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Mercantile Bank (NASDAQ:MBWM)
Q3 2018 Earnings Conference Call
Oct. 16, 2018 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Mercantile Bank Corporation third-quarter 2018 conference call and webcast. [Operator instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Mike Houston, investor relations, Lambert, Edwards & Associates.

Please go ahead.

Mike Houston -- Lambert, Edwards & Associates

Thank you, Michelle. 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 third quarter 2018. I'm Mike Houston with Lambert IR, Mercantile's investor relations firm. And joining me today are members of their management team, including Bob Kaminski, president and chief executive officer; Chuck Christmas, executive vice president and chief financial officer; Ray Reitsma, president of Mercantile Bank Michigan; and Bob Worthington, senior vice president, chief operating officer, and general counsel.

We will begin the call with management's prepared remarks, and then open the call up for 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 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'd like to turn the call over to Mercantile's president and chief executive officer, Bob Kaminski. Bob?

Bob Kaminski -- President and Chief Executive Officer

Thank you, Mike, and good morning, everyone. Thank you all for joining us today. On the call today, we will provide an update on our overall performance and financial results along with our key areas of strategic focus. We will also discuss loan development, growth initiatives, and asset quality.

Afterwards, we will open the call for a question-and-answer session. We are pleased to announce that our current-quarter operating results represent a continuation of the robust performance demonstrated during the first half of the year, resulting from improved operating performance and balance sheet growth. This is evident in the healthy net interest margin, strength of our commercial loan pipeline, which was highlighted by our consistent loan funding and second consecutive quarter of solid net loan growth along with a continuation of our sound asset quality. We also generated increased fee income in most areas and continued our diligent control of noninterest expense during the quarter.

As has been the case year to date, results were also supported by a lower regulatory tax rate. Ryan and Chuck will provide more details on all these areas momentarily. Turning to the Michigan economy, the directional trend remains positive. Employment in our primary markets continues to grow and real estate conditions continue to be healthy.

These favorable trends coupled with our value-added approach to banking and our wide array of products and services have allowed us to successfully attract new customers and retain existing clients. Our strong financial performance during the first nine months of 2018 positions us to meet profitability and growth targets in the fourth quarter and beyond. Lastly, we are pleased to announce an increased fourth-quarter dividend and special dividend as evidence of our confidence in the bank and commitment to enhancing loan shareholder value. Our sustained strength and core profitability, sound capital position, and healthy commercial and residential mortgage loan pipelines position us to finish the year in strong fashion and to take advantage of future growth opportunities.

That concludes my remarks. I'll turn it over to Ray.

Ray Reitsma -- President of Mercantile Bank Michigan

Thanks, Rob. During the third quarter, total loans grew by $61 million and commercial term loans funded to new and current clients totaled to $119 million. The funding activity was consistent in magnitude with the first two quarters of 2018, contributing to an annualized growth rate of 7.2% during the first nine months of 2018 and quarterly originations during 2017, which resulted in a growth rate of 7.6% for the year. During the third quarter, the commercial portfolio grew $44 million, complemented by growth in retail portfolio of $17 million.

Included in these numbers is $14 million of loan growth funded by our Troy office, which opened in March of 2017. Note that our pipelines continue to be solid, as they had been to the first half of 2018 and all of 2017, and that our commitment to fund construction projects currently totaled $152 million. We continue to build momentum in generating noninterest income, with quarter-over-quarter gains in payroll service revenue of 15% and in credit and debit card revenue of 13%. We look forward to growth in these areas of our business in the remainder of 2018 and beyond.

Mortgage production increased in the recent quarter and expanded to the highest level in past three years. Despite mounting headwinds in 2018 related to rising interest rates and a constrained supply of homes for sale, our mortgage team has improved our competitive position relative to the market and increased our market share as a result. The current mortgage pipeline suggests continued growth despite our cautious outlook for the mortgage environment. Noninterest expense grew slightly faster than expectations in the quarter, reflecting increased salary cost, including annual employee merit-based increases and higher stock-based compensation expense as well as payment increases for hourly employees.

