MBWM - Earnings call transcript Q2 2018 | Mercantile Bank Corporation

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Operator

Good day and welcome to the Mercantile Bank Corporation, Second Quarter 2018 Earnings Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Mike Houston of Lambert, Edwards and Associates. ahead. go Please

Mike Houston

XXXX. of Good Mercantile Michelle. discuss and you Relations quarter thank company’s ‎Lambert, Houston Thank Mercantile’s Edwards, Corporation’s morning conference joining Investor of second the Bank results and to am call for Mike financial with joining you, firm, for everyone I and the webcast Executive and Financial of Executive Vice Christmas, Worthington, members are including Officer; today Operating General Chuck Reitsma, management team, Officer Michigan; Bob Counsel. and Officer; Chief Mercantile Kaminski, SVP, Chief me their President Bob Ray President and Bank, Chief and President

the with begin will remarks We call call and the then open prepared questions. to management’s

Kaminski. can Bob time, projections However, it www.mercbank.com. well company’s you before Chief call update Commission to to assumes of not forward-looking may it is begin of as and to have over the call, could you results press copy filings. company certain made that by materially statements revenue, call. structure, company’s capital my of to on and issued forward-looking company’s turn responsibility as statements anyone earnings call factors as this Mercantile plans today’s Officer, the company’s to described Securities At involve the today I inform no release website, business. The today, The access such forward-looking actual at the this we statements the from the like already and a latest during statements would obligation does Mercantile’s due any the Exchange If Executive differ made objectives and the President any in

Bob Kaminski

morning joining good and Thank everyone. Mike for you us. you, all Thank

for President, asset Mercantile provide performance, the on I’ll quarter. overall review progress portfolio growth update Bank’s initiatives will quality. and On Reitsma loan and our the development call today Then Ray an

Following we will open our our Afterwards Chuck CFO, results. for will provide call Ray’s Christmas on financial details the Q&A. remarks,

and balance resulting the costs, our areas controlled strength evident was quarter overhead supported sheet interest to in by performance commercial sound improved quarterly several growth. the net results focus rate. income, are loan a during the of highlight continued from pleased quality In Results operating strong the announce lower we fee tax let for strategic healthy This asset are second quarter. period, We increased margin, particular, look in me forward year. the the pipeline regulatory of as half to and also during

of the quarter year’s X.X%, Net strong the Our performance increased earning a positive $X.X and to was an higher from quarter. financial total level margin. increase net interest largely and or contributed second was results led assets the of during income prior X.X% a by up revenue million interest reflecting

banking remain continued past with areas pleased activity of these our result strategic the and was increase continue debit XX.X% The momentum and attributed income non-interest and income second revenue, generate payroll of the very card We several build business primarily from growth to service a our income to credit non-interest fees. a throughout quarters. the prior ongoing as initiatives quarter. increase higher to We mortgage in year’s with

of During of slightly quarter healthy the a at the from net remained the in period. prior level X.XX%, second XXXX, year the margin interest X.XX% up

future. of interest We ongoing experienced and pricing stability areas believe core to continued the pleased our into and lead on in depicts strength loan the very throughout margins balance focus are of sound relative these prudent XXXX net the continued our quality. healthy will two We with we’ve and which the focus margin, asset

assets. or once during million X.XX% metrics quality strong reflect Full quarter. asset a of XX, Our the performance total June at non-performing $X.X assets again XXXX portfolio were

list million loan portfolio, months decreased Total the diligently have relationships monitor generally remains $XX The stress. level internal in of loans XXXX. management continue searching Our team for and of and six watch deposits first dollar past-due signs volume the during to during lenders declined quarter. our nominal second of and loan on number potential the

million, However, bearing interest the approximately decreased unchanged base, the bearing mix funds deposits the year continue million. total $XX prior to the wholesale of total the linked Borrowed were for deposits end $XX deposits impacted quarter as with was of while funds and relative consistent positively non-interest to XX% quarter comprise increased funding quarter.

