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South State Corp  (NASDAQ:SSB)
Q4 2018 Earnings Conference Call
Jan. 29, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the South State Corporation Quarterly Earnings Conference Call. Today's call is being recorded and all participants will be in listen-only mode for the first part of the call. Later we will open the line for questions with the research analyst community.

I will now turn the call over to Jim Mabry, South State Corporation, Executive Vice President in-charge of Investor Relations and M&A.

James C. Mabry IV -- Executive Vice President, Investor Relations & Mergers-Acquisitions

Thank you for calling in today to the South State Corporation earnings conference call. Before beginning, I want to remind listeners that the discussion contains forward-looking statements regarding our financial condition and results. Please refer to Slide Number 2 for cautions regarding forward-looking statements and discussion regarding the use of non-GAAP measures.

I would now like to introduce Robert Hill, our Chief Executive Officer who will begin the call.

Robert R. Hill Jr. -- Chief Executive Officer

Good morning. I'll begin the call by providing an overview of the 2018 performance and then offer insight on our near term focus. John Pollok will review the year in more detail and we will conclude the call with questions from research analysts.

2018 was a year of significant transition for South State, while digesting over 16% (ph) growth from two recent mergers, repositioning the loan portfolio, making technology investments and absorbing the revenue reduction of Durbin, the Company still increased adjusted EPS by 13%. 2018 was a year where two of our three primary objectives were accomplished. Significant steps were made in building upon the soundness of the bank and profitability metrics continue to be very good. Our growth however, was slower-than-normal during 2018.

In December, we hosted an Investor Day in New York, featuring our executive team and three members of our Board of Directors. The purpose of this day was to provide more clarity around our key strategic objectives. The Company enters 2019 with a focus on growing what has been built over the last couple of decades. Our goal is to have success in all three of the primary objectives in 2019, while building a franchise that is deep and dense in great markets.

For the year, net income was $178.9 million or $4.86 per diluted share, representing a 1.23% return on average assets and 14.93% return on tangible equity. Adjusted net income totaled $202.1 million or $5.50 per diluted share and represents a 1.39% return on assets and 16.76% return on tangible equity. We made the strategic decision to reduce certain segments of the acquired loan portfolio around 3% and still experienced 4% net loan growth for the year. I'm particularly pleased with the 23% growth in commercial production, excluding CRE. Over the past several months, we have rolled out a new commercial treasury platform. Conversion of existing customers is going smoothly and the expanded capabilities provided by the new system have already led to success in winning new customers to the bank.

Asset quality remains at record levels with total net loan losses of $125,000 for the year. Non-performing assets represented 0.28% of total assets, up only 3 basis points from a year ago. Our portfolio is diverse in both type and geography and is granular with an average loan size of less than $130,000. (inaudible) funded by core deposits, creation of a strong and reliable funding base has been a priority of the bank for decades. While our cost of funds was up for the year, funding strength remains a key competitive advantage of South State.

As a result of high profitability and lower balance sheet growth, capital levels continue to build. Total risk-based capital climbed to 13.5% at year end. While we were disappointed with the downward move in our stock price, it did provide an opportunity to put some of the excess capital to work. The Company repurchased 1 million shares of common stock during 2018 and the Board of Directors has just approved a new 1 million share buyback plan for 2019. The Board of Directors has also declared a quarterly cash dividend of $0.38 per share, representing a $0.02 increase to shareholders of record as of February, 15, 2019.

I will now turn the call over to John Pollok for more detail on the financial performance for the quarter.

Christopher W. Marinac -- FIG Partners LLC -- Analyst

Thank you, Robert. It was nice to see our revenues increase by $1.7 million this quarter compared to the third quarter as lower net interest income was more than offset by higher non-interest revenues. And looking back over 2018, total revenue was at its highest point in the first quarter, which was our first full quarter after the Park Sterling merger. Total revenues were lower in the second quarter of the year mostly tied to lower mortgage banking income and lower acquired loan recoveries. And then of course, the third quarter included the Durbin impact on our bank card revenue.

