Bank of Marin (BMRC) Q4 2017 Earnings Conference Call Transcript

Bank of Marin (BMRC 1.45%)
Q4 2017 Earnings Conference Call
Jan. 22, 2018 11:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Jarrod Gerhardt -- Senior Vice President and Director of Marketing

Good morning and thank you for joining Bank of Marin Bancorp's Earnings Call for the Fourth Quarter ended December 31, 2017. I'm Jarrod Gerhardt, senior vice president and director of marketing for Bank of Marin. During the presentation all participants will be in listen-only mode. After the call we will conduct a question-and-answer session.

At that time if you have any questions please press 1, followed by 4 on your telephone. If at any time during the conference you need to reach the operator, please press *0. As a reminder, this conference is being recorded on January 22, 2018. Joining us on the call today are Russ Colombo, president and CEO, and Tani Girton, executive vice president and CFO.

Our earnings press release, which we issued this morning, can be found on our website at bankofmarin.com, where this call is also being webcast. Before we get started, I want to emphasize that the discussion on this call is based on information we know as of today, January 22, 2018, and may contain forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, please review the forward-looking statements disclosure in the earnings press release, as well as our SEC filing.

Following the prepared remarks, Russ and Tani will be available to answer your questions. And now I'd like to turn the call over to Russ Colombo.

Russell Colombo -- President and Chief Executive Officer

Thank you, Jarrod. Good morning and welcome to the call. We're pleased to review our results with you for the fourth quarter and year-end. Let's start with some highlights.

We successfully completed our acquisition of Bank of Napa, which positions Bank of Marin for continued growth in both Napa County and the wine industry, which have become a strategic focus for us in recent years. Net income in the fourth quarter was $1.1 million, as compared to $5.1 million last quarter and $5.7 in the fourth quarter of 2016. These results were directly impacted by the deferred-tax asset write down of $3 million, which amounts to 1.16% tangible equity. We also incurred $1.1 million in after-tax expenses related to our acquisition of Bank of Napa.

Without these two items, diluted earnings per share would have been $0.80 for the fourth quarter and $3.28 for the full year, and net income would have been $5.2 million and $20. 5 million for the quarter and year ended December 31, 2017, respectively. Please refer to Page 5 of our press release for more detailed reconciliation of these non-GAAP financial measures.Our organic growth was strong in 2017, as a result of healthy and broad-based increases in both deposits and loans. Deposits increased through organic growth by $144.5 million, or 8.2% year over year.

In combination with a $249.9 million in deposits we acquired with Bank of Napa, total deposits grew up 21.2% to $2.2 billion at year-end, as compared to $1.8 billion at the end of 2016. Non-interest-bearing deposits increased by $90 million in the fourth quarter of 2017 and comprised 47% of total deposits at year end. Organic loan growth for the year was $59.5 million, or 4%. Combined with $132.9 million in loans acquired from Bank of Napa, home loans increased 12.9% to $1.679 billion, as compared to $1.486 billion at year-end of 2016.

New loans in the fourth quarter were approximately $51 million, compared to $42 million in the third quarter and $62 million in the fourth quarter of 2016. As we announced on a prior call, we expanded our team with several strategic hires in 2017. These include James Kimball, EVP and chief operating office, and Scott McAdams, SVP and commercial banking regional manager for our Napa and Sonoma markets. Jim is responsible for growing the bank's customer-facing businesses across our Bay Area footprint.

His extensive experience working with Sonoma County businesses will be key in strengthening our team in that strategic market. Scott is integrating the commercial banking sales team in Napa and expanding our presence in the wine sector. With these additions we are well-positioned to pursue organic growth opportunities in the year ahead. The North Bay suffered serious losses due to the October wildfires.

Fortunately, our clients and the bank itself did not experience any significant damage. The longer-term effects of this disaster on the business community is something we are monitoring and assessing carefully. We will continue to support and invest in recovery efforts in both Sonoma and Napa counties. The underpinning of our success in business cycles has always been our strong credit culture, and 2017 was no exception.

