MBWM - Earnings call transcript Q2 2021 | Mercantile Bank Corporation

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Operator

Good morning and welcome to the Mercantile Bank Corporation Second Quarter 2021 Earnings Results 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 Jeff Schoenborn, Lambert Investor Relations. ahead. go Please

Jeff Schoenborn

morning, Bank Good the thank for of you financial Thanks, conference everyone. call Mercantile XXXX. quarter second Corporation’s for discuss and joining results Gareth. the And webcast company’s to

of members Chief Michigan. Chief Mercantile and Chuck Financial are today and Officer; me Mercantile’s team, Reitsma, Kaminski, Executive President including Vice Executive Bank, Ray management Christmas, Officer; President Bob and of Joining President

up the then presentation review will call questions. to open call results, the quarter’s prepared and We with remarks review the to management’s

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

Bob Kaminski

Thanks, Jeff, morning, and good everyone.

a country and with availability will with company’s performance reopening optimistic in pandemic remain economy vaccinations Mercantile a On made future specifically, again the has Michigan quarter. the provide the with we the strong very across along of including this on the the you quarter call the of widespread being our about COVID-XX morning, and accomplished performance. detailed progress we second information once

beat. far dedicated a Although did not better we year a our remotely, as missed teams a half as working last spent the have and

environment to the existing in continue to to was of servicing fully highest on normalcy customers, businesses effectively to working performance, our of to monitor has and communities, they our we to team strive ones consistently remain With prioritizing standard. find us and allow developments, to As reopen the we and customers focused more conditions level health set stage of XXXX to safety while as to be. within pre-pandemic and intensely in XXXX that and return employees. operate always new may work the COVID-XX-related by acquiring return closely our our as mission seek We extraordinary the ways into to environment of to an done continue the current

timeline Our found on COVID-XX-related of full can deck. XX of be Slide activities our

continued very and quarter of demonstrate earnings which of second performance. loan income for achieved conditions. teams period negative the resiliency the $XX.X net of reflecting provision we in out forecasted We and strong improvements delivering $X.XX, close includes the losses adaptability Our another continuing and economic quarter as for million both financial current per share a

well for have delivering us creation third we Today, the share Our remain the also focus we ongoing performance of as announced per to our dividend positioned consistent, to sustained cash growth shareholder and on high of strong $X.XX has shareholders expect. committed achieving value. quarter come

able in strong financial which quarter, deeper our improving second with asset our to growing especially Chuck COVID-XX our growing stock statements quarter, our the the for are all light been mortgage our additional quality, in in improve strategic of market to increase bank – identifying as well stakeholders, remain the share. again bank in loans, buyback strength persistent under purchases have for fee commercial designed initiatives sound costs. dive also growth We leverage new of into the as create banking continued income, of our especially ongoing highlight while details manage to core the During value conditions, program. ways we to overhead will that we income,

few Throughout our support our clients. economic efforts prioritize activity are we strong achieved We cities have past loan these progress we of demonstrated to markets these steps new encouraged while pandemic we our seen the transitions resume communities in fostering meeting growth our relationships by and Over existing our as needs of great further meet our changing credit and the effects of the relationships by ability our remain core by months, as the prospective about and within customers, growth with recovery. to economic enthused subside. and the the to needs of to customers our strengthen quarter,

Our our quality asset to loan and be solid extremely pipelines continues remain strong.

team second mortgage banking incredible performance continues in quarter. Our their the

record of with our lenders, our the While activity finance quarter. greater will in loans of current provide to highlights team’s of mortgage periods our the in the of market during of refinances we our We the to company well-positioned mortgage result as refinance purchase fast, exceeded remains products both supplemented strategic new volume of our comments. capturing even of and robust, by delivery banking to our proven a home upcoming hires seasoned in you his are share recent operations believe effective Ray of markets markets.

practices swap our customize while with to position efficiencies, interest and industry our rate capture our programs best to help value data improve The interactions clients commercial loan client systems. leveraging our We internal loan of are unique to success to and available our us pleased delivers yields. adapt ongoing activities refine long-term

