Earnings call transcript Q1 2023

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Operator

Good morning, and welcome to the Mercantile Bank Corporation First Quarter 2023 Earnings Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. event recorded. this that, note is being Please

I to Please Zach like to go conference over turn the [indiscernible] would now ahead. Lambert Investor Relations.

Unidentified Company Representative

Bank webcast Good conference first financial quarter. everyone, and you the joining morning, thank results for call discuss to Mercantile and the company's for Corporation's

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

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

company's the structure, this any it is company's call as made obligation described on the and well turning revenue, call. from objectives assumes such my that, The certain could forward-looking to during over differ the involve company of statements Exchange you statements company's business. materially as factors the actual forward-looking statements forward-looking statements due Securities inform update any Before latest filings. in to and may as today, plans call capital The responsibility the of and results Commission's management, projections to to made earnings, no

have release of it by a not first quarter company's the website press the at If does today, you anyone and already issued deck access presentation copy Mercantile can at www.mercbank.com.

Mercantile's I'd At the Chief and President to Officer, to Executive this Kaminski. over like time, call Bob turn

Bob Kaminski

XXXX. on for and March us quarter which you Thank start a XX, morning, of this the call great you, results reported today. a Zach. to Thanks released to financial joining conference Mercantile its all strong

subsidiary of Mercantile Mercantile and Importantly, this Bank. Corporation Bank stability information and demonstrates strength its continued

this our about part during the of banking happened events first system country. of the caused the concerns As in have have that the we have industry quarter, health latter witnessed in

been that the of will factors. foundation based strong the that environment of external fundamentals the with and Mercantile, of which continuation and detailed consistent quarterly the you trade Mercantile a on results irrespective our Today have illustrates economic other solid other we share is and information

morning, base details liquidity, from the you and call items solid comments. of details as these their well Ray funding capital strong stratification, attractive and levels, portfolio complete the will and provide in on have our diversification on composition this our with efficient discuss During loan we'll base. first which as the overhead We'll Chuck asset illustrate quarter, quality, will our deposit management.

share in for $X.XX announced same on paid For compared quarter, quarter. per June per XXXX, XXXX. on the payable period during dividend on million of that dividend share first posted of XX the to morning, of per same This we Mercantile share, million the first the $X.XX $XX.X of to earnings $XX.X cash also $X.XX revenues was revenues a

as composition margin deathly slower the interest level nice compared been Our to and team three a a interest of net benefit income to than able than the This to has base, Mercantile result those prior asset of at expectations costs managed to months respective to profitability increase this been have of been has higher the anticipated. favorably compared continue of period. we net to perform Deposit net show growth year has consider during the XXXX; allowing normalized. first costs maintain continued the interest has will would our measurement to a risen pace margin, continued

closing scheduling growth long of first situations. remain Overhead the Net was timing pushed than back due as during to managed. expectations lighter normal the advances well was expenses some quarter,

higher levels costs. of additional inflation borrowing taking embarking also on given are ensure and reassess projects borrowers are time still appropriate before to that economics and Some the the

credits levels, back the will quarter. pushed fund early solid at pipelines Loan and second funding in been remain whose many however, has

non-performing and strong, however, extremely past bank with dues XXX,XXX in and the loans vast to quality Asset former being real be branch. majority normal of a only continues estate other with levels

and various with and of between in loan including extremely balanced well estate real office commercial low segmentations remains estate the real among retail Mercantile the exposure portfolio types, very types. the CRE The levels commercial C&I risk comprised appropriate of

heavily and Our overall of term. confident lending our and ability with macro to our and in teams to near industry clients, the specific that continue successfully challenges clients remain remain engaged banking community perform business' their is in the approach, relationship-based long which through the a term and emerge hallmark basis manage

February compared February unemployment more at of the period, up have loan continues end portfolio X.X%, will to from unchanged at with and prior services The color perform economy utilities and remaining year on X.X% health to Michigan fashion hospitality X.X%. trade, X.X% shortly. up X.X%, and overall education transportation manufacturing up Ray XXth is up as and X.X%, steady Non-farm in the including XX-month employment up XX jobs leisure XXXX.

our The mercantile enjoy dedication that we and be possible company would members. the work team The of incredible communities. partner represent trusted for clients dependable and and our team continues without bankers to as our successes of not a

that stepped again, clients and Time up potential constituents. Relationship clients. in and the provide many financial has to despite challenges emerge, solutions manifests banking different and different Mercantile to guidance, to forms time itself advice,

culture relationship the is partners Mercantile with business excellence. based our Our of know that upon

provide by stakeholders. company, the our experience which the performance next, all It on prepared allow successful of will principles will them other benefits external for forces that economic customers affect with comments. that upon and by of relationships that basis trust take are to our my Ray communities. now Those our in regardless are developed followed foundational of Chuck. conditions years microphone is us rely Those and established