non-interest Mercantile. Continued local overall strategic for deposits bearing a and priority growth remains deposit base in

many Employment of services allowed I’ll the that beyond. existing in will retain half during successfully achieved the confident clients. current grow and We products of new attract to our to strong trend remain remarks. approach value we to in turn and our market lines year quarters These conditions us XXXX have Michigan Turning favorable continue for and positive. primary first trends, realistic and continue my customers our that continues That have economy, with to coupled be added banking results healthy. Ray. the the over the period witnessed remain concludes array to to wide financial and it

Ray Reitsma

Bob financial the positioned our the how during of Thank we pleased meet our objectives to and growth To for half beyond. everyone. are strong performance echo with first and you Bob’s on morning very are this year we sentiments and good and profitability quarter, XXXX

million. rate of totaled first $XX the $XXX in million magnitude clients quarter consistent During during with and to which quarter loans and million, XXXX, total term of quarter, from growth new X.X% $XXX expanded a each of XXXX. led loans Commercial current to up XXXX, the during by funded

and loan loan $XX quarter, portfolio by to manner commitments expand in risk in a loan of continued emphasis remain on projects commercial Based expected disciplined based current quality commercial construction we retail portfolio credit loan during with growing million in confident fund the which second to grew of periods. $XXX dedicated Included that and in are portfolio office, growth our by portfolio growth new million, million loan XXXX. pricing. on the future Our funded We fundings will March results opened $XX million. our the in Troy of $XX complemented these is

of markets for limited ahead and is portfolio our consecutive the residential loan rates second in persist, interest Mercantile. quarter inventories marks activity banking XXXX last mortgage growth rising quarter of of and the year ninth housing Although

purchase activity constrained over primary pre-qualification positioned it high, second remains With inventory very and concludes the at of increase That homes of I’ll level, our we Chuck. to all tight nearly for levels has doubling XXXX markets. it we time our well quarter While by sale an presence. my to remarks increased, in market are hand believe a

Chuck Christmas

morning $X.XX for $X.X the This Thanks announced Ray. net of diluted quarter everyone. Good million share per XXXX. morning income we of or second

six diluted year non-performing of first income or million by reported diluted per six for of earned million per commercial reported per during million The loans $X.XX six during bank claim months XXXX quarter of or second of per share. we million about diluted the certain or totaled while $XX.X increased owned months net this $X.XX $X.XX months by first insurance share, increased XXXX compared $X.XX collection or during life of the per successful six XXXX first $X.X year. to the $X.XX $X.X the XXXX a million early diluted or During share last income of net Net share. income months diluted about first $XX share, the during $X.X

XXXX corporate six XX% income income impacts was XX% and of XXXX January Act. due lowered rate, and benefited the the to a Jobs enactment of effective to in of federal this the XX% reduction tax X also year which from Cuts of the from $X.XX the the months the or Tax months first during of six earnings first period. during share nearly with second these respective Excluding per quarter transactions, Net compared increased diluted XXXX

during XXXX. Our market effective take very lending tax while our in has rate for to and financial remain almost We shareholders. believe pleased consistent with XX% opportunities, results condition delivering earnings thus and and we far are advantage our been XXXX performance positioned to of XX% well compared

previous of Our net compared during was margin four to X.XX% average an second the quarters. X.XX% quarter about interest the during

basis resulted on five loans. in the quarter recent successful the commercial first In points addition ongoing our These earnings efforts recording earning added approximately on six second during several months collection on XXXX FOMC, six hikes yield your yield assets that or impacted of the positively and was benefits of income to by assets from respectively. efforts during interest XXXX first non-performing months the and of XX the rate from

interest funds year. of the first during large increases a The earning second four higher XXXX, increased assets accounts, points of during cost money funds, to point the increase basis of environment. borrowed basis a deposit of quarter market rate the the reflection average are increase interest as and on time in five part due quarter certain percent of similar Our rates to in the deposits