At year end, non-accruals were still extremely low, at .02% of total loans. We did make a $500,000 provision for loan losses due to continuing organic loan growth. This factor's associated with potential long-term impact from the recent wildfires and the acquisition. In addition, our board directors declared a cash dividend of $0.29 per share on January 19, 2018.

This represents the 51st consecutive quarterly dividend paid by the Bank of Marin Bancorp. It is worth noting that the bank has never had to reduce the dividend to do that. Now let me turn it over to Tani for additional insights on our financial results.

Tani Girton -- Executive Vice President and Chief Financial Officer 

Thank you, Russ. Good morning. As Russ mentioned, when comparing 2017 earnings for the fourth quarter and full year to earlier periods, it is helpful to refer to the table on Page 5 of our press release. This table begins with reported earnings for the period shown and removes the impact of acquisition-related expenses and the deferred-tax assets write down associated with the Tax Cuts and Jobs Act of 2017, which was passed in December.

2017 non-GAAP comparable net income of $20.5 million and $3.28 per share demonstrate the same underlying strength as 2016's record earnings, when you consider that $2.9 million, or $0.47 per share of 2016 earnings, were related to loan recovery and early payoffs of acquired loans. As we walk through the income statement, quarter-over-quarter comparisons also demonstrate continuing growth and profitability while investing in our team and our platform. 2017 fourth-quarter net-interest income was $20 million, compared to $18.8 million in the third quarter and $18 million in the fourth quarter last year. For the year, net-interest income totaled $74.9 million, compared to $73.2 million in 2016.

A higher level of interest-earning assets in 2017 more than offset the interest recovery and accelerated acquired loan accretion of 2016. Non-interest income in the fourth quarter was $2 million, compared to $2.1 million in the third quarter and $2.5 million a year ago. 2016 benefited from a $347,000 special dividend from the Federal Home Loan Bank of San Francisco. In 2017, we recorded net losses of $195,000 on investment securities sold, mainly due to changing tax law ramifications.

For the year, non-interest income was down $893,000 due to the special FHLB dividend and gains on the sales of investment securities in 2016. Fourth-quarter 2017 non-interest expense was higher than the third quarter primarily due to $2.2 million in acquisition-related expenses. Non-interest expense increased $3.3 million over Q4 2016 and $6.1 million over the full-year 2016, not only due to acquisition-related expenses but also to additional staff, annual merit increases, and higher insurance expenses, partially offset by lower FDIC assessments. The effective tax rate of 44.6% for the year was elevated by 10.5 percentage points due to the deferred-tax assets write down.

Without this charge, effective tax rate would have been slightly lower than the previous three years. Of course, the acquisition and strategic hires we made during the year impacted our profitability and efficiency metric for 2017. The efficiency ratio for the year was 64.7%, 2.2 percentage points of which was related to acquisition expenses. Acquisition expenses and tax law changes reduced return on assets by 22 basis points, to .75%, and return on equity was reduced by 186 basis points, to 6.49%.We have every expectation that the investments made in 2017, coupled with the new tax law, will position Bank of Marin for improved efficiency, higher returns, and EPS accretion over time.

Finally, a few words on our balance sheet. Our loan-loss reserve to total loans, including acquired loans, was .94% at December 31, 2017, 1% at September 30, and 1.04% at December 31, 2016. Based on our legacy portfolio only, the ratio of loan-loss reserves to loans was 1.06% at December 31, 2017, compared to 1.05% at September 30. The loan-to-deposit ratio was 78%, and our constant deposits remained low, at 7 basis points.

We have plenty of liquidity and capital to support growth in the coming year. Now I will turn the call back over to Russ for some closing comments.

Russell Colombo -- President and Chief Executive Officer

Thank you, Tani. As you just heard we achieved a great deal in 2017. We grew deposits and loans organically by expanding our existing customer relationships and developing new ones. We hired the right people.