Ray Reitsma

asset of from sales. posted million dynamics relatively upon cash of and deposit $X pay components of $XX the mortgage loan as Thanks as well flow impacted reserves comments growth the center growth and from our loan, was quarter downs This million. in portfolios, will income. commercial in level as flat commercial by cash Bob. million we Core the My modest growth $XX non-interest excess for loan, was or

commitments grown XXXX at remains year backlog high The the construction at support XX the similar $XXX December last that to markets for the that serve. four to over the million levels an all-time to industrial reflecting has at year-end. backlog Our totals $XXX of bank's March sequentially XXst, next XX the last pipeline projects months to over quarter compared reported million expect in need commercial we the fund multi-family to ended at XXXX, ends for commercial XXst, and light we

been year well ago for XX% of portfolio largely has rate rising one accomplished XX% of compared program. environment comprised the portfolio to The rate SWOT through loans is as the positioned floating our

of due loans nominal loans non-performing levels unchanged quarter. quality basis and from points loans prior of to total with Asset pass remains XX strong the

underwriting While proud we standards we strong remain in any in and vigilant metrics, monitoring identify of quality to efforts our loan deterioration our of our sign are portfolio. asset

of Our recognize risk. lenders are defense the first areas emerging to line of

current a impacts our model an emphasis on borrower's our results have cash a that of model, report emerging finances. to begun robust environment. potential experience is All to not risk and Our customers and to with continue rating to recessionary the said, rating sensitivity strong borrower providing challenges flow within any date

which concentration real presently estate X% loans We limits commercial and within buildings, portfolio, occupied at non-owner office of at including loan of continue multifamily total our total retail total loans, X% comprise monitor X% of loans. to

of gain Higher a equal result markets and of impacted inventory as and portfolio revenue, We types and balance each a more have led prior income. be on XX sales business on the demand the of immediate over more a mortgage housing XX% for arms construction residential lack an to environment, raising and serve. we available by about our of seasonality the led a hold loans recognition to loan to lack these in rate Compared The inventory takes amount generate event the to to rates of has activity. increased have mortgages months of year. continues

quarter XX% purchase the to refinance in this under pursue year's market to XX% compared to continue last is quarter decreasing last first year, quarter. time. We construction loans to that million share activities $XX since in the compared residential $XX Availability due quarter, of the last originations quarter first increase comparable the with rates million in

income previously service reduction The and the year-ago of earnings Non-interest swap XX% the mortgage credit income a banking quarter respective decrease first to quarter. from the which accounts, rates the in contributor a charges with overall down on decrease in in for decrease XX%, along to compared described higher XX%, was XX% is primary resulted income.

In X.X%, income increases income sum, decline offsetting in of payroll more services than credit in categories card these XX%. and debit and in of

decrease $XXX which vast that accounts, of normal balance business by non-interest-bearing decreased majority X%. primarily deposits a An accounts. quarter, million or was the in to revealed activity. decrease in material This the evidence attributable displayed were analysis During

customers to the and than $XX or to totaling relationships headlines eight another of of was the consisting non-bank million deposits reacted remainder total banking X% deposits attributable less investment. or a surrounding to industry move bank The who

number around initiatives We deposit we of within that the have strategic serve. a opportunities base of customer that portions our markets and developed exist

comments. my I Chuck. turn call over the will now concludes to That

Chuck Christmas

morning Thanks, Ray, and everybody. good to

or continued in interest providing year an limited by per income, for strength ongoing of metrics we robust improved first margin per interest net part of this million quarter for expense. As net the $X.XX for were morning quality share period. asset large share Slide and income announced operating XX, income diluted $XX.X or net million on driven net and improving prior diluted noted growth, from $XX respective of stemming The provision results $X.XX higher with XXXX, in loan the compared

period, loans environment XX. commercial XXXX, rate Interest prior mortgage year loans. compared increased in significantly residential quarter reflecting to strong growth to first the on the increase in the Slide core of interest income and and Turning during

than loans XXX XXX increase the a first combined rate point was reflecting and federal quarter of basis of yield commercial have impact floating funds XXXX rate. the an since loan first March the XXXX, of aggregate XXXX, approximately of higher our quarter two-thirds in points basis Our

majority growth quarter Income environment. Chicago XXXX to Interest Bank was the period, rate of the XXXX to during of first on reflecting higher and in investment is year prior assets, the the the interest Federal also increased income earning of relatively vast prior on the comprised which interest with the period. primarily quarter and funds compared Interest year first a during Reserve unchanged of deposit compared portfolio securities of

was to XX.X by paid to compared considerably the increased of total rate substantially, million and sweep the competition reflecting higher of our interest first accounts period. In Chicago the quarter on Income the recorded increased While when balance We expense XXXX average enhanced was rate year during compared our prior FRB increasing quarter lower. has and the deposits. first of for interest interest deposits XXXX period, environment the year prior during the

outstanding, FHLB other advances reflecting our than period. but the prior rate. cost interest prior average money, to period. on prior year Interest during compared of when average XXXX first total, balance compared increased trust slightly period, higher of higher the to million first year on of compared XXXX income XXXX the first the declined increased Interest In the quarter Net year interest preferred securities. quarter $XX.X lower higher borrowed expense of a during reflecting million expense the was $X.X impact of expense the net to the quarter