The wage increase for hourly employees reflects our strategy of reinvestment of a portion of the savings from the Tax Cuts and Jobs Act 2017 in our employees, customers, and communities. Our employees are talented and dedicated and these investments are consistent with our service-based approach to the market. Our third-quarter asset-quality performance metrics once again reflects a strong portfolio. Total nonperforming assets are $5.8 million at September 30, or 0.18% of total assets.

Our lenders and management continue to diligently monitor our loan portfolio searching for potential signs of stress. Average total deposits during the third quarter were up $68 million compared to the respective 2017 period, reflecting an $88 million increase in local deposits and a $20 million decline in broker deposits. Average funds during the third quarter were essentially unchanged relative to the prior-year third quarter and wholesale funds currently comprise 11.2% of total funding base. Continued growth in our total deposit bases and strategic priorities.

That concludes my comments, and I'll turn it over to Chuck.

Chuck Christmas -- Chief Financial Officer

Thank you, Ray, and good morning, everybody. This morning, we announced net income of $10.1 million, or $0.61 per diluted share, for the third quarter of 2018. Comparatively, during the third quarter of 2017, we earned $8.3 million, or $0.51 per diluted share. Net income for the first nine months of 2018 totaled $30.5 million, or $1.83 per diluted share, compared to $23.3 million, or $1.41 per diluted share, during the first nine months of 2017.

Interest income related to purchase loan accounting interest increased net income during the third quarter of 200 --2018 by $0.3 million, or $0.02 per diluted share, and net income during the first nine months of 2018 by $2.7 million, or $0.16 per diluted share. During the respective time periods in 2017, net income increased $1.1 million, or $0.07 per diluted share, and $2.6 million, or $0.15 per diluted share, as a result of purchase loan accounting entries. A bank life -- a bank-owned life insurance claimed during the first quarter of 2017 increased reported net income during the first nine months of 2017 by $1.2 million, or $0.07 per diluted share. Excluding the impacts of these transactions, diluted earnings per share increased $0.15, or 34%, during the third quarter of 2018 over the third quarter of 2017, and by $0.48 per diluted share, or 40%, during the first nine months of 2018 compared to the same time period last year.

Net income during the third quarter and first nine months of 2018 also benefited from a reduction in the corporate federal income tax rate, which was lowered from 35% to 21% effective January 1 of this year, due to the enactment of the Tax Cuts and Jobs Act. Our year-to-date effective tax rate has been about 19%, compared to approximately 31% during the same time period in 2017. We remain pleased with our financial condition and earnings performance and believe we are very well-positioned to continue to take advantage of lending and market opportunities while delivering consistent results for our shareholders. Our net interest margin was 3.87% during the third quarter, similar to an average of 3.89% during the previous four quarters.

Our net interest margin has benefited from the rate hikes by the FOMC over the past couple of years and from the recording of interest income, which stem from the periodic successful collection efforts on purchase and certain originated impaired commercial loans. Our cost of funds as a percentage of average earning assets increased 5 basis points during the third quarter, compared to 4 basis points during the second quarter and 5 basis points during the first quarter of this year. The increase is our reflection of higher interest rates on certain money market deposit accounts, time deposits, and borrowed funds, in large part, due to the increased fee interest rate environment. Excluding interest income associated with purchase loan accounting as well as adjusting for excess liquidity maintained at the Federal Reserve, our core net interest margin for the third quarter of 2018 was 3.83%, compared to 3.65% during the third quarter of 2017 and 3.82% during the first nine months of 2018 compared to 3.65% during the same time period in 2017.

We recorded $0.4 million in purchase loan accretion of payments received on CRE pool loans during the third quarter of 2018, in line with the guidance figure we provided at the end of the second quarter. Based on our most recent valuations and cash flow forecast on purchase loans, we expect to record additional quarterly interest income totaling about $200,000 during the fourth quarter of 2018 and throughout 2019. In addition, we expect to receive an aggregate of about $2 million in principal payments on purchase impaired CRE pool loans over the next several years, which will be recorded as interest income upon receipt. We expect our net interest margin to be in the range of 3.85% to 3.9% during the fourth quarter of 2018 and throughout 2019.

