Merchants Financial Group, Inc. (MFGI) has announced financial results for the second quarter and details about COVID-19 assistance provided to its customers, according to MFGI President & CEO Gregory M. Evans.
Second quarter earnings of $8,442,992 were behind MFGI’s 2020 plan by $346,298 and behind 2019 mid-year results by $484,989. June earnings were profitable for MFGI even though the Company reversed $4 million out of income in the form of additional Allowance for Loan/Lease Loss Reserves as a precautionary measure to cover potential loan risk as the challenging economic situation continues to unfold.
“Our profitable performance through two quarters is a source of pride for our extraordinary employee team, which has been intensely focused on assisting our customers and communities experiencing hardship due to the COVID pandemic,” said Evans. “Most gratifying is the feedback I’ve received from clients who are appreciative of how our bankers have been available to them in serving as trusted advisors at this difficult time.”
“We want our customers and communities to know that Merchants will continue to be a source of assistance for those hit hardest by the pandemic and that we take our responsibility as a community bank seriously. We’re here to be your financial partner as you navigate challenges in the coming months,” Evans noted.
The ownership of Merchants Financial Group, Inc. is made up of its more than 440 employees and its shareholders, mostly individuals and families from southeastern Minnesota and west-central Wisconsin.
Merchants Bank is a full service community bank with 21 bank locations in southeastern Minnesota, two bank locations in west-central Wisconsin and a leasing division, Merchants Bank Equipment Finance, in Edina. Headquartered in Winona, MN, MFGI has more than $2.1 billion in assets. Merchants was founded in 1875.
Andrew (Andy) Althoff has been promoted to Mortgage Lender at Merchants Bank in Northfield, according to Tim Viere, Northfield Regional President. Andrew replaces Becky Behrens, who is retiring on July 31 after 39 years serving mortgage customers in Northfield.
“We’re excited to have Andrew’s mortgage expertise on staff. His background in mortgage processing means he knows exactly what is needed to process a mortgage application and that will translate into meaningful conversations with potential homebuyers upfront,” said Viere.
Althoff has been with Merchants Bank since 2014 as a Credit Operations Representative and most recently a Mortgage Loan Processor. He has been working as part of the Northfield team since Merchants Bank closed on the sale of the First National Bank of Northfield in August 2019 and has enjoyed learning from Becky in that time. Althoff is from the Cannon Falls area and graduated from Winona State University with a Bachelor of Science in Business Administration.
“I look forward to serving the people of Northfield and helping them realize their dreams of home ownership. I am determined to make the process of home buying and refinancing as seamless as possible,” said Althoff.
Merchants Bank is a full service community bank with 21 bank locations in southeastern Minnesota, two bank locations in west-central Wisconsin and a leasing division, Merchants Bank Equipment Finance, in Edina. Headquartered in Winona, MN, MFGI has more than $2.1 billion in assets. Merchants was founded in 1875. Loans are subject to credit approval.
Understanding all the details of the Small Business Adminstration’s Paycheck Protection Program (PPP) can be a challenge. Many of you may be wondering about the next steps regarding your PPP loan, and specifically about how to request loan forgiveness for the funds you used. That’s why we’re walking through some of the most frequently asked questions about loan forgiveness and sharing important things you need to know when requesting forgiveness.
First, we wanted you to be aware that the Paycheck Protection Program Flexibility Act, enacted in June, has modified some of the original program requirements, with a goal of making it easier for small businesses to qualify for forgiveness in the wake of coronavirus-related restrictions and guidelines that have delayed reopening for many businesses.
PPP loans are eligible for full or partial forgiveness if the loan proceeds are used in accordance with forgiveness rules and guidelines, which have already been modified several times.
In addition to changes introduced in the Flexibility Act, on June 17 the Treasury Department revised the PPP loan forgiveness application to make it more borrower friendly. Besides revising the full application, the Small Business Administration has added an EZ Forgiveness Application for certain borrowers.
Q: What are the main changes in the new Paycheck Protection Program Flexibility Act?
A: Small businesses that qualify for a PPP loan now have up to 24 weeks, or no later than Dec. 31, 2020, to use the money to qualify for loan forgiveness, which is an increase from the previous eight-week period. If your loan was funded prior to the passage of the PPP Flexibility Act, your covered period is automatically extended to 24 weeks, but if you choose to follow the original eight-week period you have that option.
