Q3 2020 Independent Bank Corp (Massachusetts) Earnings Call
[music].
Good morning, and welcome to the independent Bank Corp. Q3, Twentytwenty earnings Conference call.
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After todays presentation, there will be an opportunity to ask questions.
Oh, It's a question you May press Star then one on your telephone keypad.
It was really a question for you Pete Costar ventures.
Please note this event is being recorded.
I would now like to turn the call back over to Brad Kessel, President and CEO. Please go ahead.
Good morning.
Thank you for joining independent Bank Corporation's conference call and webcast to discuss the company's third quarter 2020 results I am Brad Kessel, President and Chief Executive Officer, and joining me is Gavin more you haven't joined our team on September 14th E. D P and Chief Financial Officer also.
So from our team we have Jim Mack Executive Vice President commercial banking and Rob Schuster, who with the hiring of Gavin has moved to a senior financial advisor role with the company.
Before we begin today's call I would like to direct you to the important information on page two of our presentation.
Typically the cautionary note regarding forward looking statements.
If anyone does not already have a copy of the press release issued by independent today, you can access it at the company's web site independent Bank Dotcom.
The agenda for todays call will include prepared remarks, followed by a question and answer session and then closing remarks.
We continue to execute on our operating plan that we share each quarter.
This plan is built around diversified and balanced growth right.
Process improvement and cost controls talent management, and an enterprise wide risk management framework.
We believe following this plan will yield consistent and improving performance metrics over many quarters and many years.
As we continue to navigate the many challenges brought on by COVID-19 pandemic we're.
We are pleased to report a very strong financial performance in the third quarter of 2020.
In fact, I would say our associates were simply amazing.
The highlights include the following.
We closed over one half billion dollars of mortgage loans, helping our customers buying new homes or refinance existing mortgage loans.
Total deposit balances grew by over $100 million.
We assisted our customers in completing and submitting PPP forgiveness applications to the SB eight.
With over 14% of outstanding balances submitted.
We remain we maintained solid asset quality metrics during the third quarter of 2020, including decreasing COVID-19 related mode loan modification balances by 80%.
As part of our ongoing branch optimization efforts, we close an additional six branch locations during the third quarter.
Bringing the year to date closures to eight.
And our total branch footprint to 60 locations.
We announced our fourth quarter planned opening of a new branch in the bright Michigan market.
Where we have had much success with the existing loan production office.
Behind the scenes our teams continue to advance our 2021 digital transformation.
Which included the third quarter rollout of a new mortgage point of sales system that leverages artificial intelligence.
And just last week, we were very pleased to announce the appointment of Dennis Archer Junior to our board of directors.
Dennis is a talented executive with a wide range of business and entrepreneurial experience.
We will be a significant contributor to our company's ongoing success.
Most importantly, we continue to effectively operate our business continuity plan to safely serve our customers and protect our employees.
Page four of our presentation lists some of the actions that we've taken since the start of the COVID-19 pandemic to protect our employees clients vendor partners and the communities we serve.
Today, our front liners continue to do an outstanding job serving our customers.
As to the approximately 38% of our total staff will continue to work remotely.
Page five of our presentation provides a good snapshot of our historical financial performance and our efforts to produce consistent.
And improved improving operating performance quarter after quarter year after year.
Turning to page six we reported third quarter 2020, net income of $19.6 million or 89 cents per diluted share.
Versus net income of $12.4 million or 55 cents per diluted share in the prior year period.
This represents increases in net income and diluted earnings per share of 57.4% and 61.8% respectively compared to 2019.
The increase in third quarter 2020 earnings as compared to 2019.
Primarily reflects increases in net interest income and non interest income.
That were partially offset by increases in the provision for loan losses, non interest expense and income tax expense.
Our mortgage banking team continues to be a key driver in our strong operating results.
Producing net gains on mortgage loans of $20.2 million up 256% over 2019, and total mortgage loan origination volume of $536.5 million.
Additionally, we continued to produce net deposit deposit net growth of $112.6 million or 3.2%.
I continue to be pleased with our asset quality metrics, where we saw a low level of early stage 30 to 89 day loan delinquencies, 0.20% at September Thirtyth 2029.