We million recording during recorded XXXX $X.X with loan million. to part the credit factors of of growth. prior necessitated million a quarter the loan Provision We the expense not adjust economic compared was period. during additional reserves $X.X of strong quality ongoing growth the recoveries and allocations the loan qualitative provision associated than impact in large first of updated loan forecast mainly reflected quarter $X.X less year loss the in both any first reserve periods the with expense net of and did by mitigating in reserve XXXX metrics

$X.X the annual quarter million during the increased to expenses first costs No million totaled merit recorded first the prior of of quarter year mortgage XXXX first the impact and lender compared XXXX. $X.X of of Lower XXXX. were overhead were year period. XX, bonus the $X.X increases. higher of Slide on Bonus quarter during first accruals quarter to prior during benefit XXXX million during Salary compared the Continuing period. the accruals mitigated commissions

under the of the million dollar is this be $X.X XXXX. million Included the assessment agreement due increase at XXXX down period. FDIC a to increased effective first increased that became costs during facility branch in prior year former on of the sold. overhead $X.X million Other compared industry-wide is quarter to insurance beginning $X.X that write to a expense amount

increase swaps the million. the costs cash collateral in While on of and reserve interest swap $X.X aggregate credit

increased margin yield was Continuing is reflecting interest XX, on basis a of up over primarily margin Slide interest large rate increase interest past points months. to part, X.XX% the period. year The on reflection environment first the the XX during our of XXX that compared in quarter prior net earning improve XXXX, assets, in the

points first has the environment have combination rate quarter XXX on floating of increase and interest two-thirds since in basis loans commercial yield loans of of rates. reflecting increased Our our XXXX, been the the approximately

we loan XXXX Our average basis rate three A past and portfolio significant increased our time of reflected another during level for over financial deposit the quarter raised quarter three environment, rates our fourth the not believe the institutions that those XX the nine has increased and during XXX increase competition of $X.X increasing first points averaged relatively which of funds months. the that in XXXX meaningfully given billion first points during during points the has After XX rate positions of of liquidity increase basis our XX per cost commercial deposits during low were Despite about a quarters the points excess on time. quarter basis first of XXXX. over XXXX, of months that only competitors of interest a basis most period.

to numbers levels. our We portfolio, increasing on we and as believe XX liquidity interest investment deposit a return slides pick couple to XX. positions rates historical rise However, excess will are decline, and information betas added are and ultimately of rates to our deposit which now rate slides presentation to continue

with on percentage portfolio. XXst, municipal of of as was our XX% bonds, issued are The our securities, all by X% US and All all a guaranteed market segments were of Agency within the in which by categorized of of of Government US the of which within municipal bond state basis. available are government about of maturities investments of of comprised portfolio for XX% high entities US as Mortgage structured laddered our Michigan Government comprise areas. backed sale Agency are bonds the generally March a comprised investment only municipal XXXX investment a agency approximately

loss next Government US mature within the next bonds the the the portfolio the the of majority years. slide of seven On unrealized the investment net depict XX over loss municipal during and quarter gain XXXX the increase XXXX. significant of A unrealized started XXXX. with years Agency quarter we quarter the The first first over bonds first of from three-fourths of to XX, to maturing of meaningfully

million that had has March XXth, on the interest increase increase has peaked rate million of environment. significant It in environment is significant declined at income XXst, important to income. loss net since at XXXX. margin date, net the rate loss substantial impact interest To same net net in unrealized interest our in $XX and the The September the increase to XXXX unrealized and $XX growth to a note as reflects net interest leading in

of have five provided loan have of Turning our about to while data rate we on rate, two-thirds slide XX, mature XX% commercial portfolio. our loans repricing Nearly within loans years. our floating a commercial fixed

and aggregate, X-X with XX% subject next within within the most subject approximately adjustable next In to loans adjustment our comprised seven are rate loans are largely repricing total the years. to of five years. Our XX-X loans of retail mortgage

on and provide On we slides XX, XX, deposit our XX, base. data

of by will we US their a first we You tables decline entities, Even is XX, reflect elect these product level with over in accounts accounts stable commercial of March municipalities the that calculations sweep note especially the deposits, Government XX% of of portion totaled funds A to sweep remained and fully lending during year, our quarter uninsured secured commercial industrial that are those as in deposits and Bonds. companies. sweep total each large a relatively place monies XXXX significant which as many The seasonal include that account checking has non-interest-bearing comprised from years. associated Agency deposit in accounts. funds with XX% of relationships, primarily experienced accounts

XX, $X Slide on or we On with provide depositors of balances information million more.

