Citizens Financial Group Q3 2017 Earnings Conference Call Transcript (CFG)
Citizens Financial Group (NYSE: CFG)Q3 2017 Earnings Conference CallOct. 20, 2017, 9:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning everyone, and welcome to the Citizens Financial Group's third quarter of 2017 Earnings Conference call. My name is Justin and I'll be your operator today. Currently, all participants are in a listen-only mode, and following the presentation, we'll conduct a brief question and answer session. As a reminder, today's event is being recorded.
Now I'll turn the call over to Ellen Tater. Head of Investor Relations. Ellen, you may begin.
Ellen Taylor -- Executive Vice President and Head, Investor Relations
Thanks so much, Justin, and good morning everyone. We really appreciate you joining us this morning. We'll start off with our Chairman and CEO, Bruce Van Saun; and CFO John Woods, reviewing our third quarter results. And then we're going to open up the call for questions.
We're really pleased to have with us today Brad Conner, our Head of Consumer Banking and Don McCree, our Head of Commercial Banking. I'd like to remind you all that in addition to our press release today, we posted a presentation and financial supplement on investors.citizensbank.com. And, of course, our comments today will include forward-looking statements, which as you know, are subject to risks and uncertainties. We provide information about the factors that may cause our results to differ materially from our expectations in our SEC filings, including form 8-K filed today.
We also utilize non-GAAP financial measures and provide information and reconciliation of those measures to GAAP in our SEC filings and earnings release material. And with that, I'm going to hand it over to Bruce.
Bruce Van Saun -- Chief Executive Officer and Chairman
Thanks, Ellen. Good morning everyone, and thanks for joining our call today. We're pleased to report another quarter of strong results as our disciplined execution continues to drive strong momentum. The headline results show that we reached our medium-term IPO targets this quarter with a 10.1% ROTCE, of 59.4% efficiency ratio and 1% ROA. This is notwithstanding a lower rate environment than was assumed back when the targets were set.
While these results mark good and consistent progress, we have more work to do to run the bank ever better and become a top-performing bank. I believe that the same formula that has taken us this far can continue to propel us to even better results. We're being very disciplined on where and how we play in our capital allocation. We have a mindset of continuous improvement that allows us to self-fund our growth investments, while delivering superior operating leverage.
We've added some great talent and build out many excellent capabilities. And lastly, and perhaps, most importantly, we have focused on delivering a great customer segments. We've launched our TOP IV program, and we continue to solidify an add initiatives. We bumped our target range by $5 million this quarter; reporting a similar governance structure around our balance sheet optimization, or DSO, "initiatives", which will be led by John Woods, our CFO.
Turning to specific highlights of the quarter, we had excellent year-over-year revenue growth and operating leverage. Year-on-year adjusted revenue was up 10% versus 3% adjusted expense growth, delivering 7% positive operating leverage. NII was up 12% as loans grew by 5.4% and the net interest margin improved by 21-basis-points with about half of that due to self-improvement and have due to rates. Adjusted noninterest income was up 4%, and that was really paced by strong growth in capital markets revenues.
On a linked-quarter basis, our underlying revenue growth was 2.5% against expense growth of 1% for 1.5% sequential operating leverage which annualizes, of course, to 6%.NII was 3.5% sequentially, group 3.5% that was paced by 1.5% spot loan growth and 8-basis- point rise in the NIM, 3.5%. Our average loan growth was a little lower at 0.4%, which reflects somewhat sluggish and stretched conditions in the CNI space which we saw throughout a good chunk of the quarter, but we're cautiously optimistic of a pick up in Q4 continuing on into 2018. We continue to be highly focused on capital management. We return $315 million to shareholders in Q1 -- or in Q3 , I'm sorry.
So overall, it was another strong quarter. We feel good about our positioning, the opportunities that we have in front of us and our ability to execute. So with that, let me turn it over to our CFO, John woods to take you through the numbers in more detail. John.
John Woods -- Chief Financial Officer
Thanks, Bruce, and good morning everyone.l Let's get started with our third quarter financials, which start on Slide four. We generated net income of $348 and diluted EPS $0.58 per share. Our reported net income was up nicely compared to the second quarter, driven by higher net interest income and lower credit-related cost. Year-over-year net income was up 17% and EPS was up 21%.
We also present our results on an adjusted or underlying basis in order to show a clear picture of the operating trends in our business. On this basis, net income for the third quarter was up 25%, EPS was up 31% and we delivered positive operating leverage of 7% year-over-year, reflecting revenue growth 10% expense growth 3%. Net interest income of $1.1 billion, increased 4% linked quarter, driven by loan growth, higher loan yields, and benefits from count, partly offset by an expected increase in funding cost. Our net interest margin increased 88 points this quarter, 21-basis-points year-over-year.
We will spend more time on the margin in a few minutes.On an underlying basis, noninterest income of 381 million was unchanged from second quarter and was up 4% year-over-year, while our efficiency ratio improved 95 basis points compared with the prior quarter and 390 basis points year-on-year, excluding the item. We delivered a more than 50 basis points sequential quarter increase in ROTCE this quarter to 10.1% achieving the IPO base medium-term target is 10%. This result was up over 200 basis points from the prior year quarter before the impact of the [inaudible] items.Our efficiency ratio of 59.4% for the third quarter also exceeded our medium-term target IPO target of 60%.We are very pleased with the strong results, which reflect continued execution against our strategic initiatives and our commitment to focus on continued improvement to drive revenue growth, while maintaining operating expense discipline. Although we have attained our ROTCE target, we are confident that we can do even more to drive further improvement.
We are constantly seeking to run the bank better and leverage the potential of our franchise. There are continues to be upside from leverage of investments for the past several years, optimizing the balance sheet against focusing on continuous improvement in how we serve customers and maximize efficiency. For a few minutes, I'll update you on the status of our TOP programs, which will contribute further efficiencies and revenue opportunities, while funding investments to drive future growth. Taking a deeper look at the NII, NIM on slides five and six.
We continue to deliver attractive and disciplined balance sheet growth, which helped us drive a 4% linked-quarter increase in NII for the quarter. We grew average loans and loans held for sale by 0.4% on a linked-quarter basis as average retail loans were up 1.2%, offset by a small reduction in average commercial loans, largely reflecting the impact of the sale of $600 million of lower return commercial loans in the second quarter. Excluding the impact of the sale, average commercial banking loans and loans held for sale were up 1%. On a per diem basis, total loans and loans held for sale were up 1.5% linked quarter and up 5% year-over-year.
