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Good day, ladies and gentlemen, and welcome to the Glacier Bancorp’s Fourth Quarter and Full Year 2017 Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at the time. [Operator Instructions] Now as a reminder, today's conference call is being recorded.
I'd now like to turn the conference over to Randy Chesler, President and Chief Executive Officer. Please go ahead.
All right, thank you, Candace, and good morning, and thanks for joining us today. With me here in Kalispell this morning is Ron Copher, our Chief Financial Officer; Don Chery, our Chief Administrative Officer; Barry Johnston, our Chief Credit Administrator; Angela Dose, our Principal Accounting Officer; and Don McCarthy, our Controller.
Yesterday, we released our fourth quarter and full year 2017 results. Overall, the company had a solid fourth quarter and closed out an excellent year with our core business performing very well. As you all know, the Tax Cuts and Jobs Act, which I'll refer to as the Tax Act, was signed into law on December 22, in the last few business days of 2017. Most of the benefit of this law will be seen in 2018, but many banks had to revalue their tax-deferred assets and tax-deferred liabilities in 2017 as a result of the corporate federal income tax being reduced from 35% to 21%.
For our company, this revaluation means a one-time increase in net tax expense of $20 million. Now while this will have an impact on our fourth quarter and full year 2017 earnings from a purely GAAP perspective, we view this expense as a one-time event with the impact not reflected – reflective of the company's core performance. We want to make it easier for shareholders to understand the core operating performance of the company and the impact of the Tax Act on 2017 results, specifically the one-time value adjustment on our net tax-deferred assets. So we included a table with our earnings release that shows certain key measures with and without the impact of the one-time tax adjustment.
So as you know, starting in 2018, we will see an ongoing benefit from the Tax Act with the reduction of the federal rate. Excluding the impact of the Tax Act, the effective federal and state income tax rate for the company was 25.1% in 2017 and is expected to decrease to a range of 17% to 18% during 2018 as a result of the Tax Act. Regarding the benefit from our lower tax rate starting in 2018, we expect to maintain the same regular dividend payout rate of around 50% in 2018 and going forward. We also plan to continue the practice of evaluating capital levels at year-end to determine if the special dividend is appropriate. In addition, we plan to evaluate a number of strategic initiatives for business reinvestment.
For the fourth quarter of 2017, without the one-time tax expense, earnings for the quarter were $35 million, an increase of $4 million or 13% over the fourth quarter a year ago. Compared to the third quarter of 2017, fourth quarter earnings, not reflecting the one-time tax expense, declined $2 million, primarily due to a large one-time OREO gain and higher gain on sale due to seasonally strong residential mortgage volume in the third quarter. In addition, the fourth quarter results include $937,000 of acquisition-related expenses.
Earnings for the full year, without the one-time tax expense, were a record $136 million, which is an increase of $15 million or 12% over 2016. We ended 2017 at $9.7 billion in total assets, achieving our goal of ending the year below $10 billion in order to postpone the expense associated with the Durbin Amendment for another full year. The team did an excellent job making this happen without impacting customer relationships. There's no doubt, however, that we'll end 2018 well in excess of $10 billion.
As you know, we're a company of community banks, and we added our newest bank division, Foothills Bank, in Arizona in early 2017. We fully integrated Foothills into the company, and our new division had a great year while managing through a closing transaction and system conversion. Continued growth in Arizona looks very promising.
During the year, we also announced our proposed acquisition of Collegiate Peaks Bank in Colorado and First Security Bank in Bozeman, Montana. We are going to have a really busy first quarter of 2018, closing Collegiate Peaks at the end of January and for Security at the end of February. By adding over $1.5 billion in assets, we will increase the size of the company by 15% while gaining more than enough scale to mitigate the expenses associated with our company crossing over the $10 billion asset threshold. We also delivered earnings per share for the quarter of $0.44, not including the impact of the Tax Act, down $0.03 from the prior quarter and up $0.03 or 7% from the prior year's fourth quarter.
Full year 2017 earnings per share, not including the impact of the Tax Act, were $1.75, which represents a 10% increase over 2016. Excluding the impact of the Tax Act, our return on average assets for the year was a strong 1.42%, while return on average equity was 11.38% and our return on tangible equity was 13.68%. These all represent across-the-board increases over the prior year, and we are very pleased that we've been able to deliver increasingly strong results like this year-over-year. We paid a regular dividend of $0.21 per share in December, which was our 131st consecutive quarterly dividend paid by the Company.
