Mercantile Bank Corporation

Good morning and welcome to the Mercantile Bank Corporation fourth quarter 2021 earning results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Kate Croft, Lambert Investor Relations. Please go ahead.

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 fourth quarter of 2021. Joining me today are members of Mercantile's management team, including Bob Kaminsky, President and Chief Executive Officer, Chuck Christmas, Executive Vice President and Chief Financial Officer, and Ray Reitzma, Chief Operating Officer and President of the bank. We will begin the call with management's prepared remarks and presentation to review the quarter's results, then open the call up for questions. Before turning the call over to management, it is my responsibility to inform you that this call may involve certain forward-looking statements, such as projections of revenues, 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 fourth quarter 2021 press release and presentation deck 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, Bob Kaminski.

Thank you, Kate. Good morning, everyone. And thank you all for joining our call today. Our company's strong fourth quarter rounded out what was an excellent year highlighted by steady operating performance, continued organic loan growth, and very sound asset quality metrics. Our results in 2021 were based on the solid foundation that we have built and driven by our relentless focus on serving our clients and communities at the highest level. We accomplished this by adding value as a trusted advisor to our customers. The Mercantile team is devoted to delivering exceptional service to our customers, building new relationships, and deepening the penetration of our markets. Our fourth quarter and full year 2021 performance reflects the continued success of that approach. We earned fourth quarter net income of $12.3 million or 74 cents per share. For the full year 2021, net income totaled $59 million, a 33.7% increase over 2020. Earnings per share were $3.69, an increase of more than 36.2% from the prior year. Excluding the year-end initial funding and formation of the Mercantile Bank Foundation, as a new vehicle for charitable giving and community investments, EPS would have grown to $0.94 per share in the fourth quarter, and $3.89 for the full year 2021. We also announced today the declaration of a cash dividend of $0.31 per share for the first quarter 2022. Chuck will provide you detailed comments on our full year 2021 and the fourth quarter performance, including more color on revenue, expenses, and capital position. We believe a key differentiator for Mercantile is our level of sustained organic loan growth. Total loans of $3.45 billion are up 8% year-over-year as we continue to build out our new and existing markets by adding talented in-market lenders to maximize growth. Our organic commercial loan growth, excluding Paycheck Protection Program loans, has been nothing short of stellar, up an annualized 27% in the fourth quarter and 20% in 2021 compared to the prior year. Ray will provide you with a full update on the performance of the loan portfolio, but in short, based on the strength of our team, health of our customers' businesses, and the size of our loan pipelines, we expect to continue demonstrating strong organic commercial loan growth relative to peers. Accordingly, we took steps in the fourth quarter to bolster our capital position issuing $75 million of subordinated notes that will provide support for the strong loan demand we are expecting. Importantly, organic growth is coming from all of our markets, led by the Grand Rapids and West Michigan region. We are confident in our ability to continue our success given the trends and outlook for our primary Michigan markets, where the economy and real estate conditions continue to be healthy. Our ongoing focus on proper underwriting and partnering with commercial borrowers with proven business acumen is reflected in our exceptional asset quality as we continue to report low levels of past due loans and non-performing assets. We also continue to see excellent results with our residential mortgage function. Our mortgage banking income totaled $6.9 million for the fourth quarter and $30 million for the full year. This success is possible because of our ongoing strategic initiatives to increase market share with a growing focus on purchase financing as opposed to the refinance market. Our team continues to build our robust pipeline and maintain strong volumes despite seasonality in the winter months. We continue to position ourselves for greater mortgage banking production in this extraordinary housing market as evidenced by our strategic hires of lenders, and new offices openings in Cincinnati, Ohio, and Midland and Petoskey, Michigan. While mortgage banking income is a large component of our non-interest income, we are pleased with the growth in all other key fee income categories during the year, including our commercial loan interest rate swap program interest introduced in late 2020. Ray will provide more color on this in his comments. As I touched on earlier, Our launch of the Mercantile Bank Foundation during the fourth quarter impacted expenses for the quarter and the year ended December 31st, 2021. Mercantile is strongly committed to sound environmental, social, and governance practices and our foundation will enable us to better support all communities and the markets we serve. It also enables us to more consistently distribute grants and other investments in the communities over time. enabling the company to more efficiently and effectively allocate funding to the foundation. In closing, our operating performance in 2021 illustrates the effectiveness of our strategic initiatives, our entrepreneurial focus, and our culture. We have the right talent and strategies in place to continue to deliver high-level performance, including steady profitability and a commitment to excellence. We're extremely proud of the efforts from our Mercantile team throughout the entire year and remain focused on continuing to deliver exceptional financial results, serving our existing and future clients, supporting our communities, and rewarding our shareholders. That concludes my introductory remarks, and I'll turn the call over to Ray.