We strengthened our platform to help unlock future growth opportunity. We completed a strategic acquisition that enhances our position in Napa, as well as the wine sector. And we did all that while continuing to deliver strong financial results. By any measure we had a productive year and we appreciate everyone on our team who contributed to the success.

Importantly, investments we made in both organic growth and the Napa acquisition in 2017 should position us very well for 2018. In the coming year we'll continue to evaluate strategic opportunities that fit with our culture and add value for our shareholders. We continue to have conversations with banks in markets that we find appealing. Our primary focus for 2018 will be organic growth, which we are set to deliver based on the strength of our team, our outstanding footprint in the Bay Area market, our track record and reputation, and our relationship banking model.

I'm pleased to report that our new hires of 2017 and the Bank of Napa team are off to a great start. Our team has never been stronger. Our new COO, Jim Kimball, has been out in the field, meeting with bankers and developing sales and marketing strategy to better serve existing customers and attract new ones. Jim's proven track record of building and leading productive banking teams is a great asset to the bank.

Last year, we enhanced our market position through the acquisition of Bank of Napa, expanded our presence in Sonoma County by opening our Healdsburg office, and our Oakland commercial banking team created real momentum in the very lucrative East Bay market. The addition of key people and the expansion of our footprint have bolstered Bank of Marin's already strong reputation. This has allowed us to continue to build market share even as more community banks are migrating to the attractive Bay Area market from the Central Valley and Southern California. We believe our strong competitive position is in large part due to the relationship banking model that has served us well for the past 28 years.

It is a distinct advantage when it comes to building trust and long-term relationships with clients and generating loan growth in a low-cost deposit space. We expect that with the recently passed tax reform, many businesses will be investing in growth and we look forward to supporting their growth plans. As we continue to serve customers across a wide range of industry sectors, from wine-making to nonprofit organizations, we will remain focused on this model. We are excited about the future and the many opportunities we to enhance the value of our bank.

Thank you all for your time this morning and now we'll open it up to answer your questions.

Questions and Answers:

Operator

Ladies and gentlemen, if you'd like to register a question, please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledge a request. If your question has been answered and you would like to withdraw your registration press the 1 followed by the 3, and if using a speakerphone please lift the handset before entering your request. Questions can also be submitted via the webcast page by clicking on the "ask question" tab and typing your question into that box that appears below the tab.

Again, ladies and gentleman on the audio line, if you'd like to register a question please press 1 4 on your telephone keypad. Our first question on the audio line comes from the line of Jeff Rulis with D. A. Davidson. Please proceed with your question.

Jeff Rulis -- D. A. Davidson -- Analyst  

Russ, I may have missed your, did you list the final loan and deposit totals from Bank of Napa? Do you have those available?

Tani Girton -- Executive Vice President and Chief Financial Officer

They're actually in the release. if you look on Page 6 of the release you can see loans were $135 million and total deposits was $260 million rounded.

Jeff Rulis -- D. A. Davidson -- Analyst

OK, sorry about that. Russ, just going back to the '18 strategic focus is on organic growth. Could you put that in the in the context -- it sounds like '17 was more of a reinvestment or acquisition, and while you continue to look for those, I don't know if that means that your organic expectations for '18 would be greater than '17. If you could kind of put any words around your expectations for '18 versus '17?

Russell Colombo -- President and Chief Executive Officer

Let me frame it like this: In '17 we did make the acquisitions, but we also made strategic hires, including Jim Kimball, Scott McAdams. We opened an office in Healdsburg, and so as we look to '18, we continue to talk to banks about potential acquisitions, however, acquisitions happen when they happen -- it's difficult to plan for that. So we focus, we're focused on this year coming up on strategic -- organic growth, and we think we're in a great position we have -- since Jim came over, Jim was with Wells Fargo prior to being here -- he's got a lot of experience in the North Bay in particular and so bringing that knowledge and experience and in addition to that, Scott McAdams in Napa has the same, a lot of experience in North Bay, and so I believe that as we go forward we're going to see some real results out of these markets because of the people we brought on and the teams that they attract as we go forward. So, organic growth, we're confident about our organic growth in the future.

