Earnings call transcript Q2 2023

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Operator

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

I would like now to turn the conference over to Zack Mukewa, Lambert Investor Relations. ahead. go Please

Zack Mukewa

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

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

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

Before may company's in turning due statements company's actual If presentation a filings. no the to today, as and company differ capital over deck business. The assumes projections management, it Commission's at to access materially latest inform you and is to made press you statements the it Mercantile made well the call forward-looking on as website copy my factors issued the the that, can involve such Exchange earnings, update could forward-looking www.mercbank.com. statements described as the responsibility Securities already this at results any statements plans revenue, call and of structure, from of certain today, and release have The does forward-looking not company's during to the obligation of company's by any anyone call. objectives

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

Bob Kaminski

we and XXXX. mid-year results for morning, reflects of quarter the and to its thanks you of Thank on the financial all and Mercantile point company of us our strength on overall successful which call this you, released as excellence our Zach, joining reach June the XX built first conference today.

of produced per earnings the $XX.X of revenues $X.XX During quarter, million. and share Mercantile

of share on of a September XX, dividend on For Mercantile XXXX. months million. $X.XX we morning, announced June XX, $XXX.X cash per revenues also share $X.XX This ended per earned the six payable

of levels, robust continuation expenses. core growth of payoffs, well steady strong, margin, overhead excellent and some deposits, liquidity, sizable continuing quarter asset levels pipelines capital loan despite solid quality, interest the for include Highlights managed solid net strong

We are made excellent with by demonstrates our engages. Mercantile client are fundamentals the team work pleased these strength solid the the also whom and the base of with that of continuation possible Mercantile of

all fundings, second meaningful generated the loan Despite quarter Mercantile growth latter part marketplace, recession X%, a heavily level. continued payoffs about commercial the rates. although volumes During at new over aggregate ongoing of remain with weighted several quarter, our of report in the commercial challenges interest in last tight funding solid of view in very remains need annualized net along in the of quarters. of a loan markets continued loan had strength the high the June toward been the threat which concerns opportunities, loans of pipeline Customers outpaced as the generally occasional sales of more in

The all quality real an dues, peer charge remain overall past of performance, other strength at leading aspect of asset and offs our financial loans, estate remains important non-performing levels. owned, our

monitors administration loan very over that loan do industries. get discussed we concentrations not or previous lending in on to we've types Mercantile's closely As calls, ensure weighted

are with clients the risks Our the and distress the corrected potential minimized. ensure highly at earliest identify are with clients team issues signs works loans to the engaged problem and remains of that collaboratively to our bank to

with serve. financial them. need financial When with relationship of Mercantile details resonates shortly. performance to Ray clearly customers and is counsel, clients focused and the brand will communities The provide on the we meaningful and and banking potential our there advice Chuck Mercantile clients more banker work

can only as their of role businesses. trusted because offering team bankers feedback we Our advisors, the members fill Mercantile know

that value the of the over uncertain especially Mercantile. communities This We a which This had been are local a during last one times Mercantile communities since decision focus efficient lot for uncertainties we've responsibilities of customers is has needs same in of banking making. the institutions, and our Understanding work allows of for live financial and facet founding. the important added that several with and they and do, most is important years.

across work projects. support for one-stop providing for that a of directly investments as second Mercantile tax rehabilitation quarter, will with in Partners state for financing Mercantile that wholly-owned housing Community will affordable In offer subsidiary projects they plan direct Bank securing shop regard, with Community announced financing the a equity debt Partners, Mercantile formation the developers the Mercantile and and of multi-family state, and credits.

coming economy, of Michigan compared as December the of as still it the XX, May at X.X% characterize of the in we reinforcing still end staff relatively Regarding markets X.X% low Most and to businesses XXXX, seeking are our X.X% unemployment would at May steady numbers. to in with XXXX. hire of unemployment

to increase consumers the and concerns businesses As taken to borrowing slow of to has documented, Fed been possible and well cost continue by actions raise of inflation a by recession. the continue

experienced successfully pandemic, have variety we demonstrated through we during during manage most and past As believe a in for value our shareholders. of effectively communities conditions, Mercantile create and pandemic, challenges our the is recently clients and serve the the our well-positioned to

my then over I'll are and Chuck. microphone to prepared to Ray now remarks. Those the pass

Ray Reitsma

income, debt strong million focus deposit commercial flow due core will refinancing and to interest margin in Thanks, application excess increasing non-interest primarily despite loan Commercial and borrowers quarter $XXX loan or and this the million net growth. secondary $XX in quality, market balances. income, cash growth X% Bob. to asset annualized reductions, My upon growth, comments was of