In addition, we declared and paid a special dividend of $0.30 per share in the third quarter. While this was declared and paid in a quarter earlier than we have done in the past, it was one of the actions we took in 2017 to stay below $10 billion. Most importantly, consistently returning excess capital to our shareholders will remain a key strategy for the Company.
We started the fourth quarter a bit unsure what level of loan growth to expect given our strong year up to that point but also recognizing the slower growth that historically occurs in the Company's fourth quarter.
We had a good quarter with organic loan growth of $68 million or 1%. This level of growth is consistent with the fourth quarter growth rates we have averaged over the last five years.
For the full year of 2017, we organically grew loans $601 million or 11%, which was broad based across all of our divisions and surpassed our dollar growth of new loans in 2016.
We are optimistic about 2018 and feel that Tax Act will have a positive impact on the Western economy and our prospects for future loan growth. However, as we've seen in the past, the economic outlook can change quickly. So we remain optimistic, but look forward to seeing some broad-based, more tangible evidence of our expectations.
Loan production for the quarter was $654 million, which was about even with the prior quarter and production was generally well distributed among all divisions. Paydowns were up in the fourth quarter but at a level generally consistent with past fourth quarters.
Commercial real estate saw the most significant growth this quarter, increasing $73 million or 2%. Other commercial loans, consisting of C&I, municipal and ag loans, were the second largest growing segment, up $4 million or 24 basis points from the prior quarter.
Credit quality was stable for the quarter, and we continue to feel good about the credit outlook. Non-performing loans held steady at about $65 million and decreased $6 million or 9% from a year ago. Non-performing assets as a percentage of assets were 68 basis points at the end of the fourth quarter, which was an 8 basis points decrease from the prior year-end.
Net charge-offs for the current quarter were $2.9 million compared to $3.6 million in the prior quarter and $4.1 million in the quarter a year ago. 2017 charge-offs are 17 basis points of loans versus 4 basis points in 2016. Both years are below the 20 basis points threshold we like to see.
Early-stage delinquencies increased $9 million to $38 million from the prior quarter. This increase was primarily concentrated in two areas and generally limited to a few larger credits. Specifically, our residential mortgage portfolio drove most of the delinquency increase, with our agricultural portfolio contributing to a lesser extent.
Given the concentration in a few larger credits with unique circumstances, we don't feel this increase is a sign of underlying problematic trends. Our 30 to 89 past due loans stood at a very solid 57 basis points of loans at the end of the quarter compared to 45 last quarter and 45 basis points a year ago.
Overall, our divisions continue to do an excellent job being familiar with their credits and working with customers to mitigate risks. Our allowance for loan and lease losses ended the quarter at $130 million or 1.9% of loans, which is down from the prior quarter of 1.99% and 2.28% at the end of the last year.
This gradual reduction of the allowance as a percentage of loans is reflective of the improvement in our credit outlook, driven by a number of specific credit and environmental factors, which we review quarterly. The coverage ratio of the allowance for loan loss reserves to non-performing loans at the end of the quarter was 255% compared to 256% at the end of last quarter and 257% a year ago.
Investment securities declined $115 million or 5% from the prior quarter to $2.4 billion and decreased $675 million or 22% from the prior year fourth quarter. This level of investments represents 25% of total assets versus 33% at the end of the prior year. The declining level of investments is consistent with our practice of using investment cash flows to fund loan growth and increase our margin.
As part of the company's strategy to stay below $10 billion in total assets, a key part of the strategy was to transfer deposits off balance sheet. $433 million of deposits were transferred as part of this program and can be brought back onto the company's balance sheet as needed. Larger balanced customers like this program because they receive full FDIC insurance on deposit accounts in excess of $250,000 limit. Prior to utilizing this program, we pledge securities to many of these accounts with balances in excess of the FDIC limit as a method of providing security. If you include the deposits that were moved off balance sheet, organic core deposits increased $478 million or 7% from the end of last year.