Beginning with Slide Number 5, you can see that our net interest margin decreased to 3.98%, a decline of 6 basis points linked quarter, with the total yield on interest-earning assets flat, while the cost of interest-bearing liabilities increased by 10 basis points. The yield on our interest-earning assets remaining flat is primarily the result of $2.7 million less purchase accounting loan accretion, outweighing the nice improvement in our legacy portfolio yields. The acquired loan yield was down 13 basis points and the legacy loan yield was up 9 basis points. The cost of interest-bearing liabilities increases due to the increased funding pressure from the recent Fed rate hikes, primarily impacting rates on transaction in money market accounts and certificates of deposit. Our total cost of funds increased 7 basis points for the quarter to 57 basis points.

Slide Number 6 shows you some of the repricing characteristics of our loan portfolio. Our contractual loan yields benefited from meaningful increases in LIBOR and prime rates during the quarter. Slide Number 7 shows the higher yielding acquired book represented 25% of interest-earning assets in the fourth quarter compared to 27% in the third.

Slide Number 8 shows that loan accretion declined from 8.7% of total interest income in the third quarter to 6.7% in the fourth quarter. You can also see the impact that loan accretion has on our loan yields at the bottom of the slide. We had our first free cash this quarter on the Park Sterling loan portfolio, which resulted in a $10.2 million credit release. This quarter had only one month impact of this release, which resulted in approximately $500,000 in additional loan accretion.

Turning to non-interest income on Slide Number 10, we had improvements in all categories with the exception of mortgage banking. Mortgage banking was lower and about $150,000 less secondary market income and about a $175,000 less mortgage servicing rights-related income. The secondary market activity down from prior periods, we have made some recent staff reductions in the mortgage area in an effort to improve our overall profitability in future periods. Fees on deposit accounts were up $900,000 on about $600,000 seasonally higher debit card income and about $300,000 higher on service charges and fees.

Wealth had another strong quarter with $7.6 million in income, up from $7.5 million linked quarter. Acquired loan recoveries were up $1.5 million and other income was up $1.4 million, primarily from a successful acquired credit impaired note sale.

Our efficiency ratio as shown on Slide Number 11, showed a nice improvement down to 59.4% from 62.3% in the third quarter, mostly due to the absence of merger cost this quarter. Our adjusted efficiency ratio showed only a slight improvement linked quarter as lower net interest income was more than offset by higher non-interest income and the adjusted non-interest expense was only $900,000 higher.

Slide Number 12 shows linked quarter variances in non-interest expense. The main variances this quarter were $1.2 million in lower FDIC assessment expense and a $1.2 million in higher professional fees and marketing expense, and a $900,000 increase in OREO and loan-related expense. We continue to strive to limit non-interest expense growth while still investing in new strategic initiatives, as can be seen in the increase in professional fees this quarter. To this end, we are beginning the process of closing 13 branch locations, most of which are expected to take place in the latter half of the second quarter. These reductions are anticipated to have cost saves of about $1.5 million for 2019 and about $2.5 million on an annual basis.

Slide Number 13 shows GAAP EPS of $4.86 for 2018, compared to $2.93 for 2017, a 66% improvement. Adjusted earnings per share for the quarter totaled $1.35 bringing 2018 adjusted EPS to $5.50. This represents a 13% increase over 2017.

Tangible book value as shown on Slide Number 14 shows a $0.93 increase in tangible book value to $36.30. During the quarter, we repurchased 900,000 shares of common stock at $66.76 per share lowering capital by $60.1 million. This decline in capital was mostly offset by increases in net income, less dividends and improvements in AOCI. AOCI improved $19.6 million as the decline in treasury yields improved the unrealized losses on the AFS securities. The aforementioned 900,000 shares of common stock repurchase this quarter coupled with the 100,000 shares repurchased in the third quarter completed the existing 1 million share authorization we had in place. At year-end, our common shares outstanding totaled 35,829,549 shares and we have received approval for a new 1 million share authorization to aid in our capital planning efforts going forward.

I will now turn the call over to Robert for some summary comments.

Robert R. Hill Jr. -- Chief Executive Officer

Thanks, John. Strong asset quality, high capital levels, attractive core funding, a great team, and the ability to do business in growing market cause us to be excited about the future. We appreciate your interest in South State. This concludes our prepared remarks. And I would like to ask the operator to open the call for questions.

Questions and Answers:

Operator

We will now open the line for questions. (Operator Instructions) And our first question comes from Jennifer Demba of SunTrust. Please go ahead.