Average loans and loans held for sale were up 5.4% year-over-year, and I'll provide some additional detail on the growth shortly, including the impact of our balance sheet optimization efforts. Net interest margin improved 8 basis points linked quarter and 21 basis points year-over-year, which reflects the nice improvement in loan yields, given the benefit of our balance sheet optimization efforts, which included an ongoing mix shift toward higher return categories and rising short rates. The improvement in the margin included a 2-basis-point benefit from higher-than-expected commercial loan interest recovery. On a linked-quarter basis, consumer loan yields were up 11 basis points and commercial loan yields were up 25 basis points.
An increase in funding cost partially offset the benefit of these higher loan yields. Deposit costs were higher by 6 basis points, reflecting the rising short rates and growth in the average Commercial Banking deposits. Total average deposits increased by 2% from the prior quarter, while period-end deposits were down slightly, given an elevated level of commercial deposits at the end of the second quarter. Our average LDR came in at 97.6%, which was consistent with our outlook.
Total funding costs were up 7 basis points, which reflects the full quarter impact with our $1.5 billion senior debt issuance in May. Turning to [inaudible] on Slide seven. On an underlying basis, noninterest income was stable in the quarter with higher Capital Market fees and service charges in fees were offset by a lower mortgage fees and a reduction in foreign exchange and interest rate products. Capital Market fees were a record for the quarter and were 47% year-over-year, showing continued momentum from the investments we made in talent and broadening our capability.
Bond underwriting was the strongest in the quarter to the favorable Capital Markets, particularly in September. We also saw an increase in M&A fees following our second quarter acquisition of Western Reserve. Most remained fee categories were relatively stable in the quarter. Year-over-year on an adjusted basis, noninterest income was up approximately 4%.
This reflects strong contributions from the Capital Markets business, given an outstanding capabilities and higher card fees, which reflects higher purchase volumes, along with the benefit of revised contract terms for core processing fees, which commenced in the first quarter of this year. Mortgage banking fees were down as reductions in loan sales gains of spreads were partially offset by an increase in servicing fees. Foreign exchange and product fees were also down, driven by a reduction in variable loan demand. First of investment sales were relatively stable as we continue to drive improvement in our mix of fee-based sales.
Turning to expenses on Slide eight. On an underlying basis, expenses were up $9 million, largely reflecting higher salaries and the benefits [inaudible] saw initiatives and higher services cost, which reflect our strategic growth initiative, along with an increase in other expense, which included $4 million in expense associated with Legacy home equity operational cost. Year-on-year, adjusted expenses were up 3%. Salaries and expense benefits expense was higher, reflecting the impact of strategic hiring, merit increases, and higher revenue base and center.
We also saw an increase in outside services costs tied to our strategic growth initiatives. We continue to remain highly disciplined on the expense front as we identify opportunities to redeploy expense dollars out of the lower value areas in order to continue to self-fund our growth initiatives and enhance capabilities to our customers. Our three-tier expenses include approximately $15 million for our strategic growth initiatives. Including our efforts to improve our retail customer experience, expand our Wealth Management business, broaden our Capital Markets capability and bolster our M&A advisory business.
We funded these franchise investments with about $14 million in efficiency savings realized through our TOP programs and operational transformation initiatives. In short, we continue to seek opportunities to become more efficient, which allows us to fund our growth initiatives and maintain strong operating leverage. With that, let's move on and discuss the balance sheet. On Slide nine, you can see we continue to grow our balance sheet and expand our NIM.
Overall leverage loans and loans held for sale were up 0.4% on a linked-quarter basis and 5.4% year-over-year, driven by growth in education, mortgage and unsecured retail in the consumer side and broad strength across commercial. Commercial loan relatively muted by the impact of the sale of $596 million of lower return commercial loan, at least on the near of the second quarter, associated with our balance sheet optimization initiatives. As I've mentioned, NIM was up 8 basis points in the quarter and 21 basis points year-over-year. These results reflect further expansion of our loan yields, given our balance optimization effort, which contribute about half of the year-over-year increase; continued discipline on pricing and the benefit of higher rates.
We also benefited by about 2 basis points in higher-than-expected interest recoveries in commercial. Also, we remain well positioned to capitalize on the rising rate environment with asset sensitivity relatively unchanged at 5.4%. On Pages 10 and 11, we provide more detail on the loan growth in consumer and commercial. In consumer, we grew our portfolio 6% year-over-year with continued expansion in residential mortgages and education, which is largely tied to our refinance product as well as continued strength in other unsecured retail loans, which continues to be driven by our product financing partnerships and our personal unsecured product.
We are also seeing ongoing benefits from our focus on enhancing our portfolio mix by driving growth in higher return categories. As you know, we have been slowing growth in auto, and that should continue over time. As a result of these efforts in addition to higher rates, we expanded consumer portfolio yields by 11 basis points in the quarter and 38 basis points year-over-year. We also saw nice growth in commercial with average loans increasing 4% year-over-year where we continue to execute well in Commercial Real Estate, Mid-corporate and Middle-Market, Industry Verticals and Franchise Finance.
This growth is muted somewhat by our efforts to reduce capital historically in lower-returning areas by select portions of the C&I growth that we aren't gaining in cross-sell and Asset Finance where we had originated big-ticket leases given the overall RDS relationship. The overall goal is to raise returns and build strong relationships, while still achieving good loan growth. The net result in commercial reflect a 25 basis points improvement in yields linked-quarter and a 75-basis-point increase year-over-year. On Page 12, looking at the funding side.
We saw a 6-basis-point sequential quarter increase in our cost of deposits, reflecting the impact of higher rates and growth in higher beta commercial deposits. We continue to find attractive balance sheet growth at accretive risk-adjusted returns, which is driving NIM higher in spite of these rising deposit costs. Our funding costs were up 7 basis points sequentially, which reflects the full quarter impact of our $1.5 billion senior debt issuance in the second quarter. Year-over-year, our cost of funds were up 19 basis points, reflecting the impact of higher rates along with greater loans and funding.
This compares with the overall asset yield expansion of 39 basis points. We expect the slower rate of increase in the fourth quarter deposit costs, given the timing of rate hike and the impact of some of our deposit strategy. Next, let's move to Slide 13, cover credit. Overall credit quality continues to be excellent, reflecting the continued mix shift toward high quality, lower-risk retail loans and the relatively overall clean position in the commercial book.
The nonperforming loan ratio decreased 9 basis points versus the prior quarter to 85 basis points of loan this quarter, while improving 20 basis points from the year-ago quarter. The NPL coverage ratio improved to 131% relative to 119% in the second quarter and 112% in the year-ago quarter. The net charge-off rate decreased to 24 basis points from 28 basis points in the second quarter with continuing favorable credit trends and result. Our commercial net charge-offs netted down to zero this quarter, reflecting an increase in recovery, while retail net charge-offs were $4 million, higher than the second quarter and part due to higher seasonality in auto.