Net loan recoveries during the quarter.
A low level of nonperforming loans and nonperforming assets.
In a significant decline in the level of loan accommodations.
Despite the continued strong performance of our loan portfolios. We recorded a 1 million dollar provision during the third quarter, bringing our allowance for loan losses to $36 million or 1.44% of portfolio loans, when excluding traverse City State Bank acquired loan balances.
And our PPP loans.
For the nine months ended September 32020, the company reported net income of $39.2 million or.
Our $1.76 cents per diluted share compared to net income of $32.6 million.
Or $1.40 cents per share diluted share in the prior year period.
This represents an increase in net income and diluted earnings per share, 20.3% and 25.7% respectively compared to 2019.
Year to date, we have produced a return on average assets and return on average equity of 1.36% and 14.87%, respectively compared to 1.28% and 12.84% and 2019.
Tangible book value per share increased by 5.6% for the quarter to $15.55 per share at September Thirtyth 2020.
Page seven provides a view of our Michigan markets.
Turning to page eight we display several key economic statistics, reflecting the literal shutdown of the Michigan economy during the second quarter of 2020.
In addition to a solid housing market, we have seen noticeable improvement in statewide employment.
Yet.
There continues to be elevated levels of unemployment and at the same time labor shortages for many industries.
On page nine we provide a couple of charts, reflecting the composition of our deposit base as well as the continued growth in this portfolio, while working to effectively manage our overall cost of funds.
Since December 32019 or deposits, excluding brokered Cds have increased by $598 million.
With $113 million of this increase taking place during the third quarter.
However is very difficult to determine how much of the overall deposit increase will stay in the bank and for how long.
On page 20, we provide an update on our $2.9 billion loan portfolio.
The commercial portfolio decreased by $11.2 million during the quarter to quarter.
Mortgage loans decreased by $17.6 million and installment portfolio increased by $17.6 million.
On page 11, we have an update on our loan modifications.
Which declined to less than $60 million or just 2.1% of total portfolio loans as of September Thirtyth 2020.
With regard to the Paycheck protection program, we built an effective process to manage the high volume of applications for loans as well as the applications for loan forgiveness as of September Thirtyth, We had 2117 PPP loans.
For $261 million outstanding balances and was approximately $6.5 million of remaining unaccreted net fees related to PPP.
We expect most of these fees to be accreted into interest income over the next 15 months.
On page 13, we are displaying the concentrations or makeup of our entire commercial loan portfolio. The.
The portfolio is very granular in nature with the largest concentrations and cnine been manufacturing at 12% construction at 9% and retail at 7%.
Within the CR see our AG portfolio, the largest concentration is retail at 7%.
Our credit metrics indicate this portfolio is holding up well, including loans in those industry sectors, whose business has been more negatively impacted by the COVID-19 pandemic.
Page 14 provides an overview of our investments at September Thirtyth 2020, as well as activity during the quarter.
I'm very pleased with how well our finance team has been able to deploy the increased cash levels and very liquid high quality relatively short duration assets generating high levels of cash payments.
In terms of capital management, our capital levels continue to be strong with tangible common equity to tangible assets of 8.2% at September Thirtyth 2020.
We paid a quarterly cash dividend of 20 cents per share in August 14.
And recently declared a 20 cents dividend on October Twentyth.
Able on November 16th.
As we believe our capital levels currently support the continuation of our dividend program.
In regards to share repurchases during the first quarter of 2020, we repurchased 678000 shares through March 16th before.
Before suspending the buyback in response to the economic uncertainty brought on by the COVID-19 pandemic.
However, primarily as a result of the company's strong financial performance and improving economic conditions.
And dependent upon market and other factors.
We may begin to purchase our shares under the 2020 share repurchase plan during the last two months of the year.
At this time I would like to turn the presentation over to Gavin to share a few comments on our financials credit quality Cecil and our outlook for the fourth quarter of 2020.
Thanks, Brad and good morning, everyone I am starting at page 16 of our presentation.