Non-interest deposits ended the quarter at $2.3 billion, which was down $44 million from the prior quarter due to seasonal factors but up $173 million or 8% versus a year ago. Interest income increased $434,000 over the prior quarter to $97 million and increased $9 million or 10% over the prior year fourth quarter due to the increase in commercial loan interest income, which more than offset the $3 million decline in investment income over the same period.
The total cost of funding declined to 33 basis points versus 35 basis points for the prior quarter and 36 basis points from the prior fourth year – quarter – from the prior year fourth quarter. The decline in interest expense was driven by a decrease in wholesale deposits and on – and the “off balance sheet deposit” strategy, and most importantly, our divisions doing an outstanding job managing deposit costs.
Net interest margin, on a tax equivalent basis for the quarter was 4.23%, compared to 4.11% in the prior quarter and 4.02% a year ago. This substantial increase was primarily driven by the ongoing remix of lower-yielding investments into higher-yielding loans and a slight decrease in funding cost.
We were really pleased with the ability of our bank divisions to help us grow our margin with pricing discipline on new loans and existing deposits. While we believe our core business is capable of producing a margin in 2018 consistent with 2017, our margin will be somewhat negatively impacted in 2018 due to the Tax Act. Specifically, the lower tax rates will reduce the tax equivalent income contribution for municipal investments and loans.
Non-interest income for the quarter was $27.7 million, a decrease of $3.5 million or 11% from the prior quarter and a decrease of $305,000 or 1%, compared to the fourth quarter of 2016. The primary reason for the decrease this quarter and versus last year’s quarter was due to a reduction in the gain on sale of mortgages driven by less volume. In addition, last quarter, we booked a large OREO sale gain, which was not repeated in the current quarter.
For the year, however, non-interest income was $112.2 million, which represents an increase of $4.9 million or 5% over 2016. Our increased number of deposit accounts drove more service charges and fees, while gain on sale of loans decreased $3.2 million or 9%, due to lower volume of refinance and purchase mortgages.
Non-interest expense for the quarter increased $2.4 million or 4% over the prior quarter a year ago, not including expense from our core consolidation project in 2016. On a full year basis, excluding CCP expenses, core consolidation expenses, our non-interest expense increased $11.2 million or 4%, compared to 2016. This increase was led by compensation and employee benefits due to salary increases and the increased number of employees from acquired banks. The prudent management of expenses remains a priority.
The efficiency ratio for the quarter is 54.02%, which is a 58 basis point increase from the prior quarter, but down 106 basis points from the prior year fourth quarter. For the full year of 2017, the efficiency ratio is 53.94 %, which is down 193 basis points from full year 2016.
As we have previously discussed, our full year goal for 2017 was an efficiency ratio of 54%. And we are pleased to have exceeded this goal, even more so because midyear we revised our original goal of 55% down to 54% to reflect even better performance than we expected.
Looking forward into 2018, this is another metric that will be adversely affected by the Tax Act as our efficiency ratio will deteriorate slightly as taxes are not calculated as part of the ratio and the tax equivalent revenue contribution from municipal loans and investments will be negatively impacted by our lower tax rate. In closing, the fourth quarter and full year 2017 results represent an excellent quarter and year for the company, and we have an exciting year in sight for 2018.
We look forward to crossing over the $10 billion asset mark and closing our acquisition of Collegiate Peaks in Colorado and First Security Bank in Bozeman, Montana in the first quarter. As I previously noted, these two transactions will add $1.5 billion in assets and grow the company 15% in the first quarter alone. The team has been working hard on preparing for this and is ready to make it happen.
Our division presidents and their teams are enthusiastic about the possibilities in this new year in each of their markets. And we all remain energized about the power of our unique business model. Once again, our strong results are a testament to the strength of our very talented team, which I think is one of the best in the industry and we also thank our customers for their continued trust and confidence.
So Candace, that ends my formal remarks and I'd now like to open the line for any questions that the callers may have.
Thank you. [Operator Instructions] And our first question comes from Jackie Bohlen of KBW. Your line is now open.
Hi, Randy, good morning.
Good morning, Jackie.
I just wanted to start off with the size of the balance sheet, understanding that you're about to add $1.5 billion assets through the two acquisitions. What are your thoughts on potentially bringing some of those deposits back on, whether you're looking to releverage up some items or might you just kind of keep things as they are and use the new assets that you're bringing on through acquisition?