Provision for credit losses of $17 million with $7 million of our charge-offs, which include additional reserves for estimated hurricane losses. There were four provision was relatively stable compared to the second quarter and down $14 million versus a year ago, reflecting the improvement in commercial due to recoveries. Lastly, as we continue to increase the mix of higher-quality retail portfolio and our overall loan book, your allowance to total loans in ratio was relatively stable at 1.11%. On Slide 14, you can see that we continue to maintain strong capital and liquidity position.
We ended the quarter with a CET1 ratio of 11.1%. As part of our 2017 CCAR plan, this quarter, we repurchased 6.5 million shares and returned over $350 million to shareholders, including dividends. Our Board of Directors has declared a dividend of $0.18 a share today, and we have authority through CCAR to increase the quarterly dividend again to $0.20 per share in early 2018, subject to our Board's approval. On Slide 13, we showed scorecard in how we are executing against our strategic initiatives.
We are intensely focused on developing strong customer relationships, in growing franchise in a profitable and sustainable way. In consumer industry, we are committed to advisor to our customers through our advice and product strategies. We continue to build out our mass affluent and up in value proposition as we are key segments for us. We are also investing several projects of over very critical services we provide to customers.
This should results in improved customer experience and greater efficiency. We continue to drive attractive loan growth across a number of areas, such has been our education refinance profile and partnership length and installment credit, which had attractive risk-adjusted return. As we optimize the balance sheet, we continue to reduce the auto portfolio in order to enhance return. In wealth, we continue to build scale and add capabilities, highlighted by the launch specified our new digital investment platform.
We also saw continued progress migrating sales mix to a fee-based products, which represented 41% of investment sales in the third quarter of 2017 compared to just 30% a year ago. We've increased our efforts to reposition and improve the [inaudible] mortgage business in the current environment. Returned our loan officer headcount by about 10% of the quarter in order to drive productivity and increase our focus on conforming loan mix. In addition, we are investing in a direct-to-consumer origination platform, which we believe will provide a lower-cost challenge to originate conforming mortgages.
In Commercial, our expanded capabilities helped deliver another very strong quarter in Capital Markets as we continued to leverage the investments we have made, including an enhanced bond honoring platform and our recent acquisition of Western Reserve. Solutions continued its steady progress with fee income growth of 7% year-over-year with the strong momentum in our commercial card program as purchase volume was up 35% year-over-year, driving a 31% increase in fees. Our initiatives to deepen customer relationships are helping to drive continued balance sheet and customer growth with a 5% average loan growth year-over-year, reflecting strength in Middle-Market, Commercial Real Estate, Corporate Finance, Franchise Finance and Mid-corporate. We're also starting to see the benefits of our geographic expansion initiatives with strong balance sheet and fee growth in those markets.
The TOP programs have successfully delivered efficiencies that allowed us to self-fund investments to improve our platforms and product offerings. We have largely completed the actions needed for the TOP III program, which launched in Mid-2016 and is expected to deliver run rate benefit of approximately $110 million by the end of this year. Our TOP IV program is a further example of our commitment to continuous improvement in delivering value to our shareholders. As we work through a combination of initiatives [inaudible] efficiencies, we are reiterating our target for the program by $5 million to a run rate pre-tax benefit of $95 million to $110 million by late 2018.
On Slide 16, you can see the steady and impressive progress we are making against our financial targets. As previously noted, this quarter, we had our 10% post-IPO medium-term ROTCE target. Since third quarter '13, our ROTCE has improved from 4.3% to 10.1%. Our efficiency ratio has improved by 9 percentage points over that same time frame from 68% to 59.4%, exceeding our medium-term IPO target of 60%.
And EPS continued on a very strong trajectory as well, up 160% in four years to $0.68 from $0.26, with a CAGR of 27%. This rate of growth and improvement continues to outperform peers over the period as we have made it back to the pack in terms of key performance measures. That said, we still have opportunities for further improvement and we'll work hard to deliver them. Now let's turn to our third quarter outlook on Slide 17.
We expect to produce linked-quarter average loan growth of around 1% to 1.25%. We also expect net interest margin to remain broadly stable in the quarter. We are expecting noninterest income to be broadly stable within the record level of capital market season in Q3. We also expect to utilize a modest TDR Transaction gain in 4Q, which will be offset by cost associated with our strategic growth initiatives.
We will free those available items so you'll be able to clearly see the operating trends in our business. We expect expenses to be broadly to be broadly stable in the fourth quarter, perhaps due to seasonality. Additionally, we expect provision expense to increase to the range of $80 million to $90 million, reflecting loan growth and a modest increase in commercial net charge-offs, given the higher level of recoveries in the third quarter. We expect our tax rate to take up temporarily to around 34% for the fourth quarter as a result of an $8 million impact on the tax line tied to the launch of our historic tax credit investment program this year.
The full-year 2017 tax rate is expected to be about 31% on a reported basis and 32.25% on the underlying basis, excluding our 1 [inaudible] '17 we expect to manage our CET1 ratio to around point 10.1%, with an impressive average share count of approximately 490 to 495. And finally, we expect the average LDR to be in the 97% to 98% range. With that, let me turn it back to Bruce.
Bruce Van Saun -- Chief Executive Officer and Chairman
Okay. Thanks, John. And with that, operator, why don't we open up for some Q&A.
Questions and Answers
Operator
Thank you, Mr. Van Saun. We are now ready for the Q&A portion of the call. So ladies and gentlemen, please press star one now for us.
If you are using a speakerphone, it may be helpful to pick up the handset before pressing those number keys. But again star one, if you want to be queued up for question. Your first question comes from the line of Ken Usdin of Jefferies. Your line is open.
Ken Usdin -- Jefferies -- Analyst
Hey, thanks. Good morning guys. I was wondering, John, if you can talk a little bit more about that balance sheet optimization side? And specifically, how do you expect that to work through the asset yield side of the equation? Where are the areas you'll continue to kind of move out of lower return, and how much can that help the overall asset yield going forward ex rates.
John Woods -- Chief Financial Officer
Yes. Ken, good question. We're thinking that the key areas that we'll focus on would be [inaudible] on the consumer side. You can see we mentioned this before that auto is lower return business.
We like the auto business, but we're not operating the portion of the balance sheet that auto will take up going forward. So you could see loan yields rising as a result of that. On the-on the commercial side, areas that we're looking at, as you might hear in my remarks, includes an ongoing basis taking a look at the fact book in C&I, which is a typical business as usual. It's kind of behavior but we think that can add benefit to the loan yields over time.