This forecast assumes no further changes in the prime and LIBOR rates. Our interest rate risk measurements continue to reflect an improved net interest margin and an increase in interest rate environments. The overall liquidity of our loan -- the overall quality of our loan portfolio remains very strong with continued low levels of non-performing loans and loan charge-offs. Non-performing assets as a percent of total assets equaled only 18 basis points at the end of the third quarter.

We have recorded a net loan recovery in each of the three quarters of 2018 totaling $1.1 million for all of 2018. Loan charge-offs totaled just $0.2 million during the third quarter and only $1.1 million during the first nine months. We recorded a provision expense of $0.4 million during the third quarter, in large part, driven by commercial loan growth. We expect to record quarterly provision expense of $0.5 million to $1.0 million during the fourth quarter of 2018 and throughout 2019 assuming a steady economic environment.

Our loan loss reserve totaled $21.7 million at the end of the third quarter, or 0.88% of total originated loans. This coverage ratio has remained steady for many quarters and no significant changes are expected for at least the remainder of 2018. In regards to CECL, we expect to have our model up and running by the end of the fourth quarter and plan to run this new model in parallel to our existing model through the end of 2019. We recorded non-interest income of $4.7 million during the third quarter of 2018, lower than the guidance provided at the end of the second quarter.

While we recorded increases in most fee income categories as expected, income from our mortgage banking operations came in less than expected, in large part, due to a higher proportion of our originated loans being booked in our portfolio instead of sold. In addition, the inventory of homes listed for sale throughout our markets especially, in the Western Michigan market, remains low and is negatively impacting our new mortgage loan volume. We expect non-interest income to be in a range of $4.3 million to $4.5 million during the fourth quarter of 2018. We recorded noninterest expense of $21.7 million during the third quarter of 2018, slightly above the guidance provided at the end of the second quarter.

Currently, we expect quarterly noninterest expense to total $21.5 million to $21.8 million during the fourth quarter with our effective tax rate remaining at about 19%. While we expect this special $0.75 per share cash dividend we announced this morning to have an approximately 40-basis-point negative impact on our bank's regulatory capital ratios, we remain a well-capitalized banking organization. As of quarter end, our bank's total risk-based capital ratio was 12.8% and in dollars was approximately $87 million higher than the 10% minimum required to be categorized as capitalized. Those are my prepared remarks.

I'll now turn the call back over to Bob.

Bob Kaminski -- President and Chief Executive Officer

Thank you, Chuck. At this point, we will open the call up to the Q&A session.

Questions and Answers:

Operator

[Operator instructions] The first question comes from Brendan Nosal of Sandler O'Neill Partners. Please go ahead.

Brendan Nosal -- Sandler O'Neill and Partners -- Analyst

Hey, good morning, guys. How are you?

Bob Kaminski -- President and Chief Executive Officer

Good. Good morning.

Chuck Christmas -- Chief Financial Officer

Good morning.

Brendan Nosal -- Sandler O'Neill and Partners -- Analyst

Just wanted to start off on loan growth year. Looking at the quarter, things seemed really, really solid, especially within C&I. Just hoping you could add a little bit more color on the overall lending environment. What our customers saying to you guys? What pockets of the footprint are performing the best today? So anything you could add there would be great.

Bob Kaminski -- President and Chief Executive Officer

Yeah. This is Bob Kaminski. I'll make a few comments and then Rick can chime in if he has additional things to add. But yeah, we had another really good, solid quarter with net loan growth.

Fundings were consistent with what we've seen throughout the course of last many quarters, and it really reflects our relationship banking model of doing business. As our lenders are getting some really nice opportunities with the new and existing clients in all of our markets, most especially, in the western Michigan area, where we have our largest concentration of commercial credit. Again, continues to look very solid with our pipelines for the coming quarters. And gives us a really good opportunity on all different kinds of loans but most especially in the commercial/industrial arena with lots of new loan opportunities and opportunities with potential new clients in that loan type as well.

