb, Jr. -- Chief Executive Officer

Thank you.

Operator

Our final question will come from the line of Michael Schiavone with Keefe, Bruyette & Woods. Please go ahead.

Ralph W. Babb, Jr. -- Chief Executive Officer

Good morning, Michael.

Brian Klock -- Keefe, Bruyette & Woods -- Analyst

Hey, good morning, guys. This is Brian Klock. I just had some technical difficulties.

Ralph W. Babb, Jr. -- Chief Executive Officer

Good morning, Brian.

Brian Klock -- Keefe, Bruyette & Woods -- Analyst

How are you doing, Ralph and everybody?

Ralph W. Babb, Jr. -- Chief Executive Officer

Good.

Brian Klock -- Keefe, Bruyette & Woods -- Analyst

I just wanted to kind of sneak in here. I might have missed this earlier, but I think there were some questions maybe a different way. I just want to try to put them together. Muneera, on the NII walk, when you think about to the fourth quarter, if we start with third quarter NII and like you said, I think there was $14 million of the benefit from the Fed hike that would come this quarter, right? There's $1 million already in the third quarter run rate.

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

That's correct.

Brian Klock -- Keefe, Bruyette & Woods -- Analyst

You pick up the $4 million from the securities repurchasing, and then maybe, what? A million or so would be the other piece on the non-accrual interest. Is that the biggest pieces that we should think about on that walk?

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

Yes, you've got it all correctly. Beyond that, I mentioned the growth and deposits in the fourth quarter, which should also bring in at least net interest income dollars. And then don't forget about the one extra month from the debt issuance that we had in the second quarter.

Brian Klock -- Keefe, Bruyette & Woods -- Analyst

Gotcha, all right, great. Then one last question maybe for --

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

Just to clarify. We issued the debt in the third quarter. Sorry.

Brian Klock -- Keefe, Bruyette & Woods -- Analyst

Third quarter. Right, right, right. My last question, I guess for Pete. I know we've been so focused on the loan growth side of this, but it does feel like the asset quality trends continue to be as good as they've ever been. We've all expected there to be this normalization of credit costs going forward. I guess when you look out into next year, when you think about charge-off levels, I know you're saying $10 to $20 million is the guidance for the fourth quarter, but that even seems conservative, given the run rate and your NPLs formation keeps dropping. So maybe thinking about, is there anything in the portfolio or in trends that you feel like the current level of charge-offs is going to materially change in the next year or so?

Peter W. Guilfoile -- Executive Vice President, Chief Credit Officer

Not that we can see, Brian. I think we feel really good about our book of business. Commercial real estate has been performing very well. We remain disciplined in that business. Leverage lending, we've been very disciplined in that segment as well. Curt mentioned we're being highly selective in energy. So I think overall, we don't see anything out there that would cause a problem. It's hard to look farther than a couple quarters, but I would say we feel pretty good about credit quality next year.

Brian Klock -- Keefe, Bruyette & Woods -- Analyst

All right. So, we're starting to see some of the margin benefits from all of the other commentary. They are becoming, the second derivative is declining when you think about NIM expansion, but if anything, your risk adjusted margins continue to be pretty wide here.

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

I would agree with that, Brian.

Brian Klock -- Keefe, Bruyette & Woods -- Analyst

All right. Thanks for your time. I appreciate it.

Ralph W. Babb, Jr. -- Chief Executive Officer

Thanks, Brian.

Operator

I will now turn the call back over to Ralph Babb, Chairman and Chief Executive Officer, for any closing remarks.

Ralph W. Babb, Jr. -- Chief Executive Officer

I would like to thank you all for your interest in Comerica and being on the call today. I hope everybody has a great day. Thanks very much.

Operator

Ladies and gentlemen, this concludes today's conference. Thank you all for joining and you may now disconnect.

Duration: 66 minutes

Call participants:

Ralph W. Babb, Jr. -- Chief Executive Officer

Muneera S. Carr -- Executive Vice President and Chief Financial Officer

Curtis C. Farmer -- President

Peter W. Guilfoile -- Executive Vice President, Chief Credit Officer

Darlene Persons -- Director of Investor Relations

Kenneth Zerbe -- Morgan Stanley -- Analyst

Brandon -- Bank of America -- Analyst

John Pancari -- Evercore -- Analyst

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

Ken Usdin -- Jefferies & Co. -- Analyst

Steve Alexopoulos -- JP Morgan -- Analyst

Geoffrey Elliott -- Autonomous Research -- Analyst

Peter Winter -- Wedbush Securities -- Analyst

Brett Rabatin -- Piper Jaffray -- Analyst

Stephen Moss -- B. Riley FBR -- Analyst

Gary Tenner -- D.A. Davidson & Co. -- Analyst

Jon Arfstrom -- RBC Capital Markets -- Analyst

Brocker Vandervliet -- UBS Securities -- Analyst

Brian Klock -- Keefe, Bruyette & Woods -- Analyst

More CMA analysis

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