Jennifer H. Demba -- SunTrust Robinson Humphrey -- Analyst

Thank you. Good morning.

Robert R. Hill Jr. -- Chief Executive Officer

Good morning, Jennifer.

John C. Pollok -- Chief Financial Officer

Good morning.

Jennifer H. Demba -- SunTrust Robinson Humphrey -- Analyst

Two questions for John Pollok. First, what prompted you to initiate this branch closing effort? And two, can you talk about your net interest margin outlook for the year, assuming we get no rate hikes?

John C. Pollok -- Chief Financial Officer

Hi Jennifer. I'll start-off on the branch closings. I think, as we've -- as we've entered this year and we talked about at Investor Day is we've spent a lot of time over the last few years integrating companies and I was really pleased to see in the fourth quarter our GAAP earnings and our adjusted earnings are the same. And I think that really shows it -- it gives us time to kind of focus more internally. So I think, our goal is always to really limit expense growth in the Company while still investing in the Company. And so if you kind of look at the branch piece of this, these 13 locations that brings us down to about 155 branches, we started the year at 182. So I think branch rationalization is just kind of part of something we got to stay focused on. When we worked in -- as much M&A mode, we did this before. So we're continuing to try to rationalize that branch structure. Those 13 offices that we're going reducing, that's going to reduce FTEs by another 50, which is really, really nice to see from, from the expense side.

So, Jennifer. I think just kind of staying very focused there, on the branches, if you switch over and you look at the digital side of our Company is digital account openings to include loans are about 10% of the volume now, so you're seeing customer habits really switch there.

And now, on the deposit side about 20% of our deposits are really kind of through the digital channels. So, you're just seeing more and more adoption there. So, that's kind of some of the -- some of the reasons why. The margin outlook, just, kind of tricky, right. The yield curves will inverted in the middle. We still have a fair amount of acquired accretion coming through, obviously the Park Sterling release is going to help drive that. So Jennifer, I hope that we can begin to see some stability in the margin as we enter the second half of the year.

Jennifer H. Demba -- SunTrust Robinson Humphrey -- Analyst

Great. Thank you. Appreciate it.

Operator

Our next question comes from Tyler Stafford of Stephens Inc. Please go ahead.

Tyler Stafford -- Stephens Inc. -- Analyst

Hey, good morning. And thanks for taking the question. Maybe, John, just to start on the expense topic where Jennifer started. So at the Investor Day, you laid out the zero to 3% expense growth target for the year. I'm just wondering if this branch closures will help you get toward the bottom end of that range if they are incremental to that or if you could actually see expenses decline year-over-year given the branch closures?

John C. Pollok -- Chief Financial Officer

It's a little early in the year to really tell Tyler. I'm not sure.

Tyler Stafford -- Stephens Inc. -- Analyst

Okay and then, I appreciate the new disclosures around the accretion and the recast. But just from a simple high-level perspective, would you expect to grow net interest income year-over-year in 2019?

John C. Pollok -- Chief Financial Officer

I only think as we enter the later half of the year depending on growth. I would think, we should be able to do that.

Tyler Stafford -- Stephens Inc. -- Analyst

Okay. And then, just lastly for me. Was there any seasonality on the deposit side toward the end of the year that you'd expect to flow back on the balance sheet to start 2019?

Robert R. Hill Jr. -- Chief Executive Officer

No.

Tyler Stafford -- Stephens Inc. -- Analyst

Okay. So, those deposit balance declines were (inaudible) seasonal?

John C. Pollok -- Chief Financial Officer

No, I don't, it doesn't appear. We just got -- we got bigger deposits today. We've got some customers have larger, larger deposits. We're still doing a really good job opening checking accounts. I mean, it is kind of our first full year with Park. So, again seasonality still a little harder to judge. But I think now as we kind of remix the balance sheet, kind of getting into the seasonality issue, maybe it will make more sense this year.

Tyler Stafford -- Stephens Inc. -- Analyst

Okay. That's it from me. Thanks.

Operator

Our next question comes from Stephen Scouten of Sandler O'Neill. Please go ahead.

Stephen Scouten -- Sandler O'Neill & Partners LP -- Analyst

Hey Rob, good morning.