of six compares This and to first interest X.XX% all X.XX% respectively. our accounting received interest margin interest second six income and and Excluding interest favorably quarter of second was million months during most entries, purchase quarterly quarter on quarter our the expense the remainder million pooled during XXXX and payments XXXX of purchase net and months on during cash had of X.XX% XXXX. in during further Based about recent the loans XXXX XXXX. quarter. in figure of during the forecasts then at and compared $XXX,XXX flow the XXXX, end of we loans, interest approximately $X.X provided guidance to the second I quarter on the We $X.X X.XX% million recorded margins record of income, CRE each loan net the totaling expect the first $X.X valuations accretion first purchase to

receive in aggregate about recorded purchase million payments which impaired several loans be income upon in will to In on receipt. years, over $X addition, expect CRE interest next the we principal pooled as

remainder This in forecast rates. range and our be expect to of net in LIBOR We interest the further XXXX. X.X% a assumes of X.XX% the to prime no throughout margin changes

loan reflect of increasing interest rate total. modifications strong of interest quarter, an and environmental driven risk continued by million factors low during this our environment. provisional quarter of levels quarter. equals to we during to Our of rate loss million expense loan in than reserve Non-performing The second portfolio loan of $X just with net $X.X percent We to and end loan interest an second of points basis the and million only quality margin improved $X.X Loan less about the non-performing very a the a quarter of loans in as recorded first first quarter continued growth assets during second our net year. remains recorded totals large XXXX, the second six the a of XX in total commercial charge-offs. charge-offs and recovery the the loan methodology. Similar million months of $X.X during as within part assets measurement

the We expect $X.X during of remainder expense $X.X to record XXXX. of million quarterly million provision to

In of at the this quarters many regards from to of for end This and loans. million loan loss of the XXXX. to X.XX% at to the the have run Our in We of up totaled of of expected our the income the $X.X and reserve hope second significant the remained we end coverage running third existing non-interest compared no quarter at end $XX.X guidance $X.X XXXX new end quarter model quarter first are steady to model by million [inaudible], quarter. to the has XXXX. of remainder of originated total million the was least during $X.X ratio of recorded model the plan second million provided and through to our parallel changes

than While our of booked from increases categories being in of the banking to income less to our as in expected, loans in proportion due large portfolio expected, sold. of originated our recorded instead part higher operations we the income the most came mortgage

for mentioned, Ray especially loan is as area listed our our low mortgage and sale remains In the volume. negatively the inventory Michigan in new throughout of homes Western impacting addition markets,

Currently of about well quarter. of the a For during banking non-interest end million the rate with quarter to to XX%. the million of to non-interest expense remainder the expect organization. $X.X to remain $X.X of to million recorded remaining quarterly $XX.X the we remainder we $XX.X $XX.X income the total during million million non-interest forecast second the of well within XXXX, at during million our at We we during third XXXX fourth total guidance We currently quarter. provided quarter million XXXX, the $X.X and capitalized tax first effective $X.X expense

to our now risk the ratio as quarter required total prepared are end, minimum bank’s capital categorized remarks. dollars higher back to Those call be over of the was approximately my XX.X% I’ll capitalized. Bob. $XX As was and turn based well million in than XX%

Bob Kaminski

the to you, Chuck. open call We’ll now questions-and-answers. Thank

Operator

[Operator from Brendan and Go Instructions] Sandler ahead. O’Neill Nosal, comes The question first Partners.

Brendan Nosal

you? are Hey, good guys. morning How

Bob Kaminski

morning. Good

Brendan Nosal

just State what today, to for of it customers and know Michigan? your want it Just then how feeling and to early given of is start with and mean the you can tariff the issue or side about you the and more forth are tell? we’re off specifically your things hearing just this How kind that too on of feeling back customers are

Bob Kaminski

is this Brendan, Yeah Bob.

really media we’re of at the I lot will as here affect might early think and reading as a here it Obviously too what people ground all further far how and to play out it’s back forth, tell. Michigan. tariffs on West in the on the how

taking think and I everybody’s see wait a approach.

is it’s out very to fluid is very countries generally general their I a signs aware our as few where to optimistic the right negotiating feel think try of is economy. situation distressed figure that this all the from everybody assemble think is going. I now. But are There the about people and of client areas base teams situation

optimistic growth at opportunities providing point. its ample and is think for overall for the clients this generally our I sense

Brendan Nosal

just guidance guys something guidance? moving more like in what with to of this year, onto the fee that’s it portfolio it the going a is a side tempered The loans in else happened you or thanks Alright things. this on then of the Is selling color choosing quarter them there two function opposed you last fee for to And place quarters as of feels little bit. great, for there. the the

Chuck Christmas

This is Chuck.

