Mercantile Bank Corp Q1 FY2026 Earnings Call

Good morning, and welcome to the Mercantile Bank Corporation 2026 First Quarter Earnings Results Conference Call. Operator provided instructions. Please note, this event is being recorded. I would now like to turn the conference over to Nichole Kladder, Chief Marketing Officer of Mercantile Bank. Please go ahead.

Hello, and thank you for joining us. Today, we will cover the company's financial results for the First Quarter of 2026. The team members joining me this morning include Ray 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 Ray 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 filings. The company assumes no obligation to update any forward-looking statements made during the call. Let's begin. Ray?

Thanks, Nichole. Our results for the first quarter of 2026 continue to build on the theme of commercial expertise generating a strong return profile. The consummation of the purchase of Eastern Michigan on December 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 return on asset performance relative to our peers built upon the following traits: Trait #1, a strong and durable net interest margin. Over the last five quarters, the SOFR 90-day average rate has dropped 67 basis points while our margin increased by 8 basis points to 3.55%. This illustrates effective execution of our strategic objective to maintain a steady margin by matched funding of our assets and liabilities and refutes the notion that we have an asset-sensitive balance sheet despite the relatively large proportion of floating rate assets. Trait #2, very strong asset quality. Non-performing assets to total assets remain at the low levels typical of our company at 11 basis points of total assets as of March 31, 2026. Non-performing loans to total loans over the past 6.25 years averaged 12 basis points. The allowance for credit losses stands at 1.18% of total loans as of March 31, 2026, nearly 10x NPAs providing very strong coverage relative to past due and non-performing loan levels. These numbers demonstrate our long-term commitment to excellence in underwriting and loan administration. Trait #3, improved on-balance sheet liquidity and loan-to-deposit ratio. At the end of the first quarter of 2026, our loan-to-deposit ratio stood at 89% compared to 91% on December 31, 2025, 98% on December 31, 2024, and 110% on December 31, 2023. As of March 31, 2026, our deposit mix included 25% non-interest-bearing deposits and 25% lower-cost deposits, unchanged from year-end 2025, but up from 20% at the end of the third quarter of 2025, which has contributed to the stability of our net interest margin. Our acquisition of Eastern Michigan contributed positively to these measures. Deposit growth for the first quarter of 2026 compared to the first quarter of 2025 was 15.8%. The growth was roughly proportional in non-interest-bearing to interest-bearing accounts. Trait #4, strong deposit and loan compounded annual growth rates. Our recent focus on deposit growth is not new to our bank. In fact, the last five-year periods demonstrate a deposit compounded annual growth rate of 9.2%. Over the same time period, total loans demonstrate a compounded annual growth rate of 8.6%. As foreshadowed in prior quarters' commentary, loan growth was impacted by an elevated level of loan payoffs compared to historical norms in the first quarter of 2026. Payoffs from borrower sales of assets were over $40 million above the elevated quarterly average experience in 2025, and planned refinancing of multifamily projects to the secondary markets were nearly 5x the quarterly average amount in 2025, or nearly $40 million in gross dollar terms. However, at March 31, 2026, commitments to make new commercial loans totaled $289 million and commitments to fund existing commercial and residential construction loans totaled $272 million, with each amount representing five-quarter highs. We expect that loan payoffs will moderate in upcoming quarters and net loan growth for 2026 will fall within the range of previously defined expectations of mid-single-digit percentages. Quarter-to-date loan growth is well aligned with our year-end expectations. Trait #5, 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 first quarter of 2026 compared to the first quarter of 2025. Our credit and debit card offerings reported growth of 17.6% in the first three months of 2026 compared to the respective 2025 period. Our mortgage team continues to build market share and generate a higher proportion of salable loans contributing to 12.4% growth in mortgage banking income during the first quarter of 2026 compared to the prior year first quarter. Trait #6, well-managed expenses. Net revenue, defined as net interest income plus noninterest income, grew 18.1% to $67.6 million during the first quarter of 2026 from $57.3 million in the respective 2025 period. Occupancy costs and data processing costs were virtually unchanged as a percentage of net revenue. Salaries and benefits increased from 34.2% to 35% of net revenue, primarily reflecting our investment in the Southeast Michigan market. Other expenses include a $1.2 million increase in allocations to the reserve for unfunded loan commitments compared to the respective 2025 period, reflecting the growth in our loan backlog, and a $0.9 million increase in the core deposit intangible asset amortization account arising from the acquisition of Eastern Michigan. In sum, these traits have allowed us to report a quarter-over-quarter earnings per share growth rate of 9%, a 1.4% return on average assets and a 12.5% return on average equity for the first quarter of 2026 and an increase in tangible book value per share over the prior quarter. Additionally, our five-year tangible value per share growth rate of 9% and five-year earnings per share compounded annual growth rate of 15.1% historically placed us in the top tier of our proxy group. We remain excited about our recently completed combination with Eastern Michigan Financial Corporation. The integration of operations is well underway and the cultures have meshed very well in the early stages of the process. That concludes my remarks. I will now turn the call over to Chuck.

