Mercantile Bank Corp (MBWM) 2015 Q2 法說會逐字稿

Good day and welcome to the Mercantile Bank Corporation second-quarter 2015 earnings conference call and webcast.

(Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference call over to Mr. Robert Burton, from Lambert Edwards. Mr. Burton, the floor is yours, sir.

Thank you, Mike. Good morning, everyone, and thank you for joining Mercantile Bank Corporation's conference call and webcast to discuss the Company's financial results for the second quarter of 2015. I'm Bob Burton with Lambert Edwards, Mercantile's investor relations firm. Joining me are members of their management team, including Michael Price, President and Chief Executive Officer; Robert Kaminski, Executive Vice President and Chief Operating Officer; Chuck Christmas, Senior Vice President and Chief Financial Officer; and Sam Stone, Executive Vice President.

We will begin the call with management's prepared remarks and then open the call up to questions. However, before we begin today's call, 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 the important 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. If anyone does not already have a copy of the press release issued by Mercantile today, you can access it at the Company's website, www.mercbank.com.

At this time, I would like to turn the call over to Mercantile's President and Chief Executive Officer, Mike Price.

Thank you, Bob, and good morning, everyone. Thank you for joining us to discuss our second-quarter 2015 results for Mercantile Bank Corporation. On the call today our CFO, Chuck Christmas, will provide details on our financial results; followed by COO, Bob Kaminski, with his comments regarding growth initiatives, merger integration and asset quality. EVP, Sam Stone, is also on the call with us today.

Hopefully you have all had the chance to review our earnings release. We reported net income of $0.39 per share compared with $0.13 per share in the prior-year period. The second quarter of 2014 contained $3.5 million in pretax merger-related costs. Reflecting these costs, the year-ago adjusted earnings per share was $0.34.

As we anticipated, this quarter was strong. Since only one month of the Firstbank merger was included in the second quarter of last year, year-over-year comparisons reflect increased volumes, which was in line with management expectations. However, in other key areas, most notably new loan generation and mortgage fee income, Mercantile reported strong increases both year over year and over the preceding quarter, which are evidence of success both in the merger integration process and in our new business development strategies. These results continue our very robust start to 2015.

The second quarter also underlined our gain in other areas as well. Total revenue was strong compared with both last year and the first quarter of 2015, as we continue to leverage our earning assets. Improving the earning asset mix is a primary driver of profitability improvement due to the merger, as we continued to shift other interest-bearing assets to loans and also made efficient use of the low-cost funding base that came into the merged Company from Firstbank. This competitive advantage enhances the spreads at which we can do more business in the future. Although the yield curve still weighs on our net interest income results, we continued to generate the above-average performance in net interest margin, which remains in line with our guidance for the quarter and year, and underscores a key benefit of combining the deposit base of legacy Firstbank with the larger market exposure of Mercantile.

Next, we reached a successful conclusion to a large nonperforming loan during the quarter, resulting in significant reduction in our nonperforming assets. Chuck will discuss this in more detail in a moment. Our loan generation was strong in the quarter, as we originated $120 million in new business. Our team is doing a great job, particularly in our largest markets. More on that from Bob Kaminski in a moment.

Overall, we are pleased with the performance and expect to realize additional opportunities over the remainder of the year. As part of our strong capital position and our commitment to shareholder return, we earlier today announced a quarterly cash dividend of $0.15 per share for the third quarter. The $0.15 cash dividend represents an increase of over 7% from the dividend rate during the first and second quarters, and reflects an annual yield of about 2.8%, based on our current share price.

Looking forward to the second half of 2015, we see further opportunity to participate in the developing economic strength of Michigan, as Michigan's premiere community bank. Our business activity levels reflect the overall continued gains in employment and business expansion that are being reported for Central and Western Michigan, and particularly our largest markets. The area's economic indicators remain positive, suggesting growth will continue through the coming months.

At this time I would like to turn the call over to Chuck.

Thanks, Mike, and good morning to everybody. As Mike mentioned this morning, we announced net income of $6.6 million for the second quarter of 2015, and a net income of $13.2 million for the first half of year. On a diluted earnings per share basis, we earned $0.39 per share during the second quarter, and $0.78 per share during the first six months. Given that the merger with Firstbank was effective on June 1 of last year, comparisons between the second quarter and first six months of this year with the respective periods in 2014 are difficult to make. However, as Mike has noted, our 2015 results reflect a successful integration of the two banking organizations, and a leveraging of the strengths that each organization provided to the new Company.