As I discuss the year over year increase on our net interest income during his remarks I will focus on our margin our tax equivalent net interest margin was 3.31% during the third quarter of 2020, which was down 45 basis points from the year ago period, and down five basis points from the second quarter of 2020, I will have some more detailed calm.
Comments on this topic in a moment average interest, earning assets were $3.89 billion in the third quarter of 2020 compared to $3.29 billion in the year ago quarter and $3.66 billion in the second quarter of 2020.
Page 17 contains a more detailed analysis of the linked quarter increase in net interest income and a decline in the net interest margin like many other banks, our third quarter net interest margin was adversely impacted by three factors the significant decrease in market interest rates, a surge in deposits and liquidity and low relative.
Sales on the PPP loan portfolio.
Yet we were able to overcome these challenges and post year over year and linked quarter increases in net interest income we.
We will comment more specifically on our outlook for net interest income and the net interest margin for the balance of 2020 later in the presentation.
Moving on to page 18, noninterest income totaled $27 million in the third quarter of 2020 as compared to $12.3 million in the year ago quarter and $20.4 million in the second quarter of 2020 of course. The story here is our exceptionally strong mortgage banking revenues third quarter 29.
Net gains on mortgage loans increased to $20.2 million compared to $5.7 million in the third quarter of Knight team. The increase in these gains was due to an increase in mortgage loan sales volume and the mortgage loan pipeline as well as stronger loan sale profit margins.
Mortgage loan application volume was very strong in the third quarter 20 and continues to be strong at the start of the fourth quarter as we have both a solid purchase market and refinanced volumes continue to be strong due to lower interest rates.
Partially offsetting these strong gains was a $644000 loss on mortgage loan servicing due to a $1.1 million or four cents per diluted shares after tax decrease in the fair value due to price and a $1.3 million decrease due to pay downs of capitalized mortgage loan servicing rights in the third.
20.
As detailed on page 19, our non interest expense totaled $33.6 million in the third quarter of 2020 as compared to $27.8 million in the year ago quarter and $27.3 million in the second quarter of 2020 performance based compensation expenses increased 4.5 million.
Dollars over the second quarter 2000, primarily due to an increase in the accrual for the annual management incentive compensation plan. This increase is the result of significant improvements in performance metrics, reflecting the strong third quarter 20 results. The third quarter of 2020 included.
0.6 $4 million of conversion related expenses.
We will have more comments on our outlook for non interest expense later in the presentation.
Page 20 provides data on nonperforming loans.
Other real estate nonperforming assets early stage delinquencies total.
Total non performing assets were $11.7 million or point to.
8% of total assets at September 32020, nonperforming loans decreased by $2.1 million or 17% during the third quarter of 2020.
Loans 30 to 89 days delinquent decreased to $5.8 million compared to $8.1 million in the second quarter of two point. This marks the second consecutive quarter of improvement page.
Page 21 provides some additional asset quality data, including information on new loan defaults and.
And on classified assets page 22 provides information on our TDR portfolio that totaled $48.7 million at September Thirtyth 2020. This portfolio continues to perform very well with 93.7% of these loans performing 92.7% of these loans being current at September Thirtyth 2012.
Okay.
Moving on to page 23, we recorded a provision for loan loss losses expense of $1 million in the third quarter 20, compared to a credit of $300000 in.
In the year ago quarter, and a provision expense of $5.2 million in the second quarter of 2020.
The single most significant factor driving the higher year to date provision for loan loss in 2020 was a $10.7 million.
Increase in the qualitative subjective portion of the allowance for loan losses. This increase principally reflects the unique challenges and economic uncertainty, resulting from the Coca 19 pandemic and the potential impact on the loan portfolio.
The allowance for loan losses totaled $35.8 million or 1.25% of portfolio loans at September Thirtyth 2020, this ratio increases to 1.44% when it when excluding the PPP loans and remaining traverse City State Bank acquired loans.
Page 24 provides an analysis of our allowance for loan losses under the incurred loss methodology in the Cecil methodology EPS at September Thirtyth 2020, our calculated as if Cecil allowance at September Thirtyth 2020 was approximately $44.8 million. This indicates that given the midpoint of our AD.