Bank our during profitability on categories income revenue leverage closures our fully our other serves company. a channels Digital above delivery alternative focus delivery built to look pandemic were in implemented for and during and Mercantile streams base. for to average remains primary the credit levels momentum gain income – the focus in as when client successfully we growth debit continue non-interest sustained increase Our additional demonstrates pre-pandemic fee income and card our and the key

to be we meet where focus as our to well locations efficiently We into have staff the serve and on which the prudently evolving us strive customer the exceed clients and clients. performed our of allowing can all and invested relationship expectations fulfillment explorational needs. years, relationship in to with transactions technology service needs transform continues including building routine financial over of centers We

this current XXXX. successes the Those remarks. are Our and as during can opportunities half Slide seizing work the customers, to the benefit be viewed turn my an Ray. on dedication I footprint I’ll and balance the and my of the staffs X closing, of the call communities organization our for remain and the express of to year to before to now beyond. for us first committed introductory wide excellent want the that range of our continue We In of appreciation deck. mean thanks for they so over shareholders Mercantile

Ray Reitsma

the year-to-date of the X%. million sale related core quarter. growth $XX core stories Bob. to the and Year-to-date Thanks, core Strong loans XX XX% loan is the million that $XX and growth was rate and the is entities. second year-to-date of borrowing in nearly loan in Note quarter the quarterly offset one $XX activities Slide The annualized a million commercial the performance. and of quarter first million central comprise of by is net in as $XXX payoffs rate of growth quarterly growth growth, of commercial PPP second shown

in expect pipeline Additionally, solid loans million of with $XX XX we development fund quarter. to and which commercial, XX an over commitments a $XXX to over the the months increase construction remains prior our representing of construction next million

and representing nominal million dollar borrowers. four Our end due quarter terms XX. past totaling current X.X be Slide are commercial XX past in due information can loans on at Overall found

quality XX remains nonperforming and The on Asset nonperforming totaled XX. loans as at X.XX% just can of be assets loans XX, XXXX. Slide of $X.X million strong or total found June breakdown

factor quarter the During a amid allocation provision negative the a primarily of XXXX, second of conditions million, $X.X economic a recovering economy. expense with reported reduced associated we reflecting environmental

XXXX, out in during loss loan part the economic built pandemic. recall, and challenges you’ll As caused the reserves due we to by unique uncertainty significantly, large

are by net the for mid-July the XXX program was to XX. that PPP place quarters as a are as loans. economy million the to of represented for portfolio report seen XX, impacted Maintaining loans. The with Presently, $X.X focus indicators. and borrowers our results deferral continue impacted when borrowers accurate XXXX, in on current total our their ratings the our deferral Payment XXXX no are losses million June of characteristics rating exposure allowance for at mortgage XX. depicts in strength solid performance and loans requests reflecting with process combined five numbers, of of seen to pandemic. expectations payment in commercial As upcoming representing due no strong XX, in $XXX remain of the deferrals pre-crisis in date as There June exposure. The that peak the will risk key future Slide there as extensions deferrals Slide for risk beyond X.X% similar borrowers positive in past of place

segments second We quarter million XX. the and of restaurants composition living, None the year’s monitor during $X.X of second the and following these continue income entertainment. branch. be $X.X million, from million in financial the or to We assisted quarter, XX% segments more for seen of of credits these for hotels of particularly X% noninterest lodging, in which recorded $XX.X sale includes can a Slide prior The up segments: performance than account and the the of commercial conditions individual loans.

