Hello, and thank you for joining us. Today, we will cover the company's financial results for the second quarter of 26.

The team members joining me this morning include Raymond E. Reitsma, president and chief executive officer, as well as Chuck Christmas, executive vice president and chief financial officer.

Our agenda will begin with prepared remarks by both Raymond and Chuck, and will include references to our presentation covering this quarter's results. You can access a copy of the presentation as well as the press release sent earlier today.

by visiting mercbank.com. After our prepared remarks, we will then open the call to your questions.

Before we begin, it is my responsibility to inform you that this call may involve certain forward looking statements. Such as projections of revenue, earnings, and capital structure as well as statements on the plans and objectives of the company's business.

The company's actual results could differ materially from any forward looking statements made today due to factors described in the company's latest Securities and Exchange Commission's filings. The company assumes no obligation to update any forward looking statements made during the call.

Let's begin. Raymond?

Thank you, Nicole. Our results for the second quarter of 26 continue to build on the theme of commercial expertise generating a strong profile.

The consummation of the purchase of Eastern Michigan on 12/31/2025 represents execution of our strategic objectives around deposit growth, loan growth, and margin stability paired with strong asset quality and overall financial performance. We continue to demonstrate top quartile ROA performance to our peers.

Built around the following traits. A strong and durable net interest margin, Over the last 5 quarters, the SOFR 90-day average rate has dropped 71 basis points while our margin increased by 11 basis points to 3.59%.

This illustrates effective execution of our strategic objective to maintain a steady margin via match funding of our assets and liabilities and refutes the notion that we have an asset sensitive balance sheet despite the relatively large portion of floating rate assets. Very strong asset quality.

Nonperforming assets to total assets remain at the low levels typical of our company, at 9 basis points of total assets as of 06/30/2026. Nonperforming loans to total loans over the last 6.5 years averaged 12 basis points.

The allowance for credit losses stands at 1.13% of total loans as of 06/30/2026, and on a dollar volume basis was nearly 10x the level of nonperforming loans. Providing a very strong coverage relative to past due nonperforming loan levels.

These numbers demonstrate our long standing commitment to excellence in loan underwriting and administration. Improved on sheet on balance sheet liquidity and loan to deposit ratio.

At the end of the second quarter of 26, our loan to deposit ratio stood at 93%. Compared to at 100% on 06/30/2025, and 91% 91% on 12/31/2025, 98% on 12/31/2024, a 110% on 12/31/2023.

As of 06/30/2026, our deposit mix included 27% non interest bearing deposits, and 24% lower cost deposits, up from 25% and 20% respectively at the end of the second quarter of 2025, which has contributed to the stability of our net margin. Net interest margin.

Our acquisition of Eastern Michigan contributed positively to these measures. Deposit growth during the 12 months ended 06/30/2026 was 12.4% with growth in the non interest bearing accounts outpacing the growth in interest bearing accounts during that period.

Our recent focus on deposit growth is not new to our bank. In fact, the last 5-year-end periods demonstrate a deposit compounded annual growth rate of 9.2%.

Strong commercial loan growth, Commercial loan growth in the second quarter of 2020 was $115 million, an annualized growth rate of 11.7%. As foreshadowed in the prior quarter's commentary, loan payoffs did moderate from the prior 4 quarters experience.

Reducing $60 million compared to the prior quarter. 06/30/2026 commitments to make new loans totaled $224 million and commitments to fund existing commercial and residential construction loans totaled $283 million with each amount at or near 5-quarter highs.

Expect that loan growth for 2026 will fall within the range of previously defined expectations of mid single digit percentages. Continued strong growth in key fee income categories, growth in commercial deposit relationships, has supported growth in treasury management services resulting in a 35% increase in service charges on accounts during the second quarter of 26 compared to the second quarter of 25.

Our credit and debit card offerings report growth of 21% in the first 6 months of 26, compared to the respective 2025 period. Well managed expenses.

Net revenue defined as net interest income plus non interest income, grew 15.3% to a $130 million during the first 6 months of 26, from a $118 million in the respective 2025 period. Occupancy cost plus data processing costs were virtually unchanged as a percentage of net revenue and salaries and benefits increased from 34% to 35% of net revenue, primarily reflecting our investment in the Southeast Michigan market.

In sum, these traits have allowed us to report a quarter over quarter EPS growth of 10% in second quarter of 26 compared to the prior-year second quarter, a 1.52% return on average assets and a 14% return on average equity in the second quarter of 26. And an annualized 11.6% increase in the tangible book value per share in the current year second quarter compared to the first quarter of 26.

