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Independent Bank Corp (IBCP -1.38%)
Q3Â 2020 Earnings Call
Oct 27, 2020, 11:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning, and welcome to the Independent Bank Corporation Q3 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.
I would now like to turn the conference over to Brad Kessel, President and CEO. Please go ahead.
William B. Kessel -- President and Chief Executive Officer
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 Mohr. Gavin joined our team on September 14 as EVP and Chief Financial Officer. Also from our team, we have Jim Mack, Executive Vice President, Commercial Banking, and Rob Shuster, 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 2 of our presentation, specifically, 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 website, independentbank.com. The agenda for today's 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, process improvement and cost controls, talent management, and an enterprisewide 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 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 $0.5 billion [Phonetic] of mortgage loans, helping our customers buy 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 SBA, with over 14% of outstanding balances submitted. We maintained solid asset quality metrics during the third quarter of 2020, including decreasing COVID-19-related loan modification balances by 80%.
As part of our ongoing branch optimization efforts, we closed 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 Brighton, 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-sale system that leverages artificial intelligence. And just last week, we were very pleased to announce the appointment of Dennis Archer Jr. to our Board of Directors. Dennis is a talented executive with a wide range of business and entrepreneurial experience, who 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 4 of our presentation lists some of the actions that we have 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 do the approximately 38% of our total staff who continue to work remotely.
Page 5 of our presentation provides a good snapshot of our historical financial performance and our efforts to produce consistent and improving operating performance quarter-after-quarter, year-after-year. Turning to Page 6, we reported third quarter 2020 net income of $19.6 million or $0.89 per diluted share versus net income of $12.4 million or $0.55 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, reducing 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-day to 89-day loan delinquencies 0.20% at September 30, 2020, net loan recoveries during the quarter, a low level of non-performing loans and non-performing assets, and a significant decline in the level of loan accommodations. Despite the continued strong performance of our loan portfolios, we recorded a $1 million 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 30, 2020, the Company reported net income of $39.2 million or $1.76 per diluted share compared to net income of $32.6 million or $1.40 per share -- diluted share in the prior year period. This represents an increase in net income and diluted earnings per share of 20.3% and 25.7% respectively compared to 2019. Year-to-date, we have produced a return on average assets and a return on average equity of 1.36% and 14.87% respectively compared to 1.28% and 12.84% in 2019. Tangible book value per share increased by 5.6% for the quarter to $15.55 per share at September 30, 2020.
Page 7 provides a view of our Michigan markets. Turning to Page 8, 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 9, 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 30, 2019, our deposits, excluding brokered CDs, have increased by $598 million, with $113 million of this increase taking place during the third quarter. However, it is very difficult to determine how much of the overall deposit increase will stay in the bank and for how long.
On Page 20 [Phonetic], we provide an update on our $2.9 billion loan portfolio. The commercial portfolio decreased by $11.2 million during the quarter, mortgage loans decreased by $17.6 million, and the 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 30, 2020.
With regard to the Paycheck Protection Program, we've built an effective process to manage the high volume of applications for loans as well as the applications for loan forgiveness. As of September 30, we had 2,117 PPP loans for $261 million outstanding balances, and there 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 portfolio is very granular in nature with the largest concentrations in C&I being manufacturing at 12%, construction at 9%, and retail at 7%. Within CRE 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 with the COVID-19 pandemic.
Page 14 provides an overview of our investments at September 30, 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 in 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 30, 2020. We paid a quarterly cash dividend of $0.20 per share on August 14 and recently declared a $0.20 dividend on October 20, payable on November 16 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 678,000 shares through March 16 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, CECL, and our outlook for the fourth quarter of 2020.