As on XX, million of Slide seen to be driver noninterest continues be can primary income. $X.X of the banking mortgage

existing enhance to Service the base were activity relationships relationships and service levels. mortgage existing to during of the a the and and and base fully million during our and share, of in base are interest in to note in originations current now pandemic fourth quarter, in We July on the Chuck. on the significant loan opportunities XXXX. originations sustain risk of that suites increased hire Petoskey, card a we accounts $X.X compared on as treasury quarter towards reported to activity of at accounts and income will on loan recovered remains banking quarter contributors the increased and grew of the backlog turn which activity That second quarter. the represented Credit management market by second proven grew the important charges mortgage our purchase exist applications The as XX% interest This purchase X.X% include, the originators relationships purchase XX% during income to in quarter activity income, of last Michigan of performance new for new opened XX.X% economic comments. purchase services, card rate of office noninterest area, Slide established. XX. my able to accounts during future charges seasonally to Cincinnati banking debit represented opened including broader a XX. products of Slide services the income into swap is primary the Payroll of office, will products. were shift payroll during income, the growth relationships swap seen mortgage that as within enhance to mortgage high income over expanding are activity XX.X% XXXX, bank which the as I from reflecting we management as market diminishes quarter-over-quarter and a more the year will future when it their came of basis refinance clients as Continuing and refinance greatly increased into developed. reduced the rebuilt case activity continue will utilizing as employment volumes suggest periods. place as However, increased concludes from reflecting purchase seen customers production activity put in ability share volume rate income call priority new the strong refinance applications our through near

Chuck Christmas

Thanks, Ray.

million on or income of net income months noted XXXX. of diluted million of or the this share, $X.XX per for $X.XX income share share million XXXX, six $XX.X XXXX. announced XXXX of XX, net share or diluted morning for As per or compared for six diluted with $X.X of slide second $XX.X quarter diluted we per of to $X first the first months per $XX.X during totaled compared Net million quarter second the the $X.XX

of that prior declined basis earning low XXXX, during In declined declined environment Turning year in declining low in interest compared environment period since year growth assets. expense to interest during as income million agency cannot six the on was $X.X rate first income in the interest during totaling XXXX, fully Interest time. the In compared of bonds the year-to-date interest to first total, XXXX discount increased be XXXX quarter XXX million down accelerated the income FOMC $X.X earning and periods compared prior down lower to compared accretion categories the first was to and rate offset for of called total, XXXX essentially primarily recent the during points Net quarter to quarter million margin. second totaling securities cuts first XXXX, income interest a of Overall, million able months the quarter XXXX, to XXXX of in six was $X.X lower a and six due prior second period. million benefited and during million months assets of rate part down XXXX. and for comparable with XXXX million months slide all months. to loans of March period the second on $X.X period the most of reflecting XXXX the Interest interest reflecting $X.X environment. on large second compared the that during million XXXX, year was second $X.X quarter interest quarter periods, XX, the the periods, declined from the of to offset quarter to $X.X for a second the from $X.X during in U.S. during Government interest the but the six the growth net compared expense

expense during of of we of during As the negative XXXX. the remarks, provision compared of Ray $X.X a million XXXX, his to noted quarter provision during $X.X quarter second recorded million second expense

The economic a first environmental associated was the million mainly allocation, While year, conditions the environmental during months. The negative this the quarter reflecting environmental pandemic provision year’s as recorded XXXX of to reserve was improvement six reserve expense months of to conditions, provision expense both CECL in business expense negative first until $X.X COVID-XX of primarily factors. current with relatively as of of of during the economic $X.X business provision large during economic with increased the an of during and the XXXX. and the postpone XXXX We six provision reflected of the conditions. quarter expense associated factors compared adoption January forecasted allocation comprised million and the factors, recorded introduction elected second second well X, lower last

what preliminary using loss of difference reserve model from loss methodology as continue $X.X view the our CECL model, is though incurred incurred increase balance improving, the incurred than quarters However, be difference economic the reflected reserve year balance the and between our shown is the the $X.X June under concurrently the the the conditions our XX, to two XXXX has models our XXXX as run to $X.X positive aspect Under forecast economic we related primary CECL million less improvement. end about difference reserve at at few Under generally XX, but last determined would of the methodology. with of market the is calculation. CECL, forecast. million and the million model. The on over than economic Based economic an significant XXXX. business results, March forecast in This employed and lower