We are very pleased with our financial condition and earnings performance for the first half of 2015. We believe we are very well positioned to take advantage of lending and market opportunities to enhance our strong position as Michigan's community bank, while delivering consistent results for our shareholders. Our net interest margin was 3.83% during the second quarter and first six months of 2015, compared to 3.62%, and 3.53% during the respective 2014 periods. A majority of the improvement reflects Firstbank's lower cost of funds along with purchase accounting entries relating to fair value adjustments associated with the merger.

The stability of our net interest margin in the first half of 2015 primarily reflects our successful and ongoing strategy to fund a large portion of our loan growth with moneys from lower yielding securities portfolio and other interest-earning assets. In large part reflecting the very low interest rate environment and competitive pressures, our yield on total loans declined 6 basis points during the second quarter, equaling the decline we saw during the first quarter. However, our yield on total earning assets has remained virtually unchanged. Our cost of funds declined by 2 basis points during the second quarter, equaling the decline during the first quarter.

We recorded a loan discount accretion totaling $1.5 million during the second quarter of 2015, an increase from the $1.4 million we recorded during the first quarter. Based on our most recent valuations, we currently expect to record further loan discount accretion totaling $1.2 million to $1.3 million per quarter during the remainder of 2015. Actual accretion amounts recorded in future periods may differ from our forecast due to a variety of reasons, including periodic re-estimations and the payment performance of the acquired loan portfolio.

We recorded time deposit and FHLB advanced amortizations, a reduction in interest expense, totaling $0.6 million during both the first and second quarters of 2015. As we noted during previous conference calls, these particular fair value adjustments will be completed at the end of July. The impact to our net interest margin from the elimination of these fair value adjustment entries will be a reduction of 8 to 10 basis points. Although for the third quarter, it will equate to a reduction of about 6 to 7 basis points since the elimination will be occurring during the quarter. We also continued to record trust preferred security amortizations, an increase in interest expense, of $0.2 million per quarter. Unless we call all or part of our trust preferred securities, which currently we have no plans to do, we expect to record further amortizations totaling $0.2 million per quarter into the year 2036.

We expect our net interest margin to be in a range of 3.7% to 3.8% during the third and fourth quarters of 2015, a reduction from the 3.83% we recorded during the first and second quarters, in large part reflecting the aforementioned elimination of the time deposit and FHLB advanced amortizations in July. While the ongoing very low interest rate environment continues to exert compression pressure on our net interest margin, we expect to continue to use low yielding excess overnight investments and cash flows from monthly pay downs on lower yielding mortgage-backed securities and periodic maturities and calls on lower yielding US government agency and municipal bonds, to fund a large portion of our expected loan growth throughout the remainder of 2015. The overall quality of our loan portfolio, combined with recoveries of prior-period loan charge-offs and the elimination of and reductions in many specific reserves, have produced a positive impact on our loan loss reserve calculation and allowed us to make no or negative provisions in 10 consecutive quarters and 13 out of the last 14 quarters. We recorded a negative provision expense of $0.6 million during the second quarter and $1 million during the first six months of the year.

Gross loan charge-offs equaled $4.4 million during the second quarter of 2015 and totaled $4.8 million for the first six months. Recoveries of prior-period loan charge-offs equaled $0.5 million in the second quarter and totaled $2.4 million for the first half of the year. Resulting annualized net loan charge-offs equaled 0.73% of average total loans in the second quarter and 0.23% during the first six months of the year. As addressed in the earnings release, a vast majority of the gross loan charge-offs during the second quarter was associated with a large commercial credit that was resolved during the quarter. The specific reserve we established for that credit relationship during the past few quarters was more than sufficient to absorb the charge-off amount, resulting in a an elimination of a portion of the specific reserve amount along with the charge-off.

Our loan loss reserve totaled $16.6 million at the end of the second quarter, with $15.7 million established for originated loans. The reserve for originated loans equals 1.1% of total originated loans at quarter end. As of June 30, the allowance for originated loans was comprised of $13.4 million in general reserves related to 9 impaired loans, $1 million in specific reserve allocations relating to nonaccrual loans and $1.3 million in specific reserves on other loans, primarily accruing loans designated as troubled debt restructures.