Day, one seasonal impact of $9 million that the provision for loan losses in the first nine months of 2020 under Cecil would have been similar to what we recorded under the incurred loss methodology.
Page 25 is our update for the remainder of 2020 as well as comparison of our actual performance during the year to original outlook that we provided back in January 2020. As you can appreciate many of the factors that shaped our original outlook has changed dramatically given the economic upheaval from the COVID-19 pandemic.
Loans decreased $11.2 million in the quarter, but up 130.5 million from the year ago period, due primarily to PPP balances.
The year end total portfolio loan balances in the fourth quarter 20 activity will primarily reflect the pace of ERP loan forgiveness. Despite the aforementioned projected fourth quarter 20 declining portfolio loans, we expect the net interest margin to be relatively steady over the last quarter of 2020 due to the following factors.
Lessening impact of lower interest rates and increasing the overall average yield of the PPP loan portfolio due to pay downs, resulting an acceleration in the accretion of net fees for the appointment of excess liquidity from the deposit surge into securities available for sale during the third quarter.
We expect relatively steady interest rates in the last quarter of 2020 as compared to the third quarter of 2020, the provision for loan loss losses is very difficult to forecast given the economic uncertainty that we are facing however, we have seen an 80% decline in total loan forbearance balances in the third quarter to 40 compared to the.
Second quarter 2000. In addition asset quality metrics presently remained solid current year to date provision is equal to 0.6% annualized of total portfolio loans, our fourth quarter provision will primarily depend on the level of net loan charge offs loan defaults and neutral Barents activity, which were all low.
So in the third quarter of 20.
We expect non interest income to average.
A bit above the high end of the original forecasted range in the fourth quarter, excluding any volatility associated with changes due to pricing the fair value of the MSR ours.
Mortgage loan origination activity and application volumes have remained strong in October, but we do anticipate a seasonal slowdown in purchase activity and some cooling of the refinance activity that activity as we move towards the end of the year.
Noninterest expense was above the high end of the range in the third quarter of 20 as a result of an increase accrual for incentive compensation due to strong year to date through.
Year to date financial performance and conversion related expenses, we expect non interest expense to be slightly above the high end of the range of the quarterly rate high end of the quarterly range of $27.5 million to $28.5 million in the fourth quarter of 2020.
Our effective income tax rate was 19.6% third quarter 20, which was generally in line with our forecast and thus we reaffirm our guidance for 20% effective income tax rate.
Finally, as Brad mentioned after pausing the share repurchase activity on March 16, 2020, we anticipate that repurchase activity will be reactivated subject to market conditions and other factors effective October thirtyth 2020.
That concludes my prepared remarks, and I would like now to turn the call back over to Brad.
Thanks, Kevin.
In the first three quarters of 2020.
They have been an extraordinary period of time for all of US as I mentioned at the beginning of my remarks, our team continues to execute and the initial as reflected on slide 26 of our presentation. In addition to new initiatives as a result of the pandemic.
We will continue to move for both these planned and unplanned initiatives.
Continuing to protect the health and wellbeing of our employees, our customers and our community.
At this point, we would now like to open up the call for questions.
We will now begin the question and answer session.
Also a question you May press Star then one on your telephone keypad Tim.
If you are using a speakerphone.
Pick up your handset before pressing any keys.
So it's really a question.
These crestar than to have.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Brandon Mosul from Piper Sandler. Please go ahead.
Hey, good morning, everybody welcome yet as everybody doing.
Good morning, Good morning, we're doing great. Thank you.
Yes.
Just want to start off on the outlook for Phoenix here I.
I appreciate the guidance for a bit above the high end of the range next quarter, but that implies a pretty substantial drop off in the fourth quarter.
I'm, assuming that sits on assumed lower mortgage activity, but you guys did say that activity still remains pretty strong quarter to date.
And I guess the outlook for originations in the fourth quarter industry wide, it's still pretty healthy.
So just help us understand.
If there's something else, that's driving that large expected decline or if you're just being conservative.
Given how healthy mortgage has been so far this year.
Yes. Thanks.
Yes, I think you hit on it there.
Or point out first the that that expenses.
Relative to the performance.