As well as an Asset Finance. As we mentioned, we have some legacy assets to put on during the [inaudible] days in the larger ticket area [inaudible] moderating our exposure there will also drive loan yields higher. So I think we've got a lot of benefits going forward in the balance sheet optimization, so we're optimistic that will provide x rates in the future.
Bruce Van Saun -- Chief Executive Officer and Chairman
And, Bruce, let's add to that that I think what really seeking to do is put a little more program discipline. I think we've been doing a good job of balance sheet optimization all along, but we're going to look for opportunities to shift the mix in consumer, in particular, and formalize that and have targets in place. We'll look for pricing discipline across all portfolios. John mentioned auto, but I there's opportunities in elsewhere, in consumer and in commercial in particular as we look at rollovers.
So we will have a program that allocates that responsibilities to specific individuals with targets that we monitor must the way we run the top program.
Ken Usdin -- Jefferies -- Analyst
Great, thanks for the color, Bruce. Just a second question then. How does that translate into earning asset growth? I would presume that this will still net out as even as you reemphasize some of your others that you'll still plan to grow loans? And can you help us just triangulate how that translates between loan growth and turning into earning asset growth? This was the first quarter in a while where we saw flattening out on earning asset growth side.
Bruce Van Saun -- Chief Executive Officer and Chairman
Yes. And there again, I think we've done that pretty well all along. I'd say the things that hit the numbers this quarter really was the aftermath of that late Q2 loan sale on commercial. And then some, I'd say, the stretched conditions that we saw in commercial.
We'll not really going to push on a rope here. If it's not there, we'll be disciplined. But I think we saw in September things starting to pick up a bit. And I think the sentiment in Washington, if we start to see the pro-growth agenda take place, that can also create, I think, a more loan demand, which will ease some of the pressures that we're seeing on the commercial side.
I might flip it over to John for some color there.
John Woods -- Chief Financial Officer
You're exactly right, Bruce. The other thing I'd mention is we did have a reasonably strong quarter in our bond businesses, which were reflected in a little bit of a reduction of outstanding from utilization standpoint, particularly on the corporate businesses. So we picked up a little bit on the fee line, while we saw a little bit of moderation in loan growth. Our pipelines look pretty strong right now.
And I would just echo what Bruce said around terms and conditions, it's very aggressive out there with everyone looking for loan growth. So if transactions are getting too stretched from the terms of condition or pricing standpoint, we'll probably stand back and let that go away, so that will be a moderating factor. But as we look deeper into the fourth quarter and into next year and we begin to get some uncertainty around some policy coming out of Washington, we think there could be a quite a good backdrop for the continued expansion of the business. And then the last thing I've seen is we are seeing really good client growth in our expansion markets.
So while terms and conditions are tough, we're adding clients and that should result in a commercial demand as we go forward.
Bruce Van Saun -- Chief Executive Officer and Chairman
And I'll just add to that, Brad, for some color. But the other thing I'd point out, Ken, is that very consistent on our consumer side loan growth. So we've been kind of in a 5.5%, 6% annualized growth rate every quarter, which we saw again this past quarter. I think some of the reason we've been able to achieve that is we have unique spaces that were playing, such as the education refinance markets, such as personal unsecured with our corporate partners.
And so we expect to continue to see opportunities to build on that. And so that can us from any little dips that we see in the overall consumer loan demand. So Brad, maybe you can pick up with that.
Brad L. Conner -- Vice President, Consumer Banking
Yes. You articulated it well. We've got a unique space in consider to be experiencing unsecured run rate for both of those continue to grow. We had good growth in mortgage lending and believe that, that would continue.
Really, what are talking about in relation to the lumpiness reported in pulling back in auto. In fact, you saw that begin to reduce and we got out of the relationship a couple of the last quarters. So I think there's plenty of reason to believe that the trends that we've seen up until now can continue.
Ken Usdin -- Jefferies -- Analyst
Yeah, got it. Thanks very much.
John Woods -- Chief Financial Officer
Thanks, Ken.
Operator
Next question comes from the line of John Pancari of Evercore. Your line is open.
John Pancari -- Evercore ISI -- Analyst
Good Morning. Also on the balance sheet, so I just want to talk a little about what you're seeing in terms of deposit competition. Is there pressure to implement pricing programs to bring in deposits? And also, what do you see right now, as to where your deposit beta's trending and where you think you could move?
Bruce Van Saun -- Chief Executive Officer and Chairman
Yes. Why don't I start and flip it to John. But I think the consumer side continues to be well behaved, and so I think we're continuing to see discipline hold throughout the market. And the higher you get in the cycle, you start to see the betas rise.
But right now, they're still quite low. the commercial side, obviously there's a sophisticated company there to get up at the bigger sized companies. They have chargers and looking for the participate as rates go up. They see the cost of the loans going up, so they want the course of their funds but they're leaving with us to reflect the rate rises.
And so I think we've done a good job of continuing to grow there and rotate out some of the higher cost segments like financial institutions and governments and try to get more organic growth coming from corporates and in particular areas that we haven't really fished for deposits in like commercial real estate with launching some new products like escrow deposits. So I think overall, we're really pleased that we're tracking to our own models in terms of how things are going. And the last thing I'll say is that we're also even though we're paying up a little for these deposits, what we're doing with the funds in terms of the loan growth that we're funding is very attractive. So the areas that Brad has talked about, loans, the personal unsecured loans have very good yields.
And so it continues to benefit us these transactions of the margin if you look at match funding for what's growing on the asset side, what's growing on the deposit side. Those are very accretive and they're accretive to our NIM and they're accretive to our ROTCE. So with that, why don't I pass it over to you, John.
John Woods -- Chief Financial Officer
Okay. Yes. Just getting into the deposit beta part of it. You've asked about where we are on there.
So on a cumulative basis through 3Q, total deposit beta would be 17%. And in quarter sequentially, [ 36 ]% for the third quarter. We would see that coming down a bit in the fourth quarter in part due to in effect the fed is going to take a quarter off and gave here in the third quarter. And also, just give us some breathing room to allow the positive initiatives to really start to kick in.
And so on the consumer side, the investments that we're making in beta and analytics and really refining our promotional approach. And on the commercial side, the investments that we're making in product offering and targeting with respect to the segments that are more deposit rich. So that kind of optimization going on the deposit side along with the [inaudible] where macros coming out, we'll see betas in quarter betas come down a bit in 4Q.
John Pancari -- Evercore ISI -- Analyst
Okay. John. That's helpful. And then separately on the credit side.
I know you saw your auto losses increase on a linked-quarter basis. And I know you pointed to some seasonality there as well, but they're also up 14 basis points year-over-year. So can you just talk about what you're seeing there in terms of auto losses and your Outlook as we go forward?
