Mercantile Bank Corporation

Good morning and welcome to the Mercantile Bank Corporation second 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 one on your touchtone phone. Please note this event is being recorded. I would like now to turn the conference over to Zach McKeowa of Lambert Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining McIntosh Bank Corporation's conference call and webcast to discuss the company's financial results for the second quarter. Joining me today are members of McIntosh'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'll begin the call with the 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 materially differ from any forward-looking statements made today due to factors described in the company's letter of securities and exchange commission's 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 press release and presentation deck issued by Marketel today, you can access it at the company's website at www.marketbank.com. At this time, I'd like to turn the call over to Mercantile's President and Chief Executive Officer, Bob Koninsky.

Thank you, Zach, and thanks to all of you for joining us on our conference call today. Mercantile released its June 30 financial results this morning, which built on the successful first quarter and reflects the overall strength and excellence of our company as we reach the mid-year point of 2023. During the quarter, Mercantile produced earnings of $1.27 per share on revenues of $55.2 million. For the six months ended June 30, Mercantile earned $2.58 per share on revenues of $110.5 million. This morning, we also announced a cash dividend of $0.34 per share, payable on September 13, 2023. Highlights for the quarter include continuation of excellent asset quality, steady levels of core deposits, solid loan growth despite some sizable payoffs, pipelines continuing strong, strong net interest margin, robust capital levels, solid liquidity, and well-managed overhead expenses. We are pleased with the continuation of these solid fundamentals that are made possible by the excellent work of the Mercantile team and also demonstrates the strength of our client base with whom Mercantile engages. During the second quarter, Mercantile generated net annualized commercial loan growth of 6%, as new funding volumes weighted more heavily toward the latter part of the quarter in June outpaced loan payoffs, which had been meaningful over the last several quarters. Despite continued strength in ongoing loan fundings, the aggregate pipeline of commercial loans in all of our markets remains at a very high level. Customers generally report solid sales opportunities. although occasional challenges remain in the marketplace, along with concerns about the threat of a recession in view of the continued tightening of interest rates. The overall strength of our asset quality remains an important aspect of our financial performance. Past dues, non-performing loans, charge-offs, and other real estate owned all remain at peer-leading levels. As we've discussed on previous calls, Mercantile's Lending Administration monitors loan concentrations very closely, to ensure that we do not get overweighted in loan types or industries. Our team remains highly engaged with our clients to identify potential problem loans at the earliest signs of distress and works collaboratively with clients to ensure that the issues are corrected and the risks to the bank are minimized. Ray and Chuck will provide more details on our financial performance shortly. The Mercantile brand of relationship-focused banking clearly resonates with clients and potential clients in the communities we serve. When customers need meaningful financial advice and counsel, the Mercantile banker is there to work with them. Our team members fill the role of trusted advisors, offering feedback as only Mercantile bankers can because we know their businesses. This is especially important during uncertain times, and we've had a lot of uncertainties over the last several years. This is the value-added facet of banking with Mercantile. We live and work in the same communities that they do, which allows for efficient local decision-making. Understanding customers' and communities' needs are one of the most important responsibilities of financial institutions, and that has been a focus for Mercantile since our founding. In that regard, in the second quarter, Mercantile announced the formation of Mercantile Community Partners, a wholly-owned subsidiary of Mercantile Bank, that will offer debt financing and direct equity investments for affordable housing and rehabilitation projects. Mercantile Community Partners will work directly with developers as they plan multifamily projects across the state, providing a one-stop shop for financing and support for securing state tax credits. Regarding the Michigan economy, we would still characterize it as steady, with unemployment coming in at 3.7% at the end of May, compared to 4.3% as of December 31, 2022, and 4.0% of May of 2022. Most businesses in our markets are still seeking to hire staff, reinforcing the relatively low unemployment numbers. As has been well documented, actions taken by the Fed to slow inflation continue to increase the cost of borrowing by businesses and consumers and continue to raise concerns of a possible recession. As we have demonstrated in the past, and most recently during the pandemic, challenges experienced during the pandemic, we believe Mercantile is well-positioned to successfully manage through a variety of conditions, effectively serve our clients and our communities, and create value for our shareholders. Those are my prepared remarks. I'll now pass the microphone over to Ray and then to Chuck. Thanks, Bob.