$XXX loan committed quarters $XXX an pipeline consisting construction commercial the grown under commercial quarter second of commitments. projects the $XXX under interest of other the dynamics higher and over sequentially as million paused been in million impact has of demand CRE level The growth and have essentially while last been to occurred segments segments, five have evaluate C&I rates. the all-time to facilities high million entirely to within Commercial loan

related is to from obligations from Net funding in in prior the application positioned size as consists change any interest in to assets The $XX fixed our current grew million. our remains stable portfolio environment swap earning rate XX% mortgages in Residential five type the X.XX% quarter of quarter. coupled asset loan of the of X.X% above $XX compared increase duration disciplined pipeline a rate growth in that the floating the ago, from portfolio through portfolio XX% rate income to at yields for an benefited million, portfolio. this the with deposit as well to interest and well quarters correlates of commitments described program fixed rate as accomplished

end the XX as non-performing improved $X.X totaled during loans the of Asset of of the in assets of prior to remain at total loans quarter our any of based asset majority this X monitoring the quarter. end basis million our current or non-accrual the standards vigilant linked portfolio. identify payoff points $X.X borrower an by lender. total quality was and quarter achieved underwriting basis The or deterioration at the of within remains largest through million reduction compared We points pristine to the and

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

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

with comparable due the to rates. year XXXX. an have general credit quarter higher the we prior charges is mortgage been in income non-interest increase to year by for interest rates. relative negatively to due nearly housing comparable Total in income income comparable rate in the earnings charges banking and on quarter in XX% mortgage reduced the increase and to the have prior markets reduced that level interest X% Service both effect accounts impacted declined inventory quarter and general the of has serve sale Service

amount the prior which interest XX% rate swap rate mortgage year period period. are to portfolio burden and compared This prior to reduce Despite of period. in XX% saleable grew the down loans risk loans and credit sale performance balance XX%. only card the loans decrease of only mortgage increase mortgage the prior a and XX% grew efforts compared is total originated, to income Offsetting reduction which positive these grew down were loans mortgage on year funding reflects related saleable loans to and total and debit income X% income, payroll of income which the XX% Interest the to year sheet. on declines in compared the the

as very our pattern balances portfolio million depicted increase in steady last $XXX This year. Deposit during have typically deposits Business investor XXXX of first a seasonal second quarter months clients decreased million the by deposits as quarter. remainder in pay six by taxes deposits XX then presentation. the Slide in followed contract the the bonuses where the been billed over commercial follow the as $XXX retail the and pattern occurred first quarter business and of in in in

These advances growth deposits with the were my and deposits earlier core to supplemented mortgage fund described brokered commercial and remarks. strong FHLB in

the pursue our base opportunities that around We continue initiatives portions number deposit serve. that customer of markets within generating strategic the of to exist a and we

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

Chuck Christmas

everybody. morning, good and Ray Thanks,

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

periods, income increased mortgage months XXXX quarter Turning to the to reflecting in first loans. rate environment second on solid residential in Interest XX. interest of year during increase commercial six Slide and and compared prior in the growth the loans

second and federal the interest primarily of second XXXX basis was net since The two-thirds impact six March first commercial and of basis XXX higher months margin aggregate reflect point XXX margin than points loans primarily improved XXXX quarter the our margins combined rate. Our net -- of approximately points year higher have was our the quarter of rate an interest for increase floating respective margin been of period. interest XXXX in prior funds XXX net basis than the

securities on vast of of Interest majority average quarter funds and increased six compared months assets, the the of the on on income second to income and declined XXXX by periods respective portfolio earning prior increased a other higher Chicago the the by of March Interest the also XXXX Bank periods, securities about year deposits million their environment. Chicago compared $X.X comprised of deposit – since Federal to XXXX, rate Reserve in the periods with is our both while FRB interest prior rate growth in reflecting was of which has during the lower. balance considerably XXXX first on paid substantially the of