the billion. XX% them Almost have the had of As XXXX, or and relationships, we were aggregated businesses million XX relationships those at $X.X Of XX, XX% municipal individuals years. of least of five with entities. approximately comprised XX for relationships of balances XX remaining and the of $X with with March exceeding deposits had

accounts. majority bank, a are As our commercial deposits commercial a of comprised of

our On year-end reflecting the primarily This is business deposit balances deposit XXXX. XX, bonuses, quarter, disbursements. deposit XXXX, during of first of partnership first and $XXX down depict March and number slightly quarter. we as the totals Slide million payment XX, increased customer personal seasonal of and taxes, in Aggregate

of funds sources our last the manage credit when residential deposit since as we flows. obtained of matured. been with FHLB XX interest years March with to as advances #XX, at on as vehicle It wholesale obtain Minneapolis bullet bank, only we our remaining Minneapolis depict mortgage We rate as commercial portfolio The XXXX federal loan has manage a Bank periodically our of broker rate advances fixed loans, deposit funds of of of unsecured On four March risk Slide of did Federal our associated We XX, our rate do to major XX, generally to use million. XXXX, we from years. the line with needed primary is liquidity June and primary seven corresponding of $XX XXXX. source and fixed also

in We position. regulatory and well-capitalized capital a strong remain

was XX.X% the did to We first well threshold As our March XXXX. and be million during above total of regulatory capital Bank's quarter of repurchase capitalized. XXXX, as XX, categorized was risk-based not ratio the minimum shares $XXX

our million $X.X in plan. available current repurchase We have

calculations did from are number capital leverage losses calculations, assuming Slide include capital total and Tier the X that gains in adjustment. unrealized net on our depict While and we portfolio investment XX, regulatory our ratios, excluded risk-based

ratios position remains strong. the forma calculations, capital capital pro negatively our by impacted our While regulatory were

down declines and capital our ratio XX.X%. from March XX.X%, XX.X% XX, declines total risk-based from our of to to XXXX, X Tier XX.X%, down As capital ratio leverage

Our by excess capital capital negatively ratio impacted. also is as measured risk-based total the

regulatory categorized million However, as well it capitalized. strong minimum $XXX the be totals to a over

Slide conditions On for remain funds rate the of quality recessionary XXXX, volatile, interest assumptions rate remainder and With the XX, market on significant to predicated making we that a the provision pressures performance XXXX. The changes federal at of our during no share metrics asset the forecasting is on environment no on and latest key difficult. expense. forecast caveat remainder

around commercial with to We total range the of loan are of projecting in growth X% growth loan X% X%.

While our in the payoffs we in this XXXX, latter downs into year. year, high experienced of pay which commercial pipeline of especially continued remains a loan a of in level strong, part first the quarter

We from are funds increases margin long growth, relatively earning forecasting our our to interest net progresses experience to competitive growth our as in in decline as yield remains pressures and XXXX while stable. liabilities of interest-bearing asset cost fund we

In myriad pleased quarter prepared my are first our continue faced operating and results remain are we closing, the to of navigate well very Those we remarks. XXXX us. of all by successfully through challenges with positioned believe

over I'll turn Bob. to now the call back

Bob Kaminski

Thank you, Chuck.

Now concludes call open Q&A the session. and to the management's that now prepared will comments

Operator

come Brendan Sandler. [Operator Instructions] Nosal will Our question Piper with first from

Brendan Nosal

congrats quarter. morning, the guys Good on Hi. next

here tempered about off lower But moving think, and it guidance of than the this up of thought. the result. on I you the you name the like the quarter at the strong over as despite start the walk first pieces Maybe us margin, better you forward starting points outlook go a level and quarters higher to basis major by kind new how kind point. through despite of Just next a, quarter held it see I couple looks just lot it XX mean, I the would've ended

Chuck Christmas

up I was margin that increases lot Brendan. better until I deposit the was Chuck. first January, for is the quarter in during just didn't rate half. play that into than Yeah, timing a This had the is more of the provided projecting price that really guidance Thanks, come ended the and being back

to for monthly at, if quarter, back the look entire especially our at closer budgeted the half to us you had what of on if for look the been margin So, quarter. you were basis, March, much we would've a

accounts. today in a January versus as there. primarily I especially we additional is that what of did products the out on pressures rate far the that as a CD margin think guidance true And some money we our degradation that's per I'm as are well market in deposit as giving seeing reflection

is I things medium- of deposit the certainly with high rates and to very, very think, basic it relative products. trends one are to industry is the when banking that the that treasury longer-term short-term just facing this pricing comes

other just It's to So, are well. inverted on banks basis, given especially having pressures. the that face curve there, pressure rates it's a are a deposit lot more yield non-bank short-term as on we're also competitive also out placing than products that that

Brendan Nosal

Chuck. it. Thanks for Got color, the

Chuck Christmas

welcome. You're

Brendan Nosal

of still the moving tough on itself, you're and above the the balance but of pressure equation growth? to, plays Maybe have it's how much how but bearing, past out over pinpoint, over of levels. runoff know you funding more that into Yeah. well of the some of expecting deposits pre-covid loan to that of on non-interest any well overall to kind I year? overall as couple do sense then overall the versus balance remixing clearly quarters, then And just

Chuck Christmas

do our for this expect get of great. year. We think question. of relatively A some is in year. but, that I Great points the every January of We seasonality expectation increases. remain general No, remainder deposits stable that there, lot in