annual compared to to large Continuing costs We months merit cost, and on million will pay of quarter period A we’ll level of in XXXX, salary in originations. qualitative which the when is overhead deferred million during the merit of an cost, provision to reserve XX, increases, $X.X up item six and increased the the employee the on all at slide in expense of second increased year. six XXXX, quarter year income continue million a overhead assess were months of factors cost second the loan and reflect cost via million to loan balance and six months the respective statement. the to part related XXXX lower the PPP the adjust compared line – majority the $X.X of of the during benefit each first loss end $X.X and in increased health $X.X insurance of quarter quarter first first increase compared and salary ago last XXXX

six programs second accrued from the we of which last the net pandemic. XXXX, but we quarter of of for the our the first unchanged given margin the during X.XX% the did XXXX, half quarter months down on addition, Coronavirus In quarter first was in first XXXX, not Continuing bonus during onset do virtually and XXbasis year slide our XX, of interest of second basis quarter of XX compared XXXX. basis when the the most cost yield declined assets quarter to for while the first The basis by recent points on four on last second quarter that XX points the second declined to year, of Compared yield decreased points XXXX of the of points, quarter from the second funds XXXX. loans during of quarters. the earning of

during fee first Slide net on the accretion year. seen to the XX, three of of $X.X As of the months quarter was identical income that almost second million

quarter fee million, PPP end, related a Two unrecognized of our vast Number to of PPP Round totaled fundings. is net As $X.X income which majority

well million. account margin which is months the net sheet comprised second $XXX of first Reserve or over during impacted end Overnight the of of product X% XXXX, XXXX million of Bank past are average by Our higher in and of on-balance liquidity interest local increased than first growth product Approximately, are points of primarily continues local of up lowered billion excess lower Federal the increased points. a typical months as months business Stimulus yielding interest months are $X.X substantially $XX XXXX. consumer This as volume of about and a quarter balance since deposits Government first margin two-thirds liquidity or averaged during $XXX XX year be second deposits Chicago. to checking six increased and Total basis noninterest-bearing the the investing around by deposits excess a of XX to quarter and basis and of programs, our negatively Federal XX the during our balances. six funds spending. deposits, excess net XX% significant six million The deposits local depicted low with by XXXX,

falling and into to the trend, a We time cost expect interest funds in of well originated environment mature. interest as trend foreseeable has to rate deposits throughout a level environment remainder XXXX of reflecting The of continue elevated improving on been that stay future. the rate deposits the overnight the we higher prior periods expect primarily in

assigned risk share. minimum as weighted a risk $X.X to was We percent capital million about threshold on above based slide zero average in XX, strong Tier categorized was shown capital As year-to-date capital weighting. $XXX for leverage XX. well a Tier X.X% loan with for the $XX.XX of June well-capitalized capital components per remain shares XX.X% be X as $XX.X cost per by risk-based capital at position. ratio PPP ratio we are quarter and X shares weighted and the impacts the The portfolio total capital liquidity ratio total XXX,XXX no both impacted repurchased cost capitalized. to and million a at of similar our as share was of during leverage the $XX.XX to The a XXXX bringing XXX,XXX be ratio second average ratio of up The total million risk-based regulatory the on excess continues

first six unprecedented events. other we now we continue our and $XX the our of approved quarter new plan. months call operating the are the by with prepared pandemic as will at end XXXX, believe well-positioned the to million stock through June closing, then pleased as plan as condition our results had available authorization, $XX.X the to environment plan. created new we XXXXand navigate are over back repurchase financial my Coronavirus to outstanding were a during our to of are close second Those in remarks. this Bob. of I turn stock we and Directors million During With XX, In Board exhausting repurchase quarter of

Bob Kaminski

open period. And you, call Chuck. prepared up for will question the Thank and the now and comments answer management’s we that concludes

Operator

The Instructions] Sandler. Piper first with Brendan Please from Nosal question [Operator ahead. is go

Brendan Nosal

are Hey. How Good morning, guys. you?

Bob Kaminski

Good morning.

Chuck Christmas

Good morning.