I can't give you numbers because we don't give guidance on that, but needless to say, our expectations are high in terms of what we can do in this market.

Jeff Rulis -- D.A. Davidson -- Analyst 

I guess if you have 4% organic growth in '17, that would be at the low end of what you think in '18?

Russell Colombo -- President and Chief Executive Officer

Like I said, our expectations are high for our growth going forward.

Jeff Rulis -- D.A. Davidson -- Analyst 

So I guess if that ties into the provision level you alluded to this quarter that the pickup there was based on growth and kind of the unknown risk from the fires. Any comment on provisioning levels is as you are more optimistic perhaps on growth and that unknown? Any commentary on the provisioning levels?

Russell Colombo -- President and Chief Executive Officer

Sure, first of all, the provision is really for growth that we experienced and growth, some for growth expectations in the first quarter, so some of that is related to that, because we really anticipate that there's a fair amount of loans that we'll book in the first quarter. There's a pretty strong pipeline and there's a number of loans that carried over that we, frankly, our expectations were [Inaudible] close the fourth quarter and they didn't so, not because of anything going wrong just sometimes they don't they don't make it. So our expectations are very, very high for that first quarter. In addition, as we mentioned about the fires, we really don't know what the long-term impact of that is going to be and so part of the provisioning is really safety just because we don't know what the impact and we plan for the worst and hope for the best kind of the way is kind of the way I would term it.

So part of it is that and whenever you have an acquisition, it takes time to integrate that and it does change the organization to to a certain extent, so we provision for that. That being said, so far this has acquisition gone really well, and the people are terrific that we -- from Bank of Napa that we've acquired. Their culture matches us exceptionally well and so we're very very pleased thus far as we move toward full integration, which will be in April.

Jeff Rulis -- D.A. Davidson -- Analyst

OK, thanks, Russ. And then, two quick ones for Tani. The merger cost $1.7 million this quarter. What categories did those come from and are we anticipating more merger costs going forward? And then the next one on just your expected tax rate in '18 and '19.

Tani Girton -- Executive Vice President and Chief Financial Officer

On the merger costs, those are running are much in line with what we expected. Our most recent forecast is that when all is said and done they'll be a little bit less than we modeled when we evaluated the deal. We're looking, looking at 2018, we think we have about $1 million more to go roughly and did you have another part of the M&A cost question?

Jeff Rulis -- D.A. Davidson -- Analyst

It was more, within the line item, was that in data processing? If I were to kind of itemize that, in salaries or --

Tani Girton -- Executive Vice President and Chief Financial Officer

The biggest component of the acquisition expenses are in the deconversion from the prior from the Bank of Napa data-processing provider and conversion expenses to our data-processing provider, termination expenses on the data-processing provider from Napa and then also professional services. So there are a lot of costs associated with getting the deal done in terms of writing the F-4 and other filings that we have to do with SEC, that have legal and accounting expenses associated with those. And then on the tax question and we do expect the tax rate to go down, associated with the change in the tax law. There are -- so it's not entirely additive because there are some permanent differences that as a percentage of effective tax rate change because there's hard dollar related, but going from a 35% tax rate to 21% tax rate on a federal basis is going to have a significant impact on our our tax rate and reduce it.

Jeff Rulis -- D.A. Davidson -- Analyst 

I read that to -- there are some puts and takes there, if you were in that 34, 35 previously and it's down to 21 on the corporate level in that ballpark is a decent assumption?

Tani Girton -- Executive Vice President and Chief Financial Officer

I'd say if you take down 10 percentage points that's going to be conservative.

Operator

Our next question comes from the line of Tim O'Brien with Sandler O'Neill.

Thomas Geoghegan -- Sandler O'Neill -- Analyst

Thanks. This is Thomas Geoghegan on for Tim. Good morning, guys. So somewhat similar to the previous question on just the data processing and professional service costs that came in around $2 million and $1 million total for the quarter.