Another change modifies the requirements that at least 75% of the funds had to be used for payroll costs and 25% for certain other costs. Those numbers have now been shifted to 60% for payroll-related costs and 40% for expenditures on mortgage interest, rent, and utility costs.
Additionally, new borrowers will have five years to repay the loan, instead of two.
Q: Who is responsible for documenting my eligible costs?
A: As the loan recipient, you are responsible for documenting your eligible expenses. If you have questions about what to document, please contact your Commercial Banker.
Q: When does the 24-week the clock start?
A: The 24-week covered period begins on the date your loan is funded.
Q: Is there a deadline to apply for a PPP loan?
A: Yes, the latest deadline to apply for a loan has been extended until August 8, 2020.
Q: Where do I submit my potentially forgivable expenses?
A: At the end of the 24-week covered period, you will need to provide the necessary documentation to your Commercial Banker when applying for loan forgiveness. Merchants is offering the ability to complete the forgiveness application and provide supporting documentation electronically. Contact your Commercial Banker to learn more about this process. The Flexibility Act allows borrowers up to 10 months from the date their covered period ends to apply for loan forgiveness. Principal and interest payments would begin at that time.
Q: How has the PPP Loan Forgiveness Application changed?
A: The full original PPP forgiveness application was 11 pages long, but the newest version released in June has been reduced to 5. In addition, the EZ Forgiveness Application is only 3 pages. The SBA says the EZ application “requires fewer calculations and less documentation for eligible borrowers.”
The EZ application applies to borrowers that:
Are self-employed and have no employees; OR
Did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees; OR
Experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25%.
The two applications allow borrowers the option of using either the extended 24-week covered period introduced in the Flexibility Act, or the original 8-week covered period if their loan was made prior to June 5, 2020.
Before starting an application, you should discuss with your Commercial Banker which one would be right for your business.
Q: What documents will be required for forgiveness?
A: Here are the documents you’ll need:
Verification of full-time equivalent employees and their pay rates, including:
Payroll tax filings (Form 941).
Payroll, income and unemployment insurance filings from your state.
Verification of any health insurance and retirement contributions.
Verification (payment receipts, account statements, canceled checks) of eligible utility, rent and mortgage interest payments.
You’ll need to certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible utility, mortgage interest and rent payments.
Q: What eligible costs should I be tracking?
A: There are several areas you’ll want to track.
Payroll costs: These costs include:
Salary and wages (not to exceed $100,000 for any individual employee as prorated during the covered period), commissions and other compensation.
Parental, family, medical or sick leave
Payments for vacation
Group health care coverage, including insurance premiums
Separation or dismissal allowance
State and local payroll taxes
Utilities: You can include the costs of the following services if established before Feb. 15, 2020 – Electricity, water, gas, internet, telephone, and fuel costs for business vehicles.
Mortgage interest: If mortgage was signed prior to Feb. 15, 2020.
Rent: If leasing agreement was in effect prior to Feb. 15, 2020.
Q: How should I record my expenses?
A: You should keep careful records for all qualifying forgiveness expenses. As noted above, Merchants has the capability to accept your application and supporting documents electronically. The system assists with auto filling some of the basic information and allows for communication with the bank, which will provide greater efficiency in this process. Remember that you will also want to keep a complete record, either electronic or hard copy, of all your PPP loan information for your own files.
Q: What are the top considerations for PPP loan forgiveness?
A: Employee retention and salaries or wages paid to employees are the primary considerations. It is important that you maintain your staff headcount and compensation levels to maximize loan forgiveness.
Q: How will I know if I’ve met my staffing requirements?
A: A reduction in the number of employees will affect the amount of your loan forgiveness. You can take the number of full-time equivalent employees you had between either Feb. 15 and June 30, 2019, or Jan. 1 and Feb. 29, 2020, and compare that number to the number of FTEs you had during the covered 8-week period after your loan was funded. If during your coverage period you have equal to or more employees than your comparison period, that would meet the requirement for forgiveness. If you have fewer, your forgivable expenses will be reduced.
For seasonal businesses, you can use average monthly payroll for the period between Feb. 15, 2019, or March 1, 2019, and June 30, 2019. An applicant that was not in business from February 15, 2019 to June 30, 2019 may use the average monthly payroll costs for the period Jan. 1, 2020 through Feb. 29, 2020.