Of the mortgage book, but I think I would agree with you maybe being a little conservative we do anticipate a slowdown just season in seasonality.
Of the mortgage production.
Commit coming in they are coming to the end of the year.
So I think we.
We would agree that.
If the pipeline.
Performs like it did in third quarter will be higher.
But we are a little conservative on our own.
Duplicating the third quarter.
Okay perfect.
And then one more for me just on the margin outlook.
I'm curious if the outlook for stable does that contemplate the five basis point benefit this quarter from accelerated discount accretion and then also how much PTP forgiveness and related accelerated keys is roughly 18 to that outlook for stable margin.
Yes, so the assumption in the stable margin would be that the pcps will continue to the fee accretion continued at its current pace. So clearly if we see.
Significant pickup in those for.
The loan forgiveness that would have a material impact.
And we did factor in the five basis points on the the loan accretion.
Perfect. Thank you for taking my questions.
Thank you.
The next question comes from Damon Delmonte from KBW. Please go ahead.
Hey, good morning, guys has gone today.
Hi, Damon good.
Just to quickly.
Quickly follow up on the margin question, so what would be the impact on the margin from from PPP This quarter.
It was.
Five basis points.
Okay, and then any impact from Accretable yield was a similar level.
Oh, Im sorry, fewer you're referencing the.
Like I was there a drag on the margin from from the PPP loans, because they were generally lower yielding than the rest of the portfolio.
Yes, so yes.
Yes on page 17.
The the accreted discount.
On.
Yes.
Yes. So we were we were five basis points.
David Let me, let me locate that for you and come back to you on that.
Yes, no problem no problem.
With regards to five.
Loan growth our lack of loan growth. This this quarter.
Dominant was up can you talk a bit about what was driving the growth in the installment and then kind of converting what was.
Causing the commercial balances to decline.
Okay, David so on the installment side, we saw a very strong quarter in our indirect.
Area in EPS Marine and RV.
And.
That that momentum really continued out of the tail end of the.
Second quarter Tom.
And.
Hi.
I would envision that.
Seasonally that will taper off as we.
Close out the year and then when the the shows began in early January net that would pick back up.
Over on the commercial side.
No.
It's early earlier in the year, we are all focused on PPP.
As we move to the.
Third quarter, we sort of got past that other than we're still obviously very active on the TPP forgiveness, but we're starting to see.
Some act.
Activity improvement.
In the pipeline the pipeline for the commercial book is up third.
Third quarter over.
Second quarter end.
And in our comment on mortgage and then I'll turn it over to Jim because I have Jim Matt can he can probably give a little bit more insight in.
In terms of the commercial book and then finally on on the mortgage book while it.
Decline in balances.
A small degree obviously, what we had there was.
Most of what we originated was saleable saleable product and I think one thing that's interesting.
In the last year.
The Freddie Fannie.
Definition of a jumbo mortgage increased substantially and now were a little over 500000 in what qualifies as a jumbo mortgage so some of what in the past had been.
On the bank's books as a portfolio mortgage has been refied out now into the secondary market. So.
And then Jim any any further color on the commercial pipeline and outlook.
Well part of the pay down which is good news is we did have some reduction on the on the watch credits non accruals and in July so that was a good pay down.
The other good news.
August September now through October, we basically remain flat and our commercial portfolio. So we are producing business does to cover run off and extra pay off let's challenge. It continues to be there's just liquidity with our customers people being conservative in sales, we're not seeing the same demand for loans within our customer base, but it is.
It has grown in the last three months.
So can do you happen to have numbers on Olic line utilization in the commercial portfolio and is very common in key those.
The pay down across the industry as you kind of went into the beginning part of the of the pandemic have you started to see a rebound in and people drawing back down on those lines.
Yeah, we haven't really seen.
That happening yet so there is a tremendous drop in the line usage from March through June and then we did see a little uptick for a month or so that came back down to our line utilization stayed relatively flat here in the third quarter.
This is Jim we were at quarter end, excluding equipment and construction, we are about 30% and those and we're up to about 40% less correction.
Okay.
Alright, great and.
And then I guess with respect to the provision and the outlook for.