Gavin A. Mohr -- Executive Vice President-Chief Financial Officer
Thanks, Brad, and good morning, everyone. I am starting at Page 16 of our presentation. Brad discussed the year-over-year increase in 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 is down 45 basis points from the year ago period and down 5 basis points from the second quarter of 2020. I will have some more detailed 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; a significant decrease in market interest rates; a surge in deposits and liquidity; and low relative yields 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 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, non-interest 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 '20 net gains on mortgage loans increased to $20.2 million compared to $5.7 million in the third quarter of '19. 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 refinance volumes continue to be strong due to lower interest rates. Partially offsetting these strong gains was the $644,000 loss on mortgage loan servicing due to a $1.1 million or $0.04 per diluted share 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 quarter of '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 expense increased $4.5 million over the second quarter of '20, primarily due to an increase in the accrual for the annual management incentive compensation plan. This increase is a result of significant improvements in performance metrics, reflecting the strong third quarter '20 results. The third quarter of 2020 included $0.64 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 non-performing loans, other real estate, non-performing assets, early stage delinquencies. Total non-performing assets were $11.7 million or 0.28% of total assets at September 30, 2020. Non-performing loans decreased by $2.1 million or 17% during the third quarter of 2020. Loans 30-day to 89-day delinquent decreased to $5.8 million, compared to $8.1 million in the second quarter of '20. This marks the second consecutive quarter of improvement.
Page 21 provides some additional asset quality data, including information on new loan defaults and on classified assets. Page 22 provides information on our TDR portfolio that totaled $48.7 million at September 30, 2020. This portfolio continues to perform very well with 93.7% of these loans performing, 92.7% of these loans being current at September 30, 2020.
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 $300,000 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 COVID-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 30, 2020. This ratio increases to 1.44% 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 and the CECL methodology at September 30, 2020. Our calculated As If CECL allowance at September 30, 2020 was approximately $44.8 million. This indicates that given the midpoint of our As If day one CECL impact of $9 million that the provision for loan losses in the first nine months of 2020 under CECL 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 the original outlook that we provided back in January 2020. As you can appreciate, many of the factors that shaped our original outlook have changed dramatically, given the economic upheaval from the COVID-19 pandemic. Loans decreased $11.2 million in the quarter, but are up $130.5 million from the year ago period due primarily to PPP balances. The year-end total portfolio loan balance in the fourth quarter '20 activity will primarily reflect the pace of PPP loan forgiveness. Despite the aforementioned projected fourth quarter '20 decline in 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; an increase in the overall average yield of the PPP loan portfolio due to pay-downs, resulting in acceleration in the accretion of net fees; the deployment 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 losses is a 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 of '20 compared to the second quarter of '20. In addition, asset quality metrics presently remain 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 new forbearance activity, which were all low in the third quarter of '20.
We expect non-interest income to average a bit above the high-end of their original forecasted range in the fourth quarter, excluding any volatility associated with changes due to price in the fair value of the MSRs. Mortgage loan origination activity in application volumes have remained strong in October, but we do anticipate a seasonal slowdown in purchase activity and some cooling of the refinance activity as we move toward the end of the year. Non-interest expense was above the high-end of the range in the third quarter of '20 as a result of an increased accrual for incentive compensation due to strong year-to-date financial performance and conversion-related expense. We expect non-interest expense to be slightly above the high-end of the range of the quarterly -- 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 30, 2020.
That concludes my prepared remarks and I would like now to turn the call back over to Brad.
William B. Kessel -- President and Chief Executive Officer
Thanks, Gavin. 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 on the initiatives reflected on Slide 26 of our presentation in addition to new initiatives as a result of the pandemic. We will continue to move forward both these planned and unplanned initiatives, while continuing to protect the health and well-being of our employees, our customers, and our community.
At this point, we would now like to open up the call for questions.
Questions and Answers:
Operator
[Operator Instructions] The first question comes from Brendan Nosal from Piper Sandler. Please go ahead.
Brendan Jeffrey Nosal -- Piper Sandler & Co. -- Analyst
Hey, good morning, everybody. Welcome, Gavin. How's everybody doing?