January funds make leave, year. that of as, So, those saw the same expect up, we and obviously built have next similar customers to money withdrawals throughout be but in that to year those depositors

on to a So, core time. would I graduate, increase in deposits, expect think overall not steadily area we but basis, especially an our non-interest-bearing over

very -- out to to difficult going figure deposits other think, what's with on try that. it's core than I

unchanged. As deposits I our mentioned, comments, personal my were

Ray on as the withdrawals business his the more specifically comments saw on touched in side. were we were, We

We you’re well market accounts as go time some money deposits as back seeing into are yielding deposits. definitely higher

reverse and low. that's in we a that think just XXXX kind what saw of I so XXXX when of got rates

got product or parked other, originally products. were just went monies deposit CD I and there. into think another savings in those They

as the funds of to back migrate the have, we margin which But deposit CDs. those product, non-maturing we're to from lower is cost fact And now that, us into they increasing time factored calculation what's to with yielding course going money. that's the continued higher see into migration, expect more deposits rates yielding, starting is, that CD

last course have years, And we the that into been of of That's environment then are big existing couple the rate as higher have over going maturing cost CDs, of really open forward. funds the the well. driver

Brendan Nosal

Got it. Thanks for taking questions. the

Chuck Christmas

Welcome.

Operator

question Our may Tamayo Daniel next will James, ahead. confirm now go Raymond you with

Daniel Tamayo

good morning, everybody. Hey,

the First for the a of March. you all, or what on all deposit you about of I the the a that, quarter. the kind bit in at of that's a deposit towards helpful put you thank in and March, disclosures. work sure margin seeing costs, terms I I very in on guess, was of know that wondering end finer being were that specifically of you end was together, all point more up lower of ton little what period us. just put for but if of costs, first the could talked on was to following of

Chuck Christmas

let grab you that me Yeah, really quick. for

costs, cost it it if as XXX, all assets, look deposits at percent So, X.XX%. was you of our March. our what of in deposit of saw total cost, a we were for And at about about average our

for a, year of of continuation of the we're So, it just expecting of rest a is calculations. kind just this more those of what is types

Daniel Tamayo

March in margin Okay. [ph]? And an or overall you have did

Chuck Christmas

sorry. X.XX%. Yeah, was I'm it Oh,

Daniel Tamayo

Okay.

curious, The place that to are the you up to you that bearing being rest pretty well you that. shift still into the take just guess guidance, much expecting Kind what the grow core of of said, talked you are about think do non-interest coming over baked of are overtime. in? expecting I or year. XX% on high. deposits non-interest-bearing just in that shift mix it's But So, fair baking mix I changes you over think that, to assume as your how year following you

Chuck Christmas

Yes.

because mentioned, expecting not bit, I back got have think we tax we that and and expect stable, have bearing these those balances I little make of as would build to relatively in increase of January. up partnership to are non-interest to stay companies a percentage in they anticipation that disbursement bonus if the

overall we work expectation basis on the noninterest-bearing accounts an that, So, that balance throughout as see is bit least, through a sheet. would little our increase hold steady my maybe year, at typical checking seasonality

I driving The deposit go into One is upper X% mentioned, going are of as an the some they Xs funds things cost in we that products, CDs the increase funds. which low are products generally and repricing Xs. in and are the definitely seeing that speaking are CD of that, below into non-maturing are

with is repricing lot the repricing. is types seeing of those a And products which going and I savings products. there as So, just as from of into well, on CD accounts also migration a then CD mentioned, some deposits significant

when all we from our as we products. of conservative certainly hard whether a expectation want yielding of non-maturing market I And to day that our think on build costing money typically what we pretty be grow to standpoint Clearly, sheets standpoint, that's we some with funds, balance projection of try to do, as we borrowings, a day try deposits. higher trying do do is, projection to can in try our and time conservative. deposits, but are there, account from high deposits, to some out out, as be our

Daniel Tamayo

kind then the new coming towards And of the of end great. just curious, were quarter. lastly loan the Okay, side, in yields on loan where the

get relative what's curious would bigger just mentioned X% we in somewhat settle And question it's the forecast. the it where those would you and to elevated. the now. continue picture then variable X% but given How around with kind up deposits that those of -- to expect loan value a to to stable, nature, ratio deposit You growth on high portfolio expect those of XXX% I already I'm mean, that loan go do seems or, to

are thinking that how ratio. curious about you So just

Chuck Christmas

always comments, little Yes. we And still deposit But so bit XXX% mentioned really to in mind. your over sweep throw question. a not accounts because change that as those I trying it's are into our my in truly accounts

in our ratio highest especially always want our that the the years, however we of I with think you excluding seasonality of calculate those last balance on the that because impacts see. if all the at been sheet, end historically, you at first pandemic or the and that, has loan-to-deposit withdrawal us couple of look to quarter,

a a commercial. of We are and lot are bank our deposits commercial

we balance with And our sheet. so customers seasonality is see within our noticeable very that

don't So, ratio games I intent higher. we I that to any ratio, go speak. to our to expect thought think with we so -- would play that