Robert R. Hill Jr. -- Chief Executive Officer

Good morning.

Stephen Scouten -- Sandler O'Neill & Partners LP -- Analyst

So, I'm curious as to what you guys are seeing in your markets with your customers and obviously it look like you still had pretty strong organic production in growth ex the kind of acquired run off. So obviously, the markets were telling us some in 4Q. I don't think, we're seeing in most bank earnings, but I'm just kind of curious what you're seeing in here and from -- from your borrowers and customers and how you think the overall economy is doing in your -- in your geography?

Robert R. Hill Jr. -- Chief Executive Officer

So Stephen, this is Robert. I'll start. Overall, our local economies feel pretty healthy and pretty steady. But in Q4, I spent a lot of time with a lot of -- a lot of businesses in our markets and got a really, really I think, pretty good insight into how they were thinking and feeling. It was very interesting, It was diverse, it was if it was a company that had an international component you could see a lot of uncertainty and kind of pull in the reins back in to try to figure out where they were headed. This is a purely domestic company, you just didn't see that same level of uncertainty. So kind of some mixed signals depending on the type of company that is operating in our markets.

The tariff impact was not a huge deal to most companies, but you clearly saw it across the board in construction costs. So you saw the impact there and across the board what we do hear is wage pressure. Both skilled entry-level type jobs we heard that pretty consistently. So I'd say a little bit more of a headwind, some spottiness of uncertainty, mixed signals, that will create probably overall a little bit of slowdown. Now with that said, our -- in the second half of '18, we saw our pipeline slow down a little bit, not a -- not a lot but December was a really good month for us. So we ended the year strong and our pipeline as we began -- moved into this year. The pipeline popped up pretty good.

Now we do have -- ask about seasonality on deposits. We typically do have a little bit of seasonality on the loan side, so the first quarter is typically not our strongest. But overall, it looks like loan demand continues to be pretty steady. Now I didn't touch on the residential side, but residential is pretty much off across the board. And so, we're not off as much as -- many of our competitors are off 15% to 20%. I think we're down low-single digits. So, we're still having fairly good production there although softer than it has been historically. But we are seeing residential softening in many of our markets.

Stephen Scouten -- Sandler O'Neill & Partners LP -- Analyst

Okay, great, that's really helpful color. Thank you, Robert. Maybe thinking about the core NIM just for a second, ex the accretion, I know that accretion is going to be somewhat lumpy and hard to predict. But it look like the core NIM was better this quarter by maybe 3 basis points or so. So a nice move there. Is that something on a core basis ex-accretion, we could continue to see some help or how can we kind of think about that maybe in 1Q '19 with the benefit of December hike and then throughout the rest of the year, if we don't get any additional hikes.

John C. Pollok -- Chief Financial Officer

Steven, this is John. I'll start. I think, the thing that we're excited about is we're really starting to see the new loan yields creep up. We're now getting loan yields almost up to the 470 range and so we are beginning to see that. I think on the funding side, it's still challenging. And so I think, that's still a little bit of an unknown there. But over time that's all going to settle out. I think as we've said, we're going to continue to protect our deposit base and so over time, that will begin to settle in, but we're excited to finally see some of the loan yields to begin to really move up.

Stephen Scouten -- Sandler O'Neill & Partners LP -- Analyst

Great, that's very helpful. And then maybe just lastly from me. On the share repurchase from here, it looks like the stock is still trading a little bit below where you guys executed the repurchase in 4Q. So -- and would that be fair to assume if the share stay around this level you all would remain aggressive with the incremental buyback authorization or is there a capital threshold, do you want to stay above or how can we think about the pace of that buyback from here?

John C. Pollok -- Chief Financial Officer

Steven, I'll start. I think, we're going to continue to be active with where we are today. I think one of the things that we've tried to impress on everybody in our Company is the optionality that we have and clearly we're generating a lot of capital. Some view accretion as not real earnings, but it is real earnings, it is real capital. In fact, when you look at accretion, we have to work pretty hard on those loans to rehabilitate a lot of those. So, we continue to see that on the capital side, our growth rate as we mentioned, it was about 4% for the fourth quarter. So we got the optionality to do that. We're not overly concentrated in CRE, the risk-based capital, I think, kind of at the end of the day, we're going to continue at these levels to kind of be active on the share repurchase.