In the competition recorded prior deposit second the year prior higher was deposit months the increasing total, quarter low products product deposits income products of on the costing sweep our XXXX six and $XX.X deposits. environment, months expense enhanced when of reflecting $XX XXXX to periods. first during We to higher during interest interest six million to in the million or first and increased periods, respectively deposits rate and interest costing quarter compared in account second no compared and from transfer for of year

of the respectively, prior costs during periods, million the Interest the periods. reflecting six advanced growth second $XX.X when compared also total, securities. portfolio expense In of Home periods interest advances higher trust to reflecting months during preferred compared million rate our XXXX the Bank Interest borrowed increased on the Indianapolis to during expense the XXXX expense periods, year and periods quarter and XXXX, other compared $XX.X and in higher the money interest the to year the prior was higher year prior increased Federal environment. first interest and

recorded of and increased during expense quarter We $XX.X to of million million adjustments provision historical six first and the better mainly our during represent million respectively, loss million losses. to months baseline, and future a compared $XX.X second interest periods. $X.X and prior second credit months $X.X XXXX, for six expectations first reflecting of income respectively, quarter Net to allocations the the year XXXX,

net reserve a Changes loan largely associated reserve qualitative growth forecasts. reduction historical allocations. to from elimination to information limited coincided allocations with allocations improved periods economic with loss Reserve modestly factors allocations by certain XXXX stemming factor specific of updated historical the were of were adjustments which during and loss the baseline lower mitigated to both

overhead first the Slide periods. XXXX during primarily second costs, allocations were the XXXX. up compared we recorded first compensation second XX, increased quarter commitment increased XXXX months resulted the same XXXX months collateral rate on swap costs quarter Continuing costs. six six prior of period $X.X $X.X to interest to million compared XXXX loan million reserve during year quarter costs when and during in of higher overhead costs to and compared second to the of and increased for the The increased larger the unfunded from of holding Overhead

up during first XXXX, basis XXXX. basis from yield during from interest interest XX, assets margin the X.XX% interest Slide on points XXX months XXXX XXXX, reflecting the of was improved XX the quarter of of -- X.XX% part, primarily was margin net past on our quarter an six months second in six up Continuing increased the the earning of over second XXX points the is increasing months. rate of net reflection environment The first and increase large a

of basis of increase increased the primarily two-thirds points in interest rate floating past our having rates. has yields loan and XX XX the months, Our environment loans combination commercial over reflecting approximately

rate commercial averaged on XX increased about over increasing per the points increased of basis XXXX, first cost time basis the XX quarter of months, only portfolio the loan basis XXXX, of XXXX, period. quarter XX fourth that basis billion XX over a during basis quarter and After during past increase points has significant during during average X our the $X.X Our about points loan that our funds of three quarters quarter the points first of XXXX. second XXX points

in XXXX, at not which first XXXX, excess environment for most increase quarter were started meaningfully low we position the first those that believe nine of a reflected institutions. raised during of earnest competitors competition the rate during level of deposit in rates of financial and Despite interest given our our relatively the the deposits liquidity months

rise have increasing. However, deposit rates as excess interest positions continue liquidity been to rates declined, and

the low deposit deposit are products of in in no deposits higher addition, transfer In we also from cost to products. or experiencing cost

quarter ordinary only XX changes We couple a purchases XX. of have our during slides portfolio, There and XXXX, picking investment to to the limited our portfolio included slides to information presentation municipal and largely our of on in are were number maturities which nominal investment of second bonds.

categorized our All of investments remained as available for sale.

which Government XX, the areas. significant bonds high comprised about over years. U.S. our Government comprised bonds, Mortgage all of bonds As Municipal with the The which XX% basis, entities Agency mature seven of state XX% bonds, three-fourths comprised a the June majority our of within investment municipal by next of the portfolio market and issued the Agency, percentage the the by municipal on X% are within approximately generally of of of structured Michigan guaranteed a backed portfolio. were next laddered of of with and Agency are a only securities, a U.S. years all U.S. Government municipal maturing U.S. Government over investment XX Bond of maturities of within Agency segments

loss Slide the same we quarter quarter rate of leading income. investment our increase The started loss the and XXXX. of of loss as XXXX net unrealized On interest substantial pick of interest portfolio a meaningfully significant that June September loss during net in at the net XXXX number unrealized quarter second environment. had million the XXXX. date, in increase of $XX of net a as to XXXX. unrealized increase from margin third in is note XX, environment XX, equaled It interest significant The $XX the gain important impact has unrealized the net in rate income interest on XX, reflects the second peaked to did To and to million increase growth net to and

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

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

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

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

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

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

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

of On Slide the XX, depict we past balances number three quarter our ends. as deposit