John Woods -- Chief Financial Officer
When we to you, but I'd say on a linked-quarter, there's partly seasonality. The other thing that we're seeing is a little bit of a kick up in related to our out-of-state or out of footprint state expansion initiatives that we commenced about 2 years ago. And I think there might have been a little adverse selection there in a couple of states, and so those vintages are having slightly higher loss rates and that's burning its way through. It's not anything that is significant.
We have since when we've decided that we're going to start to run down the size of the auto portfolio. We've now exited those states, and so it's limited to a fairly narrow, vintage-wise. But that's really, I think, the main thing that you're seeing there. Brad, could you add to that?
Brad L. Conner -- Vice President, Consumer Banking
You hit it. The 2Q is seasonally low. There has been a typical slowly low period, so that explains the quarter increase. And to your point, we've got a very isolated related to out of footprint 2016 vintages.
We stopped those vintages right away. And the other thing I would just point out was when we said for quite some time, we began to expand our credit from super prime to sort of mainstream prime. So we always expected a little bit of an increase and very much in line with what we expected. And we have given some guidance consumer losses.
But they were riding on that.
Bruce Van Saun -- Chief Executive Officer and Chairman
So that's something that we're tracking to what we expect [inaudible]
Brad L. Conner -- Vice President, Consumer Banking
Tracking to what we expected. Right.
John Pancari -- Evercore ISI -- Analyst
Okay. And that out of footprint stuff, that attribute, that your year-over-year pressure?
Bruce Van Saun -- Chief Executive Officer and Chairman
I'm sorry you broke out there.
John Pancari -- Evercore ISI -- Analyst
The year-over-year increase in the auto losses, that mainly coming from the out-of-footprint stuff?
Bruce Van Saun -- Chief Executive Officer and Chairman
Yes. I think it's the two. it's the out-of-footprint of plus the started mixing were prime with the super prime, correct.
John Pancari -- Evercore ISI -- Analyst
Got it. And the size of that out-of-footprint book?
Bruce Van Saun -- Chief Executive Officer and Chairman
This is relatively small, and it's quite small and overall basis. And the vintage we're saying we stopped originating in [inaudible] charge little bit of a material piece of the portfolio.
John Pancari -- Evercore ISI -- Analyst
Got it. Okay. Thank you.
Operator
Next question comes from Brian Klock of Keefe, Bruyette & Woods. Your line is open.
Brian Klock -- KBW -- Analyst
Good morning gentlemen. Congratulations first on heading the 10% return on tangible common equity target. And I'll start with the good momentum you guys have had on the commercial bank and with the sort of retooling there, while your peers haven't posted positive C&I growth. So maybe you can talk about what you're seeing there with helping contribute to your better than.
Right in the commercial book.
Bruce Van Saun -- Chief Executive Officer and Chairman
Let me start and flip to Don, but I think there's a couple of things. One is that we continue to add great coverage bankers as we've expanded geographically, brought in some really excellent bankers from some of our regional peers to head up those efforts. And so as they build out their teams, it's natural that we're going to gain market share and they bring some of the relationships over to Citizens. We added a new head of healthcare industry vertical as well.
So really, part of this is just where playing offense. We're trying to expand the overall customer base, and that's allowing us to grow. The other thing I'd say is that we've just focused on pockets where we do expect that there should be relatively more growth. So some of the Mid-corporate bigger size companies historically we were a little bit under scale there.
We were focused more on the middle-market. I think if you go back for maybe the 4 years I've been here, we've taken the middle-market customer account from say, 2,000 to close to 2,500. But the Mid-corporate the companies with revenues from 500 to 2.5 bill, we've taken up from 450 to 750 and those tend to be bigger credits overall. So we've seen some nice growth there.
So this really, I think, reflective of the growth investments that we're making and then the focus though we have on particular industries and companies. Don?
Don McCree -- Vice Chairman and Head, Commercial Banking
I think that's right. The discipline around client planning and marketing planning is at a totally different level than it was a few years ago, so that is presenting a little bit of a tailwind to us. And I think in addition to the bankers that we've hired, the vastly improved our product capabilities. So the relevance that we are going to market with across the trading rooms, across the capital markets, across M&A now, it's resonating with the clients So we're still a relatively midsized bank, but we have world-class players.
In our sweet spot, which is the middle-market in the lower end of the larger companies, we've just got the right bankers out of these clients and it's terrific traction. So we're very pleased with the progress we've made. And as Bruce said, we've added probably 40 bankers in our expansion markets over the last 1.5 quarters, and they're from really strong local banks, SunTrust and U.S. Bank and J.P.
Morgan in the various markets. And they're bringing clients with them, and we're already business because of their relationships, so it's very encouraging.
Brian Klock -- KBW -- Analyst
I'll that directly to Brad. Yes, so there's a couple of to that, but if -- let me answer on the standpoint of originations in the third quarter. So the third quarter origination is about 10% of our student originations came from purchasing loans. About 60% of our Board came from the 55% also came from our organic originations and then the remainder are from the in-school product.
So about 90% of our book was in the third quarter was organic originations.
Bruce Van Saun -- Chief Executive Officer and Chairman
Okay, you're that directly to bribe some loose coupling mansion after me answer from the standpoint originations in the third quarter. So the third quarter originations about 10%of our student originations came from purchasing the supply. So far alone about 60% of our support came from the 55% or so came from our own organic originations and then the remainder everybody-I mean the remainder from the in school product 9% in the third quarter was organic originations.
Brian Klock -- KBW -- Analyst
Perfect. Thanks for your time.
Operator
Next question comes from the line of Ken Zerbe with Morgan Stanley. Your line's now open.
Ken Zerbe -- Morgan Stanley -- Analyst
Great, thanks.Good Morning. In terms of, let's assume that the market that we don't get the rate hikes that the market expects, right? If we look at just simply the remixing of your assets into the higher-yielding asset classes, but also so that I'm assuming a natural upward pricing in deposit betas or on deposit costs. Can you get NIM expansion just from those 2 pieces without higher rates?
Bruce Van Saun -- Chief Executive Officer and Chairman
Yes. I think that's good, John, but I think if you look at the year-on-year growth in the NIM of 21 basis points, about half of that was self-help and then the other half was really due to rates. If rates didn't move higher, you'd have less pressure on your deposit cost for sure. So I'm not sure you'd be getting the squeeze there.
It would be the what we saw when we were lower for longer, there's an opportunity cost to be asset sensitive position than no rate hikes. But there is general stability in the environment, and so it puts the onus back on us to keep remixing and being disciplined around pricing and some of the things we talked about earlier in the call around balance sheet optimization, which I think can still help us get some NIM left. So, John, you want to add to that?