Thanks, Ray, and good morning to everybody. This morning, we announced net income of $22.7 million or $1.32 per diluted share for the first quarter of 2026 compared with net income of $19.5 million or $1.21 per diluted share for the first quarter of 2025. Higher net interest income and non-interest income, combined with lower provision expense, more than offset increased overhead costs. Excluding after-tax one-time costs associated with the year-end 2025 acquisition of Eastern Michigan and the previously announced core and digital banking system conversion, net income improved to $25.2 million or $1.46 per diluted share for the first quarter of 2026. Using this non-GAAP basis, which we believe more accurately reflects our core earnings performance. Interest income on loans increased slightly by $0.2 million during the first quarter of 2026 compared to the prior year first quarter, reflecting loan growth that offset a lower yield on loans. Average loans totaled $4.83 billion during the first quarter of 2026 compared to $4.63 billion during the first quarter of 2025, an increase of $199 million that largely reflects the acquisition of Eastern Michigan at year-end 2025. Mercantile Bank's robust commercial loan fundings during most of 2025 and in the first quarter of 2026 were largely mitigated by significant levels of payoffs and partial paydowns of certain larger commercial loans during those periods. Our yield on loans during the first quarter of 2026 was 24 basis points lower than the first quarter of 2025, primarily reflecting the aggregate 75 basis point decrease in the federal funds rate during the last four months of 2025. Interest income on securities increased $3.9 million during the first quarter of 2026 compared to the prior year quarter, reflecting growth in the securities portfolio and a higher yield. The growth in higher yield reflects the acquisition of Eastern Michigan, along with the ongoing portfolio growth and the reinvestment of maturing lower-yielding investments at Mercantile Bank. Average balances were up $357 million, and the average yield increased 54 basis points quarter-over-quarter. Interest income on other interest-earning assets, a large portion of which is comprised of funds on deposit with the Federal Reserve Bank of Chicago, increased $1 million during the first quarter of 2026 compared to the prior year first quarter. The 80 basis point decline in yield primarily reflects the aggregate 75 basis point decrease in the federal funds rate during the last four months of 2025. In total, interest income was $5.1 million higher during the first quarter of 2026 compared to the prior year first quarter. Interest expense on deposits decreased $1.9 million during the first quarter of 2026 compared to the prior year first quarter, 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. Cost of interest-bearing deposits at both banks were positively impacted by the aforementioned decline in the federal funds rate during the latter part of 2025. Average interest-bearing deposits totaled $4.0 billion during the first quarter of 2026 compared to $3.44 billion during the first quarter of 2025, an increase of $555 million. The cost of all deposits was down 46 basis points during the first quarter of 2026 compared to the first quarter of 2025. Interest expense on Federal Home Loan Bank of Indianapolis advances declined $0.3 million during the first quarter of 2026 compared to the prior year first quarter, largely reflecting a lower average balance. Interest expense on other borrowed funds increased $0.3 million during the first quarter of 2026 compared to the prior year first quarter, largely reflecting the impact of a $30 million term loan we obtained late in 2025 to assist in the cash portion of the Eastern Michigan acquisition. In total, interest expense was $2.3 million lower during the first quarter of 2026 compared to the prior year first quarter. Net interest income increased $7.4 million during the first quarter of 2026 compared to the prior year first quarter, primarily reflecting growth in earning assets and a higher net interest margin. Average earning assets totaled $6.42 billion during the first quarter of 2026 compared to $5.70 billion during the first quarter of 2025, an increase of $719 million that largely reflects the acquisition of Eastern Michigan at year-end 2025, along with securities and overnight funds growth at Mercantile Bank. The net interest margin was 3.55% during the first quarter of 2026 compared to 3.47% during the first quarter of 2025. The improvement is largely due to the Eastern Michigan acquisition. The yield on earning assets declined 31 basis points, while the cost of funds declined 39 basis points during the first quarter of 2026 compared to the prior year first 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 the higher-cost money market and time deposit products, while the purchased securities provided a