Stephen Scouten -- Sandler O'Neill & Partners LP -- Analyst

Great. Okay, thank you guys very much for all the color. Appreciate it.

Operator

Our next question comes from Catherine Mealor of KBW. Please go ahead.

Catherine Mealor -- Keefe Bruyette & Woods Inc. -- Analyst

Thanks, good morning.

Robert R. Hill Jr. -- Chief Executive Officer

Good morning, Catherine.

Catherine Mealor -- Keefe Bruyette & Woods Inc. -- Analyst

I just have a couple of small modeling questions. So the first is back on accretable yield. The acquired non-credit impaired accretion was about $3 million lower this quarter at 3.8. John, how do you -- how we think about what drove that decline and is this a better kind of base level to think about for next year for the acquired non-credit-impaired book. You have that just kind of a accelerated recovery, that I know are hard to predict.

Robert R. Hill Jr. -- Chief Executive Officer

Little hard to predict. A couple of things there on the quarter change. One, in the third quarter, we had a fairly large loan payout that generated a little bit of that. And then we're just seeing the remixing down. So, if you kind of look at our acquired loan runoff, it slowed and of course when that slows that's just less of that acquired non-credit impaired increasing coming in and so we did see some slowness there. But at the end of the day, Catherine it's going to continue to be a little bit lumpy. It will trend down over time. But clearly the slowing of the runoff and not having some kind of one-time event that we didn't have that this quarter.

Catherine Mealor -- Keefe Bruyette & Woods Inc. -- Analyst

Got it. And then the Park Sterling recast, you clarified, I think, you said that about -- there was about $500,000 in additional accretion from this quarter, but that was only one month. And so we should get -- for a full quarter of that we should get another million dollar bump from that next quarter. Am I thinking about that right?

Robert R. Hill Jr. -- Chief Executive Officer

That sounds reasonable.

Catherine Mealor -- Keefe Bruyette & Woods Inc. -- Analyst

Okay. And then is that the acquired credit impaired or non-credit impaired bucket?

Robert R. Hill Jr. -- Chief Executive Officer

Excuse me, repeat the question one more time.

Catherine Mealor -- Keefe Bruyette & Woods Inc. -- Analyst

Is that in the acquired credit impaired bucket or the non-credit impaired bucket?

Robert R. Hill Jr. -- Chief Executive Officer

That's in the acquired credit impaired bucket.

Catherine Mealor -- Keefe Bruyette & Woods Inc. -- Analyst

Okay, great. And then after that, so you said at the end of the quarter you added $150 million of new borrowings. What was the average rate of those borrowings?

Robert R. Hill Jr. -- Chief Executive Officer

About 264.

Catherine Mealor -- Keefe Bruyette & Woods Inc. -- Analyst

Okay. And then last maybe modeling question was, you mentioned that there were higher other fees, how much is that -- was it BOLI versus capital market?

Robert R. Hill Jr. -- Chief Executive Officer

How much of that, I didn't hear the first part of your question.

Catherine Mealor -- Keefe Bruyette & Woods Inc. -- Analyst

So how much of that -- you mentioned in the press release that other fees, the increase in other fees were from BOLI -- higher BOLI and capital markets fees. Is there any way to specify how much was BOLI versus capital markets?

Robert R. Hill Jr. -- Chief Executive Officer

I don't think that's right. Our other fees were up because we sold a note out of the acquired loan book. And that was really the driver and that's what drove it up. Unfortunately, with the way the accounting works is, some would say that should come back through the NIM. But as we looked at selling an acquired loan note that was really the driver in that other category.

Catherine Mealor -- Keefe Bruyette & Woods Inc. -- Analyst

Got it, OK. All right, that's all I got. Thank you so much.

Operator

Our next question comes from Nancy Bush of NAB Research. Please go ahead.

Nancy Bush -- NAB Research -- Analyst

Good morning, gentlemen.

Robert R. Hill Jr. -- Chief Executive Officer

Good morning.

