Independent Bank Corporation (IBCP) Q1 2017 Earnings Report, Transcript and Summary

Good morning, and welcome to the First Quarter 2017 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 President and CEO, Brad Kessel. Please go ahead.

Good morning. Thank you for joining Independent Bank Corporation's conference call and webcast to discuss the Company's 2017 first quarter results. I’m Brad Kessel, President and Chief Executive Officer; and joining me is Rob Shuster, Executive Vice President and Chief Financial Officer. Before we begin today's call, it is my responsibility to direct you to the cautionary note regarding forward-looking statements. This is Slide 2 in our presentation. 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, www.independentbank.com. The agenda for today's call will include prepared remarks followed by a question-and-answer session and then closing remarks. To follow along, I’ll begin with Slide 4 of our presentation. Typically with the first quarter of each year, our earnings can be lower than the other three quarters of our fiscal year as a result of lower loan volumes and higher operating expenses due to seasonality factors. That said, I am very pleased to report what I consider to be a strong start to 2017. Strong loan growth, continued deposit growth and continued improvement in asset quality metrics up lead to a 46% increase in our net income. Net interest income increased in both a sequential and year-over-year quarterly basis. These results are directly related to the ongoing effort of our entire team to capitalize on the many opportunities in our existing markets and new markets. This does include our recent investments and new associates to expand our mortgage banking business, which is already paying off with growth and gains on mortgage loans, both in mortgage – portfolio mortgage loans and income from mortgage servicing. As it relates to earnings for the first quarter of 2017, we are reporting net income of $6 million or $0.28 per diluted share versus net income of $4.1 million or $0.19 per diluted share in the prior year period. The first quarter’s results were driven by net interest income of $21.5 million, up $1.7 million, or 8.6% from the year-ago quarter and up $1.2 million, or 6% from the fourth quarter of 2016. Non-interest income improved to $10.3 million, up from $7.8 million, primarily as a result to gains and mortgage loans of $2.6 million, up $900,000 or 56% from the year-ago quarter and higher mortgage servicing income. In addition, we also saw year-over-year increases in both service charges and deposits and interchange income. As it relates to our balance sheet, total portfolio loans grew by $62.5 million or 15.8% annualized. At the same time, we also continue to see growth in deposits now at $2.26 billion, up from $2.15 billion one-year ago. Our loan to deposit ratio at quarter end of 73.83%, we believe provides us continued net interest income expansion opportunity. In addition, we also believe our capital level with tangible common equity to tangible assets at 9.78% provides further upside in growth of our earning asset base. At March 31, 2017, our tangible book value grew to $11.89 per share, up from $11.62 per share at the end of 2016. Today Independent Bank is the fourth largest bank, headquartered in Michigan. Our branch network is a combination of rural, suburban and urban markets. The conditions in these markets continue to be generally favorable as measured by the labor, housing and commercial real estate industries. Our balance sheet growth continues to come from more urban and suburban markets. At a high level, I would say the West Michigan market is the strongest followed by the Southeast Michigan market. A common theme in many of our markets is there of a shortage of housing supply. Accordingly, we are witnessing historically record low home listing times, rising residential real estate values and an increase in new construction. Our new loan production offices in Ann Arbor, Brighton, Troy and Traverse City, Michigan as well as Columbus and Fairlawn, Ohio are now up and running. For these markets, I would characterize Ann Arbor and Columbus market is been very strong. In