Mercantile Bank Corporation

Good morning and welcome to the Mercantile Bank Corporation 2026 Second 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 second quarter of 2026. The team members joining me this morning include Ray Reitsma, 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 will differ materially, excuse me, 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?

Thank you, Nicole. Our results for the second 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 ROA performance relative to our peers built around the following traits. A strong and durable net interest margin. Over the last five quarters, the SOFR 90 day average rate has dropped 71 basis points while our margin increased by 11 basis points to 3.59%. 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. Very strong asset quality. Non-performing assets to total assets remain at the low levels typical of our company at nine basis points of total assets as of June 30, 2026. Non-performing loans to total loans over the last six and a half years averaged 12 basis points. The allowance for credit losses stands at 1.13% of total loans as of June 30, 2026, and on a dollar volume basis was nearly 10 times the level of non-performing loans, providing a very strong coverage relative to past due non-performing loan levels. These numbers demonstrate our longstanding commitment to excellence in loan underwriting and administration. Improved on-balance sheet liquidity and loan-to-deposit ratio. At the end of the second quarter of 2026, our loan to deposit ratio stood at 93% compared to 100% at June 30, 2025, and 91% on December 31, 2025, 98% on December 31, 2024, and 110% on December 31, 2023. As of June 30, 2026, our deposit mix included 27% non-interest-bearing deposits and 24% lower-cost deposits, up from 25% and 20%, respectively, at the end of the second quarter of 2025, which has contributed to the stability of our net interest margin. Our acquisition of Eastern Michigan contributed positively to these measures. Deposit growth during the 12 months ended June 30, 2026. was 12.4% with growth in the non-interest-bearing accounts outpacing the growth in interest-bearing accounts during that period. 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%. Strong commercial loan growth. Commercial loan growth in the second quarter of 2026 was $115 million, an annualized growth rate of 11.7%. As foreshadowed in the prior quarter's commentary, loan payoffs did moderate from the prior four quarters experience, reducing by $60 million compared to the prior quarter. June 30, 2026 commitments to make new commercial loans total $224 million and commitments to fund existing commercial and residential construction loans total $283 million with each amount at or near five quarter highs. We expect that loan growth for 2026 will fall within the range of previously defined expectations of mid single digit percentages. continue 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 second quarter of 2026 compared to the second quarter of 2025. Our credit and debit card offerings report growth of 21% in the first six months of 2026 compared to the respective 2025 period. Well-Managed Expenses. and salaries and benefits increased from 34% to 35% of net revenue, primarily reflecting our investment in the Southeast Michigan market. In sum, these traits have allowed us to report a quarter over quarter EPS growth of 10% in the second quarter of 2026 compared to the prior year second quarter, a 1.52% return on average assets and a 14% return on average equity in the second quarter of 2026, and an annualized 11.6% increase in the tangible book value per share in the current year second quarter compared to the first quarter of 2026. Additionally, our five-year tangible book value per share compounded annual 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 the recently completed combination with Eastern Michigan. The integration of operations is well underway, and the cultures have meshed very well. That concludes my remarks, and I'll now turn the call over to Chuck.