So I think, at this point, we're looking to bring some of those assets – those deposits that we moved off balance sheet back on balance sheet in the first quarter. And just as we assessed where we're going to be in some of our funding and other needs, we think the most efficient use of that is to bring a good portion of it back on in the first quarter, first two quarters.
Okay. So some of it could trail into the second quarter as well?
Yes, yes, yes.
Okay. And when I look at your deposit cost in the quarter and the meaningful declines that you had, was that all related to the movement off balance sheet? Or where there some other items at play there?
Well, I think the dynamics are – just as a fundamental, we've been – I think the divisions have done a tremendous job of being very disciplined on the pricing of deposits. So we haven't seen a lot of pressure there. I think we noted wholesale deposits were paid down, and that made a nice meaningful dent in the cost of funding. And that was also helped by moving the off balance sheet, the way those – that financial flows back in. The expense goes off, off the balance sheet also helped the decline in cost as well.
So that would move back up as you bring those balances back on balance sheet?
Some portion, so it's not a one for one. So we actually receive income from moving the deposits off the balance sheet. So as we move them back on, net to the company, we'll be making a little less, but it – we won't – you won't just see a complete net increase of deposit cost. It will be offset by some revenue as well.
Okay. And then do you have an estimate in either dollars or basis points on what the impact would be from the muni interest?
So let me – I’m going to have Ron Copher talk to you about taxes. So just so I can make sure I understand your question, are you asking – or maybe you could just rephrase it, so we make sure – because there’s a lot of tax activity going on.
Yes, I’m specifically looking for the impact to the net interest margin on the lower tax rate and what that will do to your tax-affected net interest margin.
Okay. Well, thank you for that clarification. Let me have Ron talk to you about that.
Yes. Jackie, we ran the numbers, just taking the full year 2017 and then reran the net interest margin using the lower tax rate, and it dropped, as I recall, 15 to 17 basis points for the full year 2017.
So Jackie, I think the way we talked about – kind of talked about this particular piece, as you know, we don’t really give forward guidance. So I think what we decided is, "Hey, let’s take 2017, apply the 2018 tax rates to it." And then you can get some idea of the impact by looking at the magnitude change on 2017 using 2018 tax rates.
Yes, yes. No, definitely understood. And then just one last one on that same topic and then I’ll step back. Is your muni portfolio, as it stands right now? Is it similar to its average balance in 2017?
Pretty close. I mean, we’ve – we did have runoff. It’s down. But the bulk of our investment liquidation this year was corporates and nonmunis. And so this isn’t – at least in 2017, that wasn’t a material part of the runoff.
Okay, great. Thanks for all the color.
You bet.
Thank you. And our next question comes from Jeff Rulis of D.A. Davidson. Your line is now open.
Good morning.
Good morning, Jeff.
I just wanted to follow up on the margin, and appreciate the Tax Act impact is tough to say. Just on the core outlook, if you strip out sort of that adjustment, maybe frame up your expectations on the margin as it relates to expected rate hikes.
Yes. So let me – well, what we would like to kind of communicate here is that the 2017 results and the results you’re seeing today are very reflective of the power of the core platform and taking tax rates out would very much be able to produce going forward. We feel really good about that.
So really, any change in the areas that we see, at least on the metrics that will change, is obviously margin that Ron just talked about and a little bit on the efficiency, because the margin right now, we get the benefit of the tax, benefit of our municipal loans and investments in the margin, the full value of it. So when you – when tax rates go down, that contribution is going to decline.
So it’s both, will affect the margin and on the efficiency. Other than those two areas, we think – obviously, the core business is positioned to do very well, and we expect – we have very good expectations. We don’t generally forecast rate hikes in our outlook, because too difficult to pinpoint when and if that will happen. So we feel really good about the year. And from our standpoint, any kind of steepening of the curve would be a nice benefit.
Fair enough. Okay. And so historically, obviously, the hikes have been good for the margin given the sticky deposits. And I guess, we could, in that framework, could use that similarly in 2018.
I think so. Yes, I think that, that’s right, that we’ve been pretty good at keeping the pricing on deposits in check and very good at, I think, reacting to new pricing on the loan side. Probably at some point going to be a little more increasing pressure in 2018 on deposit rates. It’s been a long time, since they’ve been adjusted, and we’re just waiting for that inflection point in the market. We know it will happen at some point, just hasn’t happened yet, probably going to see a little more pressure in 2018.