So very positive. I think as we talked about in the past, we did experience extreme amount of loan payoffs in the third quarter, which certainly benefited those funding dropping to the bottom line in terms of net loan growth. But as we have in the past, we've always been very consistent with our fundings and that's reflective on our relationship banking method of doing business.

Ray Reitsma -- President of Mercantile Bank Michigan

I would add to that. It's a reflection of the fact that our calling officers have been calling for a long period of time, building relationships with the C&I market and those continue to bear fruit and have steadily added to our opportunities as they have in the past. So we continue to have a real consistent flow of opportunities that we've been able to take advantage of.

Brendan Nosal -- Sandler O'Neill and Partners -- Analyst

All right, great, great. And then moving over to the expense side. Looks like the new range for the fourth quarter is a little bit higher than what you'd offered previously. And if I recall correctly, from the last call, it sounded like based on the accruals are going throughout the year, it sounded like you could even move to the midpoint of that old range.

So I'm just kind of wondering how things of all over the past 90 days to get you to the new range for the last quarter of this year.

Bob Kaminski -- President and Chief Executive Officer

Yes, Brendan, I think it's just more of a reflection of reality that's going through as we continue to build our company and -- which includes making sure our facilities are up where they need to be, our technology is up where it needs to be, adding more and new people to our staff as they become available. So I think it's -- there's expenses, as you said [Inaudible] indicated they are higher than what we are expected 90 days ago. But what I like about the increases in expenses is they're all related to supporting our continued growth, and we continue to look at all of our technology and our facilities toward -- with a long-range vision. And we know that making some investments today are going to pay off, not necessarily in the current quarter with the associated expense but in the future years as those facilities, that technology and the people that we add to our group will obviously enhance our income as we go down the road.

Brendan Nosal -- Sandler O'Neill and Partners -- Analyst

All right, that all makes sense. And then last one for me. Moving over to the capital side. Definitely, nice to see the announcement of the special today and also the increase in regular dividend.

Just curious to hear what led you to this decision? And then looking forward, is it fair to think that PC ratio roughly 10%, like this quarter, you guys might think about getting creative again?

Bob Kaminski -- President and Chief Executive Officer

Brendan, this is Bob Kaminski. I'll answer the question first then Chuck can chime in the back end. It's something that we with our board have conversations with all during the course of the year. As you know, we get this questions every quarter since the previous special dividend, which was about a couple of years ago now, and we look at it in terms of our overall profitability, how our capital base has continued to increase and strengthen, and so we saw it as a great opportunity to reward the shareholders with not only the increased quarterly dividend but the special dividend at the end of the year.

So it's part of our capital planning process that we continue to do. On an ongoing basis, and the board as well as well as management it was time to go down that path this year.

Brendan Nosal -- Sandler O'Neill and Partners -- Analyst

All right, great. Thanks for taking my question.

Bob Kaminski -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from Kevin Reevey of D.A. Davidson. Please go ahead.

Kevin Reevey -- D.A. Davidson -- Analyst

Good morning, gentlemen, how are you?

Bob Kaminski -- President and Chief Executive Officer

Good morning, Kevin.

Ray Reitsma -- President of Mercantile Bank Michigan

Good morning.

Kevin Reevey -- D.A. Davidson -- Analyst

So a first question is, the impact from the tariffs. Are any of your business customers feeling the impact from that? And then, do you anticipate that you have any negative impact on your business if the tariffs continue to remain in an effect over a longer period of time?

Bob Kaminski -- President and Chief Executive Officer

This is Bob. I'll answer the question first. I think all of our customers have -- are keeping a close eye on the economic situation as it pertains to the tariffs. And I think people are still trying to sort out how it may impact them.

