Image source: The Motley Fool.
Seacoast Banking Corp of Florida (SBCF -1.17%)
Q1Â 2019 Earnings Call
April 26, 2019, 10:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Welcome to the Seacoast First Quarter Earnings Conference Call. My name is Christine, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.
(Operator Instructions)
Before we begin, I have been asked to direct your attention to the statement contained at the end of the press release regarding forward-looking statements. Seacoast will be discussing issues that constitute forward-looking statements within the meaning of the Securities and Exchange Act, and their comments today are intended to be covered within the meaning of that act. Please note that this conference is being recorded.
I will now turn the call over to Mr. Dennis Hudson, Chairman and CEO, Seacoast Bank. You may begin.
Dennis S. Hudson III -- Chairman and Chief Executive Officer
Thank you, operator, and good morning, and thank you everybody for joining us today for our first quarter 2019 conference call. Our press release, which we released yesterday after the market close and our investor presentation can be found on the Investor portion of our website under the title, Presentations.
With us today is Chuck Shaffer, our Chief Financial Officer and Head of Strategy, who will discuss our financial and operating results. Also with us today are; Julie Kleffel, our Community Banking Executive; Chuck Cross, our Commercial Banking Executive; David Houdeshell, our Chief Risk and Credit officer; and Jeff Lee, our Chief Marketing and Analytics Officer.
As you saw in yesterday's press release, Seacoast reported a strong first quarter and is off to a great start in 2019. We grew adjusted net revenue 18% to $74 million and achieved adjusted net income of $24 million, up 25% year-over-year. We reported $0.47 in adjusted earnings per share, an increase of 18% year-over-year, driven by higher loans and deposits as a result of our balanced growth strategy, along with NIM expansion.
Our strong deposit growth continued during the quarter, again demonstrating the strength of our attractive customer franchise. Loan growth was seasonally lower as we remain steadfast in our highly disciplined credit underwriting. We will not chase deals that do not meet our strict credit guardrails.
Our loan pipelines remain robust and growing, and are up 19% over the same period last year. And we're seeing continued growth in our pipeline already in the first few weeks of the second quarter.
Overall, Seacoast is benefiting from the continued vitality of the Florida economy. As a leading Florida bank -- the based bank in attractive markets with growth -- strong growth fundamentals, we are well-positioned to deliver sustainable, profitable growth.
Before turning to strategy, I'd like to thank those of you that joined us for our Investor Day in February. We had a tremendous turnout. And I hope that you came away assured that the strategy we laid out will continue to create substantial shareholder value.
As we discussed, we've made some great strides over the last few years, building out our business banking channels, capitalizing on our comprehensive customer analytics platform to deepen client relationships and drive growth, and becoming a significantly more efficient operation and organization. Our balanced growth strategy is working. And we remain on track to meet each of our Vision 2020 goals. Seacoast will remain laser focused on efficiency of operations, taking full advantage of our previous investments in digital platforms to drive profitability as we grow revenues.
Implementing the benefits from earlier investments, we have identified further opportunities to streamline our operations and reduce annual expenses by an additional $10 million. This proactive step provides us the capacity to deliver returns to shareholders, regardless of what the economic or interest rate environment brings. As we move through the environment ahead, we've identified and will execute on these plans, taking great care to ensure that we do not impede our continued, strong revenue growth. Chuck will provide more details around this proactive step we're taking in his remarks, including guidance around non-interest expense for the remainder of the year.
Finally, I'd like to also thank Seacoast associates for their continued hard work over this past quarter. We have an outstanding team, and their dedication is no small part of what is making us and market-after-market Florida's bank of choice.
With that, I'd like to turn the call over to Chuck, who will review our first quarter results.
Charles M. Shaffer -- Chief Financial Officer
Thank you, Denny and thank you all for joining us this morning. As I provide my comments, I'll reference the first quarter 2019 earnings slide deck, which can be found at seacoastbanking.com.
And beginning with Slide 4, we started the year on a strong footing, carrying over the momentum built in 2018. Adjusted net income grew year-over-year 25% to $24.2 million, resulting in earnings per share of $0.47. Our performance was highlighted by robust deposit growth, continued NIM expansion, and sequential improvements across all of our loan pipelines.
