Robert Burton - Lambert, Edwards, Investor Relations Michael Price - President and CEO Robert Kaminski - Executive Vice President, COO and Secretary Charles Christmas - Senior Vice President, CFO, and Treasurer Samuel Stone - Executive Vice President of Corporate Finance and Strategic Planning

Matthew Forgotson - Sandler O'Neill Daniel Cardenas - Raymond James Damon DelMonte - KBW John Rodis - FIG Partners Eric Grubelich - Investor

Good day and welcome to the Mercantile Bank Corporation Second Quarter 2015 Earnings Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference 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 and 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 2013 contained $3.5 million in pre-tax merger related costs. Reflecting these costs 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 earnings assets. Improving the earning asset mix is a primary driver of profitability improvement due to the merger as we continue 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 U curve still weighs on our net interest income results, we continue to generate the above average performance in net interest margin which remains in line with our guidance for the quarter and year and underscores the 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 a 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 our 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 premier 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 early [ph] economic indicators remain positive suggesting growth will continue through the coming months. At this time, I'd like to turn the call over to Chuck.

Thanks Mike, and good morning to everybody. As Mike mentioned this morning, we announced a net income of $6.6 million for the second quarter of 2015 and net income of $13.2 million for the first half of the 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 period in 2014 are difficult to make. However, as Mike has noted, our 2015 results reflect the successful integration of the two banking organizations and are 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 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 during the first half of 2015 primarily reflects our successful and ongoing strategy to fund a large portion of our loan growth with monies from lower yielding securities portfolio and other interest earning assets. The 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, including the decline we saw during the first quarter. However, our yield on total earning assets will remain virtually unchanged. Our cost of funds declined by 2 basis points during the second quarter including the decline during the first quarter. During the quarter loan discount accretion totaling $1.5 million during the first 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 advance amortizations a reduction in interest expense totaling $0.6 million during both the first and the 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 of our 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’ve also continued to record trust preferred security amortizations and increase in interest expense of $0.2 million per quarter unless we call 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 3.70% to 3.80% 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 advance amortizations in July. While the ongoing very low interest rate environment continues to exert compression pressure on our net interest margins, 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 U.S. 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 ten consecutive quarters and in 13 out of the last 14 quarters. We recorded a negative provision expense of 0.6 million during the second quarter and $1.0 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 during the second quarter and totaled $2.4 million for the first half of the year. Resulted annualized net loan charge offs equaled 0.73% of average total loans during 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 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 were $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 relating to nine impaired loans, $1.0 million in specific reserve allocations relating to non-accrual loans and $1.3 million in specific reserves on other loans primarily accruing loans designated as troubled debt restructuring. We recorded non-interest income of $4.0 million during the second quarter of 2015 reflecting improvement in virtually all fee income categories and a $0.3 million increase from the first quarter. With caution at mortgage banking income and recoveries on certain acquired charge off loans can be difficult to forecast, we expect quarterly non-interest income to be around $3.5 million to $3.7 million during the remainder of 2015. We recorded non-interest 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 uncertainty surrounding a large non-performing commercial loan. With the resolution of that credit relationship during the second quarter, a portion of the accrual during the second quarter reflected catch-up. Second, we expensed $0.3 million during the second quarter due to an embezzlement situation involving a now former employee at a branch location that was uncovered at the end of the first quarter. We had expensed $0.4 million during the first quarter for this 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 the claim and expect some level of payment under our insurance policies. Although we do not expect to reach or record any additional expense related to this incident, we may receive payments from our insurance carrier that would be recorded as reduction of non-interest expense in future periods when payments are received. We are currently projecting quarterly non-interest 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 a valuation 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 from the 10% minimum required to be categorized as well capitalized. As part of the $20 million stock we 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 year. The weighted average all in cost per share is $19.67. Funding for the stock repurchase program has generally been provided via cash dividends from our bank and any further stock purchases would likely be funded in a similar manner. Those are my prepared remarks. I'll now turn the call over to Bob.

Thank you, Chuck and good morning. As you have see 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 are all on the positive economic environment is creating 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 for loans are up $52 million. Loan growth and net share grand assets was more significant gain will 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 calling staff we now 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 profitability 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 funding in the future periods. We are very pleased with both the efforts of the staff to generate quality loan growth but remaining disciplined in both pricing and asset quality despite competitive pressures in many of our markets. General economic activity remained solid in our region. Employment growth continued 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 activities and ongoing refinance in all of our markets. This pipeline remained strong and these trends are expected to continue in the third quarter. Asset quality is 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 all of our online banking customers to a single platform which was the last major systems integration project related 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. The new 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, our staff is working very diligently with our customers [indiscernible] the mutual benefits of receiving statements and notices from the bank electronically versus in paper form. Another initiative involves a review our customer relationships to confirm that the client is in the product set that best fits their needs. That concludes my prepared comments. I'll 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.

Yes sir. We will now begin the question-and-answer session. [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 unexpected, just a clarification point, Chuck, you had just 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 you know, net accrual assuming that it stays along with any future adjustments additional accruals are adjustments for our 2015 bonus plans would be actually paid out in, 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 at $19.3 million. Can you just help me understand what drives that down to that $18.8 million, $19.2 million range you are now proposing?