I know you broke it out for the acquisition -- are there any other non-recurring items in either of those and do you guys have a ballpark run-rate range for each of these two items?

Tani Girton -- Executive Vice President and Chief Financial Officer

So those are the significant items. There's not anything significant embedded in other places [Inaudible] with those. And with regards to other things that might impact the income statement going forward, you have scheduled accretion for the acquired loans. Of course, we don't know what impact any early payoffs are going to have on net-interest income, but the scheduled accretion is a very small amount.

So if you look at the table on Page 4 of the press release, which talks about accretion and gains on payoffs of purchase loans, you can see that scheduled accretion was 4 basis points for the fourth quarter. I don't think that'll go up by much for scheduled accretion going forward.

Thomas Geoghegan -- Sandler O'Neill -- Analyst

Thank you and just one quick additional thing. Is there any additional benefit, if any at all, remaining from your guys' tax strategies that could influence the tax rate going forward?

Russell Colombo -- President and Chief Executive Officer

Could you repeat that question one more time? I'm sorry.

Thomas Geoghegan -- Sandler O'Neill -- Analyst

I know you guys just mentioned some info about the tax rate, but for your guys' tax strategies is there any potential, anything that you might do in the future that could influence the rate going forward in addition to just kind of the recent tax law changes?

Russell Colombo -- President and Chief Executive Officer

I mean, one of the things we do, is we do have a fair number of financings that we've done and continue to do going forward for tax-exempt borrowers, and those are schools and municipalities, things of that nature. But that's an interesting question, because obviously the tax rate will affect the pricing on those and our portfolio currently, that's one of the things, that those deals are priced based on the tax at the time, although on many of them we have the ability to make changes in those rates. So as we go forward, we're going to see how that market kind of settles out because there will be some changes, certainly be changes in the pricing of tax-exempt deals. With only a 21% corporate tax rate that will make them less attractive, certainly to the borrowers, and may close the gap somewhat to taxable financing.

So we have to kind of step back on that particular program that we've been doing to evaluate what we want to do and how we want to price deals going forward.

Thomas Geoghegan -- Sandler O'Neill -- Analyst

That's great. Thank you.

Operator

Our next question comes from the line of Jackie Bohlen with KBW. Please proceed with your question.

Jackie Bohlen -- KBW -- Analyst

Hi. Good morning, everyone. You mentioned some lending in Oakland, just the increase that's been going on there. Can you just provide a little bit more color on what some of what some of the drivers of that are?

Russell Colombo -- President and Chief Executive Officer

I would say the drivers of that are the team that we've assembled there. We have, that particular office has really put together a very effective team of lenders, business development officer, personal bankers who are out in the market and generating opportunities. That has been probably the most effective office we've had in our system over the last year, and we're in a market over there and the East Bay is, as you as you probably are aware, through that 880 corrodor, there is a tremendous number of C&I-type opportunities, a lot of light manufacturing, distribution, wholesalers, things of that nature, which gives us great opportunity to build our portfolio, and that team is doing a really terrific job and the results -- it's pretty easy to see, when you when you have great results you usually have great people, that's the reason. And those people are performing at a very high level right now.

Jackie Bohlen -- KBW -- Analyst

OK. That's very helpful, thank you. So that sounds like it's something that will continue to be a good source of growth for several quarters to come into the foreseeable future, I would guess?

Russell Colombo -- President and Chief Executive Officer

Yes, we certainly anticipate that and obviously we expect, our expectations for our other offices is that they would grow at a higher level, too.

Jackie Bohlen -- KBW -- Analyst

And then, one last one for me. In terms of deposit pricing in the quarter, how much of that was related to the acquisition?

Tani Girton -- Executive Vice President and Chief Financial Officer

So our constant deposit really didn't change and we did get some contribution in our DDA non-interest-bearing accounts from Napa. We do get -- periodically we get a request from somebody who is seeing rates going up but we haven't gotten a lot of pressure thus far to raise our rates. We haven't changed our pricing on our rates yet, and I think our relationship model serves us really well, associated with my our deposit pricing because we have such a big percentage of DDA accounts and those are really operating accounts and are not as interest rate sensitive.