lower yield than loan products. Despite that strategic initiative and declines in the federal funds rate during the latter parts of 2025 and 2024, our quarterly net interest margin was relatively stable during that time period, ranging from a high of 3.52% to a low of 3.41% and averaging 3.47%. We remain committed to managing our balance sheet in a manner that minimizes the impact of a changing interest rate environment on our net interest margin. Basic funds management practices such as matched funding, combined with scheduled maturities of lower-yielding fixed-rate commercial loans and securities and a higher-rate time deposits along with the scheduled rate adjustments on residential mortgage loans should provide for a stable net interest margin in future periods. We recorded a negative provision expense of $1.8 million during the first quarter of 2026, compared to a positive provision expense of $2.1 million during the prior year first quarter. The first quarter negative provision expense was primarily comprised of an improved economic forecast, changes in loan mix, a reduction in the residential mortgage loan portfolio, a decline in specific allocations and limited net growth in commercial loans due to the significant volume of loan payoffs and partial paydowns. The reserve balance decreased $1.5 million during the first quarter of 2026, reflecting the net impact of the negative $1.8 million provision expense and net loan recoveries of $0.3 million. The reserve balance equaled 1.18% of total loans as of March 31, 2026, compared to 1.21% at year-end 2025. Non-interest expenses were $11 million higher during the first quarter of 2026 compared to the prior year first quarter. Excluding one-time costs associated with the year-end 2025 acquisition of Eastern Michigan and the previously announced core and digital banking system conversion that aggregated $3.2 million, non-interest expenses increased $7.8 million. The increase in core operating costs largely reflects higher salary and benefit costs. In addition, we recorded a $1.2 million increase in allocations to the reserve for unfunded loan commitments, primarily reflecting a significantly higher level of commercial loan commitments that have been accepted by customers. The remaining increase in non-interest expense quarter-over-quarter generally depicts the cost of inflation and the increased cost of a larger balance sheet and office network. Eastern Michigan Bank's non-interest expenses totaled $4.0 million during the first quarter of 2026. Despite a $3.2 million increase in pretax income during the first quarter of 2026 compared to the prior year first quarter, our federal income tax expense increased only $0.1 million. The acquisition of transferable energy credits and net benefits associated with our low-income housing and historical tax credit activities equaled $0.8 million during the first quarter of 2026. The tax benefit resulting from these activities — both Mercantile Bank and Eastern Michigan Bank have strong and well-capitalized positions. Mercantile Bank's total risk-based capital ratio was 13.8% as of March 31, 2026, which was above the minimum threshold to be categorized as well capitalized. Eastern Michigan Bank's total risk-based capital ratio was 20.5% as of March 31, 2026, which was above the minimum threshold to be categorized as well capitalized. We did not repurchase shares during the first quarter of 2026. We have $6.8 million available in our current repurchase plan. On Slide 23 of the investor presentation, we share our latest assumptions on the interest rate environment and key performance metrics for the remainder of 2026 with 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 did during the latter part of 2024 and throughout 2025. 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 fewer commercial payoffs during the remainder of the year. We are forecasting our second quarter net interest margin to be similar to that of the first quarter with steady increases throughout the last half of the year 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, along with higher-costing time deposits. We are projecting 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 investments. Expected quarterly results for non-interest income and non-interest expense are also provided for your reference. Non-interest expense projections reflect personnel investments that were made in the latter part of 2025, the first quarter 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, the efficiency and experience for customers and employees. One-time-type 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 first quarter of 2026 and continued strong financial condition and believe we remain well positioned to continue to successfully navigate through the myriad of challenges and uncertainties faced by all financial institutions. That concludes my prepared remarks. I'll now turn the call back to Ray.