Aggregate six distributions. the months million business decline and during payments remained deposit quarter, during reflected up of seasonal first $XXX have accounts million bonuses deposit taxes a of totals were $XX the CDs, relatively that personal and first the XXXX. partnership brokered unchanged customers' primarily second business during of Excluding quarter, following

experienced and higher chucking transfers cost and from XXXX, we funds no deposits continue. deposits, to low time During the and savings market we trend six first expect paying money of months of to a

primary as end. correspondent utilized late quarter On have not however, we Slide depict April. number line We of our bank, credit with since of do of federal XX, line funds, periodically major we a liquidity this sources our unsecured use

the first Our and deposit of XX, in balance June million the advances obtained Chicago FHLB at $XXX equaled broker the $X to first $XX the as sheet Bank of during Federal quarter of XXXX We at first to deposits of during year of funding million the second and of combined advances half deposit the FHLB and loan impact our balance million million XXXX withdrawals end net compared to Reserve quarter with XXXX in $XX the of on million $XXX of rebuild the during quarter. liquidity offset position.

funds We a XX% total a level remain ‘XX. and wholesale was regulatory percentage strong capital capitalized compared as position. June as at X% XX well Our year-end of funds of to of in

minimum total well threshold based bank's plan. as above available million not about Our our be capital in We million XX, ratio shares during repurchase months categorized to risk XXXX, June of $X.X current did have the and XX.X% first the XXXX was of repurchase $XXX as capitalized. six

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

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

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

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

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

the federal the the Finally, rate assumptions Slide interest of XX, metrics share performance remainder key for XXXX. my with we our and that thoughts XXXX latest environment caveat on remainder on On of the XX for This an forecast market increase making via predicated X.XX% is July the remainder unchanged volatile staying conditions on of rate the and the remain on year. then difficult. funds by forecasting

and total loan growth commercial projecting portfolios. loan to of residential X% the are range We in for X% mortgage both

remains and of payoffs fundings our While strong, solid level throughout thus commercial we a we XXXX high loan very and pipeline have far continue experienced experience to paydowns. loan

points during our year. XX interest the XX third XXXX basis the range the during points XX margin third second quarter quarter XX down of X.XX% points during then during to to from basis are from to we and quarter the expected points recorded of forecasting fourth the We basis net basis quarter decline

we operating faced closing, midway results and the myriad to point successfully remain remain In by to our navigate positioned the through very well and of challenges institutions. pleased of continue financial through we with condition all XXXX financial believe

Bob. now Those are I prepared my turn to remarks, back will the call

Bob Kaminski

Thank you, question-and-answer now comments prepared up and the open Chuck. concludes call the session. to management's we'll That

Operator

Nosal question-and-answer [Operator Our Brendan question Piper from We Go Sandler. first ahead. will with Instructions] session. begin now the comes

Brendan Nosal

guys. morning, Good doing Hope Hey. you're well.

Bob Kaminski

right. All

Brendan Nosal

thoughts the if Maybe funding here. where just and on the it, evolution know walk on to And you could start what spot of curious have then us of funding the that pressures cost the (ph). we'd of then over to happen hoping kind off through as you costs, be course X.XX moves quarter from was of to margin

Bob Kaminski

I that but I spot margin, can don't a get for have you.

been, I the I the rates offered deposit six of have think months. deposit -- rates steadily throughout moving most is say, of first would the progression

part rates. the secret. for rate raising in environment deposits XXXX, the been competition Fed no not the think been, but interest in It's as is increasing. as And right now. mentioned, as very has know, I as we much interest it's you has that of Obviously keen

interest that market And continue and I is deposit long should the money to see to back as deposit rates, increasing I rates. is as Fed up this with expect we'll some pressure raise products. would time the true, especially

on trend think an I Fed are does. going deposit the rates to overall whatever basis, as

increases incremental Fed our raising once done rates is our unchanged, the the rates. interest hope done, Fed think rates relatively think into I – of don't But offering once relatively stay we'll the will So competition. gets high because operating I I see

Brendan Nosal

you from folks the and helpful an maybe on All update more That's Great. offer bit me. right. little of a portfolio. color. one provide office color Maybe Can

book, things Just kind of like that location, walk of occupancy. composition us the through LTV,

color you offer? any can Just

Ray Reitsma

seen continue to we be supported that me, change be excuse strong they have and in Our market continued in fund have and the West Michigan, occupancy. sponsors office is not by projects to portfolio predominantly

continue closely, have seen you a so change And we the the financial general scrutinize expect the press. not while in headlines giving might topic around it it's that as much segment to in as

Brendan Nosal

questions. taking the Thanks perfect. for right, on All Congrats the quarter.

Bob Kaminski

Thank you.