addition, we have new loan production facilities also underway in Dearborn and Grosse Pointe, Michigan. The favorable economic conditions are seen in our loan origination and deposit gathering results. Page 7 of our presentation contains a good summary of our loans and deposits by region. We have seen year-over-year loan and deposit growth in each of the four Michigan markets. Total deposit as seen on Page 8 were $2.26 billion at March 31, 2017, an increase of $108.4 million or 5% since March 31, 2016. The increase in deposits in addition to being spread across our markets has also been in our retail, commercial and public fund portfolios. The Company's deposit base is substantially all cores funding with $1.79 billion or 79% in transaction accounts. While still very attractive and historically low during the first quarter of 2017, we did see a slight increase in our cost of deposits, moving at 26 basis points from 25 basis points in the prior quarter. Additionally, we are seeing some pressure in our markets on the deposit pricing front, particularly in the public funds sector. We are monitoring closely and actively managing to retain core by also limiting the effects of rising rates on our deposit base. As seen on Page 9, loans including loans held per sale increased to $1.74 billion at March 31, 2017. This represents the 12th consecutive quarter of net loan growth for our Company. During the first quarter, total portfolio loans grew by $62.5 million or 15.8% annualized. The commercial team generated $52.9 million in production during the first quarter, of which $29.7 million were new money committees, or $23.2 million were renewals. Overall, we continue to have a nice mix of new business by region, new business by segment and improved operating leverage for our commercial banking group. The commercial pipeline continues to be very healthy and supportive of our targeted annual growth rates. Our mortgage team originated $158.1 million and we sold $79.7 million during the first quarter of 2017. This compares favorably to the first quarter of 2016 when we originated $73.5 million and had sales of $55.7 million. This represents a 115.1% increase in originations and a 43.1% increase in sales. Overall the first quarter portfolio mortgages increased by $42.4 million or 31.9%. We did portfolio, a high percentage of our total mortgage originations than we budgeted for several reasons. Originally, we anticipated selling two-thirds of our production and one-third going to portfolio. Our actual mix is closer to 50% salable and 50% non-salable. While we did plan for a shift to more purchased money versus refinances, we are also capturing a larger share of the jumbo mortgage market. This was a goal with the expansion. In addition, we are seeing a higher demand for construction loans and non-warrantable condo loans. All three of these product types we currently placed into portfolio. Our retail banking channels originated $37.5 million for the first quarter of 2017 and grew by $8.6 million or 13.2% annualized. Other scores originations our indirect power score financing was [indiscernible]. Page 10, provide some information on our capital as well as four quarter rolling averages for return on assets and return on equity. We are targeting tangible common equity to range from 8.5% to 9.5%. Tangible common equity totals 9.78% of tangible assets at March 31, 2017 as compared to 9.6% one-year ago. Our plan is to retain capital for organic loan growth and return capital through consistent dividend payout plan and share repurchase plan. In January 24, 2017, the Board of Directors declared a quarterly cash dividend on our common stock of $0.10 a share. Also in January, the Board of Directors authorized the new share repurchase plan for 2017 under the terms of the share repurchase plan, the Company is authorized to buy back up to 5% of our outstanding common stock. This plan is authorized to last through the end of this calendar year. During the first quarter of 2017, we did not repurchase any shares. At this time, I would like to turn the presentation over to Rob Shuster to share a few comments on our financials credit quality and management's outlook for the balance of 2017.