And seems we're changing, evolving situation on a daily basis that you see some new agreements coming in place. So some other areas where it's not looking as promising at the moment. So I think it's only got the attention of our clients and certainly us as well. We look to have them help us understand their business model and how these various situations may impact them from a sales standpoint and or from a supply standpoint.

So beyond that, I think everybody is just really in a wait-and-see mode at this time to determine what's coming down the road.

Kevin Reevey -- D.A. Davidson -- Analyst

And then, Ray, early in your prepared remarks, you talked about your strategy is focused on growing local deposits. Can you give us some color on that and talk about the competitive environment for growing local deposits?

Ray Reitsma -- President of Mercantile Bank Michigan

Yeah, the local depart -- environment is very competitive, but what we're really focused on is making sure that our loan opportunities and our deposit opportunities are coupled that when we do one, we get the other. And that's been very effective. The cash management tools that we bring to the market have also helped us bring in the requisite C&I deposits that go along with that, loan growth in that particular category. So the investments that Chuck talked about earlier, some of those reside in those categories and have helped us to continue to grow that deposit base, and we compete very well with the regional and national players as well as the community mid-bank players in that particular market.

Bob Kaminski -- President and Chief Executive Officer

kevin, this is Chuck. And if I could just add on to Ray's comment more specifically to a particular market and that is the public unit CD market. That is one that we -- we definitely want to be competitive, and we want to maintain relationships, especially with those municipalities that do additional business with us, maybe they have their core operating checking accounts with us, maybe they have some savings or money market deposits with us. But that has, and I think I've said it several times on previous calls, that is one market that has been incredibly aggressive in pricing from a competitive standpoint for at least two years now and that's not changing and I think it actually is a little bit worse as we sit here today.

So in general, for those municipalities that are just looking to play CDs, we're not being very competitive because I don't think that their rates are appropriate. They are getting very, very close to brokered and wholesale funding rates, which still made very much sense to me. But again, those that we have more relationships with, again, other deposit relationships, sometimes we have loan relationships. Those we continue to actively manage, make sure that we are competitive in the rates that we're offering.

But the net of all does that we have seen a rather significant decline in our balances on public unit CDs. And the nice thing is, as per Ray's comments, we've been able to offset the vast majority of that with the increases in operating accounts from the C&I customers that we have brought over. So we're down to only about $60 million, $65 million of public unit CDs. I think most of that is what I would call core that there are some additional products and services that we have out there with those folks.

But obviously, that does play in the overall number, so wanted to make a couple of comments on that. When it comes to our net deposit growth, we're doing a very, very good job. Not only on getting deposits on the CRE side but also managing our products, managing our marketing to bring in deposits that are long-term in nature and not just trying to bring in deposits at a relatively higher rate and hope that you keep them at maturity somewhere down the line. So again, we continue to focus on that relationship banking, and we see very good progress, certainly not only on the loan side but on the deposit side as well.

Kevin Reevey -- D.A. Davidson -- Analyst

Appreciate the color. Thank you very much.

Bob Kaminski -- President and Chief Executive Officer

Thanks, Kev.

Operator

The next question comes from Damon DelMonte of KBW. Please go ahead.

Damon DelMonte -- Keefe, Bruyette & Woods -- Analyst

Hey, good morning, guys. How are you doing today?

Bob Kaminski -- President and Chief Executive Officer

Good morning, David

Damon DelMonte -- Keefe, Bruyette & Woods -- Analyst

Just a quick follow-up on the deposit commentary. You think your loan-to-deposit ratio is 108% this quarter. Obviously, the impact of deposit rates and continue strong loan growth. Are there any concerns about that getting to a higher level or are there any plans that you could maybe turn the plates to accelerate the more normalization of that ratio?

Chuck Christmas -- Chief Financial Officer

Yeah, David, this is Chuck. As you know, we've historically been around 100%, maybe 105%, relatively high, I think, compared to the industry but that is a level that we have consistently been at and the management team and the board feel comfortable with that. We kind of -- not that we know that ratio but the one that we are more concerned about is obviously on the other side of the balance sheet is our loans to asset, our investments to assets, making sure that we've got sufficient liquidity of the Federal Reserve to make sure that we are taking care of daily fluctuations in our balance sheet. That's kind of the asset side, not liability side.