We recorded noninterest income of $4 million during the second quarter of 2015, reflecting improvement in virtually all the income categories and a $0.3 million increase from the first quarter. With caution at mortgage bank and income and recoveries on certain acquired charge-off loans can be difficult to forecast, we expect quarterly noninterest income to be around $3.5 million to $3.7 million during the remainder of 2015. We recorded noninterest expense of $20.4 million during the second quarter of 2015, or about $0.3 million to $0.6 million higher than our guidance. The higher-than-expected level of overhead cost was primarily associated with two items.

First, we accrued $0.8 million for our 2015 bonus programs during the quarter compared to no accrual during the first quarter, due to uncertainties surrounding a large nonperforming commercial loan. With the resolution of that credit relationship during the second quarter, a portion of the accrual during the second quarter reflects a catch-up. Second, we expensed $0.3 million during the second quarter due to an embezzlement situation and involving a now former employee at a branch location that was uncovered near the end of the first quarter. We had to expend $0.4 million during the first quarter for the situation. Although we have now expensed a total of $0.7 million to reflect the estimated maximum potential exposure, we will soon begin to work with our insurance carrier on a claim and expect some level of payment under our insurance policies. Although we do not expect to need to record any additional expense related to this incident, we may receive payments from our insurance carrier that will be recorded as a reduction of noninterest expense in future periods when payments are received. We are currently projecting quarterly noninterest expenses to total in a range of $18.8 million to $19.2 million during the remainder of this year.

Our effective tax rate for 2015 is expected to be around 31% to 32%. It was modestly lower than that during the second quarter due to a one-time elimination entry related to evaluation reserve on our tax position. We remain a well capitalized banking organization. As of June 30, our bank's total risk-based capital ratio was 13.8% and in dollars was approximately $94 million higher than the 10% minimum required to be categorized as well capitalized.

As part of the $20 million stock repurchase program that we announced back in January, we have now repurchased approximately 463,000 shares at a total all-in cost of $9.1 million during the first six months of the year. The weighted average all-in cost per share is $19.67. Money from the stock repurchase program has generally been provided via cash dividends from our bank, and any further stock purchases would be likely funded in a similar manner.

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

Thank you, Chuck, and good morning. As have you seen in the press release and heard in Chuck's comments, the second quarter demonstrated continued momentum in client acquisition and loan growth. Our strategic approach to client acquisition, along with the positive economic environment, have created some very good opportunities for growth for us throughout the organization. Since March 31, total loans have increased $51 million and since year-end 2014, total loans are up $82 million. Loan growth in Metro Grand Rapids was the most significant gain, and we continue to generate some very good opportunities in all of our markets, including Kalamazoo, Mount Pleasant, Lansing and Cadillac.

Commercial loan funding to new and existing customers in the second quarter accelerated to $120 million, and brings the year to date total to $220 million. As we continually stress with our call-in staff, we must seek to partner with clients who place a high value on the relationship approach to banking. Building strong foundational relationships is a key in our efforts to profitably grow the bank in the future. Our commercial loan pipeline remained very strong, so we are optimistic that we will continue to see strong new fundings in future periods. We are very pleased with both the efforts of the staff to generate quality loan growth, while remaining disciplined in both pricing and asset quality, despite competitive pressures in many of our markets.

General, economic activity remains solid in our region. Employment growth continues at a steady pace. And real estate values remain on an upward trend. Mortgage banking activity was especially strong during the second quarter, reflecting an increased level of new purchase activity and ongoing refinance in all of our markets. This pipeline remains strong and these trends are expected to continue in the third quarter.

Asset quality was solid with nonperforming total assets ratio of 0.35% at June 30. As Chuck mentioned, this ratio reflects the resolution of a large commercial loan relationship during the quarter. During the second quarter, Mercantile completed the seamless transition of all of our online banking customers to a single platform, which was the last major systems integration project relating to the merger. With this complete, our staff is able to offer a full range of cash management and treasury products to all of our markets. Leading products, coupled with responsive and effective customer service and support, continue to bolster our client acquisition and retention efforts.

Lastly, work on strategic initiatives continued by various Mercantile teams as we look to enhance our customer experience while providing some new noninterest income opportunities, and also generate additional efficiencies and cost savings to reduce noninterest expense. For example, staff is working very diligently with our customers to outline the mutual benefits of receiving statements and notices from the bank electronically versus in paper form. Another initiative involves a review of customer relationships to confirm that the client is in the product set that best fits their needs.

That concludes my prepared comments. I will now turn it back over to Mike.

Thank you, Bob. And thank you, Chuck, for your comments. At this time, operator, we would like to open the call for questions.