Jackie Bohlen -- KBW -- Analyst

So really not getting much pressure at this point in time even with the December rate hike from customers?

Russell Colombo -- President and Chief Executive Officer

We certainly get pressure. I'm not going to say that we're not getting pressure. But, that being said, what Tani said about the relationship-banking model [Inaudible] because we had growth of $90 million in demand deposits in the fourth quarter. That speaks to the relationship model and while we're getting pressure certainly in the money market accounts, things of that nature, we're growing the demand deposits at such a clip that our cost of deposits remains at 7 basis points, which is a pretty nice benefit that we have and really a value of our franchise that we have, these high level of demand deposits, which keeps our costs of funding.

And you know that differential as we go forward, if rates continue to rise, the differential and the value of this deposit franchise that we have will show an eve greater amount in the future because that margin will expand because of that.

Jackie Bohlen -- KBW -- Analyst

OK, great. Thank you. That's very helpful.

Operator

Ladies and gentlemen, as a reminder, if you'd like to register a question on the audio line, please press 1 4 on your telephone keypad. Our next question comes from the line of Don Worthington with Raymond James. Please proceed with your question.

Don Worthington -- Raymond James -- Analyst

Thank you. Morning, Russ, Tani.

Russell Colombo -- President and Chief Executive Officer

Morning, Don.

Tani Girton -- Executive Vice President and Chief Financial Officer

Morning.

Don Worthington -- Raymond James -- Analyst

Just while we're on the deposit subject, was there anything in the $90 million that you would consider to be temporary, that you might lose in the first quarter?

Russell Colombo -- President and Chief Executive Officer

We do have a number of large borrowers, I mean large depositors who have, keep substantial deposits in the bank, and I'll give you a couple examples. We have some large contractors who do a lot of municipal work and when they get a new contract, then they get funded and the money comes in the bank. And then they, as they do the work the money goes out, but they're also bidding on other projects, which brings other additional funds in, so while the money comes and goes, the totals are pretty stable. So we have that, and there's a number of those that, those types of, not all contractors, a number that has exactly that, that they have money coming in -- we have an ad agency that has money coming in and goes out.

It's those kinds of deposits which, while are large and they are kind of transitory deposits, there are other deposits replacing on the other end, so we watch very closely. This year we had less of the migration out than in past years it was not as big, as deposits grew over the year. We really never had a time when we had a big decline.

Don Worthington -- Raymond James -- Analyst

OK. Thanks. And then in terms of the securities portfolio, would you plan to be doing anymore restructuring of that that might lead to gains or losses?

Tani Girton -- Executive Vice President and Chief Financial Officer

There may be a little bit more, but we evaluate the portfolio on an ongoing basis, and we're looking for upcoming changes not only with regard to changes in credit on any one of, any security in our portfolio, but also what the tax-law ramifications or impacts will be on the portfolio. We think we have most of that done, but there are a few other securities that we might take action on, but I'd say the bulk of it and it's probably done at this point.

Don Worthington -- Raymond James -- Analyst

OK, thanks. And then I guess my last question is in terms of the benefit from a lower tax rate any any thoughts on how that might be deployed, either expenses, initiatives, or a dividend policy?

Russell Colombo -- President and Chief Executive Officer

We're evaluating dividend policies, certainly, and we are evaluating other ways to utilize the capital in growth opportunities. We look at it as an opportunity to make investments that maybe we would have in a shorter time period, maybe would've made over a longer time period. So we're looking at all those opportunities and obviously acquisitions as they come along, building capital here, the problem with acquisitions these days seems be that most acquisitions are mostly stock. We really don't utilize a lot of capital to create more capital.

So I think for us it's an opportunity to step back and say, "OK, so what kind of investments should we be making that maybe we would have deferred but now might be a good time to invest?" because our earnings are going to be up substantially because of the tax change and it really does give us that opportunity to look at those investments.