Additionally, our 5-year tangible book value per share compounded annual growth rate of 9% and 5-year earnings share compounded annual growth rate of 15.1% historically places us in the top tier of our proxy group. Remain excited about the recently completed combination with Eastern Michigan the integration of operations is well underway.

And the cultures have meshed very well. That concludes my remarks.

I will now turn the call over to Chuck.

Thanks, Raymond. This morning, we announced net income $25.9 million or $1.50 per diluted share for the second quarter of 26 compared with net income $22.6 million or $1.39 per diluted share for the second quarter of 2025.

Net income during the first 6 months of 26 totaled $48.6 million, or $2.82 per diluted share, compared to $42.2 million or $2.60 per diluted share during the first 6 months of 2025. Growth in net income during both time frames primarily reflected increased net interest income and lower provision expense that more than offset higher noninterest expense costs and federal income tax expense.

Excluding nonrecurring costs associated with the year end 2025 acquisition of Eastern Michigan, and previously announced core and digital banking system conversion, adjusted net income was $26.4 million or $1.53 per diluted share, for the second quarter of 2026. And $51.7 million or $2.99 per diluted share for the first 6 months of 2026.

Adjusted diluted earnings per share increased 14 cents or approximately 10% in the second quarter of 26 compared to the second quarter of 25 and increased 39 cents per diluted share or approximately 15% during the first 6 months of 2026 compared to the first 6 months of 2025. We believe using these non GAAP measurements reflects our core earnings performance and provides for more accurate current period versus prior period comparisons.

Interest income on loans was relatively unchanged during the second quarter and first 6 months of 2026 compared to the prior year periods, reflecting loan growth that was offset by a lower yield on loans. Average loans totaled $4.89 billion during the second quarter of 2026, compared to $4.7 billion during the second quarter of 2025, an increase of $197 million.

Mercantile Bank's robust commercial loan fundings of $535 million during the last 12 months were largely mitigated by significant levels of payoffs and partial pay downs on certain larger commercial loans during those periods, which aggregated $459 million. Our yield on loans during the second quarter of 2 thousand 26 was 28 basis points lower than the second quarter of 2025, primarily reflecting the 75-basis-point aggregate decline in the federal funds rate during the last 4 months of 2025.

Interest income on securities increased during the second quarter and first 6 months of 26, compared to the prior year periods. Reflecting growth in the securities portfolio and a higher yield.

The growth and higher yield reflect the acquisition of Eastern Michigan, along with ongoing portfolio growth and reinvestment of mature lower yielding investments at Mercantile Bank. Average balances were up $325 million and the average yield increased 54 basis points quarter over quarter.

Interest income on other earning assets a large portion of which is comprised of funds on deposit with the Federal Reserve Bank of Chicago, increased during the second quarter and first 6 months of 26 compared to the prior year periods, reflecting a higher average balance that more than offset a lower average yield. The average balance was up $178 million while the average yield declined 87 basis points quarter-over-quarter, the latter of which largely depicts the aggregate 75-basis-point decrease in the federal funds rate during the last 4 months of 2025.

In total, interest income was $4.7 million and $9.8 million higher during the second quarter and first 6 months of 2026 compared to the respective prior year periods. Interest expense on deposits decreased during the second quarter and first 6 months of 2026 compared to the prior year periods.

Reflecting a lower cost of deposits that more than offset interest bearing deposit growth. The growth in interest bearing deposit balances and the lower cost of these funds reflect the acquisition of Eastern Michigan along with growth and lower deposit costs at Mercantile Bank.

Costs of interest bearing deposits at both banks were positively impacted by the aforementioned decline in the Fed funds rate the latter part of 2025. Average interest bearing deposits totaled $3.96 billion during the second quarter of 2026, compared to $3.46 billion during the second quarter of 2025, an increase of $493 million.

The cost of all deposits was down 50 basis points during the second quarter of 2026, compared to the second quarter of 25. Interest expense on Federal Home Loan Bank of Indianapolis advances decreased during the second quarter and first 6 months of 26 compared to the prior year periods, largely reflecting a lower average balance.

Interest expense on other borrowed funds increased during the second quarter and first 6 months of 2026 compared to the prior year periods, largely reflecting the impact of a term loan we obtained in late 2025 to assist in the cash portion of the Eastern Michigan acquisition. In total, interest expense was $3 million and $5.3 million lower during the second quarter and first 6 months of 2026 compared to the prior year periods.

Net interest income increased $7.8 million and $15.1 million during the second quarter and first 6 months of 2026. Respectively, compared to the prior year periods, primarily reflecting growth in earning assets and a higher net interest margin.