I but there. has low think do mortgage that inventory we out is to area, of have most think the surrounding the with I that more it

and for buy as you twice now overall out impact so volume. is to have our If many than But mentioned, There their folks our enough year did not that look we a pre-qualifications, ago. homes, an that’s at pre-qualified as right are those mentioned I has that having versus already so you so of I and and housing loans there just it inventory on ARMs no and portfolio sell rate borrowers those go-ahead our were risks. we what to interest with the right virtually are we bounces less of we those and did fact and projecting. than do conforming significant the Most and all jumbo we

So both think projections. are more of has it those, we – do but our to looking at I

it issue inventory I portfolio. do it we’re the than think in with the has what more versus put to selling

Bob Kaminski

the overstate This impact is really Bob. that can’t investor low right of market now. the I on

many offers are in of asking tight time. the within most have within and short recent the most I so story seller has but we a told goes the the that and think and now back a usually sells market the period on – quarters, right it price home is they many, the offers home very week these above of

sale. and continued just buy a that mention, So there, if that’s can’t that’s to be the a same volume Chuck fact XXXX think as but for up just that our they want boost in a the little I with throughout pre-qualifications see people to find continued frees so bit, one are we’ll home,

Brendan Nosal

you you $XX.X of the you kept Got the million on know sense. it, range okay, or me decent a within is does of we one potentially that bunch to know Is that the like And midpoint, or feel million; $XX there assumption below back quarter a you the makes year. to think drop the you probably then makes for of where you anything you midpoint could offered going last this were were remainder from last expenses, quarter range the forward. it

Chuck Christmas

a the accrued, feel an accruals. keep of next an they little like eye accruals obviously more know range, on couple some Yeah year. but keep on throughout bit at we banks couple those lumpy them mean some A eye that we maybe good for about quarters. Obviously end expenses run be over know. like We the I lower the hopefully all you can those. really over you of look Obviously our year we are are the throughout we’ll

But a side. know, we any So there looking you knock we’re and items little framework be our bit one-time most of is operating relief on wood, might there. expense the the don’t on consistent know significant currently you for part that at have pretty

the lower guidance. about pretty confident within I’m but pretty we in guidance. be feel be that we can can So good we end, Hopefully the

Brendan Nosal

taking Alright, my questions. Thanks great! for

Bob Kaminski

Thank you.

Operator

The ahead. from DelMonte, comes Damon next Go KBW. question

Damon DelMonte

Hi, great.

talk loan right are kind best of can on of footprint the just first touching for what opportunity So areas you growth; question, growth seeing the you about now?

Bob Kaminski

talked based share and Michigan the think we the market the This of in opportunities. as a we company and certainly I prior with of is think West area in for Bob, Grand largest market, largest proportion Rapids the quarters, so about Damon, of the the I home presence and our larger have providing

good and opportunities of area of continue that growth loans, greater Michigan seeing we So the West in it’s certainly translated where some experience the very into relative markers well all but to have the those all our we presence is to of there. markets size in the are our we markets. But just going

Damon DelMonte

little deposits dragged good the you know down overall though Okay, outstanding bit. of but great. anything non-interest the a deposit percent, down have outlook far a of little for the as couple your because decreasing growth, that to this what Was a then And overall as net or side, know growth. on you you deposits on quarter unique some there kind you categories is were had deposit color