using a we for Instead, not As I instead, comments, to If broker the in and FHLB. would help year. relied mentioned haven't that broker right on borrowing we almost we're number. doing help my We're out or get it interested low deposits deposits something as number were from in clearly want go and now and we specifically assist we're our particular sheet, as effective to there obviously one do our not balance efficient managing and possible. when in cost to

what lower FHLB we're have of that especially similar Federal than are to from short money the environment. supply most on until a the the that advances rates decided longer of Indianapolis reason And up Bank deposits in we the the get a there's had there recently, three- found, for considerably at Home five-year And out keep lot of we as with like the term low the rate brokered least we biggest everybody and going do going broker to market, not of been rates get tenure. is interest in

history get But that And and ratio with quarter. said few in had an Ray initiatives and a using up an any some FHLB deposit see nice loan of comments, somewhere ratio we as his briefly we'll loaner done XX%, end at reasons, basis to is especially will But been certainly first different on of, Mercantile’s on we some not that expectation the higher. for use maybe until all up hopefully, all of last company that, wins year. almost can the our mentioned sense the basis the ratio, around So, decline. always it for deposits overall XXX%, having broker overall makes deposit XXX% has go us quite that my throughout

with experience a it. comfortable On got managing. an position overall it's we're basis, of We've a that lot

mentioned surprises. try within transactional. are in balance his opening business. you're or to in don't come type We're those not the remarks, company. Bob very the relationship a that when where As not And get We many were sheet transactional be we of surprises driven

the comfortable clearly, challenge we're pretty past. big that because balances. Deposit where deposits But we really we've always company, now challenge. really been been our so a don't in It's see a we're we any growing loan and that, at. for has always different given this a I all So, than is think at with big had challenge growing growth successful been,

got like that bank of comfort March making our that -- Ray and that we place bank out saw bank Certainly, that the silicon. depositors early was they we company sure episode. and of like virtually limited understood withdrawals every the with attention took that giving strength as and in more at other And and mentioned, spent nothing from very part of and them everybody's the especially larger our throughout, April even time least activities we our our

continue our a the most sheet, sense manage grow it's risk going liquidity can along challenge. as our going to a positions. with the we which to as we're interest balance basis, long-term makes on deposits yeah, best So big uh, rate but manage We're we to

Daniel Tamayo

Sorry if at end have the Did of you the I new loan yields missed the it. quarter?

Chuck Christmas

have spread strategic the And use. we on do do rate loan that cost rate very over it fixed fixed of pricing we to funds. what a Basically, going basically, model the we're basis, on we a

the we at think, rates. the and Advance of Indianapolis FHLB use I looking five years

think, the current I around X%, right I So, think. rate is

XXX So, that think on over some or a five equip we that, I balloon would years. would a standard you XXX seven that to to on rate do would be financing points and basis add five-year to

Daniel Tamayo

That's it me. for Perfect, thanks.

Chuck Christmas

Denny. welcome. You're

Operator

with Our will from Hovde Eric next Zwick Group. come question

may You now go ahead.

Eric Zwick

could wisdom lending Good an Wanted the pipeline for I at or cycle point. elevated have level either the, start guess And question morning, to of everyone. an maybe at economic a Bob slowdown, given impending suggest this that, just of construction might or Ray, construction for risk. to conventional end

So, that of market point, talk industrial move some confidence there in multi-family the in Michigan for maybe that additionally you're these leads could point. side on about permanent at to extend that and this wondering market and you new the the the move they to your and, credit if your to in and that, projects at to, will, completion demand just confidence the seeing differences terms

Ray Reitsma

element, in There’re There's Yeah, the industrial this elements multi-family. is Ray. construction light there's really two that. then a and

light buildings On industrial the the very West in and constructed, side, the high here in have Michigan. tenants that required. are being space is demand It's

feel we sector. So, good about very that

shortage the from of that information up those evidence multi-family. have the for realtors from of Grand been sale. more studies strong hearing has of to competition the the continues for exist and go done they side, how intense multi-family when Rapids inventory that for the been units, the recent terms is housing things the in to homes support to housing, city pretty we're need in anecdotally form that about for Moving All

of that we bank the Occupancy the So, pre-qualifications. them, those extremely would shortage rates were mortgages. with high took inventory. offer address existing inventory. I XX no that, apps of would yesterday for in so And are associated to in had XX they the speak

factors of comfortable all and the are experienced with portfolio ability through market. make ascertain along conditions those the together to the projects in existing that their very sponsors have So, strong these and accurately us

Bob Kaminski

I all of said, going even and said. into current examination what coming our many going Ray they're what's this Yeah, what's with those implemented Bob and out, great the about certainly underscore estate. And in and And coming had the working many on time. that of we the at reports, as with than Ray recession, the diversification partnering years we further concentrations, experienced real through just the who've at engaged projects back developers of is that, as levels looking talked out got portfolio, pandemic

that and are a in continue predicting watched, form what's And on, close coming up. it's something people watch historically recession very with so of the had we've especially today, do some to

portfolio an a of we but our really at of ongoing feel bucket CRE on the loans the entire really lot gets, time. we current basis, good about and feel captures So, that certainly attention our good about comprising what's