Thank you, Chuck. That concludes the prepared remarks from management. We will now move to the question-and-answer portion of the call.

Operator provided instructions. Our first question comes from Brendan Nosal from Hovde Group.

Maybe just starting off here on the net interest margin. I guess this quarter came in toward the lower end of the guided range. It looks like you tempered the range for the remainder of the year by 10 basis points or so. I guess we haven't gotten any more rate cuts, and you're still not forecasting any in your outlook. So just curious, what were the main drivers of that change to how you see the margin trend due to the balance of the year?

Yes. Brendan, it's a good question. I'm glad you asked it because I wanted to make sure everybody understood that it is a reflection of the change in our balance sheet mix. We are expecting—and really because of the deposit growth that we've seen, as we talked about, as you saw in our release, we had incredibly strong deposit growth. The growth numbers themselves were incredibly strong, but that comes on the top of—we typically lose anywhere from $80 million to $100 million in deposits in the first part of the quarter, as our commercial customers pay taxes, bonuses, partnership distributions. So typically, you don't see net growth in the first quarter. I can show you that our customers still paid all those items but yet we were able to demonstrate very, very strong deposit growth. And that deposit growth was throughout the different types of products and the types of customers—business, public unit and personal. What we saw was that increase in deposits came at the same time we saw paydowns in the commercial loans that didn't allow for commercial loan growth. So really all of that deposit growth went to the Federal Reserve Bank of Chicago, obviously a lower yield than what we would have expected on the loan portfolio. Going forward, we do expect, as I mentioned, that the margin will continue to improve pretty much at the same pace as what the expectations were originally back in January with the guidance, but we're just kind of starting at a lower spot. I would say that we still expect deposit growth to continue at our budgeted pace, which makes for a very strong year. We do think with our commercial loan pipeline that despite the minimal level of net growth that we had in the first quarter, we will catch back up during the last nine months of the year and get to where we expected to be. So we're kind of ending with more deposits than what we thought we were, which results in a higher balance at the Fed, which has a small compression effect on our margins. So a lot going on there with the margin, but bottom line, just more deposits and the same level of loans, so those additional deposit balances are going into the lower-yielding account at the Federal Reserve.

Okay. Chuck, that's really helpful color. Perhaps one more for me. Just kind of pivoting: can you update us on the Southeast Michigan initiative you have ongoing with the new team down there? And then on a related note, any updated thoughts on opportunities to capitalize on M&A dislocation across the state?

Sure. We've added some commercial banking talent on the east side of the state, and they have gained some traction and are performing very well relative to our expectations, growing their book not only on the asset side but doing a very nice job on the liability side as well. We plan to continue to expand that effort and support the team with the necessary resources.

Inside that you didn't want to keep on balance sheet.

No, that was entirely the borrower's decision.

And do you feel that you have room to kind of grow into a loan loss reserve and let that drift a little bit lower as you get this loan growth? Or just looking for a little guidance on the provision line basically?

Yes. When you look at whether it's a negative or positive provision, over the last couple of quarters it has been negative because of the lack of net loan growth onto our balance sheet. As you know, CECL has put banks into a corner with regards to how it calculates its loan loss reserve and how it manages it. With Mercantile having basically minimal losses since coming out of the Great Recession, we rely really heavily on qualitative factors. In fact, if you look at the composition of our reserve, about 60% of our reserve balance is supported by qualitative factors versus quantitative, with quantitative primarily driven by loss history performance. So it's always a balance. We like to have strong capital and a very strong reserve. We're very comfortable with the balance of our reserve. Ray already mentioned it relative to our NPAs, which themselves have been pristine for a very long time. So I think, to your specific question, given our guidance and the expectation of very strong loan growth at least through the remainder of 2026, we certainly would expect a positive provision expense going forward. The wildcard is the economic forecast on an overall basis; the U.S. economy continues to do well, and we haven't seen much change in economic conditions impacting our reserve for quite a while now. A few positives and minuses as we go quarter-to-quarter, but we don't really see large changes in our qualitative measurements. A lot of that is levels of NPA, the way we administer portfolios, those types of things. So I think the driver of our provision expense is loan growth. As long as we can keep the pristine asset quality, which we believe we can, future provision will be dictated by loan growth. For our comments this morning, we expect to have very solid loan growth for the rest of this year and into future periods as well.

Our next question comes from Nathan Race with Piper Sandler.