Gavin A. Mohr -- Executive Vice President-Chief Financial Officer
Good morning.
William B. Kessel -- President and Chief Executive Officer
Good morning. We're doing great. Thank you.
Brendan Jeffrey Nosal -- Piper Sandler & Co. -- Analyst
I just want to start off on the outlook for fees here. 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's on assumed lower mortgage activity, but you guys did say that activity so far remains pretty strong quarter-to-date, and I guess, the outlook for originations in the fourth quarter industrywide is still pretty healthy. So, just help us understand if there is 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.
Gavin A. Mohr -- Executive Vice President-Chief Financial Officer
Yeah, thanks. Yeah, I think you hit on it there. I'll point out first that expense is 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 in seasonality of the mortgage production coming into the end of the year. So, I think we would agree that if the pipeline performs like it did in the third quarter, we'll be higher, but we are little conservative on duplicating the third quarter.
Brendan Jeffrey Nosal -- Piper Sandler & Co. -- Analyst
Okay, perfect. And then one more from me just on the margin outlook. I'm curious if the outlook for stable does that contemplate the 5 basis point benefit this quarter from the accelerated discount accretion. And then also, how much PPP forgiveness and related accelerated fees is roughly baked into that outlook for stable margin?
Gavin A. Mohr -- Executive Vice President-Chief Financial Officer
Yeah. So the assumption of the stable margin would be that the PCPs will continue to -- the fee accretion continued its current pace. So clearly, if we see a significant pick up in those loan forgiveness, that would have a material impact. And we did factor in the five basis points on the loan accretion.
Brendan Jeffrey Nosal -- Piper Sandler & Co. -- Analyst
Perfect. Thank you for taking my questions.
Gavin A. Mohr -- Executive Vice President-Chief Financial Officer
Thank you.
Operator
The next question comes from Damon DelMonte from KBW. Please go ahead.
Damon DelMonte -- Keefe Bruyette & Woods Inc. -- Analyst
Hey, good morning, guys. How's going today?
William B. Kessel -- President and Chief Executive Officer
Hi, Damon. Good.
Damon DelMonte -- Keefe Bruyette & Woods Inc. -- Analyst
Just to quickly follow-up on the margin question. So, what was the impact on the margin from PPP this quarter?
Gavin A. Mohr -- Executive Vice President-Chief Financial Officer
It was 5 basis points.
Damon DelMonte -- Keefe Bruyette & Woods Inc. -- Analyst
Okay. And then the impact from accretable yield was at similar level or no?
Gavin A. Mohr -- Executive Vice President-Chief Financial Officer
I'm sorry, you were referencing the...
Damon DelMonte -- Keefe Bruyette & Woods Inc. -- Analyst
Was there a drag in the margin from the PPP loans because they were generally lower yielding than the rest of the portfolio?
Gavin A. Mohr -- Executive Vice President-Chief Financial Officer
Yeah. On Page 17, the accreted discount on -- excuse me, yeah, so we were 5 basis points -- Damon, let me locate that for you and come back to you on that.
Damon DelMonte -- Keefe Bruyette & Woods Inc. -- Analyst
Yeah, no problem, no problem. With regards to loan growth or lack of loan growth this quarter, installment was up. Could you talk a little bit about what was driving the growth in the installment, and then kind of conversely, what was causing the commercial balances to decline?
William B. Kessel -- President and Chief Executive Officer
Okay, Damon. So, I mean, installment side, we saw a very strong quarter in our indirect area and that's marine and RV, and that momentum really continued out of the tail-end of the second quarter. And I would envision that seasonally that will taper off as we close out the year and then when the shows begin in early January, that would pick back up. Over on the commercial side, it early -- earlier in the year, we were all focused on PPP. As we moved to the third quarter, we sort of got past that. Other than, we're still obviously very active on the PPP forgiveness. But we're starting to see some activity improvement in the pipeline. The pipeline for the commercial book is up third quarter over second quarter, and I'll comment on mortgage, and then I'll turn it over to Jim, because Jim Mack, he could probably give a little bit more insight in terms of the commercial book.