Thanks Brad, and good morning, everyone. I am starting at Page 11 of our presentation. Brad discussed the increase in our net interest income during his remarks. So I’ll focus on our net interest margin. Our tax equivalent net interest margin was 3.69% during the first quarter of 2017, which is up eight basis points from the year-ago period and up 24 basis points from the fourth quarter of 2016. I will have some more detailed comments on this topic in a moment. Average interest earning assets were $2.37 billion in the first quarter of 2017, compared to $2.21 billion in the year-ago quarter and essentially unchanged since the fourth quarter of 2016. Each 12 contains a more detailed analysis of the linked quarter increase in net interest income. There is a lot of data on this slide, but to summarize a few key points, increases in interest recoveries and prepayment fees added $686,000 to interest income as compared to the fourth quarter of 2016. This accounted for 12 basis points of the 25 basis point increase in average yield on interest earning assets. The balance of the margin growth was primarily due to the increase in short-term interest rates and an increase in average loan balances. Two less days in the first quarter of 2017 reduced net interest income by $229,000 compared to the fourth quarter of 2016. The average cost of funds were relatively unchanged just moving up 1 basis point on a linked quarter basis. A little more color on new and renewal loan production in yields is as follows. Portfolio loan production excluding mortgage loans originated for sale in the first quarter totaled $161 million of which 50.7% had variable or adjustable interest rates and 49.3% had fixed interest rates. The overall yield on this portfolio of new and renewal loan production was approximately 4.24%. We will comment more specifically on our outlook for net interest income for the balance of 2017 later in the presentation. Moving on to Page 13. Non-interest income totaled $10.3 million in the first quarter of 2017 as compared to $7.8 million in the year ago quarter and $13.2 million in the fourth quarter of 2016. Our mortgage banking operations caused most of the quarterly comparative year-over-year variability in non-interest income with increases in mortgage loan gains and mortgage loan servicing income. As noted in our earnings press release, we elected fair value accounting for capitalized mortgage servicing rights on January 1, 2017. I want to make it clear that the beginning of year fair value adjustment of $542,000 did not run through P&L. Again, that did not run through P&L, but instead adjusted beginning of year equity net of income taxes. As detailed on Page 14, our non-interest expense totaled $23.6 million in the first quarter of 2017 as compared to $22 million in the year ago quarter. This increase was in compensation and benefits. We increased full-time equivalent employees by 64.5 or 8.4%. Of this increase about 73% related to the expansion of our mortgage banking operations. Salaries and wages increased $1.6 million due to the aforementioned increase in FTEs in January 1 raises. However, about one quarter or $390,000 of the increase in salaries and wages was due to guaranteed compensation for new loan originators as they often left behind substantial pipelines. This expense will abate in the second quarter. As outlined on Slide 15, we now anticipate closing on the sale of Mepco in early May. The delay has been due to [and then] projected timeframe for the buyer to finalize their transaction financing. During the first quarter of 2017, Mepco recorded net income of about $140,000 with $910,000 of net interest income and about $700,000 of non-interest expenses. Although we expect it to take some time during the course of 2017 to reinvest the cash from this sale over the course of all of 2017, we expect the transaction to be slightly beneficial to net income. Investment securities available for sale decreased slightly during the first quarter of 2017. Page 16, provides an overview of our investments that quarter end approximately 26% of the portfolios variable rate in much of the fixed rate portion of the portfolio is in maturities of five years or less. The estimated average duration of the portfolio is about 2.63 years. Page 17, provides data, our non-performing loans other real estate non-performing assets in early stage delinquencies. Total non-performing assets were $14.3 million or 0.55% of total assets at March 31, 2017. Non-performing loans decreased by $4.4 million during the first quarter of 2017. In addition, subsequent to year-end, we sold a group of commercial other real estate properties that had a book balance of $2.9 million at March 31, 2017. At quarter end, 30-day to 89-day commercial loan delinquencies were just 0.04% in mortgage and consumer loan delinquencies were 0.47%. Moving on to Page 18, we reported a credit provision for loan losses, $0.36 million in the first quarter of 2017, compared to a credit provision of $0.53 million in the year-ago quarter. We recorded loan net recoveries of $0.2 million or negative 0.04% annualized of average loans in the first quarter of 2017 compared to net recoveries of about $0.5 million or 0.12% negative annualized of average loans in the first quarter of 2016. The allowance for loan losses totaled $20 million or 1.2% of portfolio loans at March 31, 2017. Page 19, provides some additional asset quality data including information on loan defaults and unclassified assets. New loan defaults were just $1.2 million in the first quarter of 2017. Page 20, provides information on our troubled debt restructuring portfolio that totaled $72.9 million at March 21, 2017, a decline of 6.5% from the end of 2016. This portfolio continues to perform very well with 93% of these loans performing and 91% of these loans being current at March 31, 2017. Page 21 is our report card thus far for 2017. We compare our actual performance during the year for the original out look that we provided in January 2017. Overall, we believe that our actual performance in the first quarter of 2017 was better than our original out look. We achieved annualized loan growth of nearly 16% in the first quarter of 2017. We expect to maintain or accelerate this loan growth over the next two quarters. First quarter 2017 net interest income grew 8.6% on a year-over-year quarterly basis compared to our forecasted growth rate of about 3%. All though we expect the growth rate to slow a bit from the first quarter due primarily to the Mepco sale, we would still now anticipate a growth rate more in the mid single-digits for net interest income given our outlook for loan growth. We achieved a credit loan loss provision in the first quarter of 2017. This was better than our forecast because of better than anticipated asset quality metrics. We expect generally stable asset quality metrics during the remainder of 2017, which should lead to a relatively low loan loss provision. First quarter 2017 non-interest income was slightly below our forecast. We expect non-interest income to move up into our forecasted range over the next two quarters due to an increase in gains on mortgage loans. First quarter 2017 non-interest expense was above our forecasted range. This was principally due to the mortgage banking expansion, higher than budgeted, incentive compensation and the delay in the Mepco sale. We expect non-interest expense to move down gradually from the first quarter of 2017 level due to the anticipated Mepco sale, some seasonal factors in better operating leverage in our mortgage banking area. Finally, we expect an effective income tax rate between 31% and 32% going forward in 2017. That concludes my prepared remarks and I would now like to turn the call back over to Brad.