Chuck Christmas

is this Damon, do happy so. to Yeah Chuck,

to in CDs. way is jumbo public and been I that’s primarily think it’s the one there competitive while sized decline been units. for know crazy domain this the a our quite was area If of now, public it’s larger, of reflective CDs you

like I to $XX or than right are think to less now. down closer million $XX might be we it million

the and for be, excluding participate scratch local growth on grow public had stepped markets, have as they CDs core augment maturities very, of side regular if been we like some our deposits. which and mentioned, deposit CD need you the some our steady broker part We accounts in the you we’ve to wholesale the very side even unit anyways, treat are especially most actually wholesale of that market funding continue CDs. growth that units, rates since more kind we’ve saw and in so large matching out that as out, such at checking and And FHLB, appropriate funding non-interest public able as multimillion, to that for the with bearing and

competitive the have and can we will say the that just smaller We got million. We’ve know relationships now. with good them. or good those to for $XXX,XXX larger invest be We with but relationships $XXX,XXX, continue municipalities, may out stepped be unit $X.X there, of you negotiate

Damon DelMonte

then think Chuck. color, for to correct? Okay, X.XX of the that guidance that’s accretive as at X.XX it the good to And projected remainder range; relates thanks into account the margin, year yield; that I your the was is takes

Chuck Christmas

Yes.

Damon DelMonte

had and Okay, for that around you quarters each the ‘XX. remaining said $XXX,XXX was in of

Chuck Christmas

‘XX about I and quarter. then $XXX,XXX per quarter $XXX,XXX, year next per said $XXX,XXX for probably

Damon DelMonte

Got that. That’s thanks clarifying I had. very that okay you much. great, you, all for Thank

Bob Kaminski

Thank you.

Operator

The Kevin next from Go D.A. comes question ahead. Davidson. Reevey,

Kevin Reevey

guys. morning Thanks, good

Bob Kaminski

Kevin. morning. Good

Kevin Reevey

is linked was number – first So sizeable the hiring FTE’s. some a lenders? sizeable like related it question residential It of quarter. lenders was due to new to much of How and of mortgage that was commercial there looks increase

Chuck Christmas

out of Chuck. got majority is brought increase XX vast, summer is this This folks bank Kevin, The us we that on Yes college of internship and vast year students our a throughout we summer. reflection great helping college this our program.

vast is that So of majority that program. college internship a vast,

just core we just join of forward go But so. to the our On an increases here of first very as as think to lenders hire and where a we’ll overall quarter side, at endeavor know move end commercial the folks some is overall gradual us, always and then grow. additional see, on continue to would you and assets the we to to third operations continue and were the I for FTEs to mortgage lenders base solid to basis our the end do look we at quarter, closer we on

Kevin Reevey

in any wasn’t line occupied you’re little And pay item, as a Are CRE competitive then downs significant occupied owner bit but your looks owner you talk environment. on the like the the can and about you it balances non-owner strong grew, seeing occupied. loan as

Ray Reitsma

liquidity the down’s performance here owner They’ve up and is liquidity this just have our the Sure, from pay built reflect just experiencing strong the portfolio pay across downs CNI over Ray. made and time. resulted of borrowers. that The that occupied been they there

time-to-time. CRE our to little the just sell side, a lumpy doing experience are from customers more downs bit would and assets it’s On know time It’s a time-to-time pay that. you and good we from

Kevin Reevey

like And see quarter. there? XX% about last looked it end significant end at then, utilization was up you at bump Where the the second the of was of did line it quarter, any

Ray Reitsma

stay to XX%. continues around it Kevin, right

Kevin Reevey

Okay and all? deposits there at question one Are for the of last municipal know out I is an at RFP those then guys competitors, state is you level. your for deposits competing my

Ray Reitsma

at current Not the time.

and rate very impact pretty before, be find mentioned and kind that to is a that’s much we interest the FHLB market, you the risk. and brokered are and/or What we very CDs term our having and on the I at of helps is arena which into market hyper what find can CD we market tends that sidelines the driven actually on rate wholesales, manage an rates. longer broker As get know that’s cheaper us due we staying advances we can to it’s tap the competitiveness price

Kevin Reevey

Great! Thanks guys.

Ray Reitsma

Thank you.