And then, finally, on the mortgage book, well, it declined in balances a small degree. Obviously, what we had there was most of what we originated were 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 we're a little over $500,000 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 further color on the commercial pipeline and outlook?
Dennis J. Mack -- Executive Vice President and Chief Lending Officer
Well, part of the pay-down, which is good news is, we did have some reduction on the watch credits non-accruals in July. So that was a good pay-down. The other good news, August, September, now through October, we basically remain flat in our commercial portfolio. So we are producing business to cover run off and actual pay off. But the challenge that continues to be there is just liquidity with our customers, people being conservative, and so we're not seeing the same demand for loans within our customer base, but it is -- it has grown in the last three months.
Damon DelMonte -- Keefe Bruyette & Woods Inc. -- Analyst
So, could you -- do you happen to have numbers on like line utilization in a commercial portfolio? I know it's very common to see those be paid down across the industry as you kind of went into the beginning part of the pandemic. Have you started to see a rebound and people drawing back down on those lines?
Dennis J. Mack -- Executive Vice President and Chief Lending Officer
Yeah. We haven't really seen that happening yet. So there was a tremendous drop in the line usage from March through June. And then we did see a little uptick for a month or so and that it came back down. So our line utilization stayed relatively flat here in the third quarter.
William B. Kessel -- President and Chief Executive Officer
Jim, we were at quarter-end, excluding equipment and construction, we're about 30%. If we add those in, we're up to about 40%?
Dennis J. Mack -- Executive Vice President and Chief Lending Officer
That's correct.
Damon DelMonte -- Keefe Bruyette & Woods Inc. -- Analyst
Okay. All right. Great. And then I guess, with respect to the provision in the outlook for the fourth quarter and kind of -- and beyond, do you feel comfortable with the reserve level, just given the underlying credit trends? And is there a way to kind of plan out what you could expect for a provision in the fourth quarter?
Gavin A. Mohr -- Executive Vice President-Chief Financial Officer
Yeah. So, this is Gavin. I think, well, so if the trend continues, we anticipate a relatively lower level of provision through year-end. Of course, that can be impacted by different things, emerging credit issues, but if the trend continues, we anticipate finishing out the year at a lower level.
Damon DelMonte -- Keefe Bruyette & Woods Inc. -- Analyst
Okay, great. All right. That's all that I had. Thank you very much.
William B. Kessel -- President and Chief Executive Officer
Thanks, Damon.
Operator
The next question comes from Ryan Griffin from D.A. Davidson. Please go ahead.
Ryan Griffin -- D.A. Davidson & Co. -- Analyst
Good morning. This is Ryan on for Russell.
William B. Kessel -- President and Chief Executive Officer
Hi, Ryan.
Ryan Griffin -- D.A. Davidson & Co. -- Analyst
Hey, I just had a quick question. For the non-interest expense guide going forward, is the modestly higher expense guide primarily driven by the mortgage-related comp? Or are there any other pertinent factors driving that?
William B. Kessel -- President and Chief Executive Officer
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 was a -- is a catch-up as we were bidding. So, if you go to our proxy, Ryan, you can see that our plan has four categories for the incentive plan. It's EPS, deposit growth, efficiency, and non-performing assets. All four categories, we had quite a bit of catch-up here in the third quarter. And so, I think we would again have just a higher level not so much catching up, but that's the driver in the fourth quarter. The higher expense on the mortgage production actually is going to get run through gains because most of that production is sold into the secondary market.
Ryan Griffin -- D.A. Davidson & Co. -- Analyst
Great. And then just one more in 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?
William B. Kessel -- President and Chief Executive Officer
So, Jim, I don't know if you want to comment there.