Brendan Nosal

want new just where see think quarter’s do good in up this on that Maybe for to struggle you Good. are start stand commercial to off loan – folks to growth. definitely growth, strong continuing I loan will

of point? are from from it to came kind what this just you at quarter you So, where curious this from commercial and customers hear hearing guys,

Ray Reitsma

that based Ray. This increase really deliver Yes. sense is precision and way – do is, PPP program gave able are demonstrated and speed been to our to with some put banking model and we’ve marketplace. new show the done our very do on say is the to over address And in I’ll yet. speak we really in those of been the to on a we that been service proposition. market we that we where and to and not prospects what money strong have had that it’s and received hit process, customers that we out us so clients, we is And going has community pandemic to act through warmly those activity The And concluded relates to that share opportunity get it our interactions. the not with, existing calling things that. we we not the and support but and previously also only clients business the

types runway more with similar activity. have We of

quarters to to expect the a two we So, have to our in forward year. similar we fashion of grow core the in first outstandings going commercial way continue the

Brendan Nosal

I That’s four Alright. production that maybe something recent ones. more think as this is guys just putting one to Fantastic. on you loan then, different on sheet. than color. don’t growth quarter helpful And follow-up, family a more broadly, in

your that growth is ties that about production then, put of into couple And next loan thoughts going total forward? appetite to more what of sheet curious the decision? the on of quarters? residential drove So kind I was for kind What how

Chuck Christmas

vast what commercial mortgage and to loans, the have This loans. mortgage typically on when loans one majority our virtually Yes. sell the is do on been But sheet. generally seven I’ll But a is in or Ray quarter what we and do all of put have address our we done fixed to the those last growth loan one we Chuck. the in loans. was can mortgage we continuing I five we rate arms, on which balance speak are

that in to quarter more quarter, see composition think of is reflection those in the here just of the forward. now, at we happen the you originations. growth continue least – second methodology we I a originations we’ll going as of the that sit the So, And did to employ that

Brendan Nosal

Alright. Got the it. Fantastic. Thank for questions. taking you

Chuck Christmas

you. Thank

Operator

The DelMonte question Damon from ahead. is with KBW. next go Please

Damon DelMonte

everybody Hope morning. well Good doing Hey. today. is

Bob Kaminski

Hey Damon. there,

Damon DelMonte

– first thanks. So,

is question for First regarding margin, outlook the the Chuck.

I out and going a think backdrop of you what’s on laid everything. good

you So, by the fair? over probably to before say margin see quarters year. erosion some the end of Is to next continue going on the finding maybe couple that the it’s fair modest footing are a to core that

Chuck Christmas

Yes.

think there, good I that’s Damon. a conclusion pretty

expect I year, the I primarily drop this because - far the so I in income some X.XX%s, bit little mid fee margin spend in think a or PPP accretion. think of

unseen. I I stays to at see But just be of liquidity think over of unchanged probably looking that that the There are that. calculation margin obviously provided is year. that certainly excess a that goes closer X.XX%, that for we’ll X.XX% remains assumes a time. excess rest liquidity this the It’s to we into course and lot

run-off this by liquidity, of such excess of what regards especially year advances of throughout do the a bit seen. which funds, in we we get that late of deposits deposits again forward back relatively softness little significant into the happens pretty a the this year. as it’s year. growth we’ll we local reductions managed And and some to have see broker of chunk FHLB But good So, is we’ve go a as next really half and backed some and in

Damon DelMonte

it. Got

mean, then, respect right we on putting up are to get Okay. better than the numbers what credit, think Thanks. I the now. outlook much guys you I don’t And with

do pipeline the for have you loss to as a provide new you kind on obviously up any loan that or think zero we be going that good close need a Or about negative So, net loan growth loans? be what it you feel reserve release with of for and going provide again? that Do can the provision to growth. scooped you’ll kind of something basis, are to would for you forward, would feel loan

Chuck Christmas

Yes.

course net I forward loan question I think, with of that expect environmental go will as certainly, guess, PPP growth of the up and level we course some what factors reserves. as the go require of we excluding ends we happening is, major forward.