Average earning assets totaled $6.43 billion during the second quarter of 2 thousand 26 compared to $5.73 billion during the second quarter of 2025, an increase of $699 million that largely reflects the acquisition of Eastern Michigan at year end 2025, along with the securities and overnight funds growth at Mercantile Bank. The net interest margin was 3.59% during the second quarter of 2 thousand 26 compared to 3.48% during the second quarter of 2025.

The improvement is largely due to the Eastern Michigan acquisition. The yield on earning assets declined 33 basis points while the cost of funds declined 44 basis points during the second quarter of 26 compared to the prior year second quarter.

Impacting our net interest margin over the past couple of years was our strategic initiative to lower the loan to deposit ratio, which generally entailed deposit growth exceeding loan growth and using additional monies to purchase securities. A large portion of deposit growth was in higher costing money market and time deposit products, while the purchase securities provided a lower yield than loan products.

Despite that strategic initiative and declines in the federal funds rate during the latter parts of 2005 and 2024, our quarterly net interest margin has remained relatively stable. Over the past 8 quarters, our net interest margin has averaged 3.49% with a high of 3.59% and a low of 3.41%.

We remain committed to managing our balance sheet in a manner that minimizes the impact change in the interest rate environment on our net interest margin. Basic funds management practices such as match funding combined with scheduled maturities of lower yielding fixed rate commercial loans and securities and higher rate time deposits along with scheduled rate adjustments on residential mortgage loans, should provide for a relatively stable net interest margin in future periods.

We recorded provisions for credit losses of negative $1.8 million and negative $3.6 million during the second quarter and first 6 months of 2026, respectively. The second quarter negative provision expense mainly reflected the elimination of $2.7 million specific allocation associated with the resolution of a nonperforming commercial construction loan which was partially offset by changes in the economic forecast general allocations necessitated by net loan growth, and an increase in certain qualitative factor allocations.

The reserve balance decreased $1.3 million during the second quarter of 26 reflecting the negative $1.8 million provision expense and net loan recoveries of $500 thousand. The reserve balance equaled 1.13% of total loans at 06/30/2026.

Our sustained strength in loan quality metrics continues to be impactful to our loan loss reserve calculations. The baseline allowance largely determined from historical net loan charge off activity represents only 1/3 of our current reserve balance reflecting a low level of net loan charge offs activity during our look back period the beginning of 2011 through the end of the second quarter of 2026.

Specific reserve allocations on nonperforming loans totaled just $900 thousand or about 2% of the reserve balance at the end of the second quarter. Noninterest expenses were $6 million and $17 million higher during the second quarter and first 6 months of 2026, respectively, compared to the prior year periods.

Excluding 1-time costs associated with the ongoing core and digital banking system conversion, and year end 2025 acquisition of Eastern Michigan that aggregated $600 thousand and $3.9 million during the second quarter and first 6 months of 2026, respectively, Noninterest expenses increased $5.4 million and $13.1 million compared to the prior-year periods. Eastern Michigan Bank's noninterest expenses totaled $4 million and $8 million during the second quarter and first 6 months of 2026, respectively.

The increase in core operating costs largely reflects higher salary and benefit costs with the remaining growth generally depicting the impacts of inflation, and a larger balance sheet. In addition, we recorded a $1.4 million decrease in the reserve for unfunded loan commitments primarily reflecting a lower level of commercial loan commitments largely stemming from the high level of commercial loan fundings that took place during the second quarter.

Federal income tax was $1.9 million and $2 million higher during the second quarter and first 6 months of 2026, respectively, compared to the prior year periods. Largely reflecting a higher level of pretax net income and a lower level of net benefits from transferable energy tax credits.

Effective The effective tax rate was 16.9% during the second quarter and first 6 months of 2026, compared to 12.9% and 15.7% during the respective time periods in 2025. The 2025 periods had higher levels of transferable energy tax credit activity given carryback opportunities.

Additional acquisitions of transferable energy credits may be made from time to time, subject to our investment policy, tax credit availability, and tax credits derived from our low income housing and historical tax credit activities. Both Mercantile Bank and Eastern Michigan Bank have strong and well capitalized regulatory capital positions.

Mercantile Bank's total capital ratio risk based capital ratio was 13.5% as of 06/30/2026, $205 million above the minimum threshold to be categorized as well capitalized. Eastern Michigan Bank's total risk based capital ratio was 23.1% as of 06/30/2026, $36 million above the minimum threshold to be categorized as well capitalized.