We reported a 1.50% adjusted return on tangible assets and a 15.1% adjusted return on tangible common equity. Tangible book value per share grew 5.2% sequentially, to $12.98. We ended the quarter with a tangible common equity ratio of 10.2% and a loan-to-deposit ratio of 86%, affording ample room for continued loan growth.
As we continue to grow our capital base, it's worth mentioning illustratively that the first quarter's tangible common equity to tangible asset ratio was adjusted to a normalized target of 8%. Our adjusted return on tangible common equity would be 18.8%.
Total deposits grew 16% on an annualized basis, excluding the favorable $147 million impact from additional broker deposits acquired during the quarter and customer sweep balances transferred to interest-bearing deposits totaling $76 million. Non-interest bearing demand deposits grew 27% on an annualized basis.
Finally, in support of our continued focus on growth, during the quarter we hired 10 business bankers, augmenting the 10 business bankers we hired in Q4, expanding distribution in the fast growing markets of Fort Lauderdale and Tampa. Overall, our results reflect strong fundamentals of the franchise. We remain on track to achieve our Vision 2020 objectives.
Turning now to Slide 5, net interest income was up $0.8 million sequentially and the net interest margin expanded 2 basis points to 4.02%. Excluding accretion on acquired loans, the net interest margin expanded 3 basis points sequentially and was up 16 basis points from the first quarter of 2018.
Quarter-over-quarter, the yield on loans increased 10 basis points. The yield on securities decreased 4 basis points and the cost of deposits was up 13 basis points. Looking back over the last four quarters, our deposit beta was top quartile, outperforming our peer group.
As noted on prior calls, positive remixing between loans and investment securities continues to support the net interest margin. Additionally, the net interest margin benefited this quarter from actions taken to reduce reliance on funding from higher rate wholesale advances and replacing this funding with lower rate core deposit balances. This action benefited the overall cost of funding, resulting in a positive impact on earnings despite adding 3 basis points to the cost of deposits. We will continue to closely manage our overall funding mix in order to optimize funding costs.
We remain disciplined in loan pricing and are focused on driving higher returns. Our average add-on rate for new loans increased 14 basis points sequentially to 5.41% and were up 66 basis points from the prior year. The increase in add-on rates accelerated over the prior year as investments in credit, pricing and marketing analytics continue to drive pricing increases in consumer and small business lending, with an average add-on rate of 5.83% in the first quarter, up from 5.62% in the prior quarter.
Our commercial banking business also saw new origination yields increase quarter-over-quarter by 24 basis points to 5.31%. And mortgage banking add-on rates declined 7 basis points from the prior quarter as a long end of the yield curve decline. Going forward, we remain keenly focused on continued increased loan spreads to support the net interest margin.
We believe we are positioned better than most to manage margin in this rate environment with the ability to continue to remix our earning assets, reducing our investment portfolio, while growing our loan book and replacing lower yielding one-to-four family mortgage balances with higher yielding commercial loan balances. And while variable, we model purchase accounting accretion to be approximately 23 basis points to 25 basis points in the second quarter of 2019.
Looking ahead to the second (ph) quarter of 2018 -- 2019 assuming no change in the fed funds rate and no improvement in the steepness of the yield curve, we expect the net interest margin to be a range of 3.95% to 4%. Given the uncertainty regarding interest rates and the yield curve, the conservative guidance of a potential slight decline in margin is the anticipated result of an assumed, persistent inverted yield curve, a basis point or two of less purchase loan accretion and continued mix changes within the deposit base to maintain our competitive position.
Moving to Slide 6, adjusted not-interest income was in line with the prior quarter and grew $0.5 million or 4% from the prior year. During the quarter, we saw declining service charge income resulted a fewer days in the quarter when compared to Q4 2018 and increased interchange income resulted continued growth in our customer franchise and greater spend volumes by engaged customers.
Wealth-related fee income was moderated by lower equity valuations, but continued to benefit from our ongoing emphasis on growing AUM. During the first quarter of 2019, new assets under management totaled $30 million, tracking to our goal of growing AUM by $120 million to $150 million in 2019. We ended the quarter with $548 million in assets under management.