The fourth quarter and counting and beyond.
You do you feel comfortable with the reserve level, just given the underlying credit trends and.
Is there a way to kind of perhaps what you could expect for provision in the fourth quarter.
Yes. So this is Gavin I think well so if the trend continues we anticipate.
Relatively.
The lower level of provision through year end.
Of course that's.
That can be impacted bye bye.
Different things emerging credit issues, but if the trend continues we anticipate EPS.
Finishing out the year lower level.
Okay great.
All right. That's all that's all it add thank you very much. Thanks.
Thanks Damon.
The next question comes from Ryan Griffin from D.A. Davidson. Please go ahead.
Hey, Good morning look this is Ryan on for Russell.
Hi, Ryan.
Hey, I just had a quick question for the noninterest expense guide going forward.
Is the modestly higher expenses, primarily driven by the mortgage related comp or are there any other permanent factors driving that.
The.
The fourth quarter.
Higher would be.
Predominantly accruing at the higher level for our.
Annual management incentive compensation plan, so what we saw in the third quarter.
As a as a catch up as we.
We're.
Bidding. So if you go to our our proxy Ryan you can see that our plan has four categories.
For the incentive plan its its EPS deposit growth efficiency and nonperforming assets all four categories we had.
Quite a bit a catch up here in the third quarter and.
And so I think we would.
Again have.
Just a higher level of not so much catching up.
But thats the driver in the.
Fourth quarter see the higher expense on the mortgage production actually.
Again to get run through gains because most of that production is sold into the secondary market.
[noise] cool along just one more on the classified assets.
It looks like you had a pretty meaningful drop quarter over quarter are you able to talk on some of the moving parts there anything coming out of that bucket going forward.
So.
Tim I don't know if you want to comment there.
Well, we I mean, we continue to have good credit quality metrics and we have seen improvement there I really don't lights project things coming out of there necessarily in the fourth quarter, but we feel very comfortable in our credit metrics and credit quality at the moment.
[noise]. So so we dropped from.
31 million to 21 million.
From the third second quarter to third quarter.
And.
I think theres that was probably just a handful of all by clean up on a couple of credits yet so.
All in we I guess when you look at the chart it looks like a a material amount, but the fact is we continue to have very low levels of classified assets at 6%.
[noise] [noise] almost one more touching back on the loan growth.
I know you gave some commentary on it earlier, but I was wondering if any other thoughts on you know different pockets of strength heading into 2021.
Well I I think.
Yes first of all projections on 2021 at this point.
We haven't we're not really in a position to say.
Well, we think is going to happen.
Theres still a lot of up.
Uncertainty.
And.
I think in the in the coming weeks quarter, we'll have a better feel.
I would say, though it feels like.
Things are getting better.
In our in our markets I'd say.
In the commercial side.
We're hearing good things from our customer base Jim.
Yes pleased with their performance so far through the pandemic, yet, but its very difficult at this point too.
To project with the the overall loan growth will be for 2021.
Got it thank you for taking my questions.
Sure.
The next question comes from Kevin Swanson from the Haters. The group. Please go ahead.
Hi, guys.
Hi, Kevin.
I appreciate the.
The expense color and guidance just curious on the other side of that could you walk us through any.
Older technology initiatives or pushes that you're you're doing for the franchise and in particular I would say.
On the branch closures that you guys have done.
So that's.
Thats a great question and I did reference are well.
When we called digital transformation 2021 in my prepared remarks.
So we have a lot going on and.
I think in a nutshell.
At the end of 20.
19, we made the decision to change core providers.
And move to a new partner and.
That.
Changeover is in process.
As we speak so much of the first half of 2020, we we spent on really what we call the the system design.
And all in all it systems integrate interface with each other.
And.
And then we had a couple of early applications going live here in.
2021 of those was a general ledger system.
A second one will be our call center.
And here in the third quarter.
We actually.
Implemented a new mortgage.
Mortgage point of sales system and.
Under provided by a firm called blend and the blend technology.
Really leverages artificial intelligence and enables us to streamline the the application process.
And and really reduce the number of touches and shorten the overall.
After close time so.
Those are some of the highlights that the core system actually.