Chuck, just thinking about the level of cash or excess liquidity you're looking at on a run rate going forward. Can you give some color in terms of how much excess liquidity you want to keep on the balance sheet versus redeploying into the securities portfolio? And within that context, curious if you're pretty content with the size of this book at this point based on the initiatives from the last several quarters, or is the thought just to run with higher excess liquidity given the loan growth guide?

I think it's a combination of both. It's a really good question. Our securities are right around 16% of total assets now and the plan is to keep it there. With commercial loan growth, that will drive total assets, which of course will drive the size of the securities portfolio. So we'll have to grow that in congruence with the growth in the commercial loan portfolio. We love deposit growth; we'd love to put it into the commercial loan portfolio or residential mortgage portfolio as soon as we can. But with the deposit growth we came into the year—especially with Eastern joining us—we had a lot of excess cash sitting at the Federal Reserve, and that only grew because of the deposit growth and lack of net loan growth in the first quarter. We think that's going to turn. On an overall basis, we'll keep a higher level than historical dollars at the Federal Reserve, but I expect it will be less as we fund loan growth. With that, we'll have to increase somewhat the size of the securities portfolio. Where that ends up, it's hard to know. Certainly, we expect it to be quite a bit lower than what it has been, but my expectation is it will be much higher than historical norms. Historical norm is probably closer to $80 million to $100 million, so I would expect the balance to be well over $200 million at the end of the year.

Okay. Got it. That's really helpful. And Chuck, you mentioned fixed-rate loan repricing is a margin tailwind as we get in the back half of this year. Can you help with the yield pickup that you have on that portfolio over the next few quarters?

Yes. It's based on the time frame of the rest of this year and into next year. Going from memory, I don't have it in front of me, but I think the rate is about 5% on that portfolio that's repricing.

And then is it fair to assume new loans on a blended basis are coming on at 6.5% these days?

Yes, upper 6% around 7%.

Okay. Great. And then just lastly, do you have the spot cost of deposits in March and generally how you're thinking about deposit costs trending if the Fed remains on pause this year?

I didn't bring the monthly breakout with me today. As I mentioned, we've seen growth across almost all categories, and we're down a little bit in non-interest-bearing deposits. Remember a significant portion of tax, bonus and partnership payments come out of non-interest-bearing accounts. The Southeast Michigan team brought almost as much deposits as they have loans, and a lot of those deposits come with the loan relationships, so they tend to be operating accounts, which we like. So it's a blend—non-interest-bearing to interest checking at low percentages, not much in savings, and our money market accounts are in the low-to-mid 3% range depending on the type and size of the balance. We're not budgeting for changes in rates on non-maturity deposits, and we expect growth to be relatively consistent within those buckets to provide for a steady cost of deposits for the rest of the year.

Okay. That's really helpful. If I could sneak one more in: could you update us in terms of how much of expenses you expect to come out of the run rate in the first quarter next year following the core conversion?

We're looking for some pretty sizable savings, especially under the new contract for our core. It will be sizable. We're still calculating what the new core looks like and what we need from a personnel standpoint, so maybe we can continue to work on that and give you better guidance in July.

Our next question comes from Daniel Tamayo with Raymond James. Your line is now open.

Great. Maybe just to go back to the NIM guide and the loan growth, curious if you can walk us through what may be downside risk given the reduction in margin guidance we saw today. You did explain it with the deposits, which I get. But if the payoffs remain elevated throughout the year or for the next few quarters, what's driving the confidence that they will slow? And if they don't, what kind of impact would that have on the margin and NII?

Clear, Daniel. It depends on the magnitude. To put things in perspective, we began noting bigger payoffs last year because our bankers talk to borrowers all the time and often have advanced notice when customers plan to put a project in the secondary market or sell assets. We usually become aware of bigger payoffs in advance. For the last few quarters, we've seen a higher level of payoffs, but they're unrelated to each other—more a timing coincidence. Payoffs and refinancings to the secondary market are a normal part of what we see and we expect them to continue but at more typical levels. We look at our pipeline on a net basis, accounting for both fundings and paydowns. Using our historical process and pipeline management, we just don't see the same level of payoffs for the remainder of 2026 as we recently experienced. Having said that, as we reported, we had about $180 million in paydowns on larger credits in the first quarter alone, plus another $15 million to $20 million of normal amortization, and we still funded well over $200 million in commercial loans during the quarter, which is reflective of a very strong pipeline. Our pipeline today is even stronger than at the end of 2025, so we feel confident about fundings. The surprise risk would be payoffs remaining elevated. If payoffs remain high while deposit growth continues as budgeted, we'd end up with higher levels of cash at the Federal Reserve, which would compress margin modestly. The magnitude could be small—maybe 2 to 5 basis points of margin compression below guidance—but that's an estimate. The key drivers are payoff levels relative to expected fundings.