Mortgage banking fee income increased quarter-over-quarter by $0.3 million, the result of introducing new saleable products and a focus on generating saleable production. We encouraged by a significant increase in the saleable product in the pipeline when compared to the prior quarter, and looking forward, we expect to maintain this positive trend.
Moving to Slide 7, adjusted non-interest expense was up $1.6 million sequentially, and up $5.4 million from the prior year. The first quarter non-interest expense was modestly above our guidance provided on last quarter's call, and this was the result of a few key items.
First, we accelerated the hiring of 10 business bankers as we saw the opportunity to enhance talent, specifically in Fort Lauderdale and Tampa. Second, we expedited ongoing projects in both risk management and lending operations, they support the continued scaling of our business, resulting in higher professional fees in the quarter. We also launched our small business direct fulfillment tool ahead of schedule, and we plan to launch our end-to-end direct digital commercial loan origination platform in June. This will generate efficiency in the back half of 2019, and meaningfully impact 2020.
Impacting salary and benefits, lower loan production quarter-over-quarter resulted in less deferral loan origination costs. And as a reminder, under our accounting guidance of ASC 310-20, we defer an estimated cost to originate per each loan unit produced.
We have discussed on prior calls and at Investor Day our objective of reinvesting efficiency-driven expense reductions into acquiring bankers in our key growth markets, our investment in end-to-end digital commercial loan origination and our investment in small business direct fulfillment. All three key initiatives will be largely complete by the end of the second quarter and will accelerate growth in the coming years.
Building on the completion of these initiatives, we are taking a proactive stance on cost control, positioning the Company for success in the coming periods, regardless of what the economic or interest rate environment brings. Additionally, this will give us the flexibility to take advantage of the potential opportunity to selectively acquire top tier bankers from disruption expected to occur as a result of a few larger bank mergers announced over the last two quarters.
During the second quarter of 2019, our continued focus on efficiency and streamlining operations will result in a reduction of approximately 50 full-time equivalent employees. While the Company will incur severance charges of approximately $1.5 million, this in combination with other continuing expense initiatives, including two more banking center closures will result in approximately $10 million in annual pre-tax expense reductions. We expect a partial benefit near the end of the second quarter and a full benefit impacting the back half of 2019 and into 2020 and beyond. You can be assured that our contingent -- continued diligent focus on efficiency as a company by great care in assuring that we do not impede on our ability to drive revenue growth.
For the second quarter of 2019, we expect adjusted non-interest expense to be approximately $39 million to $39.5 million, excluding the amortization of intangibles assets, which is approximately $1.5 million per quarter. For the full year 2019, we expect adjusted non-interest expense to be $155 million to $157 million, excluding the amortization of intangibles, which is approximately $5.8 million on a full-year basis.
Moving to Slide 8, our adjusted efficiency ratio increased to 56%, up from 54% in the prior quarter. The increase quarter-over-quarter was a result of expenses associated with the as-expected return of seasonal 401(k) and FICA expenses. We remain confident we are on track to achieve our below 50% efficiency ratio as laid out in our Vision 2020 plan.
Turning the Slide 9, total new loan production with $310 million compared to $378 million in the prior quarter. Of all residential loans originated in the quarter, the retained portion declined from $73 million to $50 million as we intentionally focused on producing saleable volume and navigated away from placing long-term fixed rate construction loans in the portfolio.
Consumer and small business production totaled $119 million, $5 million greater than the fourth quarter. Commercial volume was seasonally slower in Q1, in line with the trend in prior years. And we remain patient this late in the cycle, and will not chase deals carefully defending our underwriting integrity. We were selective when acquiring CRE transactions and avoiding competing with light covenants, higher loan to values, or limited guarantees. Additionally, during the quarter, we allowed construction and land development to decline by $26 million, as we continue to be disciplined in originating speculative construction loans as the cycle matures and allowed for a few transactions to be refinanced by competitors offering inferior returns.