Eric Zwick

color. Thanks, guys. That's great

curve Chuck, getting end of a maybe futures rate ‘XX cycle down. we're with yield looking Next on hiking end I coming is and into just suggesting futures, guess and normalization curve what kind or that the funds Fed the back towards the ‘XX the the the potentially of starting at for see, rates at maybe of

is how balance look would sensitive to the think still downside or With anything sheet of And being rates to constructed that down? positioning, with utilize to kind relativity any the protect come you do to if about back the potentially longer-term, you there? impacts start were there -- negative limit asset their

Chuck Christmas

question Yes. I specific don't on think specifically sheet speaking to any balance your we our programs have there. with derivatives,

we have as tried think of as to duration overall basis we I on shorten is, sheet can. our an do much the balance what possibly

type One analysis. look at that existence, A any just ever long. things couple of graph out would of rates probably that, when of any amount in you put the Mercantile's see volatility tremendous of which even myriad have isn't nobody there, -- And what a a interest into is of over for reasons. we

as to think short make I sure sheet is And the as defense balance so, best can. our it is

overall up rate can. opportunities that yes, looking those lived. repricing basis, of duration But sheet. is the see to going And balance any with timing it's addition short trying we an sure And do loans. environment our that, best our in So, make also balance rate liabilities. just on our to our of our commercial But sheet, basis shorten as mismatches duration liabilities duration repricing the within to on we're side only to decline, a impact if up are that the entire try the an we opportunities assets to and overall match at floating on there if it's is liability we relatively matching

Eric Zwick

one Thank one me. for just last you. And Got it.

repurchase million think available about shares X.X under you authorization. I mentioned you

curious other buying 'XX potentially uses for your Just appetite back some of shares in capital point? at this about to relative

Chuck Christmas

Yes.

we buy anything plan. I last in as this back any as So, repeated, million don't our we shares have year. just current you and $X.X mentioned, year. We didn't do And

engage least I place can is and not in we repurchase important Friday think maintain our date we have given to on the out at week. blackout and capital period we decision March, position We that of activity. took our incredibly in this of made capital come any best what as will

clearly, stock to at back is And definitely we get start stock. this our valuations, very when the and our price our and buying admittedly, market tempting into look

incredibly over buying say, have our I We in active. certainly stock back previous although been active time in been would never periods, it's

be back shares. number not to to out there of trying are significant We purchase a

can. to end we out does at finance as want and it look there, be And trying we the we day, and price on an that, better shareholders think opportunistic, to company transaction of the also our as I current support overall by a that be best at basis. support the

that's now to us, back right to shares buying up have we forward in think endeavor I to into certainly available time want are reticent engage buybacks. back. going So, we if for any any obviously, at some we re-evaluation the But plan and

Eric Zwick

Thanks, for questions taking today. so much my

Operator

[Operator Instructions].

with KBW. from Our question come DelMonte will Damon next

now may You ahead. go

Damon DelMonte

Good you today. are you you for the just to remaining slides the retail could loan X% your with for said growth, but this in morning guys. outlook Thanks of prepared I for just have go I the that guys all the over the in kind taking the split may this, to my guess saying disclosures year. side expected over questions and think respect commercial thanks the of for quarters of between And the remarks, Ray, side growth? kind and X%

Ray Reitsma

Yeah.

the XXX retail And the amount million, We side for a the I commercial have for growing side. think year. similar about

Right popular, fairly So, more they're arms fixed I are rates. then and balanced as mentioned, now, the in growth.

inverted to are dependent So some so, that's refinance representation yield on we'll of way into our point will near at for the our rates, have XX- reduce mean, obligations in If tell. time and sheet finding opposed I'd correct, sold. maybe to between curve the those say balance future. term, an opportunity I those their equal many obviously, being and is the as two. under fairly weight on sheet a the balance those of the But XX-year

Damon DelMonte

expense discussions And of some, outlook maybe then overall for about any the kind structure? expenses some to that out respect to with of ways expenses shave internal

Chuck Christmas

Chuck. is this Damon, -- think I

automated overhead I We're our become we every that branch efficient think dutifully anything structure. we're as within can, there's to that, any making technology fluff and our we or to system, can products endeavor company, something is automated interact trying online I become more how makes think wouldn't services as do and in whatever to rationalize or sure type anything whether we day. efficient banking of customers possibly our machines bank anything, very an deliver employing effective more our teller with that's whether customers us. more the efficient endeavoring it's how always to cost -- or that. it we We're our new for like

on and we're look else think, sure from can really as I except we think overhead what to continue doing and we're I to good at say, think you an our those job do costs if say best to of overall that. we're I areas, doing equipment especially not occupancy in going a some basis,

didn't costs rates The FDIC rates any us going there there. some our for swap, raising XX%, were opening doors. up where just of collateral -- swap program, being, just because assessment obviously, additional interest favors cash just and for and our do The were by

well. impact salary benefits as on our and course, of inflation So, big had a

there's So, think can let's this out. Hey, don't I say, cut that we anything

out. that cut Let's

I think basis, we our an can. look ways run to best for overall to more efficiently resources continue we on utilize and as