Thanks Rob. In summary, we are pleased to report a strong start to 2017, growth and earnings and earnings per share. The improvement is directly related to this successful execution of our strategy to migrate earning assets from lower yielding investments to higher yielding loans in order to grow net interest income. Our quarterly return on average assets was 0.95% compared to 0.68% for the same quarter one-year ago. And for the last 12 months, return on assets improved to 0.99% from 0.86% one-year ago. Our quarterly return an average common shareholders' equity was 9.63% compared to 6.7% for the same quarter one-year ago, and for the last 12 months, our return on equity improved to 9.95% from 8.05% one-year ago. As we look ahead, we continued to be focused on driving high performance with balance sheet growth and strength, quality earnings, per share value and strong profitability levels. We continue to build on the momentum generate the last several years. At this point, we would now like to open up the call for questions.

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Matthew Forgotson from Sandler O'Neill & Partners. Please go ahead.

Hi. Good morning, gentlemen.

Good morning.

I was hoping we could start with the margin. So Rob thanks for the clarity here, but if you strip out those 12 basis points of interest recoveries and prepayment penalties, you get to stabilize margin right around 357 that was up call it 12 basis points sequentially. I’m wondering if you could decompose that 12 basis points a lift for us, how much was attributable to rates and how much was attributable to mix?

Well, I'm going to estimate because I don't have it right in front of me, but we do run the sort of forecasted model that sort of really accounts for what's affecting the margin due to the movement in short-term interest rate. So I would say it's probably one-third or so due to the rate change in about two-thirds due to mix change. So if you look really in the first quarter, we had quite a bit of growth in average loans and so that was a more significant contributing factor than what we anticipated. So on the short-term rate side; we really had just one full quarter benefit from the 25 basis point move back in December of 2016. In the March 2017 move, we really had very little impact of that just a half month toward the end of the first quarter. So we should see the full benefit of that role into the second quarter and again continued remix of earning assets with loan growth moving forward.

Okay, great. And can you just remind us what the Mepco loans are yielding today and how you're planning to reinvest that cash assuming the May 5 close?

Yes. The Mepco loans are yielding just a bit about 12%, so you've got roughly $32 million, so that's quite a high yield to reinvest, but the offset to that is we're going to lose about $700,000 of non-interest expense. So Mepco made about $140,000. So immediately we would invested in short-term type of instruments, but now with the accelerated pace of loan growth, we had originally expected it to probably take a quarter or so to get those proceeds reinvested, now I would expect that that could move up and be done well within one quarter. Now you will have a decline in the yield on earnings assets because even if they're reinvested, I gave you in my comments the average yield on new loans in the first quarter was about 4.25%. So you're still going assuming something around the 4% level, you're still going from 12% to 4%, but we're losing the non-interest expenses and when you put that all together, it still should be a beneficial to the bottom line as we move forward this.

Got it, okay. I guess switching over to fees, really appreciate the color on that $542,000 accrual, but just if you – I guess taking the servicing line, if you add back that fair value loss, you're looking at $1.1 million or so stabilized servicing. Now that you're on fair value, is that a decent – how should we be thinking about the trajectory of this line item from here?

Well, the $1.1 million you talk about that’s the revenue from the servicing portfolio, so it's actually [1,089,000]. Now in our former type of accounting method, we would amortize that asset, so now rather than amortizing the asset we have a fair value adjustment. So if rates were to just sort of to be unchanged, I would probably expect a negative fair value adjustment. The reason is we're adding to the servicing asset for the new loans that we originate and sell. Now the entry there is you are increasing mortgage loan servicing and then increasing gain on sale, but all other things being equal, there will be pay downs in the portfolio that occur during any quarter. And if market rates remained unchanged, you would still have to capture that and it typically be done in that fair value adjustment. So I would tell you and it's hard to predict that maybe and we were at 800 and somewhat thousand, 825 I think when all the dust settled. I would say if rates were to remain unchanged you might see it in the 700-ish to 800 range. I think this first quarter was probably a reasonably good parameter of a normalized level, but maybe 100,000 or so higher because I think rates this quarter when you go from the end of December to the end of March. I think they were relatively unchanged. So that fair value adjustment I think took more into account just what occurred in pay downs in the portfolio rather than changes in market interest rates. So that's sort of one winded, but the 825 is probably a bit higher than what you might see normalized.