Dennis J. Mack -- Executive Vice President and Chief Lending Officer
I mean, we continue to have good credit quality metrics and we have seen improvement there. I really don't like to project things coming out of there necessarily in the fourth quarter, but we feel very comfortable on our credit metrics and credit quality at the moment.
William B. Kessel -- President and Chief Executive Officer
So, we dropped from $31 million to $21 million from the third -- second quarter to the third quarter. And I think that was probably just a handful of cleanup couple of credits. So, all-in, we -- I guess when you look at the chart, it looks like a material amount, but the fact is, we continue to have very low levels of classified assets at 6%.
Ryan Griffin -- D.A. Davidson & Co. -- Analyst
Okay. And then just 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 different pockets of strength heading into 2021.
William B. Kessel -- President and Chief Executive Officer
Well, I think first of all, projections on 2021 at this point, we haven't -- we're not really in a position to say what we think is going to happen. There's still a lot of uncertainty. And I think in the coming weeks, quarter, we'll have a better feel. I would say though, it feels like things are getting better in our markets. I'd say, in the commercial side, we're hearing good things from our customer base, Jim?
Dennis J. Mack -- Executive Vice President and Chief Lending Officer
Yes. Pleased with their performance so far through the pandemic.
William B. Kessel -- President and Chief Executive Officer
Yeah. But it's very difficult at this point to project what the overall loan growth would be for 2021.
Ryan Griffin -- D.A. Davidson & Co. -- Analyst
Got it. Thank you for taking my questions.
William B. Kessel -- President and Chief Executive Officer
Sure.
Operator
The next question comes from Kevin Swanson from the Hovde Group. Please go ahead.
Kevin Swanson -- Hovde Group LLC -- Analyst
Hi, guys.
William B. Kessel -- President and Chief Executive Officer
Hi, Kevin.
Kevin Swanson -- Hovde Group LLC -- Analyst
I appreciate the expense color and guidance. Just curious on the other side of that, could you just walk us through any digital or technology initiatives or pushes that you're doing for the franchise? And in particular, what are [Phonetic] some of the branch closures that you guys have done?
William B. Kessel -- President and Chief Executive Officer
So, that's a great question, and I did reference, what we call, digital transformation 2021 in my prepared remarks. So, we have a lot going on. And I think in a nutshell, at the end of 2019, 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 spent on really what we call the system design and all the systems integrate -- interface with each other.
And then we had a couple of early applications going live here in 2020. One 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 point of sale system and underprovided by a firm called Blend, and the Blend technology really leverages artificial intelligence and enables us to streamline the application process and really reduce the number of touches and shorten the overall app to close time. So, those are some of the highlights. The core system actually will convert over in early second quarter of 2021. Beyond that, we continue and we have been investing in our branch infrastructure. In terms of ATM technology, we've got some plans on ITMs. And -- it's an ongoing reinvestment into our franchise. Hopefully that gives you a little color.
Kevin Swanson -- Hovde Group LLC -- Analyst
That's helpful. Thank you. And then looking at the, I guess, environment for lower rates for longer, again, some of those strong success you guys have had at adding deposits and maybe the prospects for loan growth a little bit wider in the past. Is there any change to I guess what the value of a core deposit relationship is in your mind?
William B. Kessel -- President and Chief Executive Officer
That's a great question. And at Independent, we have and continue and we always believe in gathering core deposits here, regardless of where we're at in the cycle. I mean, we had this coming out of 20% [Phonetic] 2009 and through 14% [Phonetic], 15% [Phonetic] when rates were really low, and people in the market are backing off of core. And so, core deposits will continue to be an annual goal for us. And there's no doubt that it does impact the current branch profitability formula, if you will. But we think that going forward, the core deposit basis the true franchise value for IBCP.
Kevin Swanson -- Hovde Group LLC -- Analyst
Okay, thanks. Stay healthy.
Operator
The next question comes from Joe Plevelich from Boenning & Scattergood. Please go ahead.
