Mercantile Bank Corporation

Good morning and welcome to the Mercantile Bank Corporation second quarter 2022 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 Jeff Trika, Lambert Investor Relations. Please go ahead.

Thank you, Chad. 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 2022. Joining me today are members of Mercantile's management team, including Bob Kaminski, 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 and then open it up for the call to 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 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 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 second quarter 2022 press release and presentation deck issued by Mercantile today, you can access it at the company's website at www.mercbank.com. At this time, I would like to turn the call over to Mercantile's President and Chief Executive Officer, Bob Kaminsky. Bob?

Thank you, Jeff, and thanks to all of you for joining us on the conference call today. This morning, Mercantile released its second quarter financial results, which portrayed another solid quarter of earnings and growth as we reached the midpoint of 2022 and positioned as well for a strong second half of the year. Our second quarter earnings were 74 cents per share on total revenues of 42.1 million. Earnings, when a loss on disposition of a bank property is excluded, were 76 cents per share. The preemptive efforts of our team, along with the strong foundation we have built, have prepared us to be in an excellent position should we see a downturn in the economy, but we'll touch on that more later. Today we also announced a cash dividend of $0.32 per share, payable on September 14. During management's comments this morning, we will outline the excellent work of the mercantile teams to successfully deliver positive results for our shareholders, and provide best in class products and services to our commercial and retail clients. Execution of our short-term and long-term strategic initiatives continues to provide for us the balanced framework to successfully navigate the challenges and leverage the opportunities in this dynamic operating environment. Highlights for the second quarter and first half of 2022 include expansion of net interest margin as it starts to increase to a more normally expected level, robust growth in the loan portfolio with the commercial pipeline remaining at high levels, continuation of outstanding asset quality, diligent management of overhead expenses, and growth in several non-mortgage fee income categories. Chuck and Ray will provide more specifics on each of these topics shortly in their comments. We remain very pleased with the performance of our team as we continually engage with our clients through the strong relationships we have built to understand their needs and provide solutions to help them reach their financial objectives. The ability to nimbly adjust to the evolving economic and environmental conditions has been a key factor of our organization's success, including the production of consistent organic loan and deposit growth and the expansion of many non-interest income categories. As was expected this year, rising mortgage rates have significantly dampened the production volumes experienced over the last two years. Refinance activity has slowed to a trickle, and the focus of our team, as we have emphasized throughout 2021 and the first half of 2022, is purchase financing opportunities, Tight inventories of available housing for sale in most of our markets have further challenged prospective purchasers' ability to secure a new home. Management continues to focus on hiring proven commission-based mortgage lenders to complement our lending teams in our mature markets, as well as seeking opportunities to bolster talent levels in new markets. Our leadership team also continues to work with a relentless focus on further development of our digital channels, to enhance our customers' experiences and ensure the most efficient deployment of our company's resources. Within the next few quarters, for example, we plan on introducing a new business banking product offering that will allow some commercial clients to digitally engage with Mercantile end-to-end for their lending needs. Additionally, our data analytics team is constantly working to utilize the vast array of customer information available at our disposal to better understand and be able to more quickly anticipate customer needs. The economies and the markets served by Mercantile continue to perform in steady fashion. The unemployment rate in Michigan is 4.3%, down from 6.2% a year ago. However, most of the metro markets, which contain most of our significant concentrations of assets and business opportunities, it remains below 4%. With this low unemployment rate, the ability to staff at required levels is among the most significant issues for companies, as both hiring new staff and replacing existing staff while managing payroll costs continue to challenge management teams. Higher energy costs, higher borrowing costs with rising interest rates, and supply chain issues are also factors requiring much focus for clients at the present time. Mercantile lending teams continue to stay closely engaged with clients to identify any signals of stress in the portfolio they may be emerging with these conditions. Just as they did during the last two plus years with the COVID-19 pandemic, the mercantile client base continues to adroitly manage their business and personal finances and maintain a steady performance. As the FOMC acts to slow the rate of inflation in the U.S. economy, we believe we are well positioned to continue delivering solid results for our shareholders as we continually work to leverage opportunities and mitigate risks. While our markets and our customers remain strong, we vigilantly look on the horizon to assess the possibility of a recession as the Fed works to attempt to thread the needle to reduce inflation with a soft landing. Mercantile's balance sheet will allow us to make gains in a rising rate environment, yet we also fully understand and work to anticipate potential strains on the loan portfolio as a result of increased borrowing costs and the impact of a potentially slowing economy on our client base. We firmly believe, however, that our consistent credit underwriting and loan administration will continue to serve us well. Finally, I want to acknowledge the dedication and hard work from the Mercantile team for the continuation of their stellar performance in the second quarter. Their efforts to develop new relationships and enhance existing relationships, which is the foundation of our culture, has positioned Mercantile for success for the rest of 22 and beyond. Those are my prepared remarks. I'll now turn the call over to Ray.