Mercantile Bank Corporation

Good morning and welcome to the Mercantile Bank Corporation first quarter 2023 earnings 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 1 on your touch-tone phone. If you withdraw from the question queue, please press star then 2. Please note this event is being recorded. I'd like to turn the conference over to Zach Mokewa, Lambert Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining Macintosh Bank Corporation's conference call and webcast to discuss the company's financial results for the first quarter. Joining me today are members of Macintosh's management team, including Bob Kaminsky, President and Chief Executive Officer, Chuck Christmas, Executive Vice President, and Chief Financial Officer, and Ray Raisman, Chief Operating Officer and President of the bank. We'll begin the call with management's prepared remarks and presentation to review the quarter's results, then open 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 data securities and exchange commissions filing. The company assumes no obligation to update any forward-looking statements made during the call. If anyone doesn't already have a copy of the first quarter 2023 press release and presentation deck issued by Markenthal today, You can access it at the company's website at www.macbank.com. At this time, I'd like to turn the call over to Mercantile's president and chief executive officer, Bob Kaminski.

Thank you, Zach. And thanks to all of you for joining us on the conference call today. Mercantile released its March 31st financial results this morning, which reported a strong quarter and a great start to 2023. Importantly, This information demonstrates continued strength and stability of Mercantile Bank Corporation and its subsidiary Mercantile Bank. As we have witnessed during the latter part of the first quarter, events have happened in our industry that have caused concerns about the health of the banking system in this country. Today we will share with you our quarterly results and other detailed information that illustrates the solid foundation on which Mercantile is based and the continuation of the strong fundamentals that have been a consistent trait of mercantile, irrespective of the economic environment and other external factors. During the call this morning, we will provide you with details on our deposit base from the first quarter, which will illustrate the attractive diversification of our funding base. We will discuss our strong capital levels, solid liquidity, loan portfolio composition and stratification, and asset quality, as well as efficient overhead management. Ray and Chuck will have complete details on these items in their comments. For the first quarter, Mercantile posted earnings of $1.31 per share on revenues of $55.3 million, compared to $0.73 per share on revenues of $40.2 million for the same period in 2022. This morning, we also announced the cash dividend of $0.33 per share, payable on June 14, 2023, the same dividend that was paid during the first quarter. Our team has been able to adeptly manage net interest margin, and as a result of the composition of our asset base, net interest income continued to show nice growth compared to the respective prior year period. Deposit costs continued to perform favorably compared to expectations. While those costs have risen during the first three months of 2023, The pace of the increase has been slower than has been anticipated. This has continued to benefit net interest margin, allowing mercantile to maintain this profitability measurement at a higher level than we would consider normalized. Overhead expenses remain well managed. Net loan growth was lighter than expectations during the first quarter, as the timing of some advances was pushed back due to normal closing scheduling situations. Some borrowers are also taking additional time before embarking on projects to reassess and ensure that the economics are still appropriate given the levels of inflation and higher borrowing costs. Loan pipelines remain at solid levels, however, and many credits whose funding has been pushed back will fund early in the second quarter. Asset quality continues to be extremely strong, however, with normal levels of past dues and non-performing loans. and only $661,000 in other real estate, with the vast majority being a former bank branch. The Mercatel commercial loan portfolio remains extremely well balanced between C&I and commercial real estate, with the CRE comprised of very risk-appropriate segmentations among the various real estate types, including low levels of exposure in the retail and office types. The lending teams remain being heavily engaged with our clients, which is the hallmark of a relationship-based community banking approach. On an overall basis, our clients continue to manage through macro and industry-specific challenges that emerge and remain confident in their businesses' ability to perform successfully in the near term and the long term. Ray will have more color on the loan portfolio shortly. The Michigan economy continues to perform in steady fashion, with overall unemployment remaining unchanged as of February 28th at 4.3% compared to year-end 2022. Non-farm employment is up 2.1% at February 28th from the prior 12-month period, including manufacturing jobs up 2.6%, trade, transportation, and utilities up 0.8%, education and health services up 2.5%, and leisure and hospitality up 5.3%. The Mercantile team of bankers continues to represent our company as a dependable and trusted partner for our clients and communities. The successes that we enjoy would not be possible without the incredible work and dedication of our team members. Time and time again, despite the challenges that emerge, Mercantile has stepped up to provide financial advice, guidance, and solutions to clients and potential clients. Relationship banking manifests itself in many different forms to different constituents. Our business partners know that the relationship with mercantile is based upon our culture of excellence. Those foundational principles allow customers to rely upon us regardless of economic conditions and other external forces that will affect them in our communities. It is relationships that are established on trust and developed with years of experience that provide the basis for successful performance by our company, which benefits all of our stakeholders. Those are my prepared comments. Ray will now take the microphone next, followed by Chuck.