Okay. Thanks. And then just the other question was on the expense sort of run rate. Just trying to get a feel for – as you work in these additional deals in Q1, I would imagine that the run rate steps up in Q1 and Q2 as you kind of bring those on for full quarters. But then maybe if you could talk about deal conversion or systems conversion, timing and maybe when expenses could see that level off or potentially decline on balance that maybe later in the year – maybe just the specific with the question on when the conversions, when you expect those?
Sure. That will be – so we’re looking forward to closing, as I noted, both deals in the first quarter. So very excited about that. And we have – the First Security Bank conversions got books for June. So we have a lot of people working on that mid to late June, that will happen. And we feel good about that. We’ve got a lot of work already in place to do that. And then we have Collegiate Peaks scheduled for conversion in October. So that’s another, I think, good conversion that we have lined up.
Actually, we moved it up a month, so it’s September now. So we’re making progress quickly, but we’re pretty experienced at doing conversions. If you remember, in 2016, we did 14 conversions as we converted ourselves over onto one platform. So the team is – still got sharp skills and I think is ready to make sure those go very, very smoothly.
It seems like maybe an expense ramp through midyear and then kind of leveling off, and potentially late in the year some efficiencies there. Is that correct?
I think that’s likely. Yes, I think that’s fair.
And I guess, lastly, just what should we think about on sort of DFAST or compliance cost build? Or is that kind of baked in the number at this point? And given regulation, how do we – how should we frame up any additional costs on compliance?
Well, I’m hoping as it relates to DFAST that it only gets better and not worse. I think we communicated kind of the annualized number of around $750,000 previously of our expense for DFAST. Our compliance cost, we feel – depending on new regulations, we could go up. But we’ve really staffed up that department already, and I think they’re doing a really good job and they have a lot of resources that we invested early on in the year.
So I don’t see a big increase there other than to adjust for the two acquisitions that we’re doing. Obviously, we grow to accommodate those. And the reason I say we’re hoping it gets better, the regulatory reform bill, if it gets passed, would remove the requirement to do stress testing. And our view is, we think the stress testing aspects of it are really good. And we intend to do it anyway, but doing it on our own will probably be a little less expensive than building it out specifically as was specified.
We’re prepared to do it either way. And what we already have budgeted is kind of the full program if the regulation doesn’t change. So we’re prepared either way. If there is – if the regulation does pass, which I think is somewhat cloudy at this point, not a priority apparently, it’ll slightly lessen the expense for the DFAST aspect of it.
Thanks Randy.
You’re welcome.
Thank you. And our next question comes from Michael Young of SunTrust. Your line is now open.
Hi everyone.
Good morning, Michael.
I wanted to start maybe just on the growth side, kind of the outlook for 2018, what you expect and maybe some puts and takes. I know you’ve gotten a little full on a couple of CRE kind of subcategories, and maybe ag isn’t looking as attractive as it has in the past. So can you just kind of walk us through what you’re seeing and what your outlook is for next year?
Sure. Let me start that, and I’d ask Barry to provide a little color. So I think our internal forecast for the year is another 7% growth. I think we feel pretty good about that. We’ve talked about some of the areas that we feel our appetite has reached a point that we prefer not to grow our total position around multi-family lending and some hospitality. But there’s plenty of other very, very good places to grow that we’re seeing. Our entry into new markets, certainly in Arizona, looks very good, Colorado. The economy in general seems to be doing very well. So I think I’ll turn it over to Barry now, but I think the 7% we feel at this point very good about.
Yes. I think what we’re seeing in the pipeline is going to be a mirror of what we did this past year. Of course, with the acquisitions, there’s going to be a lot of delays in this quarter and – but the only thing that will probably come out of that is we will see some increase in agricultural credits given First Security Bank in Bozeman, they have a division in North Central Montana that has a pretty high concentration of agricultural credits. So we’ll see some increase there. But the rest of the portfolios, both with Collegiate Peaks and First Security, pretty much mirror ours as we sit today. So with those increases, that’ll be proportional to pretty much where we’re at now.