We did not repurchase shares during the second quarter of 2026. We have $6.8 million available in our current repurchase plan.

Thoughts on the remainder of 2026. On Slide 23 in the investor presentation, we share our assumptions on the interest rate environment and key performance metrics for the remainder of 2026 but the caveat that market conditions remain volatile making forecasting difficult.

This forecast is predicated on no changes in the federal funds rate during the remainder of 2026. Although we believe our net interest margin will remain relatively stable in a changing interest rate environment as it has over the past 8 quarters.

We are projecting loan growth in a range of 5% to 7% annualized during each quarter which encompasses a strong commercial loan pipeline as well as expected fewer commercial loan payoffs during the remainder of the year. We are forecasting a higher net interest margin during the last 6 months of 2026 compared to the first 6 months of 2026.

As we benefit from commercial loan growth lower levels of monies at the Federal Reserve Bank of Chicago, and maturing low yielding fixed rate commercial real estate loans and investments. We are projecting a federal income tax a federal tax rate of 17% which encompasses continued growth in net benefits from our low income housing and historical tax credit activities along with additional transferable energy tax credit investments.

Expected quarterly results for noninterest income and noninterest expense are also provided for your reference. Noninterest expense projections reflect personnel investments.

That were made in the latter part of 2025 and first 6 months of 2026 and expected during the remainder of 2026 to support expansion in Southeast Michigan, as well as to support operational areas as we switch core and digital banking providers to enhance the durability efficiency, and experience for our customers and employees. Costs associated with the core and digital banking system conversion are not included.

In closing, we are very pleased with our operating results during the second quarter and first 6 months of 2026 and our continued strong financial condition. And believe we remain well positioned to successfully navigate through the myriad of challenges and uncertainties faced by all financial institutions.

That concludes my prepared remarks. I will now turn the call back over to Raymond.

Thank you, Chuck. That concludes the prepared remarks from management.

And we will now move to the question and answer portion of the call.

Alright. Thanks, guys.

Morning. Maybe we can just start on the on the expense increase in the guidance there.

I hear what you were saying there, Chuck, in the commentary about increased personnel investments and the expansion in Michigan. Maybe you could just parse out what is related to the hirings in Southeast Michigan and what is related to the core conversion.

And, you know, as much as you could help us find the settling point after the cost come out post-core conversion, that would be helpful. Thanks.

Yeah. Good morning, Danny.

This is Chuck. I am glad to answer your questions.

You know, there is definitely a lot going on that impacts our overhead costs. But the cost associated with our core conversion you know, we want to make sure that it is a big lift for our team.

And we want to make sure that we do it effectively and accurately. So we made the determination early on to make sure that we are, I would say, more than fully staffed especially in certain operational areas.

To help with not only the core conversion, but especially the training. Clearly, there is going to be a time period where we have to make sure that all of our employees are trained on their respective areas of the new system both the core and the digital system.

And so we have been very aggressive in hiring in those areas to make sure that we are fully staffed at least. We are very excited about our expansion into Southeast Michigan.

Started quite a few years ago. But, really, within the last, I would say, 12 months has really taken off.

We have hired exceptional personnel both on the commercial side as well as the treasury side in that market. And we continue to talk to additional folks to join our team.

And we expect as Raymond has said on several occasions, Southeast Michigan is 1-third of Michigan, and we are but a tiny blip there. Given the size of that market and where we are at now, we have made huge strides already over the last 12 months.

If you look at our net loan growth, obviously, Southeast Michigan does not have much in the way of payoffs. But when you look at their growth, that equals about our net growth.

Obviously, we have had a lot of payoffs here notwithstanding the strong fundings we have had in this market. So I cannot give you a number specifically as we go forward, in regards to the Southeast Michigan market.

We think it is a strong market for us. And we expect to continue to build that market out as we have over the last 12 months in the future period.

So that is where most of that additional expense is coming from. Obviously, we wanna continue to build out our company in all of our markets.

As the opportunities present themselves. We are very pleased with the markets.

I think when we look at the loan growth all of our markets are showing growth. And we wanna continue to support that.

with additional people at all levels and all positions, throughout the company.

Thanks, Chuck. And then just in terms of, like, post core conversion, the savings still kind of on pace for what you guys were talking about before?

Maybe just remind us where you know, what type of, expenses you expect to recoup Yeah.

Yeah, Danny, the savings are really going to start in the second quarter of next year. You know, when we do flip the switch in February and we get through all the test and validations and exit our current providers in both those areas.

it is kind of hard to put a specific number on the savings. I mean, we can look at different contracts but, obviously, there is growth in volume that has impacts.

