Mercantile Bank Corporation

Good morning and welcome to the Mercantile Bank Corporation 2025 third quarter 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. Please note this event is being recorded. I would now like to turn the conference over to Nicole Clatter, Chief Marketing Officer of Mercantile Bank. Please go ahead.

Hello, and thank you for joining us today. Today, we will cover the company's financial results for the third quarter of 2025. The team members joining me this morning include Ray Reismuth, President and Chief Executive Officer, as well as Chuck Christmas, Executive Vice President and Chief Financial Officer. Our agenda will begin with prepared remarks by both Ray and Chuck, and will include references to our presentation covering this quarter's results. You can access a copy of the presentation as well as the press release sent earlier today by visiting mercbank.com. After our prepared remarks, we will then open a call to your questions. Before we begin, 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 filing. The company assumes no obligation to update any forward-looking statements made during the call. Let's begin.

Ray? Thanks, Nicole. Our results for the third quarter of 2025 build on the theme of commercial expertise generating a strong return profile. We continue to demonstrate top quartile ROA performance relative to our peers built upon the following traits. Trait number one, a strong and stable net interest margin. Over the last five quarters, the SOFR 90-day average rate has dropped 96 basis points, while our margin has dropped by a mere two basis points to 3.5%. This illustrates effective execution of our strategic objective to maintain a steady margin via match funding of our assets and liabilities, and refutes the notion that we have an asset-sensitive balance sheet, despite the relatively large portion of floating rate assets. Trait number two, very strong asset quality. Past due loans remain... the low levels typical of our company at 16 basis points of total loans. Non-performing loans to loans over the last five years plus the year-to-date period averaged 13 basis points. The allowance for credit losses stands at 1.28% of total loans as of September 30, 2025, providing very strong coverage relative to past due and non-performing loan levels. These numbers demonstrate our longstanding commitment to excellence in underwriting and and loan administration. Trade number three, improved on balance sheet liquidity and loan to deposit ratio. Our loan to deposit ratio stands at 96% compared to 102% on September 30, 2024 and 110% on December 31, 2023. Our deposit mix includes 25% non-interest bearing deposits and 20% lower cost deposits, which have contributed to the stability of our net interest margin. Our previously announced planned acquisition of Eastern Michigan Financial Corporation will contribute positively to each of these measures. Trait number four, strong deposit and loan compounded annual growth rates. For the third quarter of 2025, annualized deposit growth was 9%. Our recent focus on deposit growth is not new to our bank. In fact, the last six year-end periods demonstrate a deposit compounded annual growth rate of 11.8%. Over the same time period, total loans demonstrate a compounded annual growth rate of 10%. From a third quarter 2025 perspective, loans contracted and annualized 7% as loan pay downs anticipated in the second half of the year were concentrated in the third quarter. We believe this contraction is a one-quarter anomaly as the September 30, 2025 commitments to make loans totals $307 million, an all-time high which exceeds the average of the prior four quarters by 32%. We expect that loan growth for 2025 in total will fall within the range of previously defined expectations of mid-single digits. Trait number five, continued strong growth in key fee income categories. Growth in commercial deposit relationships has supported growth in Treasury management services resulting in an 18% increase in service charges on accounts during the first nine months of 2025. Our payroll service offerings continue to report very consistent growth, and the current year nine-month growth of 15% is consistent with prior periods. Our mortgage team continues to build market share and generate a high portion of saleable loans, contributing to 12% growth in mortgage banking income during the first nine months compared to the respective 2024 period. Trait number six, stability and commercial loan portfolio mix. We have maintained discipline in our approach to commercial loan growth, maintaining a 55-45 split between C&I and owner-occupied CRE loans combined in all other commercial loan segments and proven concentrations in categories such as office, retail, assisted living, hotel, and automotive exposures. In sum, these traits have allowed us to report a 20% quarter-over-quarter earnings per share growth, a 1.5% return on average assets, and a 14.7% return on average equity for the third quarter of 2025, and a 13% increase in tangible book value per share over the last four quarters. Additionally, our five-year tangible book value per share compounded annual growth rate of 8.4% and five-year earnings per share compounded annual growth rate of 10.4%, each places in the top two of our proxy peer group. We remain excited about the upcoming combination with Eastern Michigan Financial Corporation, which has financially attractive traits, including double-digit earnings accretion mid-single-digit tangible book value dilution, and a mid-three-year earn-back period. That concludes my remarks. I'll now turn the call over to Chuck.