The one other area is under construction. We have seen increase there. That is in the land acquisition and development construction portfolio. That’s a good-sized number, but that is all vertical construction on a lot of Commercial real estate projects. That will either – we will term out and transition into the commercial real estate portfolio, so where they will pay out through alternative financing or sale of those properties. So – but as it sits today, I think that number will be pretty static through the year, maybe with some increase, but definitely we’ll see something come out of the two acquisitions in there as well.
And no specific change to the outlook for being able to originate municipal loans? It’s a question for Ron.
We – the tax rate, of course, is going to impact our appetite for municipal loans. We’ve taken a look at that. We have some significant growth since last year. So we are looking at those, probably not so much in the light that we have historically. We’re going to be a little more selective in what we’re looking at, maybe not – a little more selective in both the geographic location of those credits and the size of the credits. And of course, pricing will be a main concern. So I don’t anticipate that we’ll probably have the growth that we have last year, but we’re still in the market. We still want to service those communities that present those opportunities.
Yes. So Michael, I think they all – and I agree with everything Barry said. And I would just add with – on the municipal side, we’re still seeing the markets settle out a little bit. We still see competitors pricing at 2017 tax rates. So we’re certain that’s going to change. So as that – as the market settles and rationalizes, I think you’ll see us continue to be in that market but probably a little less so because of what Barry mentioned and the fact that the pricing has to get closer to the actual tax rates for us to get more comfortable.
Yes. Thanks for that. And maybe moving to just kind of overall balance sheet growth. How are you thinking about the remix between loans and securities as we move kind of beyond the deal closings, maybe in the back half of this year and longer term into 2019?
Ron, do you want to take that?
Yes. So Michael, it is 25%, as Randy said in his remarks. And that’s a level where we’re comfortable with. The dynamic is – it really depends on that they were a great gatherer of deposits. And so as those deposits come on, we put them into loans. But if we – hopefully, you don’t get an excess of deposits. We temporarily park them into the investment portfolio and then redeploy those into the loan. So you may see some fluctuation because it can seasonally go as high as 30%, but know that our goal is to get into the higher-yielding loans and just holding the investments temporarily to allow loan growth to catch up.
Okay. Great, thanks guys.
You’re welcome.
Thank you. And our next question comes from Matthew Clark of Piper Jaffray. Your line is now open.
Hey, good morning guys.
Good morning, Matthew.
Can you just quantify the amount of accretions in the quarter? How much it may have contributed to the margin?
I think for this quarter, it was about six basis points.
Okay. Got it. Okay. And then I think in the past, you guys have talked about particularly coming off of budgeting season for the year kind of targeted efficiency ratio. Curious what your bogey is for the year on an operating basis?
For 2018? I think we’ve been through the planning process. I think we’ll – let me – I’ll talk about the core business and then we already mentioned the impact of the tax rate. So just on a core basis, if we look at what we budgeted, we have – we are expecting to see a little bit of an improvement, continued improvement on our efficiency, kind of still within that band, though, of between 53% and 54%, somewhere in there – so I mean, 54% to 55%. So we’re going to be – we’re kind of in the high 54s right now. We would expect it to drift down a little bit. That’s without the impact of the tax cut. So now if you throw the tax cut on there, you’re going to have a higher starting point with a bit of a biased reduction but pretty minor. We continue to look for ways to get better and more efficient, as we talked about. So that will just continue and – but I think the continued progress is measured in a little bit smaller decreases than anything too large.
Okay, great. And then just thinking about the tax rate kind of beyond 2018, knowing you guys tend to take advantage of some tax credit investments. I guess, how should – how do you think about those types of investments beyond this year given the lower tax rate, maybe a little bit less attractive than they were before tax reform? Should we expect any kind of bump-up in the tax rate in 2019? Do you think you can hold that 17% to 18% beyond this year?
Well, I’ll – let me try – take a shot at that, and then I’m going to ask Ron to give you a little more color. I think the – so we’re still studying the overall effect of the tax rate. And we’re factoring in things like our acquisitions and how will that change it. Those probably put a little upward pressure on the tax rates. They come in a little less tax efficient than we are, yet we continue to look to optimize our tax position. And there’s a little reposturing going on, obviously, because we were positioned for the old tax rates pretty efficiently, and now we’re starting to look around and ask that same question under the new regime. But let me hand it over to Ron to see if he has anything he would add.