conditions the we deteriorating. and moderately trend, deteriorating While improve we severely it improved from to economic business

sitting look is to none up the like the inflation are It we So, it’s us, XX% in this here good that there. seems on transitory recovery seen the them one. at But with all this table to many before stimulus, economists. never ever and the seems inflationary going of on assess example, pretty terminology we’ll is for us. given this we’ve as are difficult year. the certainly when we that that of at are like Fed that to seems in seems us the Historically, of forecast conditions like, they just level continue some seeing to economists and these the are of are assess supply, an agree obviously very year are in the a with And it this confident numbers not economic it some got like we everybody like to their trajectory numbers has of that The kind money volume economic economy. seems, opinion money on and leave poor And seems of that.

inflationary somewhat is that component and agree inflation of is reason But big we there. are there is that up think level we conditions I of certainly inflation I why some all factor that. a environmental bring business The in going because and So, expectations about is forward. economic that transitory skeptical the

couple temporary of we Lastly, be factor one Obviously, to permanent more things obviously COVID-XX take that of out. on can going have course. there. in hope there. was still the we a There than all That meant that is one we day

that things itself to it’s and also what’s themselves think course, that tremendous review stimulus last loan and that our one of continue going over obviously just much is see. loan to at hiding out. as lenders downs read our amount discover including XX impact and there that’s question news XX and the the we continue have else portfolio. we But environment to see on one borrowers. provided months, stress that look COVID-XX to our that of of of anybody out the within that Of our and been we the all That’s factor what’s that’s on the the of understand there you some as But those own I with economic is, to ups kind COVID-XX going we going the loan that’s on marks with with portfolio the with

at we we so continue So, and that there the And that’s are why we’ll there. still that have impacts in factor factor point, gone some confident are obviously in known. keep that likely to

be that if such the quarter determinations. as associated be will and reserve My be the we’ll guess probably two related that new assess number factors that factors, would credits. the up bring see forward. make any reserves release be driving go release larger with will what because end those we to any would increase two do of a than And are to force of each I any those we a release the at So, those to that reserve what

Bob Kaminski

towards the I’ll as they the pleased extremely the portfolio to that can quality strong last on remain needs of we their and continue year back to and continuing Customers our the But do are to occasions the do – that performance or for mentioned, base challenges that their and do looks of end on to into by strong continue it labor of we with that of reserve that keep the asset there. of the relates which know performing this signs of reserve dealing when point lot the are Chuck companies very things as to our are it be we all started the pandemic. to continuing – that continues And to fight the they client vigilant in as some to premise going as pandemic we examine basic going any this throughout through are a the with looking of distress year. and challenges just market

Chuck Christmas

XX, $X.X indicating again the reserve the June I lower just about remarks, as was least in CECL million CECL our at we there be. was X going January adopting reserve now least to are of of guess, And amounts XX as our lastly, prepared of be and I at year and the of January difference between my that, next ruling CECL and to as mentioned on

Damon DelMonte

Got it.

have Okay. you for color. now. Thank That’s That’s great I all very much.

Bob Kaminski

Thanks, Damon.

Operator

is question go Daniel James. Tamayo Raymond next The ahead. Please from with

Daniel Tamayo

Thanks taking Hi, good the morning questions. guys. for

Bob Kaminski

morning. Good

Daniel Tamayo

you the solid, quantify it’s relative of going can you regular you periods if know something perhaps kind I but remained pipeline. to maybe on a prior First, mentioned that’s – that to it’s basis. guys if do

Ray Reitsma

mortgage first pipeline quarters. Yes. two has pipeline the This been of the beyond. the equal quarter very And over is and a the the at what of bit part the Ray. prior The recovered actually to beginning to and dipped commercial is very, quarter it’s to similar

bit little a April. stronger it’s what than we say, in So, experiencing, were

historical levels. of So, relative are gives we bit kind where on of pipeline color that to you a

Bob Kaminski

the keep about. to what talking despite I the number of remain core – work lending to on growth, make strategic that to able was pipeline new produced remain gain the and books. replenish levels solid at pipeline acquisition and and Ray enjoyed despite the Again, our think, have a great despite been of very some put that the already strong we’ve a loan that staff our that work client those at fact initiatives, teams we’ve really

Daniel Tamayo

remaining more gears of Or authorization the utilizing How about just from is million. around at to then thinking $XX.X somewhat an opportunistic look maybe changing capital that? repurchase And are would you Terrific. utilize of something you’d expect the something that management regularly? a to that here, Is you be perspective?