Nancy Bush -- NAB Research -- Analyst

I've got kind of a forward-looking question for you. It seems like in the last few months I've seen more mention of FinTech in both its positive and negative aspects for the banking industry than I've seen in quite a long time and we seem to be getting to some sort of tipping point here about the subject of FinTech. And you've mentioned your digital account openings, et cetera. How much time do you have to devote to FinTech, thinking about FinTech as a competitor or how it can be a positive for you? And is there some need now for heightened investment for technology?

Robert R. Hill Jr. -- Chief Executive Officer

Nancy, this is Robert. I'll start. We laid out our digital roadmap probably 24 months to 36 months ago that included what we want to do with online account opening, online lending. What we want to do in the treasury management space. We are probably halfway through that and we've got other things that we did in terms of outsourcing some things that really aren't core our business or core our customers and in getting out of some things that we have traditionally been in. So we're really kind of got more laser focused just on our digital roadmap. It was laid out years ago, we kind of knew what the cost was going to be to implement and execute that. Don't really see it spiking from here and as you heard from John, on the expense side, our goal is to find ways to operate more efficiently internally to help pay for the investments we have to make, but just like treasury we -- we've made huge investment in treasury in both talent and technology and now treasury deposits are almost 25% of our total deposits.

Nancy Bush -- NAB Research -- Analyst

Right.

Robert R. Hill Jr. -- Chief Executive Officer

And one of the unique things about our company is 81% of our -- of our accounts -- of our dollars of deposits are transaction accounts. So a lot of volume. So I think, we -- we just rolled out the online lending platform and online account opening platform in the eight -- in the last 18 months. So 10% there is a start, but there is a lot more progress that we can make there. And the last point I'd make is really just our interactions digitally with our customer continues to grow meaningfully,

Nancy Bush -- NAB Research -- Analyst

Right.

Robert R. Hill Jr. -- Chief Executive Officer

Both through marketing digital channels, which are fairly very price attractive way to market our Company and connect. But now we have a digital relationship with about two-thirds of our customers. So it is ongoing and growing and -- and, but I think, we can absorb the cost increases with making the business more efficient.

Nancy Bush -- NAB Research -- Analyst

Right. So you don't see here some kind of new point of disruption going on. You see yourself as being able to stick with the plan that you've had for a while and they were not new applications and things popping up that you're going to suddenly find a need to invest in.

Robert R. Hill Jr. -- Chief Executive Officer

I don't want to -- I think the technology costs seems manageable. I think, it's about penetration and how do you market it, how do you communicate with your customer, how do you interact with those customers, a large number of our new accounts, the largest component of our new customer basis are millennials. So I think, there are a lot of things that we're doing on that front that aren't that expensive. I think, it's more of a mindset shift and getting some of these foundational pieces in place that we needed and time to focus on it.

Nancy Bush -- NAB Research -- Analyst

Okay. All right, thank you.

Operator

(Operator Instructions) And our next question comes from Christopher Marinac of FIG Partners. Please go ahead.

Christopher W. Marinac -- FIG Partners LLC -- Analyst

Thanks, good morning. I wanted to ask about new hires this year and will they be centered primarily in Charlotte and Richmond or perhaps just talking about the new hires in the footprint.

Robert R. Hill Jr. -- Chief Executive Officer

I'll start and then, John can maybe talk about the kind of -- maybe the net FTE changes overall for the company for the year, but that's kind of the net number. The specifics is, we've invested a lot in Richmond, have done a great job of recruiting talent there on the commercial side as well as the Charlotte market, those teams have -- but we've added talent in both those places. We've done in other parts of the footprint. But I would say, Raleigh, Richmond, Charlotte have been the primary areas of focus for the Company. Same thing -- that's the commercial bank. Same thing really in wealth is we didn't have much presence in those markets and the banks that we acquired didn't have a strong wealth presence. So we're certainly investing in the wealth businesses and haven't really good success there as well. So really across the board those would be the three primary markets.

The other is, we've been able to hire back to digital online. The way we think about our Company, the way we deliver, we've been able to add some great talent in a number of technical areas inside the company, be it risk management, be it mortgage lending, just to help us change how we think about how we deliver and operate our company. So I'd say Richmond, Raleigh, Charlotte and then some more technical expertise have been the kind of the two primary areas.