Ray Reitsma

you. Thank

Operator

comes of from question next Daniel Our James. Raymond Tamayo ahead. Go

Daniel Tamayo

Thanks my question. taking for Good guys. morning,

Bob Kaminski

Dave. morning, Good

Daniel Tamayo

the that really, guess really And could number was the out Did surprise well and bearing the quarter, lot or anything happening move come that just you non-interest there in industry non-interest as for if lot I you maybe whole figure Thanks. talk I didn't just in was about the a if first a during expecting might of timing down quarter. us a slowing I as what's bit. the that migration help during think a to bearing? the

Chuck Christmas

Sure, Daniel. is Chuck. This

second One December, February this And and especially and time historically to and we in taxes, that morning again then our as bonuses especially the of nonXinterest a bit paying because trend start reversal we again. see in in distributions. of a we're again, about bearing the customers, into seasonal into will obviously, withdrawal, partnerships January, we the net things now through out January, but going paying seasonality go talk quarter, the withdrawal this from all of is, little we a our see the business deposits

of decline, of expect between would balances this see next yet January, so January year we next improving. to So expect year, January to the start and another we positive

-- what very loan of is bit in April quarter have see be payments that's typical. a a lot second this there higher we We kind strong in backed some also of and portfolio obviously you did operators. stabilization. a that's some what -- we the And very was than tax And saw little by saw strong I think was

mid-April, some And to pretty continue seen since growth of the checking in this the throughout non-interest balances rest in steady January. expect really account. they back So bearing would payments the payments year next growth make that those we build to as we've went again,

they banks that accounts. back benchmark. at last it don't we into market I expect using of to a non-interest kind we know from -- balances where are And to I transfers seeing bearing the get money were mostly are -- Now of it's the I as all end deposit some definitely that's don't year because funds of seeing, accounts those business like think

wasn't didn’t when a just moving market call enough accounts. businesses changed and rates very so months Clearly, to lot interest non-interest the between think that. bearing rate months, low, significant just owners last, the more for money least see that The to I are of of XX were be I it, need and money and a at keen over that. has managers think lot XX business differential

in the And would accounts will the that think, non-interest some I growth. this do growth so course, market money temper, our And But that in we expect bearing we business see expect accounts for of rest year. of growth then we well. as

Daniel Tamayo

interest at any largest looked from is forward. relate and able pressure where customers not where that's the smaller as the then figure how of is client some you're coming and clientele terms happening to you're bearing non-interest those much you've and kind seen on, might how that. of deposits, base or say, that that that's what out for just pressure that bearing have other of you helpful. composition the the some been thinking or your mentioned customers curious very the in going That's you've my about I thoughts Thank that expecting you, I you're for asking Chuck. detail in kind of that overall have to or to should kind -- I you mean, is guess, -- seeing of moving there of

Bob Kaminski

Yeah, Danny.

will so their the portfolio, with their likely our are it to we're fund loan correct. have more trying in you if deposits you've earn increase of portfolio deposit As inferred, the greater that piece what to that they the can think that and themselves of help that sensitivity segments the you said so parts on is certain are is I correct is that fund are the to customer want that of but to loans account. more that There do than larger other spillover portfolio, general,

Daniel Tamayo

to breakdown in that provide a of the of and sticky at to what try clients can bucketing terms to have in over just may you there, and what's like, you bit maybe shifting give is do -- interest us or, think give already hasn't that bearing? average to about in be a deposit of risk in you a terms versus what may of size a more And an and or little more ability dig be or moved average the terms what of

Bob Kaminski

great right to exists. our than not deposit are competitors is, more definitely be rich others. at to something are would point there that information I'd It's that at segments But rich our hate customers. point. it That deposit share this

Daniel Tamayo

Fair enough. And the then last I Okay. question. guess

think guidance by I expected a quarter -- the was primary this case, fourth bit here. reading net or driver? margin if the quarter the So that's margin was drove that than raised it quarter just that I'm better from the just second last what not, was right, if If in interest the

Bob Kaminski

the I Daniel. next budgeted. do got Yeah, week expect The as have by And that's going in we driver as May we the XX then of rates to to well. mentioned, increase Fed that set be points we didn't basis

months that that three increases really time this basis there's we into factored XXX ago. have point around our So numbers we a didn't

Daniel Tamayo

Okay.

be So if a fair. of then of it extending yeah, out That's that I appreciate would kind variables. or mean, the through, basically, I as flow lot the it. -- guess, I there's forecast were you guess, rates unchanged, I