Don Worthington -- Raymond James -- Analyst

OK. Great. Thank you.

Russell Colombo -- President and Chief Executive Officer

OK. Welcome.

Operator

And our last question is a follow-up question from the line of Matthew Clark with Piper Jaffray. Please proceed with your question.

Matthew Clark -- Piper Jaffray -- Analyst

Hoping to get a little more color around your commentary about the pipeline being substantial. I know year-over-year comparisons aren't good with the Bank of Napa acquisition, but can you kind of sensitize maybe legacy Bank of Marin and how that compares year over year and how much of it might be fire-related, with maybe increased demand there or just a change in the environment with with tax reform?

Russell Colombo -- President and Chief Executive Officer

I don't see -- to start with the fire-related, I don't see a lot of demand which is fire-related at this point. It's going to take a long time to where they actually have projects that are starting to rebuild. It just takes a long time to get through the process. We have a pipeline which was going into this year which is pretty substantial, particularly because we had -- it was one of the interesting times in the month of December we had a big number that we thought might close and virtually none of it closed, and all that got pushed over to the first quarter so we are all looking forward to a good quarter there.

And what else was the question? I don't remember beyond that.

Matthew Clark -- Piper Jaffray -- Analyst

Just around tax reform, any early indications of what increased activity there?

Russell Colombo -- President and Chief Executive Officer

I don't see it yet, but that's going to be developing over the next, I think, six to 12 months, in terms of as -- kind of like with us, we're saying maybe we'll look at projects which we might have delayed, maybe we'll do them right now. We have customers, I'm sure, that will be looking at opportunities to do things that maybe they would have delayed but now that the tax laws changed they may have more capital available to do projects, and that would potentially lead to opportunities for us for financing. I'm very optimistic going forward about the opportunities that it's going to bring because our customers will have more cash, more capital available to invest in their businesses, and I think, just like with us, I think that's going to happen.

Matthew Clark -- Piper Jaffray -- Analyst

OK and then just last one on the targeting cost-saves for Bank of Napa, any change in terms of the magnitude and timing as to how those are realized?

Tani Girton -- Executive Vice President and Chief Financial Officer

I don't think so at this point we originally estimated 42.5% and as far as we know right now that's where we're on target with but we'll know more, I think, as we go forward.

Russell Colombo -- President and Chief Executive Officer

There will be opportunities [Inaudible] beyond [Inaudible] we're looking at, things we didn't put into the plan at all, we have to look at facilities and how we might be able to right-size those, not move, not get out of the facilities but there's a lot of space, maybe that we can reduce our space. There's things that we can do to become more efficient and those in Napa, so that will that will happen over the next six to 12 months, for sure.

Matthew Clark -- Piper Jaffray -- Analyst

OK, then just one quick one, and I apologize if I missed it in your comments, I jumped on a little late, but the tax rate that you expect in 2018, we have our own estimate. Curious what you guys think it will shake out at.

Tani Girton -- Executive Vice President and Chief Financial Officer

What I shared a little bit earlier was that if you assume about a 10-percentage point decrease in the effective tax rate, that would probably be a conservative estimate.

Matthew Clark -- Piper Jaffray -- Analyst

Got it. Thank you.

Operator

We have no further questions on the audio line.

Russell Colombo -- President and Chief Executive Officer

OK. I want to thank all of you for joining us this morning, and we will talk with all of you again next quarter. Thank you.

Tani Girton -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you kindly disconnect your lines. Have a good day, everyone.

Duration: 45 minutes

Call Participants:

Jarrod Gerhardt -- Senior Vice President and Director of Marketing

Russell Colombo -- President and Chief Executive Officer

Tani Girton -- Executive Vice President and Chief Financial Officer

Jeff Rulis -- D. A. Davidson -- Analyst 

Thomas Geoghegan -- Sandler O'Neill -- Analyst

Jackie Bohlen -- KBW -- Analyst

Don Worthington -- Raymond James -- Analyst

Matthew Clark -- Piper Jaffray -- Analyst

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