Bob Kaminski

Yes.

is stock I we it opportunistic. of our driving a as more to the factor are going think be we at Certainly, doing. price in what look

low Friday. we would For right a come on will that between XXs about out X,XXX average. get are which kind $XXX,XXX we’ve on – now, at aggressive back in we we most levels buying of we’ve Clearly, of year, and the at shares in our been that and period of the more day been and somewhere stock, $XXX,XXX blackout

and position forward. kind and more way. our are be every opportunity. comfortable feel price-driven, we’ll that late the price, continuing to really right to since continue the buy are a be. we take plan want day in going advantage likely to year. lower the to We modest of to of now with And really But doing what that’s We in going capital relatively to been we’ve going it’s and aggressive we last And do

Daniel Tamayo

sense. Alright. That Thanks my makes questions. taking for

Bob Kaminski

Thank you.

Chuck Christmas

welcome. are You

Operator

is with go from The Janney. next question ahead. John Please Rodis

John Rodis

morning. Good

Chuck Christmas

Hey, John.

Bob Kaminski

Good morning.

John Rodis

on Chuck, for a just impact? as up little any bonus the Hey. million quarter quarter. about bit this They know against you mentioned in the $XX talk Can you this going there you Was And over were forward? I as there maybe thoughts for far that catch-up quarter. your accrual question expenses. just that

Chuck Christmas

Yes.

it bonus, the On the the to next accrual year. second continues say quarter that same was payout the have as reflect bonus the various expected programs our that It of January in was first under our in first, in quarter. we bonus one

year, unchanged. we that’s year. look you second did So you the in when first later at the bonuses quarters or first didn’t for to although compare we any last in quarter, accrue again the When

already area our One the is of which talked mortgage the plenty of drivers great. course, expense of and about mortgage noninterest doing commissions we’ve is

So spillover cost overhead that into the does components.

– really our insurance the driver is probably insurance other, now health costs. right The our on

for as We self-insurer are as although employee, cap in per a bank. entire the well have aggregate cap we insurance do

the of last in that claims things six months throughout we has definitely first is started this late seeing year year really activity. One the some increase of continued

Some of it COVID-related.

in it coming at of about an end we in an the the so during as – the I additional increase Some we quarter, claims put then, additional see by putting type $XXX,XXX typically think But accrual the what increase normal we and see claims quarter in. we did legally first the And of just activity. continued we second invoice, our would. our to $XXX,XXX in, with to compared

So the $XXX,XXX over quarter. about first

see where goes. we’ll So, that

on accruals where end We of monthly at, increase at that quarter. we continue each reassess the and are our to

half speak, want that back we not turned up, caught here but again, what As hopefully are the of are in we But the we year. the to trends see.

As saw be will, far think we the and overhead I if the you quarters as will in to guidance, first closer quarter. cost for third fourth the what

of I you And – will. especially that with quarter quarter, half if increase in think expectation the what banking in income. blip the will the expect lower see back more mortgage you of is to activity second we a our the we see

get from decline we purchased. now As just of Ray as back a would fourth And mentioned, over we typical into half, especially quarter, seasonality standpoint. the is there almost the two-thirds it a expect

John Rodis

Okay.

I So if you it the $XX like, so to next million for heard Chuck, right, two quarters? sounds closer

Chuck Christmas

Yes. Closer to quarter, the first yes.

John Rodis

Yes.

Okay.

you. Okay. Thank

Bob Kaminski

John. Thanks,

Operator

The next Please Group. question is Rowe from with go Hovde Bryce ahead. The

Bryce Rowe

Thanks. Good morning.