Yes Matt, part of that is the $800,000 that I mentioned in my prepared remarks was somewhat there was some catch-up in there. While we had hit some of the financial targets that we alluded to, they were accrued for a bonus in the first quarter because of the fluid situation and unresolved situation related to that one large commercial credit, we have lost on accruing for any bonus in the first quarter. So part of that $800,000 that we expensed in the second quarter is catch-up. I hope that reconciled your difference.

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

Yes, I don’t have the specific numbers, so I am firmly not there, certainly happy to get them to you. You know we continue to see some good refinance activity, but what caused for an increase in the second quarter from the first quarter was an increase in the purchase activity and from what I am being told our pipeline remained strong and actually the second quarter is 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 during the third quarter.

This is Bob. I think as you head into the spring summer months actually the normal cycle would see that type of an increase and then third quarter would carry a strong pipeline of mortgage activity into the third quarter and then so we see that the strength to continue and then looking then to the fall later in the winter months, starting of the year you then probably see construction obviously start to wane a little bit.

Okay. And then lastly and then I'll hop out. Bob, I'll stay with you. Could you just tell me, give me a sense of the loan pipeline and the balance, the complexion, the yield in quarter end and then just kind of speak to where that was last quarter?

I think the pipeline we touched, as we said we see at June 30 were quite some increase of where we were at the end of the first quarter. The Grand [ph] market as I mentioned in my comments remained quite strong. We've got a very good balance of both new projects that are taking place with the existing customers. We are seeing some C&I opportunities that we are taking a look at and developing some relationships there that may need to, may lead to loan funding as well as some opportunities with customers who weren’t satisfied with their current banks. We are also seeing, which is very encouraging, some increased pipeline activity in all of the markets. As I mentioned Kalamazoo, Mount Pleasant, Cadillac and Lansing, each of those markets rolled on, as strong as they happen, continue to see some increased activity. The staff is proceeding with the new approach to banking as we talked about, relationship building and that takes a little bit of time to get some traction, but when it does customers know what to expect from the bank and the bank is able to create some opportunity because of that. And then a year since the banks merge 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 and the pipeline is at a high level it has been in several years obviously with the merger being the main driving factor there and it's been very strong.

Thank you very much.

Next we have Daniel Cardenas of Raymond James.

Good morning guys.

Good morning Daniel.

May be if you could give me just quickly one kind of question I missed. I missed the net interest margin guidance that you provided for the back half of the year, if you could just throw those numbers back out at me I would appreciate it?

Yes Dan, It's Chuck, we are expecting our margin to be for the second, for the next two quarters, I can split that out, somewhere between 3.70% and 3.80%.

All right, perfect. And then as you look at loan pipelines and may be 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 you are getting are those mostly on pricing or are we seeing some change in the structural components?

No, that's one of the things new regarding the competitive pressures, they remain strong, it's fierce than it has been in recent quarters. That has not changed. The loan relationships that we are gaining, is not based on price, is not based on capitalized structure. That's where most part of our staff and they were out there and were demonstrating to customers the value that we can add in a relationship and many customers they see that benefit and we are 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 skeptic customers certainly want that lowest loan rate and those are the ones that will take rebate from the competitive situation, but the ones that see a little bit more beyond the pure loan price and the value we can add now with the relationships with our commercial lenders or the debit service that we can offer with treasury, electronic banking and those are things that come up with Mercantile Bank. Those are the ones that it really resonates and are seeing win based on that and it's not easy, it is a very disciplined approach that's required, but we proud of our staff for carrying forth that mission and making the gains that we are getting based on their approach.

Good, good and then just in terms of the average loan size of the new production that you've booked in the first half of the year, is that changed dramatically from last year?

You know, I think certainly we have been seeing some larger loan transactions that we have had an opportunity to take a look at. Obviously with the increased size of the company now we are able to comfortably look at a loan that may be we want, that we shied away from, shied away from the cast. Now we are seeing that across the bank. We are seeing opportunities in some small loan amounts as well, not only looking at assets, but in other markets too. So it's generally across the board. The pipeline reflects some nice opportunities in all segments of size and types of loans.

Good, good and are you seeing any competitive pressures on the deposits side?

Well, it is a situation where the rate has been so low, it is being let off in some other institutions stepping out of line and they are operating at a rate that doesn’t really make any sense and based on our liquidity situation I think we are virtually unable to avoid participation in those types of things and maybe it doesn’t cause any adverse effects on us whatsoever.

Yes, and then the last question, comments on the M&A environment, what's that looking like right now, are you seeing a pickup in discussions?

Yes Dan, this is Mike. I don’t know if there is a pickup. I think it's been pretty active, lot of discussions during the last couple of years and as you know there's been some activity in Michigan and it only has picked up, I expect that to continue, but I think as far as looking through the 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

Hey good morning guys, how are you doing?

Hi, Good morning Damon.