And we are switching providers on both digital and core, which are different platforms. And as we look to our teams and make sure that we are set up and are framework is designed, to best fit that new framework.

We have been making changes there as well. We do know that the savings on the core itself, just on the contract, is pretty significant.

But there is a lot of moving parts that make it very difficult to say this is going to be our cost going forward. And it will be a while before we get to that point.

Okay. Fair enough.

On the on the credit side, so obviously, really nice story. You talked about kind of the puts and takes within the reserves.

And sounds like you are you are getting down towards the end of the specific reserves or at least those are you know, much more, modest at this point. But you still have net recoveries I guess if you have any thoughts on where you think reserves could stabilize or if you know, when you think the loan loss provision might turn positive?

Any guidance on that number would be helpful.

Yeah. I mean, certainly, we enjoy negative provisions, especially when they are because of recoveries and the resolution of loan situations that, you know, we like to remind everybody, we did, you know, have provision expense associated with building up those specific reserves as we felt appropriate I think the, either relatively low level of specific reserves on non performing loans that we have right now is really a reflection of 2 things.

1, and foremost, is not very much at all in just gross dollars. Of nonperforming loans that we have on the books.

But I think it is also reflective of the way that we underwrite loans. That when we you know, there is always a risk of loss.

But when we have a loan go sideways that we go into, you know, collection mode, You know, we have got, you know, quite a bit of collateral. We have got guarantees that we can rely on, which obviously then minimize the specific reserves that we need to, that we need to establish.

But overall, you know, it is a reflection of the fact that we just do not have a lot of loans on nonperforming. And we have not had for quite a while now you know, certainly past most of our look back period, which basically means that we have to rely on the qualitative factors to support what we believe is an adequate level of the loan loss reserve.

You know, we are at 1.13%. I think if you look at us we have kind of been between where we are now and probably the low 1.20s for quite some time.

now, and I would I would expect, notwithstanding any significant change in the economy, that we would stay somewhere within that range. Clearly, the economy has the biggest impact on the overall quality of our loan portfolio at any given time.

So if we did enter into a period of stress, you know, our reserve, like all banks reserves, are designed to reflect that with increased reserve level requirements. Which would lead to, you know, obviously, bigger or size potential sizable positive provision expenses.

So overall, we feel very solid and feel very good about the quality of our loan portfolio. it is been very consistent at its relative current level now.

We do not see anything in the near term at least that, is going to change that. You know, we do not have a lot of charge offs, so we generally do not have a lot of recoveries.

But we do try to recover every dollar that we do charge off. And have expectations that while on the accounting side, we have had to eliminate it, the borrower still owes us money.

We are gonna work through any channels that we can that we have available to us to you know, to maximize those recoveries.

Alright. Terrific.

Well, thanks for the color, Chuck. Appreciate it.

You are welcome, Danny.

Hey. Good morning, guys.

Hope you are doing well.

Brendan. Good morning.

Let me just start starting off here on kind of funding and the kind of the environment. Can you just update us on the competitive landscape for core funding and how that has evolved across your footprint over the past couple of months?

Yeah. I would say that you know, this is Chuck again.

I would say it is been pretty consistent You know, we really have not seen much in the way of deposit rates changing. You know, we always have know, the credit union issue to deal with, especially on the CD side of things.

But our CD portfolio has stayed pretty steady. We have had really solid growth.

We grew very significantly on a net basis during the first quarter. And I think, you know, we did see, you know, some deposit reductions in the second quarter on a local basis, but that was really seasonality.

Especially on the public unit side. As well as, you know, obviously, April 15 with tax payments being due with our primarily our business, but also some consumer customers as well.

The third quarter is usually pretty good, mostly because of the public units when they start getting their taxes in on the property tax side of things here in Michigan. So we do expect, you know, some very solid local deposit growth here in the third quarter.

From that. But we have also seen very significant growth, and Raymond kind of touched on some of the numbers.

On our checking account. Products, especially our noninterest bearing, which is really a direct reflection of the very strong C and I loan growth that we have experienced.

So far this year. there is lots of reasons why we like C and I, but certainly 1 of them is the deposit balance that they bring and then the myriad of different cash management, treasury management, products that we have you can see from the improvement or the growth, I should say, on service charges where that treasury management income gets recorded on our income statement, the solid growth there is really a reflection of the growth on the commercial side with those loan balances coming over with the with the associated deposits.

But also the expanded use as we continue to market our ever-growing suite of products our existing customers as well. So on an overall basis, the deposit growth is--we are very pleased about that.