Yes. So in terms of the appetite – and I concur, of course, with Randy. There will be a slight uptick due to those acquisitions. But when it comes to the tax credits, we look at it as a dollar that is offset by a credit. And that’s how we view it. So we still have an appetite for the tax credits. We’re still waiting to see, though, how it’s going to settle out. I’ll just give an example. Last year, in the spring, low income housing tax credits were – when you were buying those, putting the equity in, prices were extremely good. Well, now that’s starting to come back. And so we’re just waiting to see how that’s going to settle out, but we still evaluate tax credit projects. We’re actually going to have potentially, I should say, more room because the acquisitions that we’re bringing on have not utilized tax credits at all. And so there’s opportunity there. So it really is, quarter-by-quarter, we evaluate the opportunity.
Okay. Thanks
Thank you. And our question comes from Andrew Liesch of Sandler O’Neill. Your line is open.
Good morning, guys.
Good morning Andrew.
Just a question regarding additional M&A. It seems like you had a lot on your plate here, but – in the near term, anyway. But what’s your appetite for more deals in 2018? Or do you think maybe 2019 is a more likely time frame where we can see another deal announced?
Yes. I think we want to manage our digestive capacity carefully. This is the big quarter for us and one of the larger deals we’ve done. I would say probably the earliest, the most likely you would see at the most aggressive would be an announcement in 2018 and a closing in 2019. Other than that, it would be difficult to see much of anything other than that happening. I’d tell you there’s – Andrew still some good conversations going on and – but we’re being clear upfront to folks, hey, we’d love to talk. But we’re probably looking at an announcement in 2018 and likely closing in 2019 at this point.
Okay, great. You’ve covered my questions. Thank you.
You bet.
Thank you. [Operator Instructions] And our next question comes from Daniel Cardenas of Raymond James. Your line is now open.
Good morning guys. Just given the impact of the munis, the portfolio is going to have on your margin and efficiency ratio, are you guys giving any thoughts, perhaps changing the composition of the securities portfolio?
Yes. Dan, this is Ron here. So the muni investments are still pretty attractive compared to some of the alternatives. I’m speaking mostly to the muni bonds. So we just continue to evaluate these as relative value. That’s the right way to frame it. And so we may see opportunities that will come along. Back to Randy’s comment, the market is still settling out, so we don’t have any plans to specifically change the composition. Some of what we already have will roll off either through maturity or being called. And then where and how do we deploy those proceeds that’s always the question we ask ourselves. So we’ll take advantage of the opportunities as the market presents itself.
No, I was just going to say, we look – so we took a hard look at the legacy, like the existing yields on these and then we tax-affected them with the new tax rate. They still are performing at a rate better than the market. So we’re – it’s a lesser contribution, but still had a very strong contribution level.
Okay. And what percentage of the muni portfolio matures in 2018?
I don’t have it.
I don’t have it either.
I can talk to you offline. I just don’t carry that number in my head.
All right, no problem. And then jumping topics, going back to M&A. Just given tax reform and the lower tax rate, have you noticed any change in seller expectations?
Yes. So on M&A – let me just back up, first of all, I would say, we don’t feel a particular great amount of pressure to do another transaction in 2018, because we’re very busy as we’ve talked about. And my comments on announcing, that’s if we can find a transaction that’s great, and we have a simple model, great banks and great markets with great people. And if we find one that fits that, we would – that would be the earliest we could do a transaction.
I think the – so the change in the tax law, I don’t – so far has not really had a big impact on discussions. I think the expectations only to the extent that their banks are more profitable, and their results and their projections are going to show that. So other than that, Dan, it hasn’t changed really the dialogue at this point too much from where it had been in the past.
Okay. Great. All my other questions have been answered. Thanks guys.
Alright, you’re welcome.
Thank you. And I’m showing no further questions at this time. I’d like to turn the conference back over to Mr. Chesler for any closing remarks.
Well, we thank everybody who called in for spending some time with us. We’re happy to answer any other questions you – we’re here, and we appreciate you again taking some time to spend with us this morning. And we wish you all a great rest of the week and a great year. So thank you.
Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. And you may all disconnect. Everyone, have a great day.