Great, okay. Last one for me and then I'll hop back. Just in terms of the residential growth this quarter. Can you give us a sense I guess one, is it fair to expect that 50% retention going forward? And then two, can you give us a sense of the complexion of the loans that you retained in particular the duration characteristics? Trying to get a sense of how much asset sensitivity you're utilizing in shifting to that retention strategy?

Good question. So I would say first of all that I don't think it would be at least the next few quarters, it wouldn't be unusual to see that mix still stay close to 50/50, maybe that will move a little bit more toward the salable versus the non-salable, but I do think in our purchase market we're going to continue to see a higher than at least what we historically saw in the percent that we're retaining. Now the mix of what we're retaining is pretty close to 50/50 between fixed and adjustable rate, but in of the fixed, there is a fair amount within the category of 30-year at jumbo, I think we were at about $19 million or so – I’m sorry, $24 million in the first quarter that had a weighted-average rate of about 4.32%. And then we had another $6.7 million, a 15-year that had a weighted-average rate of 3.61% that's about $30 million in that category and then the rest were adjustable rate. And I would say if you just sort of blended the rate, it would be probably right around the 4% area with the biggest bucket being 5/1 ARMs within the 5/1 ARM category, there was about $23 million. And so those would still have duration probably in the three-year and change area. In a fair amount of what we're seeing in there is what we call construction the permanent. So they start out as an adjustable rate and then they can – they have a modification option once construction is complete. So some of those maybe salable or may become salable upon modification, they are underwritten to be salable. But I think as Brad mentioned in his comments, what we’re seeing to bring up the level of portfolio loans is one, a lot of construction lending. Two, more jumbo because of the markets we've moved into and three is what we call non-warrantable condos. It's a new kind condo development that hasn't been turned over to the developer, so at least at the outset, they go into portfolio. And then the final comment I make on it is we're doing forward forecasts looking at the production including more of this fixed production and looking at its impact on our net interest income sensitivity in market value of equity sensitivity. So we're making sure that those things are not changing in a way that would shift the balance sheet dramatically, we're currently still very asset sensitive. So we had the capacity between our lower loan to deposit ratio in that the extraordinarily high level of variable rate and short-term assets to take on some fixed rate, but it's something that we're monitoring and doing these forward forecasts.

Great. I really appreciate that color. Thank you.

Yes.

Our next question comes from Damon Delmonte from KBW. Please go ahead.

Hey. Good morning, guys. How was it going today?

Good, Damon. Thank you.

Good. So just wanted to kind of follow-up on the loan growth outlook, so just want to make sure, I heard the comments correctly. So this quarter, obviously over 15% linked quarter annualized growth. So the outlook from this point is that you're going to retain more of the residential mortgage loan production. So that's going to drive your overall 10% to 11% annual growth number higher. Is that correct?

Yes, it's a combination of seasonality, so we would expect for example consumer installment lending to pick up over the next couple quarters as we move into a stronger just season for the areas we focus on consumer installment. I would say commercial as well, typically we see a pick up in the middle two quarters there and then on the residential side, assuming the [mix pace] is similar, we would expect that growth rate to actually accelerate.

Okay.

So yes, we see that moving up over the next couple quarters.

So that you kind of think that this 15% or so level is doable for the full-year then, are you seeing higher than that?

Well, the fourth quarter is always tough to project, but I would say yes, that would be a pretty good estimate of a run rate for the year.

Okay, great. And then I think you had mentioned that this quarter for the compensation expense, it was a little bit higher than probably expected because you had some guarantees on the mortgage originators, is that correct?

Yes. $390,000 was the expense included in the first quarter that was guaranteed comp for loan originators, because as you know when they leave a former employer they have to leave their pipeline behind. So we have to transition them to kind of make up for that loss and income. So what you have is a period of time where they're just coming to board and starting to build the pipeline. So we have expense there with no associated production of loans yet. And so as I said in my comments that will abate in the second quarter.

