Mercantile Bank Corporation

Good morning and welcome to the Mercantile Bank Corporation 2026 First 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 we will cover the company's financial results for the first quarter of 2026. The team members joining me this morning include Ray Reitzma, 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 MerckBank.com. After our prepared remarks, we will then open the 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's filings. The company assumes no obligation to update any forward-looking statements made during the call. Let's begin, right?

Thanks, Nicole. Our results for the first quarter of 2026 continue to build on the theme of commercial expertise, generating a strong return profile. The consummation of the purchase of Eastern Michigan on December 31, 2025 represents execution of our strategic objectives around deposit growth, loan growth, and margin stability, paired with strong asset quality and overall financial performance. We continue to demonstrate top quartile return on asset performance relative to our peers built upon the following traits. Trait number one, a strong and durable net interest margin. Over the last five quarters, the SOFR 90-day average rate has dropped 67 basis points, while our margin increased by eight basis points to 3.55%. This illustrates effective execution of our strategic objective to maintain a steady margin by a match funding of our assets and liabilities and refutes the notion that we have an asset-sensitive balance sheet despite the relatively large proportion of floating rate assets. Trait number two, very strong asset quality. Non-performing assets to total assets remain at the low levels typical of our company at 11 basis points of total assets as of March 31, 2026. Non-performing loans to total loans over the past six and a quarter years average 12 basis points. The allowance for credit losses stands at 1.18% of total loans as of March 31, 2026, nearly 10 times NPAs, providing very strong coverage relative to past due and non-performing loan levels. These numbers demonstrate our long-time commitment to excellence in underwriting and loan administration. Trait number three, improved unbalanced sheet liquidity and loan-to-deposit ratio. At the end of the first quarter of 2026, our loan-to-deposit ratio stood at 89%, compared to 91% on December 31, 2025, and 98% on December 31, 2024, and 110% on December 31, 2023. As of March 31, 2026, our deposit mix included 25% non-interest-bearing deposits and 25% lower-cost deposits unchanged from year-end 2025, but up from 20% at the end of the third quarter of 2025, which has contributed to the stability of our net interest margins. Our acquisition of Eastern Michigan contributed positively to these measures. Deposit growth for the first quarter of 2026 compared to the first quarter of 2025 was 15.8%. The growth was roughly proportional in non-interest bearing to interest bearing accounts. Trait number four, strong deposit and loan compounded annual growth rates. Our recent focus on deposit growth is not new to our bank. In fact, the last five year-end periods demonstrate a deposit compounded annual growth rate of 9.2%. Over the same time period, total loans demonstrate a compounded annual growth rate of 8.6%. As foreshadowed in prior quarters commentary, loan growth was impacted by an elevated level of loan payoffs compared to historical norms in the first quarter of 2026. Payoffs from borrower sales of assets increased were over $40 million above the elevated quarterly average experience in 2025, and planned refinancing of multifamily projects to the secondary markets were nearly five times the quarterly average amount in 2025, or nearly $40 million in gross dollar terms. However, March 31, 2026 commitments to make new commercial loans total $289 million and commitments to fund existing commercial and residential construction loans total $272 million with each amount representing five quarter highs. We expect that loan payoffs will moderate in upcoming quarters and that Loan growth for 2026 will fall within the range of previously defined expectations of mid single digit percentages. Quarter to date loan growth is well aligned with our year end expectations. 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 a 35% increase in service charges on accounts during the first quarter of 26 compared to the first quarter of 2025. Our credit and debit card offerings report growth of 17.6% in the first three months of 2026 compared to the respective 2025 period. Our mortgage team continues to build market share and generate a high proportion of saleable loans, contributing to 12.4% growth in mortgage banking income during the first quarter of 26 compared to the prior year first quarter. Trade number six, well-managed expenses. Net revenue defined as net interest income plus non-interest income grew 18.1% to $67.6 million during the first quarter of 2026 from $57.3 million in the respective 2025 period. Occupancy costs and data processing costs were virtually unchanged as a percentage of net revenue, and salaries and benefits increased from 34.2% to 35% of net revenue, primarily reflecting our investment in the Southeast Michigan market. Other expenses include a $1.2 million increase in allocations to the Reserve for unfunded loan commitments compared to the respective 2025 period, reflecting the growth in our loan backlog and a $0.9 million increase in the core deposit intangible asset amortization account arising from the acquisition of Eastern Michigan. In sum, these traits have allowed us to report a quarter over quarter earnings per share growth rate of 9%, a 1.4% return on average assets, and a 12.5% return on average equity for the first quarter of 2026, and an increase in tangible book value per share over the prior quarter. Additionally, our five-year tangible value per share growth rate of 9% and five-year earnings per share compounded annual growth rate of 15.1% historically placed us in the top tier of our proxy group. We remain excited about our recently completed combination with Eastern Michigan Financial Corporation. The integration of operations is well underway and the cultures have meshed very well in the early stages of the process. That concludes my remarks. I will now turn the call over to Chuck.