Q: What if I need to rehire employees to qualify for loan forgiveness?
A: You have until Dec. 31, 2020, to restore your full-time employment and meet compensation requirements, but the new legislation offers an exception for borrowers who lose FTEs. It allows that if between Feb. 15 and Dec.31, 2020, the amount of loan forgiveness won’t be reduced if the borrower, in good faith, is able to document any of the following circumstances:
An inability to rehire someone who was an employee of the business on Feb. 15 or being unable to hire a similarly qualified person.
The business was unable to return to the same level of activity as it was operating at before Feb. 15th due to compliance with requirements or guidance from Health and Human Services Department, the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period between March 21 and Dec. 31, 2020, related to the maintenance of standards for sanitation, physical distancing, or any other worker or customer safety requirement related to COVID– 19.
Q: What if I decreased employee wages?
If an employee is earning $100,000 annually or less and their pay is reduced by more than 25%, the amount of forgiveness will be reduced by the difference between their coverage period pay and 75% of their comparison period pay.
For example, if an employee was earning $24,000 during the 24-week comparison period, but earns only $15,000 during the PPP covered period you’d calculate it like this:
$24,000 x .75 = $18,000
$18,000 – $15,000 = $3,000 (not qualified)
$15,000 – $3,000 = $12,000 (forgivable amount)
Q: How will I know if my PPP loan has been forgiven?
A: We will communicate with you via the online forgiveness program that we are utilizing.
Q: What happens if I’m not OK’d for PPP loan forgiveness?
A: Your Commercial Banker will follow up with you if your PPP loan was not approved for forgiveness and provide with you with more details on repayment. If you do not qualify for any forgiveness based on the documentation you provide, the amount of your outstanding PPP loan balance will need to be repaid over the term of the loan.
Q: My existing PPP loan is for two years, can that be changed?
A: Yes, but it will be up to you and your Commercial Banker. While new borrowers will have five years to repay their loans, previous borrowers only had two. The Flexibility Act allows that to be changed to five years if the Commercial Banker and borrower agree.
Q: What about forgiveness for sole proprietors and independent contractors?
A: For your loan to be forgiven, you must have spent at least 60% of the funds on payroll costs, which include an amount for owner compensation based upon 2019 net earnings. The remaining amount, which cannot exceed 40% of the loan, must be spent on interest on a mortgage, a loan secured by personal property used in the business, rent, and utilities. To the extent that these expenses are incurred in connection with a home office, only the tax-deductible portion will apply. These expenses must have occurred within the 24 weeks after the loan is funded.
If you have any questions regarding your PPP loan or the process for loan forgiveness, please contact your Commercial Banker, who can walk you through next steps.
Please note: The information in this article is not definitive and requirements can change as new guidance is issued by the U.S Department of the Treasury. As necessary, you should consult with your accountant, attorney or Commercial Banker on questions regarding forgiveness of your PPP loan.
It was 145 years ago this very week that Merchants Bank was founded with a vision of being the local bank of choice for the working class. I can’t begin to imagine the trials and tribulations encountered by our customers in those early years, but I know with confidence that the same resilience and resolve that would have been undoubtedly required for business owners and workers back then remain absolutely present in the communities served by Merchants today.
Lobbies Are Open: Thank You for Your Patience
It’s my sincere hope that you and your employees are safe and healthy. Thank you for your patience as we at Merchants Bank have navigated with an intense commitment to protecting the well-being of all stakeholders to the very best of our collective ability. We know that the action we took to close access to our lobbies on March 19 was necessary, but we are not ignorant to the possible service disruption you may have experienced. I’m extremely proud of the efforts made by all Merchants Bank associates to embrace creative new ways to meet the needs of our customers and it’s my sincere hope that any disruption you may have experienced was minimal.
We re-opened our Bank lobbies with confidence on June 22. We are thrilled that our customers have responded appropriately to the distancing markers in our facilities and our encouragement to wear masks out of respect to the health and safety of our customers, employees and communities.