Gotcha, okay. And then I guess with regards to the deposit cost, they're only up one basis point from 25 basis points to 26 basis points on the quarter. With the most recent rate increase and the expectation for a couple more this year potentially, how do you see your ability to continue to lag kind of I guess framing from a beta perspective, your ability to lag having to increase at a much faster rate, just given the broader competition in the marketplace?

Well, Damon that's a great question and within our ALCO Committee in monthly meetings, this topic gets – is a regular agenda item and we've put in place some management tools to monitor both external pricing as well as internal deposits flows and obviously the impact there is to not move any faster than we need to. And at this point even with the uptick, we were still able to see some growth in core deposits. So that would be our preference, but again it's really hard to forecast. Again, I would just say here in the first quarter, this is really the first time we've seen more pressure than maybe prior quarters.

Gotcha. Okay. That's all I had. My other questions were answered. Thank you very much.

Thanks, Damon.

Okay. Our next question comes from John Rodis from FIG Partners. Please go ahead.

Good morning, guys.

Hey, John.

Just one question for me. On the buyback, obviously you didn't do anything this quarter, can you just maybe just talk about your thoughts there going forward. I would assume if loan growth remains strong, you probably don't do a whole lot the rest of the year. Is that sort of the right way to think about it?

Well, I would say yes and if we can put that capital work on organic loan growth that would be our number one priority. The other component obviously is when we were buying back shares, previously it was at a significantly lower stock price and met the requirements of our delusion earn back that we've talked about in the past. We've shared sort of that maybe three, little over three-year earn back period. It's something that we think that makes financial sense at today's stock price. We are over that timeframe. So ideally if we can put the capital work in the loan portfolio that's our preference and alternatively if we see some kind of drop back in stock price we may be back in the market again.

Okay. That makes sense Brad. Thanks a lot guys.

Our next question comes from Scott Beury from Boenning & Scattergood. Please go ahead.

Hey. Good morning, guys.

Hi, Scott.

First question, I mean in the context of the change in accounting treatment for the MSRs. I was just curious if you had any general feel for kind of what the vintage looks like on your servicing portfolio, the underlying ones there?

Well, I mean I would have to get a report for that, but the vintage is skewed really to the last few years. We've got about $1.7 billion in mortgage servicing and just to give you some idea 2016 of the $1.7 billion is $300 million of it that vintage. 2015 is $238 million, 2014 is $129 million, 2013 is $202 million, 2012 is $248 million. So those are the years that make up the most, 2017 is about $43 million. And so the weighted-average rates within those vintages are generally lower than current market rates, all though the tenure has moved down a bit in the last few weeks. So I don't think there is a lot of – if your question is refinance pressure, I don't think there is a lot in those more recent vintages. I think if the tenure were to drop further, you could start to see a revised pick up a bit, but the nice thing we have is because we're a retail oriented shop typically when we see prepayment activity picking up in our mortgage servicing portfolio. We're seeing gains on loan sales pick up as well, so we sort to have a natural hedge there.

Right. That's helpful. Yes, just I was curious I wanted to see, obviously since you're going to have to make the fair value adjustments now, prepayments accelerate, but that's very helpful. And I guess lastly, you mentioned that you’re seeing more activity on the residential side as it pertains to construction in condos I believe and I was just wondering if you could elaborate a little more on what types of the deals those are?

Well, the range from just non-jumbo salable loans, so a fair amount of activity there to some level of jumbo loans, but just to give you some idea and the numbers, we did about $30 million or so of what we call construction the permanent, closings in the first quarter and portfolio and then we did about another $3 million or $4 million of salable construction the permanent loans. So probably in total about $35 million or so of the $158 million we originated were construction loans, the balance would be largely – well non-construction type of loans. And then and I already had mentioned this, the other thing we're seeing a little bit more of an increase and would be jumbo loan activity because of some of the markets we moved into. In the condos often times they start out as a non-salable, but once there is enough construction in the condo project that it could be – that the developer moves the management of the homeowners' association to the actual owners then those loans become salable. So typically it's sort of at the start of a new condo project that you have what we call non-warrantable condos, eventually again those become salable.

Okay. Thank you. That's helpful. That’s all I have. End of Q&A

This concludes our question-and-answer session. I would like to turn the conference back over to President and CEO, Brad Kessel for closing remarks.

I would like to thank each of you for your interest in Independent Bank Corporation and for joining us on today's call and we wish everyone a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.