Bob Kaminski

that, to mentioned, to instance, by at look forward of to efficiencies Chuck also take can say, you've all to look we're now and from able that and ability we because numerous the continue couple in and a processes the add times I'll particular branch. us over where can a Bob, the of time, will do investment committed or at. we've right I done the digital the allow frame to seen, who is data we something automate really we're we a branch use that that shed standpoint that's retaining continue that as saying technology, the things This however, And the certainly attracting also employees customer we the years. to they're because best last do that for

important of for the to have which an in investment That's been technology, always And make to. who need committed that, part we we are. we

will. investments not we we So, defer get expenses, in do we behind and because have we not want or and technology to never never

Damon DelMonte

frame Got you. potentially help the of growth be you then of it. credit the we expectations to for XXXX? strong provision, through guess and continues economic kind just kind That's for guys. Thank And out go loan lastly, extremely remainder of could you balancing softer helpful. I off a Chuck, as And backdrop

Chuck Christmas

loaded a question. That's roller

Bob Kaminski

right? Hey, Yeah, no, reason I didn't our is expense didn't put Dave, there's going why a the loan XX. to provision reason I on portfolio why -- I page there's put, a think, -- clearly, we mutually that beneficial. react our them structuring want of I borrowers, I our customers do with, selecting do market, think to mean, to job of good business we a that's properly, really

agree I continue think industry. our of we there. economic be So, that would that been asset quality generally the regardless out environment of than think, case our, is guys has humble would would my think that stronger here to what And the the is opinion, the I

the environment's going be determinant certainly think, economic I big there. the to

reserve kind provision system Two we of of And ways with through of economic it forecast specifically similar just the sense a to is, that provision. to there's our CECL, forecast going I that's that it, portfolio, expense. others. and to that sure and make course it's, and do, a compare forecasts our require we independent our, it to forecast higher other we that out is there that makes downgrades check of get our that make that's to got clearly sure call to it's the impact bunch then on One to going have friend if we've

big on that clearly, our forecast But a provision. have can weighting

forecasts of things is seen, what's driving we've CFOs but and use other is, that models bank one we what different do, and similarity who think talking different rate. I is than the the unemployment in forecasters with these the

and thousand the haven't in literally in billion. What a is relatively We've to or from close the updated was impact we degradation increasing just years, economic portfolio, as impact a a a forecast rate. seen forecast reserve seen, a slightly dollars, $X that. mentioned, seen time really I overlay of that's, significant an we less calculation over the hundred loan as And to have over unemployment than the the GDP steady, result few quarter first at last

So pretty nominal there.

say we, make we And expectations. I So, to first to go changes, economic unemployment any well. forecast, We those mentioned impact and quarter. as change to I as qualitative grades, factors all And regard specific customers. our the, would there of the still in especially our the as loan have it's have in in obviously didn't any the

the most that have. environment of represent we overall think I those of kinds

of into well the I fashion overall that upgrades, to that economic our move portfolio would model. similar forecast So, kind as we within think downgrades the as those in the put

Damon DelMonte

XXX And level a a level, to Okay. adequate grow if just is from that's like of grow things going remain mean continue you reserving you this do feel a do little reserve healthy I like year? feel or to bit as then that kind your relatively loans you

Bob Kaminski

is we do, reserve ratio the talked Yeah, that's given just coverage about. to adequate granularly portfolio. an is an the that just, very items shift we well interesting question, outcome but certainly, the to have believe I in that again, think my the of right But, now I what

the are if to increase downgrade, going have expense forecast, certainly degradation is we in there provision ratio. the see certainly if an would add in that to yes, a and a coverage we So cause

unemployment I think I But of really call out and rate the strong it unemployment still of in the at are overall forecast a would see very good, I that now is there continued, think is We very, couple strong forecast now X.X%. we overly a X.X% economic would we years. where forecast portfolio to growing say next most and loan given But over with the an that that X.X% I an see number. that

So the in to markets. obviously guess financial in that what the future, say, do I again, the given we see just they the coverage other we stresses economies I what where going is Fed will the doing, react any ratio we any loan would how I see or and see may are our lower, now that economy don't if loan within overall the would coverage expect I portfolio. forecast are at see have expect, and to condition regards and portfolio, right stresses there you clearly, ratio But certainly think I to of in would to our economic the increase. that

Damon DelMonte

it. Got

else on questions No had I Okay. more that asked Everything and been has answered. credit.

very you So that's much. Thank I had. all

Operator

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

Bob Kaminski

much the you. speaking with ended. Thank for look quarter next, Bank now end your Thank you second interest you We has of to call very July. This forward in the Corporation. after Mercantile in

Operator

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

You may now disconnect.

Mercantile Bank (MBWM) 18 Apr 232023 Q1 Earnings call transcript