Bob Kaminski

it. of out yourself to Talk

Daniel Tamayo

the all answer. for Thanks

Bob Kaminski

welcome. Danny. Thanks, You're

Operator

ahead. of Our Group. Erik question Go Zwick next from comes Hovde

Erik Zwick

in X% market level bringing pipeline. where in outlook prepared to half downs the or for anything there just trying that to Good to last in level remarks of in strength sensing conservative thoughts? that more expecting than kind is more of you're choosing all the the just a given pay on understood be down or the Wanted those the of the kind to kind terms of Is expected want make balance but focus the back that and to I down the kind the Daniel’s reflection year else comments to in of rest really of question you're of X% guidance on maybe that continue year, more of that your bringing the the from X% sure outlook just loan morning. X%

Chuck Christmas

mortgage outlook. we're question. It's the really of much changing this what from annualized what's the of Eric. not ago Ray a obviously on on environment, that's stock great year our and a and at pretty lending. rest X% And to going X% side, difference months commercial high Yeah, the is interest looking expectation We're kind in our housing touched for The competitive was three in relatively rates.

it's Although know standpoint, that we from all bad. not historical

course, will our to banks difficult faced which we're ARMs, I And to working, with the as our our have structure. balance of on and a majority also are very is then and funding taking all which mix on an which added our of been around rate putting of know little be a products, been fixed putting you books the try sell. with we're that able curve mortgage more borrowers, already are the Ray percent bit is borrowers to the more of stressed And be sheet the a touched to rates ARM fact more that basically loans have the composition, yield the way sell pressure loans, on to product that new way kind changing think of what as

steps a can making rate within bucket to fixed we we the conscious the pretty them. try you've the we've factors sell made well. some interest down course, so so rates some I loans of And slowing housing our function said, housing are segment still to into then, then relatively take environmental available mortgage as stock percentage And to residential of got that the market, like increase of high external and that effort

from really from mortgage you growth what before. were overall decline we unchanged It's expect loan what months percentage our we commercial see the are loan about today, thoughts in the ago that So three what talked the down. driving expectations

Erik Zwick

That's great kind And as where comments additional area commercial read the bit hear portfolio health estate to they're talked then to Chuck other there's some your and then you gears little bit one starting for of a the of from I'm and color. that little and well. just markets institutional Thanks, concern your switching there. where investors real about looking office a already

me the if there well kind the continue as on of there pretty lend lack of and feel as there, multifamily in opportunity this the and multifamily you just faster some And you but factor Michigan know to throughout demand I refresh concern to could of thoughts conversations. properties demand? there, guys more health from good and franchise growing but U.S. Southern is your a is markets, think wondering previous maybe the given and today a about supply I kind markets excess

Ray Reitsma

in very be most is continues and Ray. demonstrably. housing The that serve supply to markets is This tight we Yeah.

inventory resources by it track to we're overreacting supplying not have certainly that that record continuing know heavily in we plunging we're a housing support developers market, So that into the in Michigan. that for to but and great

is, haven't healthy to activity maybe really cautiously, even our and how but continuing prudently, changed we we're not market on overzealously. that support the So stance

Bob Kaminski

the Bob. on market to in the This for largest which be company, shortfall significant with with Yeah. are our that the governments. projected predicted that of local drawing as with they're needed the demand is West all is board to our Even developers even in their units to I'll still that. penetrated by are Michigan, projects, piggyback accommodate on projects all a the

feel about we good portfolio. our so really And

who have lot As long streams. who developers time multi with a have revenue Ray of experience we known a and we've said, of partnered sources and

our well that. supply we it'll for So of about think bode that continue also imbalance, But market, demand current the good to West on the especially Michigan. feel strength given in the here really multifamily, we

Erik Zwick

And you. last me. Thank helpful. for one That's

strong very capital Just you you're growing well organic guys position, have pipeline, means. positioned a to strong through continue

pace discussions add your of do M&A something color a your curious any if came and to, Just to way. you just potentially appetite could the attractive deal if

Bob Kaminski

had mindful been same very partners on I'll our always you is that know, answer And about Bob. for on we're as the is question potential This selective that we the company. that way have our based And we our was culture, XXXX key to our We're that continuation the very in of and of success. the that has merger. M&A with transaction fully keen our only culture one history,

a And cultural over would that fit. good made and so have not lot have on have come sense the that of -- but are a been years not there paper, have gone opportunities may

is There and M&A right for sector those think opportunities. people still there So the now discussion a of loosen in the and to mindset continues gain in the going industry, marketplace banking that services some on but aren't are given I of up that carries lot whole confidence the is -- in it financial think today. I uncertainties and regain over time

M&A, success it are we open approach we're our and number in that to that growing continue a have has mindset been of to certainly is continue we'll demonstrated organically with to same but been We'll approach. has over that years,

Erik Zwick

all thoughts. appreciate I taking as you I your well. my appreciate Thanks. questions

Bob Kaminski

You bet.