Will.
Convert over in.
Early second quarter.
2021.
Beyond that we continue and we have been investing in our our branch infrastructure.
In terms of ATM technology, we've got some plans and items and.
You know that it's an ongoing reinvestment in into our franchise hopefully that gives you a little color.
That's helpful. Thank you.
And then looking at the I guess, an environment from lower rates for longer.
Again some of this strong success you guys have added adding deposits and maybe the prospect for loan growth a little bit lighter in the past is there any change to I guess, what the value of a core deposit relationship is in your mind.
[laughter].
At all.
That's a great question and.
And independent we have.
And continue and we've always believed.
And gathering core deposits here regardless of.
Where we're at in the cycle I mean, we had this coming out of 22000.
Nine and.
Through a 14.
15, when rates are really low and people in the market of backing off of corn and.
So a core deposits, we will continue to be a an annual goal for us.
And.
Theres Theres no doubt that.
It does impact the current.
Branch profitability Formula if you will.
But.
We think that going forward.
The core deposit base is the true franchise.
Franchise value for IBCP.
Okay, Thanks very healthy.
The next question comes from coal has ellich from Boenning and Scattergood. Please go ahead.
Good morning.
Good morning, good morning.
It's kind of quick questions one was on.
Baseball analogy what inning of the re Fi them do you think we're in right now.
Yeah.
Oh, My Oh Wow.
That's a great question.
Just sort of a correlating out loud here you know we were very strong even before the pandemic.
And then we.
So you know.
The fed.
Take action loosening and drop rates to near zero.
And then.
Continued to to roll.
You know I think when we look at 2021.
In our EPS, albeit I said earlier is difficult to forecast overall loan growth.
When we look at 2021 on on mortgage originations, we think there will be some type of pullback.
Pull back from 2020, but we think will still be higher than.
You know, maybe what a normal origination.
Period as so.
I don't know if that helps a little bit, but I think there continues to be some level of.
Of re Fi Hum.
Let me ask you if you refinanced yet [laughter].
Only twice.
Okay, [laughter], where did you do it again.
Not right now no.
No Okay alright.
But I think you're very typical people have done it at least once maybe but there still are quite a few customers out there that have hung on.
To their current rates.
Got it thanks.
And then other one I had.
Another tough question.
The Michigan economy.
What are the chances rods it.
There are more onerous restriction is kind of reading.
Reinstated on on the economy and visits is itself and how do you prepare for that and I guess, what what's your sense as far as I'm, the the likelihood of that and in the in the end they give and take of that.
No. That's a great question, so I am not sure if you're familiar but.
A few weeks back.
The Michigan Supreme Court.
Ruled that the governor had overreached and.
Some of the.
Stay at home order.
And.
And.
And so with that there's now really.
Position and in our state capital where the.
Governor needs to work with the legislature on sort of managing that effort prospectively now.
The Michigan State Health Department as essentially.
Laid out.
Slide lines at a high level in terms of you know stay.
Staying at home or a mask social distancing and so on so I.
Right.
I'm hopeful that we don't grow back to that.
The extremes that we had before.
I think the fast act.
As far as if you know just each one of us.
Is smart about you know respecting the individual next to it so.
I can't tell you for sure that we're not going to go back but I am.
I'm very hopeful that that we don't go go back like we were in the second quarter.
Great Thanks for that.
Yeah.
The next question comes from Brandon No Salt from Piper Sandler. Please go ahead.
Hey, guys just a follow up for me on C., so adoption so.
So I believe that as a bank that has to lead you guys need to adopt by by the end of the year.
So if that is indeed the case I mean, he is the best way to think about the impact for you guys just to look at that $8 million to $10 million and you add this as its scenario and run that through to retained earnings and then into the reader or is there another way we should be thinking about it.
You got it.
Yes, Eric Thanks.
This concludes our question and answer session.
I would like to turn the conference back over to Brad Kessel for any closing remarks.
I would like we would like to thank each of you for your interest in independent Bank Corp. and for joining us on today's call.
I wish each of you a great day.
The conference has now concluded.
Thank you for attending today's presentation.
You may now disconnect.
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