Operator

John next ahead. FIG Go comes The question Partners. from Rodis,

John Rodis

this basis that a you quarter? I amount right? said five of interest think you Good morning say points, did recoveries guys. had I you hear small Chuck, did

Chuck Christmas

That includes accretion. the

John Rodis

since stay then. for very deposits lower okay what what quarter. of the small X.XX% includes margin that they of to level? at million that Chuck so Does roughly, what a guess And interest your X.XX%, linked then That $XXX excess your I assume came the liquidity accretion, down assume or guidance sort amount $XX does million

Chuck Christmas

million $XX at are of currently, and most $XX expect level. where got to That’s Yeah, stay we throughout to desired that’s we’ve level we to and continue million we we been second the several down after finally quarter. – to quarters finally the that that of where

John Rodis

quarterly guys, dividend increased maybe And by then question; super. obviously $X.XX. Okay, one your just other guys you

sort are to It that So of your with you sort looks level now? of comfortable ratio like payout a to takes XX%. XX% it

Chuck Christmas

to always I try closer to be but been that to John think XX%, guidance to we XX% has be XX% our level.

go for well to we’ve improved traditionally keeping saw and our dividend performance ratio would the already that the that than opportunity as about conference that throughout to given to want know done per share ahead a as that X.X%. more we’re talked So little bit we and earnings X.X%, quarter, which increase call, the and getting we closer XX%. that third to keep And at have you us obviously competitive looking $X.XXX closer

John Rodis

Okay, great, guys. thanks

Chuck Christmas

Thank you.

Operator

next [Operator James. Daniel question, ahead. Instructions]. of Go Cardenas Raymond The

Daniel Cardenas

Hey, good morning guys.

Bob Kaminski

Good morning Dan.

Daniel Cardenas

Nice you quarter, ratio Congrats! Just deposits a quick of loan-to-deposit this quarter, do go it high XXX you of loan this could down the mean Which Where that little question, hit I’m higher? ratio. see your looking growth building were or comfort at out I modestly. good kind some your had loan-to-deposit level? you of a year is throughout think end level of kind and bit the do end ratio the that

Chuck Christmas

always the right trended of as around usually Like right quarter. you as XXX%, the mentioned obviously comfortable XXX% around said, Dan, It you we’re we’ve Yeah know there. that level. end right up at we’ve been second I been so

think kind have move the forward. advances. as use depends funding little one gap plugs of for possibility our a bit FHLB I increasing if we on that Obviously the we of only that

that’s see loan us So play the you local the between are we for its it’s expect deposit side. can we But – and most continue to think XXX% there net part going what be on of just be. to the can kind from I on overall comfortable that can I XXX%, think where standpoint to and that we grow to an grow basis what

Daniel Cardenas

Okay, like alright. for And betas guys? quarter this deposit look what then you does

Chuck Christmas

Yeah, I think they are pretty similar.

half earning of five. remarks, percent four funds my Don’t a As the any flopped of it cost are basis before, I points. were flip in about margin around I overall mentioned quarter see we our basis On other really on to deposits, our assets significant LIBOR as it’s to The right maybe. pressure, Certainly change tied that competitive an the preferred as some time you average prepared of think funds, fed there, the raise very continues we’ll public and LIBOR. environment rates see off and our continue others. X-month goes the certainly are at to know certainly out there. trust FHLB, a and right curve up Borrowed

So far of to we large touch deposit had consumer percentage a products. our haven’t

deposits, We occasion non-CDs, have our touch any on had but non-time business, significant not to degree.

marketplace consistent, five cost basis I quarter. expect continue points go the stays there to would if to So a four of up funds our of

Daniel Cardenas

other All questions been perfect, perfect. Thanks Okay, asked and answered. guys. have my

Bob Kaminski

Thanks Dan.

Operator

question-and-answer would concludes to to for conference closing remarks. I session. our turn This like Bob the back any over Kaminski

Bob Kaminski

Yeah, again at our you interest you of That and concludes our Thank talking thank the Thank you. for forward to we in to end your conference quarter. company look you call. the third again.

Operator

The conference today’s you presentation. concluded. is Thank for now attending

now may disconnect. You

Mercantile Bank (MBWM) 17 Jul 182018 Q2 Earnings call transcript