John C. Pollok -- Chief Financial Officer

Just to follow on what Robert said, we're down 117 FTEs for the year, we were down 38 linked quarter. And then we're going to be down another 50, just from the branch closing. So I think, it's just continued focus on trying to be more efficient and then trying to reinvest in on the sales side. But clearly, they will continue to be a focus.

Christopher W. Marinac -- FIG Partners LLC -- Analyst

Great. That's helpful guys. And John, just a last -- last question on the reclass of Park Sterling. Is that sort of on a three-year timetable to kind of collect the most of that, is that a realistic time frame?

John C. Pollok -- Chief Financial Officer

I think, it is. I think, one of the things, I mentioned it earlier about accretion, you know accretion is not free. Some of these loans we have rehabilitated and some we have moved out of the bank. But clearly, as you do that -- sometimes you get an extension on it right, Chris. So the accretion could go out over a longer period of time, but I think, a three-year time horizon right now makes a lot of sense, as the balances get a lot smaller that will continue to really drive out the -- drive out the weighted average life.

Christopher W. Marinac -- FIG Partners LLC -- Analyst

Sounds good. Thanks, very much guys.

Operator

Our next question comes from Blair Brantley of Brean Capital. Please go ahead.

Blair Brantley -- Brean Capital -- Analyst

Good morning, everyone.

Robert R. Hill Jr. -- Chief Executive Officer

Good Morning, Blair.

Blair Brantley -- Brean Capital -- Analyst

I just had a follow-up on the CRE commentary. Just given some of the flexibility you have. Just wanted a better view of how you're looking at those different segments and by-market too, as to what the opportunities are just kind of pricing and structure and things like that?

Robert R. Hill Jr. -- Chief Executive Officer

So Blair. I'll start and John can chime in. But if you look at our CRE -- if you look at our overall commercial production last year, it was up pretty nicely. But our CRE production was really flat, a lot of churn -- we've seen a lot of churn in that portfolio, there's been a lot of somewhat irrational competition. We had a transaction at the day that was priced in, I think, it was the Charlotte market and it was 15 years fixed rate and 15 years interest only. So we kind of -- we pick our spots, most of the relationships that we have on the CRE side are very robust and long-term. It's not just a transaction here or there. But overall I think, that -- that is not a high growth area for the Company.

I think, it will be steady consistent production, but we're not -- we are at little over 200% CRE to risk-based capital. We have a lot of firepower over $1 billion in firepower. But you're not going to see us move that number up to 300% that won't happen either. But we're been selectively opportunistic. There is still pretty good demand in most of our markets for CRE. So our pipeline there remains healthy. So it's not negative, but it's not huge growth either.

John C. Pollok -- Chief Financial Officer

And Blair, what I would add is -- the run-off slowing right. So I think, that's what we're beginning to see. So that should just kind of help with those balances some we already have -- have a less run-off as we get through the year.

Blair Brantley -- Brean Capital -- Analyst

Okay, thanks. And then, in terms of just average earning -- average earning asset balances, would you expect that growth to kind of mirror loan growth or what's -- any update there?

John C. Pollok -- Chief Financial Officer

No, I think, that's a fair statement. Yeah, it would mirror the loan growth.

Blair Brantley -- Brean Capital -- Analyst

Okay, great. Thank you.

Operator

There are no further questions. So, I will now turn the call back over to John Pollok.

John C. Pollok -- Chief Financial Officer

Yeah, one thing I wanted to go back to on Catherine's question. So, Catherine, on the other non-interest income, that BOLI and capital markets increase, I was thinking you were talking linked quarter, that's year-over-year. And the main reason that is up year-over-year is that, if you remember in the fourth quarter of last year we only had one month of Park Sterling, and of course this year, we've got -- we've got a full -- we've got them in for a full quarter. Thanks, everyone for your time today. We will be participating in the KBW Financial Services Conference in Florida, beginning on February, the 13th. We look forward to reporting to you again soon.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Duration: 37 minutes

Call participants:

James C. Mabry IV -- Executive Vice President, Investor Relations & Mergers-Acquisitions

Robert R. Hill Jr. -- Chief Executive Officer

Christopher W. Marinac -- FIG Partners LLC -- Analyst

Jennifer H. Demba -- SunTrust Robinson Humphrey -- Analyst

John C. Pollok -- Chief Financial Officer

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