Think that deposit growth, along with bringing Eastern Michigan on board, you know, is letting us get out of the brokered CD market. We had significant levels of maturities here in the second quarter to the degree that we are down to only about $20 million left.

there is 2 CDs there that both mature in December, so we are hopeful we will be out of the brokered CD market, by the end of this year. And, again, that is really, you know, strongly attributed to the local deposit growth that we have been experiencing and expect to continue to have.

Okay. Thanks for the color, Chuck.

1 more from me just turning to capital. You know, ratios continue to build nicely this quarter, you know, even with kind of return to more robust loan growth.

Is there a point at which kind of the capital build becomes something you want to more actively manage and kind of, you know, talk about, you know, the path through which you would do that and then kinda whether share repurchases is something you would be interested in if we continue to see ratios build.

Yeah. Appreciate you noticing our capital ratios.

Obviously, we are very pleased with that. Notwithstanding the strong growth that we do have on the asset side, we are able to grow our overall capital ratios.

And, you know, it makes us feel good to have strong capital ratios. You never know what is gonna happen.

From an economic standpoint, but it allows you to take advantage of the opportunities that come, whether it is acquisitions, loan growth, you know, expansions of the markets, all those things, you know, a position of strong capital gives you the ability to take care of the or take advantage of those opportunities as they come about. I think from a, you know, from a buyback standpoint, clearly, you know, it is been quite a while since we bought back any shares.

We do have a plan in place Our board has always been supportive of management's recommendations with its buyback plans. I think, you know, a big part of that clearly is our stock price.

And, you know, we are very pleased with the run that we have had. Where we think that we are finally getting close to where we think we should be valued.

We have been, you know, frustratingly low, below of the benchmarks that we look at. So we are we are obviously pleased with what we have seen over the last few months there.

I think the other thing that we are looking at, making sure we have capital to take advantage of those opportunities again, do have our subordinated notes that do flip to a floating rate and become callable in January. You know, we are obviously looking at that.

That is on our radar. We have made no decisions whatsoever in regards to that.

Quite frankly, we would love to earn our way out of that position that we have got there. And I think we are we are definitely going in the right direction from that potential opportunity there.

Think the other thing that know, we have got we had very favorable pricing While we are not gonna keep the 3.25% fixed rate that we have, come January. Our spread over 90 day LIBOR, I will say, is only 212 basis points.

Which if you did the math today, that is a rate that is still under 6%. Which I think is very favorable compared to if you wanted to refinance that with a new subnote.

Not saying we will or will not. We are not at that point yet.

But if we do start looking at the capital haircut, you know, doing some calculations, that is about 30 basis points every year. Losing 20% of the balance.

that is about 30 basis points off our total risk based capital ratio. So looking at those numbers, looking at the environment today, you know, all the forecasting that we are doing, we are comfortable with at least 1 year of letting that float.

it is not even a year after that or, who knows more. As we look at our capital stack each quarter end and certainly at each year end.

So that is kind of our thoughts on capital is, we wanna continue to augment it with a strong net income. Pay a competitive and growing cash dividend, making sure that we have got lots and lots of capital to take advantage of the opportunities and continue to grow the company.

Obviously is the foundation for additional net income growth.

Awesome. Thanks for taking my questions, Chuck.

Welcome.

Hey, guys. Good morning.

Thanks for taking the questions.

You bet. Good.

I was wondering if you can unpack some of the specific margin drivers for the expansion that you alluded to over the next couple of quarters, specifically around what amount of loans you have repricing upwards, that are currently fixed. Also, just in terms of securities cash flow coming off and kinda what that repricing looks like as well.

Assuming that is reinvested.

Yeah. I know I gave, 1 of the slides in there has the amount oh, it is on slide 9.

So, yeah, there is definitely a few things that are going on that are having a positive impact. On our net interest margin.

On slide 9, we give the volume of fixed rate CRE as well as our agency bonds that are scheduled not only to mature the rest of this year, but also into 2027. So a lot of opportunity, for continued yield enhancement from that activity.

The other thing that happened and it was, you know, it started really doing having a bigger impact in the back half of the second quarter than the first half of the second quarter. Was our level of deposits at the Federal Reserve coming down.

And that is really a strong reflection of the of the net loan growth. So, you know, obviously we have been, you know, dealing with some pretty sizable payoffs.

Quite frankly, we had some sizable payoffs again in the second quarter, especially with some line pay downs, that came in with borrowers having excess cash excess cash in their operations. As we continue to grow our loan portfolio, especially on the commercial side, we will be able to use our, you know, existing excess funds that we got at the Federal Reserve to fund that.