From time-to-time, we may have a quarter that does not meet our growth target as a result of our highly disciplined credit underwriting. But over the course of the year, we are confident in our ability to achieve our mid-to-high single-digit growth rate. Our commercial pipeline has grown to $213 million as of April 18th. We are anticipating this to continue to improve through the quarter. We have strong pipelines, which grew across all segments in the quarter. When coupled with a new team of bankers in Tampa and Broward County, we are well positioned to drive attractive loan growth going forward, without sacrificing our credit discipline.
We remain focused on generating consumer loans, owner occupied CRE and C&I related lending. Lending to these borrower classes brings higher value relationships, with funding and additional fee-based opportunities. This supports our persistent focus on sustaining granularity in the portfolio, and gaining greater share of wallet from our customers.
Turning to Slide 10, deposit outstandings increased $428 million sequentially. As noted, total deposits grew 16% on annualized basis, when excluding the favorable $147 million impact from additional broker deposits acquired during the quarter and customer sweep balance transferred to interest-bearing deposits totaling $76 million. Non-interest bearing demand deposits grew $106 million or 27% annualized.
Our balance sheet at March 31st is fully funded by deposit outstandings, with no reliance on wholesale advances. This demonstrates the strength of the underlying customer franchise, and the value of our unique union of customer analytics marketing automation and experienced bankers in growing urban markets. Rates paid on deposits increased 13 basis points to 67 basis points. And looking ahead we're targeting deposit growth of approximately 6%. We expect deposit costs to be in the mid-70 basis point range in the second quarter of 2019.
Turning to Slide 11, our deposit beta continues to perform better than peer, reflecting the attractive transactional nature of our deposit book. Looking back to the start of the current cycle, the fed funds rate has increased 200 basis points, while our cost of deposits has increased only 52 basis points. Non-interest bearing demand deposits represent 30% of the deposit franchise and transaction accounts represent 50% of our deposit book, in line with the prior quarter.
Turning to Slide 12, credit continues to benefit from rigorous credit selection that emphasizes through the cycle orientation and builds on our customer relationships and well understood known markets and sectors as well as maintaining diversity of loan mix and granularity. Overall -- the overall allowance to total loans was up 1 basis points to 68 basis points at quarter end, building coverage quarter-over-quarter.
Let me take a moment to remind you that under purchase accounting, loans acquired through an acquisition are placed in the acquired loan portfolio and a purchase mark, including both characteristics of credit and rate is applied in accretive back through net interest income as these loans paydown are mature. At the end of the first quarter, this discount represented 3.8% of purchased loans outstanding.
In the non-acquired loan portfolio, the ALLL ended the quarter at 89 basis points of loans outstanding, in line with the prior quarter. We continue to prudently manage our commercial real estate exposure with construction and land development as a percentage of capital at 57% and commercial real estate loans as a percentage of capital at 216%, down from 63% and 227%, respectively in the prior quarter and well below regulatory guidance.
Net charge-offs were $1 million for the quarter or 8 basis points of average loans and we forecast annualized net charge-offs of approximately 15 basis points as the economic cycle matures through 2019. The provision for loan losses will continue to be influenced by loan growth and net charge-offs.
Turning to Slide 13, we continue to possess a healthy balance sheet and are delivering strong capital generation through our balanced growth strategy. This positions us well for additional disciplined acquisitions and organic growth opportunities and provides options to manage capital and returns moving forward. The common equity tier 1 capital ratio was 14.3%. The total risk based capital ratio was 15% at March 31, 2019. And the tangible common equity to tangible asset ratio was 10.2% at quarter end, providing capital for additional growth in 2019. Using 8% illustratively as the long-term normalized tangible common equity ratio target would imply over $143 million in capital available for deployment.
And to wrap-up on Slide 14, we're well positioned to sustain and advance the momentum in 2019. Our fundamentals remain very strong with a well capitalized, low-risk balance sheet, low-cost funding and we continue to see robust opportunities to enhance our balanced growth strategy in some of -- in Florida's fastest-growing markets. Overall, we're confident we remain on track to meet our Vision 2020 targets and continue -- and we will continue to create value for shareholders.
We look forward to your questions. I'll turn the call back over to Denny.