John Woods -- Chief Financial Officer
Yes, well said. I think one way to think about it is that we're still on the business perspective about, call it, 15 basis points below the median of [inaudible] situated peers. And so without rates moving, we feel like we've made a lot of progress on balance sheet optimization. We feel like we can move the big end in closing that gap just like we're doing on the profitability side of the house and ROTCE.
We're going to be closing the gap on the NIM side as well, and that doesn't depend on rate, given what you've heard, Bruce, in terms of mix shift alone drop about half of our benefits year-over-year.
Ken Zerbe -- Morgan Stanley -- Analyst
All right. Great. And just staying with the deposit side -- sorry, the funding side. I saw you some cash to pay down FHLB this quarter.
Are you done with most of the sort of the restructuring of the deposit side? That's the word of midpoint between wholesale borrowings and core deposits or is there more to go?
John Woods -- Chief Financial Officer
Yes. I think we were about our [inaudible] when we look at I think where the neighborhood of [inaudible] borrowings. That should be about stable going forward. We think about that in terms of generally wholesale borrowings, funding, security portfolio.
So when you look at the whole balance sheet, we're kind in about the right spot. So we don't expect to see basic changes in that going forward.
Ken Zerbe -- Morgan Stanley -- Analyst
Great. Thank you.
Operator
And your next question comes from line of Peter Winter of Wedbush Securities. Your line is now open.
Peter Winter -- Wedbush Securities -- Analyst
Good morning. On the fee income side, the outlook for the fourth quarter is kind of stable. I'm just thinking looking out in 2018 where you see some of the biggest opportunities, the fee income side? And then secondly, any thought about fee income acquisitions to enhance some of that growth?
Bruce Van Saun -- Chief Executive Officer and Chairman
Okay. I'll start as usual and then maybe flip to John for some additional color. But I think the positioning we have on the commercial side is quite strong across everything we're doing. So our Capital Markets capability, the purchase of the M&A capabilities with Western Reserve and integration and ability to start creating more leverage and more flow opportunities for them.
And I think we have opportunities just to continue to expand capabilities, push into things like securitization or some other initiatives that we have. So everything off the Capital Markets platform, provided that the market conditions stay favorable, I think we can continue to see growth there. I do think on the global markets, which is our and interest rate risk management platform, that we are still scratching the surface. We used to be on RBS's platforms, we've migrated to our own platform, so we, I think, have a much broader capability in terms of product.
And then also, we've up-tiered the quality of our team, so we have, I think, more intellectual capital and ability to show good ideas to our customer base. So I see nice upside there. And then on our cash management business, we've also upscaled our capabilities. We're working through a replatforming of the business that will, I think, put to us right up there with the top-sized banks in terms of capabilities.
And that will be implemented late in 2018. So I'd see some potential for momentum there. So feeling good about what we've accomplished so far in commercial, and I think we're positioned for further growth. On the consumer side, it's been a little tougher sledding.
One of the things we've invested heavily in is our wealth management capabilities. We see really lots of potential there, untapped opportunity, and I think we have the business positioned very well to start to gain further tractions and have that show up in the numbers. I think at this point, we're kind of expanding the relationships that we have inside the branch of business, but we're moving more toward a mix of managed money as opposed to what we did historically, which was more transaction-based sales and annuity-type products. I think that's great for the customers and it's great for us in the long term, but it creates a near-term revenue headwind, which the lines haven't really crossed yet.
So we've been building up our managed money book, that's creating, I think, more of an annuity-type revenue stream going forward. But that's resulted in the business being somewhat flattish over the past 6 quarters or so. I expect we'll start to see that break out, and we should see growth there in 2018. And then the mortgage business has been -- we've done some very good things and putting a good foundation in place.
Our servicing and fulfillment capabilities are among the best rated by J.D. Powers consistently, and that wasn't the case a couple of years ago. But we still have to, I think, hone the model to get more conforming loan officers that are better integrated into the branches and build some additional capabilities direct-to-consumer, potentially enter into the correspondent business. So there's more work to do there, but ultimately, there'll be revenue upside there as we get that right.
So that's kind of a long-winded answer. I don't know if there's any additional color, John, they want to add to that.
I know I think you get it. We're making investments across these 4 or 5 businesses. And I think with the Capital Markets, you'd see if it's a breakout, but I don't think we've call any mature, so I think that's the full [inaudible].
Brad L. Conner -- Vice President, Consumer Banking
The only thing I would add is I think on the mortgage side, in terms of the opportunity to continue to grow being more scale. We talked about corresponding business maybe acquisition and then starts getting more scale and a very good servicing operation that we have is a real opportunity for us.
Bruce Van Saun -- Chief Executive Officer and Chairman
Anything from Don or Brad?
Brad L. Conner -- Vice President, Consumer Banking
No, I think you've covered it.
Don McCree -- Vice Chairman and Head, Commercial Banking
The only thing I would add is I think on the mortgage side, in terms of the opportunity to continue to grow fees, winning more scale, you talk about possibly getting into the correspondent business, maybe acquisition. And then as far as getting more scale and a very good servicing operation that we have, is a real opportunity for us.
Peter Winter -- Wedbush Securities -- Analyst
Great, that's a lot of great color. Thank you, Sir.
Bruce Van Saun -- Chief Executive Officer and Chairman
Yes. Great. And then the right part, you said potentially more acquisitions. I think yes, I think we will look to do smart bolt-on acquisitions potentially in the areas that we just talked about if it can get us farther down the track faster, I like to say.
So like with the M&A boutique, Western Reserve that we did in 2017, that took us from roughly 6 M&A bankers to 36 M&A bankers, which, given the sized client base we have, is where we need to be. We potentially still can scale up, I think, and serve our customers well. But if there's things we find in wealth or Capital Markets or the payments space that makes sense to us, we're going to start having the periscope out and start to look at things. But again, I think they'll be very digestible from a size standpoint.
They won't knock us off our game in terms of capital return. And so I think they will just be things that we feel makes sense, they're down the fairway, they fit and they can help address the need to get up that fee percentage and do more for customer base.
Peter Winter -- Wedbush Securities -- Analyst
Great. That's a lot of great color.
Operator
Sure.
Your next question comes from the line of Vivek Juneja with JPMorgan. Your line is now open. Thanks.
Vivek Juneja -- JPMorgan Chase -- Analyst
Thanks. Hi, Bruce, hi, John. A question on your consumer loan, the loans to -- for financing iPhones and Vivint, et cetera. Can you give some color on how that's doing? It seems like we've continued to see growth there.
Which of those products are you seeing more of it? And also, some color on credit performance you've seen since you started this several quarters ago now?
Brad L. Conner -- Vice President, Consumer Banking
Yes. I'll take that one. We're very pleased with the programs. Continue to go very well in both the Apple program and the Vivint program.