Joe Plevelich -- Boenning & Scattergood Inc. -- Analyst
Good morning.
William B. Kessel -- President and Chief Executive Officer
Good morning.
Gavin A. Mohr -- Executive Vice President-Chief Financial Officer
Good morning.
Joe Plevelich -- Boenning & Scattergood Inc. -- Analyst
Sort of quick questions. One was on baseball analogy, what inning of the refi boom do you think we're in right now?
William B. Kessel -- President and Chief Executive Officer
Oh, my. Wow. That's a great question just sort of formulating out loud here. We were very strong even before the pandemic. And then we saw the Fed take action, loosening and drop rates to near zero, and then it continued to roll. I think when we look at 2021, and albeit I said earlier, it's difficult to forecast overall loan growth, when we look at 2021 on mortgage origination, we think there will be some type of pullback from 2020, but we think we'll still be higher than maybe what a normal origination period is. So, I don't know if that helps a little bit, but I think there continues to be some level of refi. Let me ask you, have you refinanced yet?
Joe Plevelich -- Boenning & Scattergood Inc. -- Analyst
Only twice.
William B. Kessel -- President and Chief Executive Officer
Okay. Would you do it again?
Joe Plevelich -- Boenning & Scattergood Inc. -- Analyst
Not right now, no.
William B. Kessel -- President and Chief Executive Officer
No? Okay. All right. 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.
Joe Plevelich -- Boenning & Scattergood Inc. -- Analyst
Got it. Thanks. And then other one I had, another tough question. The Michigan economy, what are the chances are that if there are more onerous restrictions kind of reinstated on the economy and businesses itself and how do you prepare for that? And I guess what's your sense as far as the likelihood of that and the give and take of that?
William B. Kessel -- President and Chief Executive Officer
So, I am hopeful that we don't go back to the extremes that we had before. I think the best path for us is just each one of us is smart about respecting the individual next to us. So, I can't tell you for sure that we're not going to go back, but I'm very hopeful that we don't go back like we were in the second quarter.
Joe Plevelich -- Boenning & Scattergood Inc. -- Analyst
Perfect. Thanks.
William B. Kessel -- President and Chief Executive Officer
Okay.
Operator
The next question comes from Brendan Nosal from Piper Sandler. Please go ahead.
Brendan Jeffrey Nosal -- Piper Sandler & Co. -- Analyst
Hey guys, just a follow-up for me on CECL adoption. So, I believe that as a bank that has delayed, you guys need to adopt by the end of the year. So, if that is indeed the case, I mean, the best way to think about the impact for you guys is just to look at the $8 million to $10 million in your As If scenario and run that through to retained earnings and then into the reserve? Or is there another way we should be thinking about it?
William B. Kessel -- President and Chief Executive Officer
No, you got it.
Brendan Jeffrey Nosal -- Piper Sandler & Co. -- Analyst
Perfect. Thanks.
Operator
This concludes our question-and-answer session. I'd like to turn the conference back over to Brad Kessel for any closing remarks.
William B. Kessel -- President and Chief Executive Officer
I would like -- we would like to thank each of you for your interest in Independent Bank Corporation and for joining us on today's call. We wish each of you a great day.
Operator
[Operator Closing Remarks]
Duration: 47 minutes
Call participants:
William B. Kessel -- President and Chief Executive Officer
Gavin A. Mohr -- Executive Vice President-Chief Financial Officer
Dennis J. Mack -- Executive Vice President and Chief Lending Officer
Brendan Jeffrey Nosal -- Piper Sandler & Co. -- Analyst
Damon DelMonte -- Keefe Bruyette & Woods Inc. -- Analyst
Ryan Griffin -- D.A. Davidson & Co. -- Analyst
Kevin Swanson -- Hovde Group LLC -- Analyst
Joe Plevelich -- Boenning & Scattergood Inc. -- Analyst