Operator

Instructions] Our of Damon KBW. question from DelMonte [Operator ahead. comes next Go

Damon DelMonte

guys. and taking nice a questions morning, Congrats quarter Good here. for my Hey. on thanks

Bob Kaminski

you. Thank

Damon DelMonte

you quarters? over that duress. had So kind question you coming off there of first guess I like I be were quarter mentioned balance just that guys the more was I sheet the credits that some feel working you kind Do under loans payoffs were of think were during could that there's the

Bob Kaminski

questions is, as off it one target worked The our was we primary that non-accrual the largest borrower. without

some of others, amount. there So fairly small and number in terms are and

driven duress been that pay-off that numbers to process. in or growth that expect necessarily our we a direction not the to under don't working We that so see economic Most rare. are fairly conditions way off drive in that's type shouldn't systemic workouts during negative required coming one up. issues continue are we do credits of have it they've are quarter that so and And this a management few those

experienced think, recent in range pay past. quality terms that the of I So in similar asset downs, continue type to what we've in we'll

Damon DelMonte

of strength do over quarters. about quality level to is think Do the you this the you extent? feel something reasonable, we need you the of across to to like And the similar level given portfolio, provision this credit or should don't the how think next provide couple

Chuck Christmas

Damon. Thanks, is This Yeah. Chuck.

obviously, a think, [indiscernible], course, the at forecasts of all we market there's And, especially with out lot each I of there. using end at forecasting. look and things volatility with of the quarter are that in we're

So are those well. over haven't there out quarters. that our always changes economic subject the qualitatives, any We we model. lot whatever as forecast run through updates standard to several We the and get a that that really the qualitatives we're regulatory done got last to of

Our asset quality maintaining lot stability, strength. of has been of a lot a

market, new or haven't things. of lending introduced We types those types of new

to a So quality pipeline strong steady we're very great place very goes. that be, loan continue kind it and to a as and enjoy. of It's got that significant we've enjoying

quarters portfolio your the it product to mostly on don't as just answer I long economics. a winded the any is, next on standpoint. of see a mix loan significant structure I changes from and depends over couple to our So of question think kind standpoint

health be is a So I to by the portfolio. measurement economics. primarily of going think our it's loan actual to driven going be Obviously, big the specific

next along think of pretty as I quarters. we economy if the over don't forecasted, our expect of loan go continues degradation the been to much couple portfolio it's systemic any

that I that, just by be dominated loan dominated be any reserve stating will any growth what said we think all I portfolio. said not really have will having So in the

Damon DelMonte

capital stock? $X.X some What are back then market I said Thank thoughts the on think And buyback. remains your with into it. That's you you. management, million about helpful. to and the regards Got buying here dipping Chuck, on maybe

Chuck Christmas

something has it's you're That's that $X.X [indiscernible], Yeah, burner. been the million. on although the correct on back our on been

within a obviously balance position six the telling I there's as a as noise think our to we keep could, banking were us strong the system sheet they we wanting work coming. but to the the months, from economists, trying that backing through and recession sure keep our as way every off make economists capital we kept

our to earnings we be capital as in that loan performance it to regards well. find to our our But look quality. especially and mindful want and we of do be healthy, we at So

So that's continue a that something we'll to at. take look

regards than pricing sit were there. we what's XX more the But has as to would some engage any it the look certainly we with today way buybacks. But at that cautious I as in price in move banking be forward and it's see to opportunity been, in stock something our stock our that here we're say on to we think going going comfortable definitely we just I ago, especially days we're industry.

Damon DelMonte

a just decent given guess to Do any like guys? purchase on like, with good continue should I pretty you produce put remains banking commentary market, gain I for your far you as market feel you the the mean, the loans. lastly, quarter market as, then purchase And results footprint of solid Great. mortgage this on quarter, sale Okay. up pretty goes? and

Bob Kaminski

Yeah.

I think fair that's characterization. a

ago key quarter achieved the response for us in is will is our relative in to in recognition opportunities of that a and tight anymore as number market, be position ourselves. make efforts seasonally. Midwest, scarce positioned continuation purchase for we I described of how to but a questions. refinancing have first had possible. think time But there already the relatively the And the we're to many And what is just sure sales second there wasn't Here we've than the simple some there supplies we as better the the that that's we

rare So getting opportunities. we've been our a what good job able of to do relatively relatively of are share

Damon DelMonte

it. Got

much. all Okay. That's that Thank very Great. I had. you

Bob Kaminski

Damon. Thanks,

Operator

Go Raymond Tamayo question next Daniel Our comes of ahead. from James.