Great. My first question just relates to the margin Chuck, you gave a guidance of $3.70 or $3.80 for the back half of '15. Are you guys assuming any hikes in rates by the Fed?

No, I think when we booked our, I guess there's two answers to that question. When we broke our budget originally we did grow in a 25 basis point increase in July and another 25 in October, but so that's 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 it is the only but a modest improvement in our net interest margin and net interest income. So, we benefit more from an aggressive Fed posture because of the level of the volume of loans that we have, commercial loans at a floating rate, but if rates are going to go up on a modest basis, 25 basis points a quarter, 25 basis points every other quarter which seems to be the two leaves that the Fed is throwing out there. We would see probably 1% to 2% improvement on our margin on an annualized basis. So, kind of regardless of what rates do we ready, it really doesn’t go much into our forecast and the margins will go forward.

Got you. Okay, and then with respect to the commercial construction the government pipeline you guys referenced in the press release, I think you said it was $125 million. You know, we saw our balances this quarter go down by $10 million. So this was a timing issue between some of these loans in the pipeline by getting poured through so to speak and actually getting the books?

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

Got you, okay. And then I guess lastly on the buyback, because you are pretty active this quarter, what are some of the characteristics that you're looking at when you decide to buy back stock? Are you are sort of focusing based on where the stock is trading or are you looking at maybe what your future issues of capital could be or the next six to nine months, how do you kind of balance out when and how does buyback stack?

It's Sam Stone. In authorizing a program, we looked at capital levels and the forecast of capital needs going forward and we clearly had room to do the $20 million repurchase. We are not quite halfway through that. On a more tactical basis, we are trying to conduct a program so that other market participants separate [ph] so for stock trades and 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 docs [ph] showed up, that helped the step volume in and we will see what happens in the third quarter here when we get started up again.

Okay and now it is just my final question just regarding credit, obviously nice to have that large commercial credit move up to book, Chuck could you give a little guidance on the provisioning in kind of how do think about that. I know you guys 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?

Yes, I think we’re nearing the end I think of negative provisions I know acute space, I think I keep saying that quarter-after-quarter, but really the 600,000 that we did in the same quarter reflects ongoing improvements, first of all some of our more troubled credits that we had established some pretty aggressive and larger specific reserves, we’re through most of that now. As I mentioned in my comments a vast majority of the reserve is now -- are general reserves for the whole portfolio. We don’t have the level of specific reserves. Probably even a year ago, top of our reserve was comprised of specific reserves and what we’ve seen is a lot of unwinding of that to 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, may be a modest positive, maybe a modest negative. But, again it seems like the unwinding of those book reserves have kind of gone its course. Then if 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 growing the portfolio.

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

Thank you.

[Operator Instructions] Next we have John Rodis of FIG Partners.

Thanks guys. Good morning.

Good morning.

I guess basically most of my questions have been asked and answered. Chuck, I guess maybe just one for you back on the reserve, what are you guys providing today on new growth?

Looking at our average credit that is being built upon is somewhere around 50 to 70 basis points. It is obviously driven a large part by the loan grade and on the type of credit that we’re getting into and then type of collateral, but probably mostly around 50 basis points, maybe up to 70 basis points for loan now.

Okay. And then Chuck maybe just one other quick one on the fee income, the other line item was there anything, it was up a little bit from the first quarter, anything out of the extraordinary?

No, I think and I kind of briefly mentioned in my prepared remarks, the way the accounting works and the way that we are likely to do it, in regards to Firstbank, legacy Firstbank loans that were either fully charged off or had charged off, partially charged off balances, when we get recoveries on those loans we would like to take that through other income and not put it through interest income, we think that that is more appropriate. And we have been successful in getting some of those recoveries obviously as you know just because the loans charged up doesn’t mean that we stop our collection processes and we had a couple, we had several, very successful conclusions and some workouts in that regard. So those are the numbers that are kind of driving that particular number you referenced. Q - John Rodis Okay. Okay, thanks guys.

Thank you.

Next with Eric Grubelich, Investor.

Hi good morning. Just hi, thanks for providing the clarification on that bonus catch-up, but maybe a question for Chuck in that regard, so if I look across the year 2015 that 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?

Yes, I think it is a hard question to give a simple answer to because there are a lot of different metrics that go on to our bonus calculation, but I'll explain a little bit. The first thing I would do is before we -- when we're 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 have budgeted. And so that provides numbers that can go into the bonus programs, but then there are nine different financial metrics that they are traditionally measured against to see if any of those potential accruals can stay into the bonus program. So, we are looking at it on an ongoing basis, but certainly formally measure that and read through our expectations for the rest of the year and in each quarter. And so putting it through guidelines what we, when we get to June 30, which is half way through the year, that accruals should reflect about 50% [ph] 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 will give you a pretty good idea of what we think we're going to expense in the next two quarters. But 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 a catch-up.

Okay I got you, so when you -- it really was zero in the first quarter in terms of any type of bonus related expense in our comp and benefit line. Correct?

Exactly, and it will rate under [indiscernible].

Okay, okay, great. Thanks for clearing that up.

Well at this time, we're 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 taking 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.