What we want to do is just kind of manage that overall wholesale funding number. As Ray indicated, it's around 11% right now, and it's been there for quite a few quarters now. And that -- that's kind of the overall way that we manage the balance sheet. I think one of the things that's come into play with the loan deposit is we -- over the past many quarters now, we move more away from the broker deposits from wholesale stand -- standpoint and put more of our money into the FHLB advances.

Those -- we try to go long term. We have to borrow for funding purposes, we generally go long term on the FHLB advances. We do have fixed-rate bullets and generally four to seven years, and we try to -- on a global basis, try to match funds some of the fixed-rate commercial loans that we're putting on our books, which vast majority of the time are five years and occasionally a seven-year balloon. And what we see in the marketplace on the brokerage side is there's not a lot of liquidity out there when you get past even two years, a lot of CD folks don't want to go past that in a rising interest rate environment.

They like to stay short. And so what ends up happening is to generate enough money in the brokered market to, say, get a five-year CD, we got to pay out pretty high premium to convince those investors to go a little bit longer and some of the other banks are out there trying to do what we're doing, is trying to link the liberation [ph] of our liabilities. So you end up with a pretty high premium on broker deposits over the FHLB, is quite significant. So it doesn't make any sense to go get broker money that's more expensive versus the FHLB money but again, to your point, it does have some play into the loan-to-deposit ratio.

Bob Kaminski -- President and Chief Executive Officer

I would also add, Damon, as Ray talked about on the loan fundings and the opportunities there on the C&I side, we're very excited. Because with those C&I relationships, we're also coming, in some cases, some significant deposit relationships, and so our continued focus on bringing C&I into the bank is going to benefit not only from the deposit standpoint but from the strategy standpoint. They're all kind of fit together with our technology investments that we continue to make. So over long-term view, I think we're very excited.

And as Chuck talked about from the wholesale-funding standpoint, it supplements those fluctuations and ebbs and flows in the client deposit base.

Ray Reitsma -- President of Mercantile Bank Michigan

Lastly here, Damon, I would just go back to my previous comments about public units is old relationships we want to keep, we're aggressive in our pricing but in general, it's just a CD public unit. We're not [Audio gap] loan-to-deposit ratio.

Damon DelMonte -- Keefe, Bruyette & Woods -- Analyst

That's good color. Thank you. And with respect to outlook for loan growth, backdrop continues to be in place healthy economic activity happening, pipelines remain strong. Obviously, first quarter of this year, you saw some outside payoffs, which dampen overall growth for the last two quarters have been pretty strong.

Are you feel comfortable kind of replicating something like this quarter in the fourth quarter from a growth perspective?

Bob Kaminski -- President and Chief Executive Officer

From the standpoint of our growth, I think what you could expect from us is our consistent loan funding, which we typically rip off each and every quarter. But as we talked about in the past, those payoffs sometimes, they are, they don't give you a lot of advance notice and in some cases clients are negotiating for the sale of an asset, either their business as a whole or piece of real estate and many times you don't get significant forwarding on that. So as you talked about in the past, when there are paydowns, still good clients of the bank, and typically want to invest in something else with generally will require a reported invest from us down the road, so it comes in cycles in each year we have a quarter or two, whether there is heavy amounts of payouts for concentration of payouts, and the timing of which is hard to predict. But I think what you can always count on from us is a good solid loan funding base, which we continue to do each and every quarter and missing our pipeline we are confident that those abilities going forward as well.

Damon DelMonte -- Keefe, Bruyette & Woods -- Analyst

OK. Good. All right. And then I guess, just lastly, on the noninterest income this quarter the other noninterest income line looked a little bit lower than what we saw the first couple of quarters of the year.

Is there anything unique to that, Chuck?