Dennis S. Hudson III -- Chairman and Chief Executive Officer
Thank you, Chuck, and we'd be pleased to take a few questions. Operator, if you could let us know.
Questions and Answers:
Operator
Thank you. (Operator Instructions) Our first question is from Steve Moss of B. Riley FBR. Please go ahead.
Stephen M. Moss -- B. Riley FBR Inc. -- Analyst
Good morning, guys.
Dennis S. Hudson III -- Chairman and Chief Executive Officer
Hey, Steve.
Stephen M. Moss -- B. Riley FBR Inc. -- Analyst
I guess, starting with the loan grow outlook here. You hired 10 additional bankers in the quarter and obviously it was typically a period as a ramp-up. So mid-to-high single-digit loan growth probably reflecting not much production until late this year from them. Just kind of wondering maybe how you're thinking about their overall production as we get further out?
Charles M. Shaffer -- Chief Financial Officer
Yeah. I think it accelerates through the year, Steve. So as these bankers come on line, we hired 10 in Q4, 10 in Q1, there's a ramp up period I can tell you from bankers we hired in the fourth quarter. We're already seeing some pretty quality relationships coming over. And with that, it's been full relationships, it's been good quality C&I type business with heavy deposits, part of our strong deposit growth in the first quarter. But I believe it will accelerate as we move through the year. So the guidance of mid to high is kind of a Q4 '19 our Q4 '18 to Q4 '19 guidance, but that will continue to accelerate as we move through the year on our current plan.
Dennis S. Hudson III -- Chairman and Chief Executive Officer
Yeah. We're pretty confident. In fact, we're confident that we're going to see this kind of ramp up occur. And again as Chuck pointed out, we had some nice hires in Q4 that are already in the pipeline and we expect that to continue to grow. So we're very confident about our forward loan growth.
Stephen M. Moss -- B. Riley FBR Inc. -- Analyst
Okay. That's helpful. And then, just in terms of the margin here going forward. As you think about the purchase accounting accretion coming down, I think you said generally 1 basis point quarter-over-quarter going forward or should we expect some acceleration after the second quarter?
Charles M. Shaffer -- Chief Financial Officer
Yeah. I think the way to think about the NIM guidance is, it's a conservative guide that includes a couple of basis points less than purchase accretion. As you know that can go either way. We see pay offs happen earlier than expected. It can go up. If it moves the way we expect it to, it's about a basis point or 2 reduction a quarter, but that -- it could -- it depends on where things go from here. It's a variable type forecast.
Secondly, I'll mention that it assumes a pervasive inverted curve with some heightened deposit competition. If this were to abate, that would be a positive sign for us. We are starting to see flashes of deposit competition abating, but it's really too early to tell. And really our objective here is to keep the core margin flat, which we would keep us at the high end of the range. So I believe we're providing curves conservative guidance, and I believe we're positioned better than most to manage this as we move forward, and with the lower loan to deposit ratio, greater liquidity, and our ability to remix, I think we'll outperform on NIM as we move through the year.
Dennis S. Hudson III -- Chairman and Chief Executive Officer
And a big focus on yield looking at looking at those rates going on.
Stephen M. Moss -- B. Riley FBR Inc. -- Analyst
Right. And on the yield subject, Denny, just wondering how much more do you guys thinking to push through in terms of increasing spreads or any color on that?
Dennis S. Hudson III -- Chairman and Chief Executive Officer
It's kind of a tale of two ends of the spectrum. The work we've done, particularly with credit and risk analytics, we're finding really pushing our yields up nicely in an appropriate way. Getting I think better spreads in some of the consumer and smaller balance, C&I loans that we do, I think the area that really gives us fits is in the CRE area and from a yield standpoint. So Chuck mentioned mix change, and that's really important and we have these tools now that we can bring to bear to help maintain or even enhance our yields as we go forward. It's a big part of our go-forward planning.
Stephen M. Moss -- B. Riley FBR Inc. -- Analyst
Okay. That's helpful. And one last one for me on capital here continues to build. Just wondering what your thoughts are with regard to the dividend share repurchases, and how M&A activity is these days?