Are growing for us. They've been very good partners. We do have other similar type of retailers and merchants coming to us asking us to work with them on building programs for them. So we certainly think that there's upside.
The credit performance has been very good and in line with our expectation, and I'll just throw out a reminder that all the programs that we've entered into up until now have a degree of risk-sharing so that even makes the credit performance more stable on those programs. So all in all, we're very bullish on that as a business opportunity.
Vivek Juneja -- JPMorgan Chase -- Analyst
Okay, thank you.
Operator
Your next question comes from the line of Geoffrey Elliott with Autonomous Research. Your line is now open.
Geoffrey Elliott -- Autonomous Research -- Analyst
Hello, good morning. Thank you for taking the question.First, just a little clarification. On the NIM outlook, the broadly stable is the base for that 3.05%? Or is the base 3.05% excluding the commercial loan recoveries, so 3.03%?
Bruce Van Saun -- Chief Executive Officer and Chairman
It's the 3.05%
Geoffrey Elliott -- Autonomous Research -- Analyst
Great. And then I remember back at the time of the IPO, you had the mid-term 10% ROTCE target and then you also had a longer-term target and I think you had some charts pointing to something more in the 12% range for that. I guess the question would be, you've got the 10% this quarter. How long do you think long term is now?
Bruce Van Saun -- Chief Executive Officer and Chairman
Well, I think the 10% we've billed those as our medium-term IPO-based targets. And I think what we have said all along is let us achieve those targets before we raise the bar. It feels great to work hard and execute well and hit those targets. And I think we will.
As we work on our budget for next year and up-freshen our strategic plan, you could expect us at some point next year to give you some additional targets that would be higher than where we are today. So as I said in my opening remarks, that I do think what's gotten us this far, what's taken us from 4% to 10% is still pretty much the crux of how we want to operate the business. We want to be disciplined on expenses, try to find efficiencies so we can fund our growth. And in investments, have a very strong capital position so we can continue to grow the balance sheet and bring new customers to the bank.
We're investing in the fee businesses and we should start to see increasing traction through deeper customer relationships. So everything that's taken us from 4% to 10% should be able to continue to propel us higher as long as we stay really disciplined and execute really well. So stay tuned, and well, I think, have a comparable set of targets that we would move higher. And that will be some time in 2018, we'll reveal that.
Geoffrey Elliott -- Autonomous Research -- Analyst
Great. Thanks very much.
Operator
Next question comes from the line of Matt O'Connor of Deutsche Bank. Your line is now open.
Matthew O'Connor -- Deutsche Bank -- Analyst
Morning for questions of an answer to from the tax rate what you rethink about four 2018 obviously from the north in the fourth quarter you alluded to, but what's a good run rate another Vincent efforts with top to us to lower that in general?
Bruce Van Saun -- Chief Executive Officer and Chairman
Yes. I'd say -- I'll start. And John, if you want to add color. But if you look at the underlying rate for the year, take out the noise of some recoveries in Q1 and this historic credit matter in Q4, then we're about 32.25%.
There's a constant tension between the growth in net income that we have and then the planning that we can actually do to knock the rate down from what the statutory rates are. So we will continue to work through that. We'll give you guidance on that in January when we have our year-end call and give our outlook for 2018. But those are really the dynamics, as we have income growth which comes through at the higher fully effective rates and then we have to figure out plans like low-income housing and other federal credit programs that we invest in, can we continue to lock the rate in around 32%, which is where it is now.
Obviously, the wild card in all of this is, is there corporate tax reform? And we'd be a big beneficiary of that, seeing that 32% rate clearly would increase our after-tax cash flow and our EPS and ROTCE and all those measures by a significant amount. So certainly, I think there's broader benefits to the economy from getting a tax reform and tax cut package in place. But there's specific benefits to regional banks and to us in particular, given our high tax rate. And that also may knock out some of the programs.
But right now, I think the scuttlebutt is that the low-income housing would be continued, but many of the other programs around energy or around historical tax credits, the drawbridge will be up and they will the grandfathered, but you won't be able to continue with some of those programs. But there would really be less need to do those kind of investments if the rate is lower in the first place. So John, anything to add on that?
John Woods -- Chief Financial Officer
Yes. Just to add that -- so our tax rate being in the neighborhood of 32%, there's the tension that Bruce indicated. I think part of the reason for that is that we're under-penetrated in tax-advantaged investment and the tax credit opportunities that many of our peers has availed of themselves of over many, many years. So we got started a little bit later and we're catching up.
And we'll catch up over time and continued to invest in those programs. So -- but you'll see that offset of earnings growth being offset by a ramp on catching up to the pack in the tax-advantaged areas.
Matthew O'Connor -- Deutsche Bank -- Analyst
Okay. That's helpful. Thank you.
Operator
And due to time constraints, we will turn the call back over to Mr. Van Saun at this time.
Bruce Van Saun -- Chief Executive Officer and Chairman
Okay. Actually, we could go -- if there's a few more people on the queue, we could take in 2 or 3 more, Justin.
Operator
Sure, we do have some more questions here in queue for you. Next, we'll go to the line of Marlin Mosby of Vining Sparks. your line is now open.
Marlin Mosby -- Vining Sparks -- Analyst
Thank you. Well, saved by the bell there. I want to ask you about when you look at the increase in your loan yields, 75 basis point increase with 75 basis points increase in the Fed funds rates, so again, almost 100% beta on your asset side. Now some of that's related to just being asset-sensitive and some of that's related to the balance sheet optimization.
But there's a strategic decision ahead of the company, which is when do you begin to think about neutralizing some of your asset sensitivity? So just wanted to get a feel for how you're thinking about and tackling that strategic decision that's in front of you.
Bruce Van Saun -- Chief Executive Officer and Chairman
Sure. So what we've seen over time is that we manage that in a -- let's just talk about the gradual rate rise scenario up to 100. We've been in a 6% to 7% benefit position from that scenario. That's, over time, come down to around 5.5%, and it happened naturally.
Just as rates start to rise, you start to roll down. I still think that, that positioning to stay asset sensitivity if we're in the early part of the rate lift cycle is a sensible place to be. Because we have a coiled spring that releases and -- every time that the Fed continues to move and rates continues to go higher. And I don't think that cycle is through yet, so we'll stay asset-sensitive, we'll glide down, and that's how we're planning to manage it.
I think it's too early to go but put on a big hedge and try to capture the additional income because I think you'll give up a fair amount of your upside. John, anything to add?
John Woods -- Chief Financial Officer
No. I think you hit it well. Nothing further to add.
Marlin Mosby -- Vining Sparks -- Analyst
And then you mentioned your loan-to-deposit ratio as one of the things you're really guiding toward. Is that because you like that is a constraint in liquidity? Or do you look at more of the liquidity coverage ratio as the way you're managing liquidity on a tactical basis?
