Mercantile Bank Corporation

Good morning and welcome to the Mercantile Bank Corporation first quarter 2021 earnings results conference call. All participants will be in a 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 first quarter of 2022. Joining me today are members of Mercantile's management team, including Bob Siminski, President and Chief Executive Officer, Chuck Christmas, Executive Vice President and Chief Financial Officer, and Ray Reitzman, 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 to questions. Before taking 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 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 filing. 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 first quarter 2022 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, and good morning, everyone. On the call this morning, we will provide you with detailed information on the company's performance in the first quarter, as well as updates on the current operating environment. We are pleased to begin the year with a solid first quarter performance, highlighted by an operating profit, prudent expense management, continued growth in core commercial loans, contributing to a higher net interest income, and pristine asset quality. The dedicated efforts of our team in tandem with the strong foundation we have built are the keys to our continued success. In the first quarter, we reported net income of $11.5 million, or 73 cents per share. Total assets were 5.18 billion, with loans growing to $3.56 billion at March 31st. Our performance was once again headlined by growth in the commercial loan portfolio. New loan opportunities continue to be cultivated in all of our markets, including requests from borrowers with smaller credit needs, which is a characteristic of our rural markets, in addition to larger, more complex loan needs, which are typical in our metro markets. These opportunities are possible because of the superb work of our lending staff in gaining familiarity with the businesses of prospective clients, understanding their opportunities, challenges, and needs, and then adding value to the relationship as a trusted advisor. Ray will provide more details on the loan portfolio metrics in his comments. While our mortgage banking income is down year over year from 2021, when low interest rates allowed for significant refinance volume, our keen focus on purchase business and the addition of commission-based real estate lenders are providing benefit to us during this time of rising interest rates. Mortgage production has migrated to loans retained in the portfolio and construction loans, as many customers are opting to build new houses since the availability of existing homes is limited. Despite the reduction in mortgage banking income, we are confident in our ability to continue to be a top performer in this area during 2022. We made a number of strategic lender hires throughout our footprint during 2021. Together with new offices in Petoskey, serving a very attractive Lake Michigan second home region, as well as the economically vibrant Cincinnati market, we believe our team is well positioned to be the bank of choice for new and existing customers. Our team was successful in generating growth in several fee income categories during the first quarter compared to the same period in 2021, including service charges, credit and debit cards, interest rate swaps, and payroll services. This growth is the result of ongoing strategic initiatives to understand our customers' needs and ensure that customers are aware of the full suite of Mercantile products that can help to fulfill those needs. Ray and Chuck will provide more specific details following my comments. We continue to make appropriate investments to recruit and retain high-performing talent that has been and will remain the key to growing the number and depth of Mercantile customer relationships. This includes our exceptional branch and customer service staff. Accordingly, in February, we implemented a dollar-per-hour wage increase for all non-exempt employees. At the same time, office optimization plus the shift to a remote work option for certain employees should allow us to reduce our facilities costs, which will help offset the increases to our salaries and benefits. We aim to strike the right balance between investing smartly in our team and technology while managing expenses to enhance our profitability. Regarding the Michigan economy, while the overall statewide unemployment rate is 4.4%, down from 6.3% of a year ago, in the metro markets, which contains the most significant concentrations of assets in mercantile and business opportunities, the unemployment rate is below 4%. With this low unemployment rate, many companies face challenges in attracting new employees. In the construction industry, for example, Many firms are having a difficult time identifying skilled workers, and this is slowing productivity. With a tight supply of housing inventory, many new homeowners and consumers desiring to upgrade their dwellings are turning to new construction. With current housing market conditions and supply chain challenges, construction productivity creates yet another issue. Capital expenditures continue to trend upward as companies look to implement technological upgrades to their equipment, and plant expansions. Our clients have adroitly managed through the challenges over the past two years since the onset of the COVID-19 pandemic, and we expect they will continue to do so in 2022. But we remain closely engaged with them, of course, to assess the effects of rising costs, including anticipated increased borrowing costs. Finally, I want to compliment the Mercatel team for their spectacular performance to start 2022. Their tireless work to ensure that Mercatel's relationship-based approach, which is the hallmark and the foundation of our culture, is reflected in our daily engagement with our customers and potential customers. Those are my prepared remarks, and I'll turn the call over to Ray.