Dennis S. Hudson III -- Chairman and Chief Executive Officer
Yeah. There's no question, we're carrying offensive capital today, and we're very comfortable with where we are, but we continue to have consistent discussion with our board. And I think our board and we understand clearly that we are building capital given the robust earnings that we're producing. But we still feel there are a number of deals out there and we think that's a great opportunity for us. And so, we want to kind of have the dry powder to get those deals done. And I would just point out that at any point in time, we can return this capital -- this excess capital in the form of dividends or buybacks or both. And we'll be continuing to look at that. But right now, we're kind of OK with where we are given the opportunity we set ahead of to deploy that capital into very nicely accretive transactions.
Stephen M. Moss -- B. Riley FBR Inc. -- Analyst
Great. Thank you very much guys.
Dennis S. Hudson III -- Chairman and Chief Executive Officer
Thanks, Steve.
Operator
Thank you. Our next question is from Michael Young of SunTrust. Please go ahead.
Michael Young -- SunTrust Robinson Humphrey -- Analyst
Hey. Good morning.
Dennis S. Hudson III -- Chairman and Chief Executive Officer
Hey, Mike.
Charles M. Shaffer -- Chief Financial Officer
Morning.
Michael Young -- SunTrust Robinson Humphrey -- Analyst
I apologize. I hopped on late. So if you covered this, then it's repetitive. Please forgive me. But just on the additional expense rationalization that you're expecting the $10 million. Can you just give a little more color there? How much of that is kind of incremental to what's already been communicated? And I guess when should we kind of expect that to be fully baked this year?
Charles M. Shaffer -- Chief Financial Officer
Yeah, I think the way to think about it, Michael, is we wanted to take a proactive expanse on expense reductions as we move through the year. And we want to be positioned regardless of what economic or rate environment shows up. And we also want the flexibility to take advantage of potential disruption from those few larger bank deals announced over the last few quarters.
And so, we've talked in the past. Our objective there was get small business direct fulfillment done. And our digital commercial origination platform done. We had cut $7 million to help pay for that and banker investments that it will be complete in the next 45 days. So looking forward, we think it will have a partial benefit to the coming quarter. And then if it's $10 million annualized, you can assume about $2.5 million impact in both Q3 and Q4. And a -- say a $800,000 to a $1 million benefit in the second quarter and the rest falls into next year, if it's $10 million on an annualized basis.
Michael Young -- SunTrust Robinson Humphrey -- Analyst
Okay. So there's about $3 million that's incremental on top of the $7 million, or this is a full $10 million on top of the $7 million that you're going to get?
Charles M. Shaffer -- Chief Financial Officer
This is a full $10 million on top of the $7 million. So we've cut the $7 million. We've reinvested the $7 million and now we're on to getting after another $10 million.
Michael Young -- SunTrust Robinson Humphrey -- Analyst
Okay. But it sounds like there may be some reinvestment of that if you have you know outside hiring opportunity, which is just a near-term negative but a longer-term positive right?
Charles M. Shaffer -- Chief Financial Officer
Yeah. In a way, I think about that is, we want the flexibility and if we saw an opportunity, we'd come back to the street and explain why that made sense. But now at this point, in other words, it's a cost reduction initiative and we'll see how things play out through the year. We know there's this potential disruption that may occur. We want to be ready and available for that. But if it doesn't show up, we'll use it as an expense reduction initiative.
Michael Young -- SunTrust Robinson Humphrey -- Analyst
Okay. And one last one just on that, would you look to do anything on the C side in terms of hiring or is this being we just focused on kind of commercial bankers?
Charles M. Shaffer -- Chief Financial Officer
Yeah. No we we're focused on that as well. As I mentioned, we have a goal of growing AUM in the trust area $120 million to $150 million a year. That's a big emphasis for us that requires investment as we move forward.
Secondly, on the mortgage space, we've repositioned that part of the organization to focus heavily on saleable. I would tell you the pipeline at the end of March and into April is now grown up to about 70% saleable. We're very encouraged by the shift going on in that area and we think that supports and will support non-interest income as we move through the year.
Michael Young -- SunTrust Robinson Humphrey -- Analyst
Okay. Thanks for all that color. I'll step back.