Chuck Christmas -- Chief Financial Officer

Yes, that question, I don't have anything off the top of my head, but let me go back to my office and think about that, and I'll get back to you.

Damon DelMonte -- Keefe, Bruyette & Woods -- Analyst

OK.

Chuck Christmas -- Chief Financial Officer

As you might expect, there's a lot of hodgepodge of different categories that go in there. Nothing comes to mind that is just one item. [Audio gap] I can't think of --

Damon DelMonte -- Keefe, Bruyette & Woods -- Analyst

Yup. That's fine. OK. That's all that I have for now.

Thank you very much.

Bob Kaminski -- President and Chief Executive Officer

Thanks, Damon.

Operator

[Operator instructions] The next question comes from John Rodis of FIG Partners. Please go ahead.

John Rodis -- FIG Partners -- Analyst

Good morning, guys.

Bob Kaminski -- President and Chief Executive Officer

Good morning, John.

John Rodis -- FIG Partners -- Analyst

Maybe just a follow-up for you on the special dividend. I'm just curious, given the pullback in the stock and so forth, just curious how the board weighed, maybe special dividend versus potentially buyback are getting more aggressive given current price levels.

Bob Kaminski -- President and Chief Executive Officer

I think I'll let you view As I mentioned, of a previous question we look at capital standpoint on an ongoing basis and I think the determination for special dividend, the fourth quarter was something that had been in the conversation for the second half of the year and I think as far as buybacks we have those in our two taken opportunities but it always gets into the overall capital-management standpoint and special rent was one that we have utilized in the press and refilled with the board this time to do that I had given our capital levels in our continued strong profitability.

Chuck Christmas -- Chief Financial Officer

I would just add to that, John, this is Chuck, is that our results in capital ratios are still very sufficient for who we are and what we look like and what we want to do from an organic-growth standpoint. But we still have dry powder, plenty of dry powder in there and the fact that we do want to start buying some of our stock back to kind of know what the price is doing. Obviously, fortunate last few days it's getting more to the point where that might be something that we want to do but as you might expect, we have been the blackout period and will be here in the next couple of days. So we continue to look at stock price on a regular basis with regard to stock buyback plan out there and that is something we certainly will ourselves in the timing comes out right.

John Rodis -- FIG Partners -- Analyst

And, Chuck, remind -- us what's left under the current plan? Is it...

Chuck Christmas -- Chief Financial Officer

It's about $20 million left, I believe. Either $15 million or $20 million. [Inaudible

John Rodis -- FIG Partners -- Analyst

OK And then just one other question, guys. Just -- I guess last week there was a deal announced in your Michigan markets and BDF. Just any thoughts there any opportunities so forth.

Bob Kaminski -- President and Chief Executive Officer

I think from an M&DA standpoint, we said on past calls, we continue to be interested as potential recording targets become available for along those lines we build relationships with bankers in our region and as you talked about also in the past, culture is extremely important to us and so as we look at potential partners from an acquisition standpoint the culture is something that we are very picky about in various -- specific about that has to be good match for us and so that is fact as we look at potential targets on an M&A standpoint.

John Rodis -- FIG Partners -- Analyst

OK. Fair enough. Thanks, guys.

Bob Kaminski -- President and Chief Executive Officer

Thank you.

Operator

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

Bob Kaminski -- President and Chief Executive Officer

Yes, thank you, we thank you, we look forward to talking to you again in January this concludes the call.

Operator

[Operator signoff]

Duration: 36 minutes

Call Participants:

Mike Houston -- Lambert, Edwards & Associates

Bob Kaminski -- President and Chief Executive Officer

Ray Reitsma -- President of Mercantile Bank Michigan

Chuck Christmas -- Chief Financial Officer

Brendan Nosal -- Sandler O'Neill and Partners -- Analyst

Kevin Reevey -- D.A. Davidson -- Analyst

Damon DelMonte -- Keefe, Bruyette & Woods -- Analyst

John Rodis -- FIG Partners -- Analyst

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