So going from a, you know, a 3.65% that we get on our funds at the Federal Reserve you know, to something it is probably in the sixes somewhere. On the loan side.

So as we continue to forecast that transition happening, that certainly buoys the net interest margin along with the repricing that we talked about. I would say those are the main drivers for the, the expected improvement in the margin.

In Turkey?

Could you just help us in terms of kinda what that upward repricing looks like on the $100 million or so of loans that are expected to mature in the back half of this year. Are we talking about, like, something north of 6% kinda where, like, the blended rate on new loans are coming on the portfolio at?

Or just any thoughts on kind of what the blended rate of new loan production is these days?

Yeah. I would say we would probably be looking at about a 200-basis-point give or take, obviously, improvement on the existing average rate of about 4.6%.

So somewhere in the mid-6s is where we would think that we would reprice. On an average basis.

Then we have got $38 million in agency notes agency bonds at just a little over 1%. And we are based on our strategy right now, a buy in that yield is a little over 4%.

We will pick up about 300 basis points, on those dollars for the rest of the year.

Gotcha. And then if I could just ask 1 more on deposit growth expectations going forward.

I appreciate the commentary earlier on some of the seasonality that impacted Q2 around tax payments and so forth. But any visibility into kind of the core deposit gathering pipeline.

I know you guys have some, you know, excess liquidity you can use to fund loan growth, but just any thoughts on kinda how deposit gathering can trend over the next few quarters as well?

Yeah. Like I mentioned, we will definitely see some seasonality as we did in the second quarter.

You know, when you get to the end of the second quarter, you know, public and I am speaking for all banks, basically. You know, the public funds, especially here in Michigan, public units in Michigan collect most of their taxes during the summertime, July August and September.

So you kinda get to the end of June, and it is kind of at the low point with deposit balances. And then you kinda get to September, and it is kinda the high point.

And then, obviously, you know, it goes up and down from there. I would say, you know, a core basis, on an average basis, if you will, like said, June 30 is a low point.

So we would expect higher average balances from our public unit customers. In the in the future quarters just from the seasonality.

You know, again, we continue to get very strong core local deposit growth. Certainly, especially on the noninterest bearing checking, that is coming from our commercial activities, our commercial lending activities.

Especially on the c and I side. And as we talked about, that was really the leader of the growth.

The commercial lending side. So you know, looking at borrowers paying anywhere from you know, funding 10 to 20% of their own loans with their deposit balances.

So getting those obviously helps the cost of deposits, but also, again, allows us to cross sell the treasury management products that we have, which, you know, helps the fee income side as well. We are also doing a really good job of, just bringing in you know, finding deposit only customers.

And making sure that we have got, as we believe we do, a complete suite of products that is attractive to those types of customers as well. So a lot of it is just, you know, blocking and tackling, you know, doing what Mercantile does, what a community bank does every day.

Is out there selling our products and services and our values, Driving relationships. We are a relationship bank on everything that we do.

And so, you know, when we have a customer, we want the whole ball of wax. And, you know, deposits has to be a big part of that.

And, so that is--I do not have any secret sauce, magic bullets, or anything like that. We just do basic banking making sure we are getting the entire relationship.

And when the customers come in, making sure that we are taking really good care of them.

Got it. I appreciate all the color.

Thank you.

Good morning, guys. Hope everybody's doing well today.

Most of my questions have been asked and answered, but just a few quick ones here. Chuck, appreciate the color and the outlook there for the margin.

If we were to see a rate hike in 2027, how would you expect the margin to respond to that? You know, I think, you know, overall, we think that we are pretty well stable on our net interest margin.

You know, we work very hard to make ourselves agnostic. We use that term all the time to interest rate changes.

We specifically, you know, manage the structure of our balance sheet. That when rates go up, we see, you know, yields go up, we see costs go up.

When rates go down, we see the opposite happening. And, you know, it is basic again, basic banking.

it is it is match funding and looking at the structure of your loan portfolio, looking at your deposit base, and then using your investment portfolio to kinda bridge any gaps you might have in there from a repricing perspective. I think if we have super aggressive cuts or increases, you know, there will be a little more change there just as some things have to catch up.

But if we are looking at, you know, 25 basis points a quarter, 50 basis points a quarter, My expectation in our modeling supports the fact that we would expect our margin to stay relatively stable.

Got it. Okay.

that is helpful. Thanks.

Yep.

And then in your commentary around the kind of like the loan loss reserve outlook going forward. Did you say that in the last couple of years, you have been kind of in the 1.20 basis point range or down to 113.