Bob Kaminski

second through order, Well, the time Danny.

Daniel Tamayo

Yeah. I thought a of follow-up here.

I couple. Just it's a guess,

just mentioned tax credit into First, you the business. getting

look expected of bit could kind guys, detail that kind stuff? timing, on like little you if more you for would curious of what a path growth provide Just that

Chuck Christmas

deals Yeah. staff the structure. part that all credits had of lots start to in expertise that. the we anybody as that I'll we on had number had part -- of have have And with engage of seen along in them just the And relationship. we This the never Chuck. underwritten tax of is that years, have actually have

generally able banking, have relationship we can on think our And lot that I a makes see and that type in of we we few sense. expertise. people been said, recently a space so have the it we of to and And we -- with we folks opportunities board that think like hire

there -- that the is good space, To pretty are already. enter pipeline

end obviously time. so jobs, And a is all next -- that the for it in week. and we're while think the these first a have what federal credits up being on I are will tax then used. still of takes to income closed construction our over actually And reduction be early rate earned game our definitely deal

nothing this year. to So significant our bottom the of rest line

credits. we quiver, high guidance to do our year start the is the true some and But going really on importantly for as our think the yet obviously, happen our now benefit piece one where just impact is I they're rate. an income that puzzle we'll to provide our provide statement trusted arrow update another quiver more that We'll seeing customers be that on But projects through. guidance and to tax specific be given that borrower that's tax involve of come in advisor to yet can we their able with working as

Daniel Tamayo

your were And Okay. I That's happened All in refresh Did can they mentioned lot -- If made quarter. actual correct, in right. made on the if detail of think the prepared any And said me that? helpful. calculations about kind hear a that you there in just I'm there changes second calculations reserve changes of then remarks quarter. of the on you to changes I the quarter. were in you gave to changes you you qualitative if that you either what or kind

Chuck Christmas

Yeah.

and our So basis back it a recoveries what is the and took model we period, with And were at X, pretty actual into a at this back in I deep offs just at baseline is, we things our our numbers. look dating of to really which sure dive migration it's we charge that -- January on quarter. if one kind found the that XXXX. we we allowance of the dive looking making but comfortable deep did did did regular a we do Obviously, something our

we some time started. the during our that we offs what recoveries actually the numbers XXXX period had took that charge period And on place migration that in is found had from before

but the we charge we in offs. where was you off ourselves charge credit, were had stay without if recovery XXXX So the the XXXX, a corresponding for will recovery in given

factors recoveries that up. going in ahead then allocation period, So cleaned we those up resulted eliminating which from by baseline went migration our our and

charge last loss that we we and historical say just standpoint from or We what baseline we the basis XX net with of CECL basis over look it's around our was think an average was which introduced qualitative with XX about -- give calculate number XX our was basis one do annual at a Now things it's calculation let's is points the go and take. that calculation. what back years off points. And XX I previously

to our So qualitative difference would that. be the

we our qualitative of our historical So a calculation. impact which standpoint, from be should looking lot said be our we're we loss at when our of But other kind would do that. baseline, in has areas diminish of a

would So points. in be example, basis that loss historical our XX

using make baseline we've from XX making up – general it not that numbers. but it and went Now -- our are updated up, I these allocation, very numbers

to went think, I or up baseline basis from Our basis to points. XX% points XX XX

change didn't the from loss Our XX. historical

our big data, baseline cleaned up while more appropriate able quantitative for piece come our a go supported that dollar So reasonable exactly calculations data dollar things our up, measurement, and in was But other our went baseline was by calculation model. on the moving the down. It measurements [indiscernible] more quantitative reliance because of was qualitatives. to qualitative lot making with on less there's wasn't a the that with

Daniel Tamayo

it. got I

Okay.

a So the reserves factor was up went down quantitative bit. net offset to came qualitative

Chuck Christmas

Correct.

Daniel Tamayo

detail. all That's it that time. for for Thank this real you

Chuck Christmas

Thanks, Danny.

Operator

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

Bob Kaminski

with to our after This Thank you in you much speaking for quarter the thank end company. you. October. interest look very call now in Well, We next is ended. forward your

Operator

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

disconnect. You may now

Mercantile Bank (MBWM) 18 Jul 232023 Q2 Earnings call transcript