Charles M. Shaffer -- Chief Financial Officer
Thank you, Mike.
Dennis S. Hudson III -- Chairman and Chief Executive Officer
Thanks, Mike.
Operator
Thank you. Our next question is from Stephen Scouten of Sandler O'Neill. Please go ahead.
Stephen Scouten -- Sandler O'Neill & Partners, LP -- Analyst
Hey, guys. Good morning.
Dennis S. Hudson III -- Chairman and Chief Executive Officer
Hey, Steve.
Charles M. Shaffer -- Chief Financial Officer
Good Morning.
Stephen Scouten -- Sandler O'Neill & Partners, LP -- Analyst
So curious on the NIM and kind of the outlook around the interest rate environment. Have you guys begun doing any hedging or other things that might lock in some of your advantages here today in the prospect of a lower rate environment given that you are still fairly sensitive or what's kind of your thoughts there?
Charles M. Shaffer -- Chief Financial Officer
Yeah, it's a careful balance. We monitor it as we move forward. We haven't done any hedging like swaps or anything like that, but we continue to carefully balance both assets and liabilities to manage the NIM appropriately. I think we've managed to a moderately asset-sensitive balance sheet. We continue to manage to that, but it's something we're just careful to keep in check.
Dennis S. Hudson III -- Chairman and Chief Executive Officer
We really focus on the cash side of that and make sure that we have what we think is the appropriate balance and not over exposing ourselves one way or the other.
Charles M. Shaffer -- Chief Financial Officer
Right.
Stephen Scouten -- Sandler O'Neill & Partners, LP -- Analyst
Perfect. Okay. And then, I don't know if you have this number there handy, but what's the remaining balance of either your credit mark or expected accretion? Do you have those figures by chance?
Dennis S. Hudson III -- Chairman and Chief Executive Officer
Yeah. Hold on a second. It's in the tables of the release. It's about --
Stephen Scouten -- Sandler O'Neill & Partners, LP -- Analyst
Oh, OK I --
Dennis S. Hudson III -- Chairman and Chief Executive Officer
Yeah it's in the tables. I can pull --
Stephen Scouten -- Sandler O'Neill & Partners, LP -- Analyst
Okay. And then, I guess the question along with that is, how far down the path have you guys gotten in terms of the effects of CECL and this move to BCD accounting? And you know we've heard some banks -- some of them mostly larger, but talk about how there could be a pretty significant impact to some of the accretion coming through from the related remaining credit marks. I'm just wondering if you guys have any view on that as of yet or the potential impact to you all from that change?
Charles M. Shaffer -- Chief Financial Officer
Yeah, I think it's too early to give any real impact on CECL, I can tell you. What I can say is that we're in our third test model, our third side-by-side model and as we move through the year, we'll be able to give further updates on that. But at this point we're continuing to work through it, Steve.
Dennis S. Hudson III -- Chairman and Chief Executive Officer
And we're continuing to refine as those models are run and we're making good progress.
Charles M. Shaffer -- Chief Financial Officer
Yeah.
Stephen Scouten -- Sandler O'Neill & Partners, LP -- Analyst
Okay, super. Thanks for the color guys. I appreciate it.
Dennis S. Hudson III -- Chairman and Chief Executive Officer
All right.
Charles M. Shaffer -- Chief Financial Officer
Thank you.
Operator
Thank you. I will now turn the call back over to Mr. Hudson for closing remarks.
Dennis S. Hudson III -- Chairman and Chief Executive Officer
Great. Well, thank you everybody for joining us today. We appreciate the time and we look forward to reporting our results in the upcoming quarter. Thank you.
Operator
Thank you. And thank you ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.
Duration: 34 minutes
Call participants:
Dennis S. Hudson III -- Chairman and Chief Executive Officer
Charles M. Shaffer -- Chief Financial Officer
Stephen M. Moss -- B. Riley FBR Inc. -- Analyst
Michael Young -- SunTrust Robinson Humphrey -- Analyst
Stephen Scouten -- Sandler O'Neill & Partners, LP -- Analyst
Transcript powered by AlphaStreet
This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.