(Operator Instructions)

The first question we have will come from Matthew Forgotson of Sandler O'Neill and Partners. Please go ahead.

Hi, good morning all.

Good morning, Matt.

So on expenses, just a clarification point, Chuck, to make sure, you had identified, call it $800,000 of bonus catch-up and $300,000 of embezzlement. Is that correct?

Yes, the $800,000 is an accrual for our bonus programs, which, net accruals, assuming that stays along with any future adjustments, additional accruals or adjustments for our 2015 bonus plans, would actually be paid out likely in January of 2016.

Okay. So if I take the $20.4 million and I back off the $1.1 million, that drops me to, call it, a run rate expense base of $19.3 million. Can you help me understand what drives that down to that $18.8 million, $19.2 range you are now proposing?

Yes, Matt, part of that is the $800,000, as I mentioned in my prepared remarks, there was some catch-up in there. While we had hit some of the financial targets that we needed to, to accrue for a bonus in the first quarter, because of the fluid situation and unresolved situation relating to that one large commercial credit, we held off on accruing for any bonus in the first quarter. Part of that $800,000 that we expensed in the second quarter is a catch-up. That reconciles your difference.

Okay. In terms of mortgage banking, can you just tell us how much you originated and sold into the secondary market? And give us a sense of your expectation as we move through the back half of the year.

Yes, I don't have those specific numbers in front of me, Matt, but we are certainly happy to get them to you. We continue to see some good refinance activity. But what caused that increase in the second quarter from the first quarter was an increase in the purchase activity. From what I am being told, our pipeline remains strong. The second quarter was a very strong quarter for us, and while we may not be able to reach that level, we still expect our mortgage banking income to be robust here in the third quarter.

This is Bob. I think as you head into the spring and summer months and naturally the normal cycle, we see that type of an increase. And then the third quarter, we carried a strong pipeline of mortgage activity into the third quarter. We see that strength to continue. And then as you get into the fall and later in the winter months, until the end of the year, the new purchase and construction obviously starts to wane a little bit.

Lastly, and then I will hop out. Bob, I will stay with you, could you give me a sense of the loan pipeline, and the balance, the complexion, the yield in quarter end? And then speak to where that was last quarter.

I think the pipeline is robust, as we said, we see at June 30, reflects an increase of where we were at the end of the first quarter. Granted this market, as I mentioned in my comments, remains quite strong. We have got a very good balance of both new projects that are taking place with existing customers. We are seeing some seeing-eye opportunities that we are taking a look at, and developing some relationships there that may lead to loan fundings. As well as some opportunities with customers who are dissatisfied with their current banks.

We are also seeing, which is very encouraging, some increased pipeline activity in our other markets, as I mentioned, Kalamazoo, Mount Pleasant, Cadillac and Lansing. Each of those markets, while not as strong as Grand Rapids, continues to see some increased activity. The staff is proceeding with the approach to banking as we have talked about, relationship building. And that takes a little bit of time to gain some traction, but when it does, customers know what to expect from the bank, and the bank creates some opportunity because of that. And having been a year since the banks merged, I think people are getting more familiar with Mercantile Bank and some of the acquired markets, and are seeing some opportunities resonate because of that as well. So we are very, very excited about the opportunities throughout the organization. The pipeline is at a high level it has been in several years, obviously, with the merger being the main driving factor with that, but it is very strong.

Thank you very much.

Next we have Daniel Cardenas of Raymond James.

Good morning, guys.

Good morning, Dan.

Maybe if you could give me, quickly, one clean-up question. I missed the net interest margin guidance that you provided for the back half of the year. If you could throw those numbers back out at me, I would appreciate it.

Yes, Dan, this is Chuck. We are expecting our margin to be, for the next two quarters, if I can spit that out, somewhere between 3.70% and 3.80%.

All right, perfect. And then, as you look at loan pipelines, can you give us a little bit of color as to what the competitive factors are right now? Are you seeing any change in those? And the wins that are you getting, are those mostly on pricing? Or are we seeing some change in the structural components?

No, that is one the things that regarding the competitive pressures, they remain as strong as they have been in recent quarters. That has not changed. The loans, the new relationships that we are gaining, is not based on price. It is not based on compromised structure. That's what we are most proud of, our staff, that we are out there, and we are demonstrating to customers the value that we can add to the relationship. And many customers, they see that benefit, and we are all pursuing a competitively-priced package of products and services, but we are not going after customers based on price.