That's helpful. Remind us—on the rate sensitivity, I know you have the table in the deck, but is there not much impact from a 25 basis point rate cut perspective on your guidance?

We are pretty well matched on the balance sheet. We do have repricing in commercial loan fixed-rate portfolios, securities and some time deposits that would reprice lower, which puts us in a relatively balanced position.

Okay. I guess just to go back to my original question: if loan growth ends up being slower than expected due to payoffs remaining elevated, would that put you in a position to utilize the buyback authorization in the remainder of the year? Or is that looked at separately from the loan growth conversation?

Loan growth is part of that decision. When we look at our capital position, we consider the level of growth we want to support; we're a growth company and need capital to support opportunities. We also look at our stock price and the proposed changes in risk-based capital calculations. We're analyzing how the investing community and regulators will interpret the proposed rules. Our preliminary calculations show the proposal could increase our CET1 ratio by about 75 basis points and our total risk-based capital ratio by around 100 basis points. That would meaningfully affect how we think about buybacks. Also, there's ongoing economic uncertainty, and this company tends to be cautious in managing capital. We regularly discuss repurchases with our Board, and while we haven't bought back shares recently, it's always under consideration.

Our next question comes from Matthew Breese with Stephens Inc.

I first wanted to start with securities. Maybe help me walk through the anticipated maturities and cash flows of securities for the balance of the year. What are some of the roll-off versus roll-on dynamics of securities?

We discuss the portfolio on Slide 17. Most of the benefit is in our agency portfolio. We're looking at another roughly $50 million this year in maturities. That has an average rate of just under 1% for the remainder of the year, and the average rate does increase over time. The types of bonds we're buying today give us a yield around 3.5% on new purchases. Over the next five to seven years, we expect ongoing repricing opportunities in the portfolio. On a multi-year view, we have about $100 million a year maturing for the next five years and then it slides off a bit after that. We use a laddered approach to manage reinvestment and duration risk.

So it's roughly $50 million maturing this year?

Yes, about $50 million this year, and roughly $100 million a year for the next five years is a reasonable view.

Got it. And on the cash liquidity question, first on seasonality: is there anything seasonal in the second quarter that would draw down cash more than usual? And you said we should anticipate running north of $200 million in cash by year-end. We're at about $580 million in total cash now—should we expect that to come down by a few hundred million by year-end?

From a seasonality standpoint, the big seasonal move is in the first quarter when tax and bonus payments are made. April usually sees some decline as final tax payments are made, so April is typically down a bit. There's also seasonality in the third quarter with municipal tax collections. Where cash at the Federal Reserve ends up is driven by both sides of the balance sheet—deposit growth, commercial lending, residential mortgage funding and the securities portfolio as we maintain roughly a 16% securities ratio. So yes, it's reasonable to expect the excess cash at the Fed to come down as we fund loans and reinvest maturing securities, and to end the year with cash balances meaningfully lower than current elevated levels but above historical norms.

Last one for me: you mentioned incremental loan yields in the high 6s to low 7s. Can you give some color on competitive conditions on both sides of the balance sheet—lending and deposits—and whether spreads are changing?

I'll take deposits and let Ray speak to loans. Deposit rates have been very quiet this year—relatively stable. We don't see a lot of special promotions at the moment. From my view, most banks are pricing deposits in a way that reflects what they're earning on the asset side, so competition has been orderly and manageable.

On the loan side, we have target spreads that we like to achieve relative to risk levels. Competitive pressure hasn't meaningfully changed; it's the normal level of competition we've experienced in the industry.

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

Thank you for your participation in today's call and for your interest in Mercantile Bank Corporation. The call has now concluded. Thank you.

This concludes our conference. Thank you for attending today's presentation.