John Woods -- Chief Financial Officer
Yes, I think you hit it there. I mean, we started -- the liquidity coverage ratio is basically how we look at this, and I think that's a much more sensitive measurement of what our liquid asset position is versus what deposit outflows could be in [Inaudible] being stressed. So it's a much more reliable measure. And we have strong LCR ratio.
The LDR is more of an output of that, but nevertheless, it is a helpful measure to report [Inaudible]. It's easy to calculate, it's right off the balance sheet. So we look at both, but the primary measure really is the LCR.
Marlin Mosby -- Vining Sparks -- Analyst
So no reason to think there's any constraints from a liquidity standpoint in the near term.
John Woods -- Chief Financial Officer
Well, no. I mean, we manage all of our resources as if they're constrained, right? I mean so capital liquidity, et cetera, when we balance our liquidity so [Inaudible] depends to what our opportunities are on the asset side. And so we're seeing nice flows on the deposit side. We had 2% growth in deposits this quarter, which is at the high end of our peers.
So we're feeling pretty good about our ability to fund our growth going forward.
Bruce Van Saun -- Chief Executive Officer and Chairman
Yes. And the LCR is well above the minimum, so feeling quite good about where the liquidity and funding position sits today.
Marlin Mosby -- Vining Sparks -- Analyst
Thanks.
Operator
And your next question comes from line of Kevin Barker, Piper Jaffray. Your line is now open. Your line is now open.
Kevin Barker -- Piper Jaffray -- Analyst
Good morning. Could you talk about the credit performance that you're seeing within the student loan portfolio from the 10% of originations from SoFi and the 55% organic? And then also the in-school product that you also mentioned.
Brad L. Conner -- Vice President, Consumer Banking
Yes. They're all performing extremely well. We monitor it very, very closely. And as you would fully expect, we look at each individual vintage, look at the emergence of the loss curves for each individual vintage.
And each and every vintage of those portfolios is performing right in line with the expectation that we have, and in some cases, better. So we don't see any stress in those portfolios. Keep in mind that we play very much in the super prime space as it relates to those products. So we have average Ficos in the 780 range or/and above for all of our originations.
So these are very high credit quality loans, and we're improving the credit flow with our -- or the cash flow of the borrowers with the refi product, so they're performing extremely well.
Kevin Barker -- Piper Jaffray -- Analyst
And then a quick follow-up on some of the deposit conversation. Are you seeing deposit betas accelerate in certain markets more than others, specifically in the Northeast versus some of your Midwest branches?
Bruce Van Saun -- Chief Executive Officer and Chairman
Deposit betas. Is there geographical disparity in that?
Brad L. Conner -- Vice President, Consumer Banking
There is a little bit. I mean, we certainly see some competition, some difference in competition and in terms of what are the lead rates are for money markets and CDs. There's a geographic mix to that. But beyond that, no measurable difference in bank betas by geography.
John Woods -- Chief Financial Officer
Yes. Nothing large-scale to date. And as Brad mentioned, maybe a bit more frothy in the CD area, where they're seeing it -- seeing some [Inaudible]. But not as much in money market.
So cost of funds impact is one of it...
Kevin Barker -- Piper Jaffray -- Analyst
Thank you.
Bruce Van Saun -- Chief Executive Officer and Chairman
Okay, Justin, we probably have time for one more.
Operator
Certainly. Our last question comes from the line of David Eads with UBS. Your line is now open.
David Eads -- UBS -- Analyst
Going back to the balance sheet, there was about a little over $0.5 billion increase in the other loans held for sale category. [Inaudible] is that agency mortgages? Or is that some other sort of loan portfolio that's being positioned for sale? And I guess just kind of on the mortgage side, you're talking about repositioning that business. Should we expect the amount to be held on the balance sheet, the pace of growth on the balance sheet to slow? Or is that really, OK, you're going to try to keep the non-agency business going about the same pace and just accelerating the pace of the agency business?
John Woods -- Chief Financial Officer
Yes. I'll try to jump in on that and others can add in. So in the other, what Citizen's held for sale is the mortgage stuff, but it's also loans that are pending in syndications. So you'll see both of that driving the held-for-sale category.
And so they're both drivers, and we've had flow in both of those areas that would increase the held-for-sale numbers at the end of September, in particular, the syndication volume that is yet to be sold down. On the mortgage front, yes, I mean, I think we're looking to remix our off-balance sheet leverage if you will, in terms of non -- in terms of conforming piece. But the nonconforming is still a good product for us. We're seeing good risk-adjusted returns there.
They drive customers into the bank. Those customers are candidates for the deposit products and then maybe are actually existing customers of the bank that we're serving, and they're also candidates for other [Inaudible] and et cetera. So we're looking to drive both of those. And the off-balance sheet conforming piece won't come at the sacrifice of the nonconforming piece.
Bruce Van Saun -- Chief Executive Officer and Chairman
Okay, any color, Brad or...
Don McCree -- Vice Chairman and Head, Commercial Banking
No. I think John said it exactly right. We're looking for really just acceleration of the nonconforming piece.
David Eads -- UBS -- Analyst
Thank you. Okay.
Brad L. Conner -- Vice President, Consumer Banking
I'm sorry. [Inaudible]. Sorry.
Bruce Van Saun -- Chief Executive Officer and Chairman
Yes. Okay. Well, why don't I just wrap up the call here by thanking you once again for dialing in today. We truly appreciate your interest.
It's really gratifying to hit our milestones this quarter, though that we're going to continue to stay focused on the work in front of us yet to come to build a great bank and to do even better. So thank you and have a great day.
Operator
The now concludes today's conference call. We thank you for your participation, and you may now disconnect.
Duration: 73 minutes
Call participants:
Ellen Taylor -- Executive Vice President and Head, Investor Relations
Bruce Van Saun -- Chief Executive Officer and Chairman
John Woods -- Chief Financial Officer
Ken Usdin -- Jefferies -- Analyst
Brad L. Conner -- Vice President, Consumer Banking
John Pancari -- Evercore ISI -- Analyst
Brian Klock -- KBW -- Analyst
Don McCree -- Vice Chairman and Head, Commercial Banking
Ken Zerbe -- Morgan Stanley -- Analyst
Peter Winter -- Wedbush Securities -- Analyst
Vivek Juneja -- JPMorgan Chase -- Analyst
Geoffrey Elliott -- Autonomous Research -- Analyst
Matthew O'Connor -- Deutsche Bank -- Analyst
Marlin Mosby -- Vining Sparks -- Analyst
Kevin Barker -- Piper Jaffray -- Analyst
David Eads -- UBS -- Analyst
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