So you would expect it to kind of stay in that range. So I mean, would we expect a little bit of builds towards the 120?

Or do you think kind of in the mid-1 teens is probably acceptable?

I would say that, you know, given the factors that we have on commercial loan growth, compared to our mortgage factors. You know, our reserve factors commercial loans is a little bit under 1%, while on residential mortgage loans is a little over 2%.

Which it really reflects well, it reflects a lot of things, but 1 of the things that definitely reflects is duration. I will not get on my soapbox this morning, but you know, CECL is a duration based model, and we are a commercial lender.

And commercial loans are short term, and we are not allowed to well, we have to take into account prepayments, and we definitely do that on the mortgage side. We are not allowed to you know, look at ourselves as a relationship bank and make the assumption that we are gonna renew loans.

We are gonna renew lines of credit when they mature in a year. We are not allowed to do that.

So that is the biggest hindrance that we have when we are trying to build a reserve under the CECL framework is this duration expectation. And when your biggest asset has a duration of maybe 2 years, you know, it is it is difficult to build a reserve.

But we do. We got the different allocations and different environmental things that we can that we can work off of.

I would say any significant growth in the reserve because I am not expecting the allocations and our calculations to differ much. Going forward.

The biggest thing is gonna be the economy. So know, if we get our independent third party economic forecast that show deterioration, that would drive, you know, a reserve build.

And, certainly, if any of that downplay in the economy starts impacting specific customers, and we have to start, you know, putting you know, having some loans go out, you know, a higher volume and non accruals and starting to do specific reserves. Things like that.

You know, would obviously result in a reserve build as well. Think all things being equal with a steady economy, our nonperforming staying, you know, relatively stay stable, which they have.

I would expect, you know, using your question, probably mid teens. On a coverage ratio.

Got it. Okay.

that is helpful. for that color.

Then I guess just lastly, when you think about the investments that you made in Southeast Michigan and you think about the outlook for growth, is that becoming a more key component of the overall driver of the portfolio growth? Or are you still seeing good looks in the Greater Grand Rapids area?

Other parts of your footprint as well?

The answer is all of the above. The, the outlook in Southeast Michigan is good.

We have a really strong team there. And, they are early, in their time frame with us.

So bringing over lots of customers and they have been very successful at it. it is a huge market with lots of potential.

And yet in markets like Grand Rapids and the rest of West Central Michigan, Northern Michigan, We are more mature in those markets, but there is plenty of opportunity there. So, you know, the originations are fairly well spread out across our footprint on an even basis.

Okay. Great.

Thanks, Raymond. Appreciate that.

Okay. that is all that I had.

Thanks a lot, guys. Appreciate it.

Hey. Good morning.

Morning. Curious what was the spot cost of deposits the spot NIM at the end of the quarter?

And just curious how you feel about your ability to either maintain or further lower deposit costs from here. You know, Matthew, I would say that when you look at our yields, for the quarter, I think that is really reflective of our deposit rates.

We did not change deposit rates, I do not think, at all during the quarter. You know, there is some opportunity for some repricing on the CD side, but it is not a huge component.

And I do not think the repricing is overly significant. So I think if you look at the yields on our deposits, for the quarter, I think that is reflective of where our rates are even today.

Okay. And then on commercial real estate, you would mentioned you know, you expect some slowdown and payoff prepayment activity.

Gives you that confidence, and, you know, what is the expectation for commercial real estate growth The coming quarters?

The confidence comes from communication with our borrowers. And, you know, we stay in close contact.

And in the prior spate of payoffs that we had over the previous 4 quarters, They told us what was coming and largely delivered on that. They are telling us that, you know, those will slow.

Of course, they reserve the right to change their mind. So, you know, who knows exactly what the future will bring, but the communication has been that those should continue to moderate.

Okay. And then just last 1.

You have spoken a couple of times about kind of the mix shift out of cash into loans and how that is accretive to the NIM. Just curious what your definition is of excess cash.

Tends to move around a little bit with seasonal deposits, but from where we sit today at about 5% cash to assets, how much of that do you think is excess?

If you looked at our balance sheet, I have right in front of me. I think if you looked at interest earning assets that we have that we mark on our balance sheet, that number will be somewhere between $100 million and $125 million.

And what is the time frame expectation to kind of mix shift that?

Know, we would love to be able to do it by the end of this year. Of course, that is really you know, net commercial loan growth is gonna drive that.

Based on our fundings and any payoffs that we do get. But I would I would think that by early next year, we would be able to get there.

If not by the end of this year.

Okay. Great.

I will leave it there. I appreciate all the answers.

You bet.