Top Priority: Business Stability
In addition to our intense focus on the health of all stakeholders at this time, throughout the pandemic our top business priority has been to be a source of financial stabilization for our customers. We have demonstrated this in multiple ways, most notably with our very quick mobilization in originating Paycheck Protection Program loans through the Small Business Administration. Even though the program opened in early April without clear guidance, we were positioned from the program launch date to assist our clients. We have assisted more than 1,100 small business owners by originating more than $200 million in loans through this program. We have also worked with hundreds of businesses and individuals to accommodate loan payment deferrals based on each unique customer case.
It’s at times of stress and uncertainty that having trusted advisors is most important. It is my sincere hope that we have played that role effectively for you and your business throughout the past few months. I have heard from dozens of customers throughout the recent pandemic, letting me know how grateful they have been for having a true relationship with one of our bankers during this time of stress. However, if we have fallen short in that regard, I would welcome a contact from you to let me know how we might have done better.
Earning Your Trust
As we all begin to navigate toward the uncertainty of what a “new normal” will be, make sure you have advisors you can trust. Develop a strong sense of confidence that the people advising you on financial matters have your best interests in mind. It’s my expectation that your Commercial Banker at Merchants will meet that standard.
Thank you for your continued trust and confidence. We respect that it’s our responsibility to work to earn your loyalty each and every day… now, during this unprecedented time, more than ever. We appreciate you giving us that opportunity. Stay safe and be well.
What if you could learn more about yourself, and immediately begin to enhance your leadership skills? Start using them your daily life, both at work and at home?
The Merchants Bank “I Believe Leadership Series” is an annual, home-grown leadership development training program that does just that for Bank staff. The program was developed by our Training Director, Kristine Valk, who built the course over 5 years to ensure the training was tailor-made to fit Merchants’ culture and core values.
With a maximum class size of 20 students, employees can dive into honing their leadership skills through classroom style sessions, one-on-one coaching, an accountability partner, a service project and final capstone presentation. The program is 12 sessions throughout the year and covers a variety of topics, including:
Temperament assessment and working with different personalities
Effective coaching skills
Understanding and applying strengths
Communication and conflict resolution
Leading through change
Employee motivation and accountability
The series brings coworkers from all different departments, branches and leadership roles together to grow:
“As we go through the program, attendees learn more about one another and are embracing each other’s talents. It’s really become an environment of trust and openness that’s resulted in more collaborative work,” Kristine said.
As part of one of five strategic priorities for the bank, talent management and leadership development will continue to be a key focus for Merchants in the years to come. Our I Believe in Leadership Series graduates will help all of us strive to serve each other and you better.
Well, it’s largely Ag-focused. I grew up on a farm and ran a farm for many years. Then I got into Ag lending and have been able to use a deep understanding of agriculture to help farmers make the most of their business.
Q: What drew you to Merchants?
I’ve always liked working with community banks, and that was reinforced while I was going through the hiring process: it’s clear that Merchants has a strong commitment to our communities.
Another factor was that this region of the Midwest really intrigued me. It’s beautiful with the rolling hills, bluffs, lakes and rivers, but also has access to more bustling communities like Rochester and the Twin Cities. I’ve found the people to be kind and friendly. And yet another thing, the farmland is quite productive! Always a good sign.
Q: What do you like best about banking?
Getting to know people and figuring out how we can best help them. When we build those relationships we’re better able to help our partners, friends and neighbors achieve their dreams.
Q: Do you have a “best tip” for Ag and small businesses?
Well, what’s most helpful for us as lenders is when the customer has a vision for what they want to achieve. If you can articulate what your goals look like, and where you currently are in the process of reaching them, we can help identify the best route to take to get there. So as a business owner, I’d think about what your dreams, or at least upcoming needs, are.
Q: How are you hoping to get involved in the community?
In the past I’ve always been part of Chamber organizations, so I will be getting involved that here in St. Charles. I also understand there’s a wonderful fair here, so I look forward to that as well.
Q: What’s the best piece of advice you’ve ever received?
Well, this is just something funny my dad used to say when he was teaching me to plant: “Son, the more you look back the more crooked your rows are going to be.” But I’ve kept it in mind all these years.
I think for me, I interpret that phrase as keeping an eye on your goals and your values, adhering strongly to those, and making sure you’re always heading in the right direction.
Q: What do you like to do in your free time?
As I mentioned before, it’s beautiful around here, so I enjoy walking around the various trails, parks and exploring the local communities. I’m looking forward to getting to know the area and the people.