And that's not for everybody. Some customers, or some prospective customers, certainly want that lowest loan rate. And those are the ones that will take the bait from the competitive situation. But the ones that see a little bit more beyond the pure loan price and the value that we can add, not only the relationships with our commercial lenders but the other service that we can offer with treasury, electronic banking, and the other things that come with the Mercantile package. Those are the ones that it resonates and we are seeing wins based on that. And it is not easy. It is a very disciplined approach that is required. But very proud of the staff for carrying forth that mission and making the gains that we are getting based on that approach.

Good, good. And then in terms of the average loan size of the new production you have booked in this first half the year, has that changed dramatically from last year?

I think the we certainly, in Grand Rapids, have seen some larger loan transactions that we have an opportunity to take a look at. Obviously, with the increased size of the Company now, we are able to more comfortably look at loans that maybe we would have shied away from in the past. We are seeing, across the gamut, we are seeing opportunities, in some of the small loan amounts as well, not only in Grand Rapids, but in our other markets too. So it is generally across the board, the pipeline reflects some nice opportunities in all segments of size and type of loan.

Good, good. And are you seeing any competitive pressures on the deposit side?

Well, it is a situation where the rates being so low, I think that you see once in a while some other institutions stepping out of line and offering a rate that doesn't really make any sense. Based on our liquidity situation, I think we are certainly able to avoid participation in those types of things. And it doesn't cause any adverse effects on us whatsoever.

And then, last question, comments on the M&A environment. What is that looking like right now? Are you seeing a pick-up in discussions?

Dan, this is Mike. I don't know if it is a pick-up, I think it has been pretty active, a lot of discussions during the last couple of years. As you know, there has been some activity in Michigan that certainly has picked up. I expect that to continue, but I think it is all, as far as we are concerned, a matter of discipline and looking at opportunities to make sure that, number one, they make sense for our shareholders, and for the Company strategically, as well. So I would expect, from what I am hearing and seeing, that we will still have a pretty robust -- at least discussion-wise -- environment, over the next year.

Okay, great. Thanks, guys.

Thank you.

Damon DelMonte, KBW.

Good morning, guys, are you how are you doing?

Good morning, Damon.

My first question relates to the margin, Chuck. You gave a guidance of 3.70% to 3.80% for the back half 2015. Are you guys assuming any hikes in rates by the Fed?

No, I think when we built our -- I guess there's two answers to that question. When we built our budget originally, we did build in a 25 basis point increase in July and another 25 in October. So that is one thing in the numbers. But in regards to our forecast, and the simulations that we run on a monthly basis, that level of rate increase would provide only -- and I say only -- but a modest improvement in our net interest margin and net interest income. We benefit more from an aggressive set posture, because of the level of the volume of loans that we have, commercial loans that are a floating rate. But if rates are going to go up on a modest basis, 25 basis points a quarter, or 25 basis points every other quarter, which seems to be in the tea leaves that the Fed is throwing out there, we would see probably a 1% to 2% improvement on our margin on an annualized basis. Regardless of what rates do, it really doesn't go much into our forecast in the margins as we go forward.

Got you, okay. And then with respect to the commercial construction and development pipeline that you guys referenced in the press release, I think you said it was $125 million. We saw balances this quarter go down by $10 million, so is this just a timing issue between some of these loans in the pipeline, like getting pulled through, so through to speak, and actually hitting the books?

Exactly, Damon. Coming out of the winter months here in the Midwest, construction really ramps up in the spring and through the summer and into fall. And we'd had several larger projects ramp up, and we saw some nice draw activity on those particular projects. But as Bob mentioned in his comments in regards to the loan pipeline, there is certainly additional construction projects that are being in the planning stages right now, that we are hopeful of winning and being able to book those commitments in the next couple quarters.

Got you, okay. And then lastly on the buyback, because you were pretty active this quarter, what are some of the characteristics that you are looking at when you decide to buy back stock? Do you solely focus in based on where the stock is trading? Or are you looking at what your future uses of capital could be over the next six to nine months? How do you balance out when and how to buy back stock?

This is Sam Stone. In authorizing the program, we look primarily at capital levels and the forecast of capital needs going forward. We clearly had room to do the $20 million repurchase. We're not quite halfway through that. Then a more tactical basis, we are trying to conduct a program so that we let other market participants set the price of where the stock trades. We try to pull in what we can without having undue influence on that price. We had more volume in the second quarter primarily because a couple of blocks showed up that helped us step on in. We will see what happens in the third quarter here when we get started up again.