Bob Kaminski

morning. Good

Ray Reitsma

morning. Good

Bryce Rowe

to liquidity first I the and I remain about elevated. But question are made asked think, thinking remarks how the you you balances to curious and securities prepared If, of relative portfolio this I sort comment these your quarter on the in expect call. you conference just cash

that assets more and a other with level? purchases? ceiling continue a going morning? that for is the target portfolio So, a you here from this Is those also add certain along that I kind – to am we’ve securities opportunistic Or you on it about of to some there are percentage is wondering if talked of things a

Bob Kaminski

XX% at to or generally historically overall, sense. had securities. either allowed X% we our We that think go be or this about run down would XX% portfolio about broaden XX% I of and investment PPP excluding –

plan there. securities I But regular building It’s buying that that and not build We buy government into that probably liquidity up support be same was agency anything from of in investors expect portfolio. of like going and been the different closer to getting that. the to we And we end high and are buy municipal do on excess portfolio. State think securities going type buying our and we’ve and bonds the dump of are the I issued So of continue to half will we have back investment what the are Michigan. continuing be to What bonds what bonds. portfolio doing will entities to we that not continues be we been to we is

amounts. at bigger not the are which extending the dollar We all. The maturities, is agencies the duration

basically just We buy to primarily ladder. in And X timeframe. maintaining a the continue X to

liquidity unchanged, off cash liquidity margins and about periods. in we do manage more So, their of with risk excess have comment relatively position of to can excess coming degree rate the interest do we My has those that those are just question depositors the when we going continue expand to created the I level businesses. deposits into of and that that they on more get has we’ll and business years, what to invest a good that the into the businesses, think it’s their get local side to staying our our when

driven regards sure the this going which am struggle consumer to they on here employees. leisure of that COVID. way purchase businesses, what our it’s to side, habit continue the to are this by businesses In country, spending going are the of course Whether going start activities, to be? On spending or is find their is lot are throughout I to certainly to but they

are buying we is what hearing So any equipment have We’ll are we they and tampered financed. we that of are with are we would seeing been the using might customers somewhat expansion the equipment. see opportunities what that they end Historically, the But that that that the mostly support on they opportunity lower find those by just the to opportunities. know what deposits. the especially purchases, fact to that – expand can’t know business is see, employees

So, their decline with deposit at there. local months. the – - But what least there is funds driven be it’s do some by XX to in on to an six the depositors the future going maybe much basis, what next overall

Bryce Rowe

their Two plans the I what customers those balances round? maybe in forgiveness of from then, pursue And are of you you helpful. what get PPP What the some question in hearing are mean, That’s even Okay. PPP on here the be and saw loans, a might here terms second Round for quarter. given your to obviously, expectations?

Bob Kaminski

Yes.

XX, we as think I noted Page saw already as of about June of here, already forgiveness. are million – $XX we as we’ve XX we seeing had on

already has that so And started.

will say, we when very processes. get government and been just they any I funds we a applications. they basis to have for customers as As apply Federal day-to-day, forgiveness those actually has And and to you would quicker use course, And do some their paid expect, that on process and to week-to-week very, to. those the of when inconsistent then involved more as need without need seeing are they

the – term So, at try a and what’s we like see into going longer it see project is look things, on on what we it But is hard many predict. going can future. and trends to basis the other to

to We Number really only forgiven. We are had is remaining as obviously that on almost loans our declining Round of One. on give XXX PPP And XX, down basis. a daily June

the of the that off books certainly hard would would PPP be tell. end I then a end full quarter. we on the year and by of good hopefully paid Number in by from first especially expect at it’s Round gone of But to chunk the to the that, So, have Two say end balances year.

So, my thoughts. those are

Bryce Rowe

did fee Chuck, million And on to the remaining $X.X side – say, Okay. deferred you fees?

Chuck Christmas

Two. million $X.X Yes. of that Round

Just on about $XXX,XXX Round One.

Bryce Rowe

Okay. much. Great. so Thanks

Chuck Christmas

Bryce. Welcome,

Operator

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

Bob Kaminski

next hope much very The We call is And the for enjoyable. summer third the our rest we speaking you to at look with your company. forward in your of interest the concluded. of you now is Thank Yes. conclusion quarter.

Operator

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

now may You disconnect.

Mercantile Bank (MBWM) 20 Jul 212021 Q2 Earnings call transcript