Okay. And now you have my final question regarding credit. Obviously nice to have that large commercial credit move off the books. Chuck, could you give a little guidance on the provisioning and how to think about that? I know you have been booking recoveries for many quarters. Should we at some point start to factor in some actual provision expense versus just getting a credit?

I think that we are nearing the end, I think, of negative provisions. I think I keep saying that quarter after quarter. But really, the 600,000 that we did here in the second quarter reflects ongoing improvements, especially with some of our more troubled credits that we had established some aggressive and larger specific reserves. We are through most of that now. As I mentioned in my comments, the vast majority of the reserve is now general reserves for the whole portfolio. We don't have a level of specific reserves. Probably even a year ago, half of our reserve was comprised of specific reserves. And what we have seen is a lot of unwinding of that through the negative provisioning.

So the way I look at it going forward, I think, at least for the rest of this year, provision will probably be around zero. Maybe a modest positive, maybe a modest negative. But again, it seems like the unwinding of the specific reserves has gone its course. And then we look to the provision being driven more by loan growth, net loan growth, and any additional provisioning that we need to do to build our reserves based on our growing the portfolio.

Okay, great. That's helpful. That's all that I had. Thanks a lot, guys.

Thank you.

(Operator Instructions)

Next we have John Rodis of FIG Partners.

Thanks, guys, good morning.

Good morning.

Basically most of my questions have been asked and answered. Chuck, I one for you back on the reserve. What are you providing today on new growth?

Looking at our average credit that is being booked, we're probably somewhere around 50 to 70 basis points. It is obviously driven in large part by the loan grade and then the type of credit that we are getting into, and type of collateral. But probably mostly around 50 basis points, maybe up to 70 basis points, somewhere in there.

Okay. And then, Chuck, one other quick one. In fee income, the other line item, was there anything -- it was up a little bit from the first quarter. Anything out of the ordinary?

No, I think, and I kind of briefly mentioned in my prepared remarks, the way the accounting works and the way that we elected to do it, in regards to Firstbank, legacy Firstbank loans that were either fully charged off or had partially charged-off balances, when we get recoveries on those loans we've elected to take that through other income and not put it through interest income. We think that is more appropriate. We have been successful in getting some of those recoveries. Obviously as you know, just because the loan is charged off doesn't mean that we stop our collection processes. We had several very successful conclusion to some work-outs in that regard. So those are the numbers that are driving that number, that particular number that you referenced.

Okay, thanks, guys.

Thank you.

Next with Eric Grubelich, investor.

Hi, good morning. Thanks for providing the clarification on that bonus catch-up. But maybe a question for Chuck in that regard. If I look across the year 2015, at your comp and benefits line, based on where your budget is, how much of your total comp and benefit is related to that variable, or the variability of bonus accrual?

I think it is a hard question to give a simple answer to, because there is a lot of different metrics that go on to our bonus calculation. I will explain it a little bit. The first thing that we do when we are looking at providing accruals into our bonus programs, is looking at our performance with regards to pretax income, and how that compares to what we had budgeted. That provides numbers that can go into the bonus programs. But then there's nine different financial metrics that is additionally measured against, to see if any of those potential accruals can stay in the bonus program. So we are looking at it on an ongoing basis, but do certainly formally measure that, and to retool our expectations for the rest of the year at the end of each quarter. And per accounting guidelines, when we get to June 30 which is halfway through the year, that accrual should reflect about 50% of what we think we are going to accrue for the remainder of the year.

So I think that would probably, if you do the math, would give you a pretty good idea of what we think we are going to expense in the next two quarters. Again, we did not expense anything in the first quarter, so if you do the math, about half of our accrual in the second quarter reflects the catch-up.

Okay, I got you. So it really was zero in the first quarter, in terms of any type of bonus-related expense in your comp and benefit line, correct?

Exactly. And it was $800,000 in the second.

Okay, great. Thanks for clearing that up.

Certainly.

At this time, we are showing no further questions. We will go ahead and conclude our question-and-answer session. I would now like to turn the conference call back over to Mr. Michael Price for any closing remarks. Sir?

Thank you, operator. And thank you all for your interest in our Company, and we look forward to talking again with you next quarter. At this point, we will end the call.

And we thank you, sir, and to the rest of the management team for your time, also, today. The conference call is now concluded. At this time, you may disconnect your lines. Thank you and have a great day, everyone.