Welcome to the Mercantile Bank Corporation first quarter earnings conference call. (Operator Instructions) Before we begin today’s call I would like to remind everyone 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 or its management, statements on economic performance, and statements regarding the underlying assumptions of the company’s business. The company’s actual results could differ materially from the forward-looking statements made today, due to important factors described in the company’s latest Securities & Exchange Commission filings. The company assumes no obligation to update any forward-looking statements made during this call. If anyone does not already have a copy of the press release issued by Mercantile Bank today, you can access it at the company’s website, www.mercbank.com. On the conference today from Mercantile Bank Corporation we have Michael Price, Chairman, President and Chief Executive Officer; Robert Kaminski, Executive Vice President, and Chief Operating Officer; and Charles Christmas, Senior Vice President, and Chief Financial Officer. We will begin the call with the management’s prepared statements, and then open the call to the questions. At this point, I would like to turn the call over to Mr. Price.

Thank you and good morning everyone and thank you for your interest in our company. The economic crisis in our country effected our customers greatly during the first quarter of 2009 and we are unable to continue our return of profitability that we saw during the last two quarters of 2008. The sharpest dramatic downturn in retail and automotive sales combined with deep pessimism for the future to create intense pressure on our customers who participate in those areas of the economy. While this was unlike the stress in our portfolio of the early portion of 2008, which was largely focused on residential real estate development, it was very similar as to its deleterious effect on the risk profile of our commercial real estate and automotive related loans. The bank has implemented and will continue to develop strong initiatives to strengthen credit administration and margin and to control expenses. While these initiatives have been successful in many regards, asset quality continues to be challenged by the environment while continue to be a drag on earnings until the market stabilizes. To maintain our well capitalized status we have significantly reduced our loan portfolio during the quarter and cut the dividend on our common shares yet again. This morning Charles Christmas will give an overview of the quarter, followed by some asset quality comments by Robert Kaminski. We will then have the Q&A session before wrapping up. At this time I’d like to turn it over to Charles.

Thanks Michael, and good morning to everybody. What I’d like to do is give you an overview of Mercantile’s financial condition and operating results for the first quarter of 2009, highlighting major financial condition, performance, balances, and ratios. We recorded a net loss of $4.5 million or $0.53 per share during the first quarter of 2009, compared to a net loss of $3.7 million or $0.44 per share during the first quarter of 2008. The net loss in both first quarters is primarily the result of the significant provision expense which reflects the impact of state, regional, and national economic struggles on some of our borrowers’ cash flows and the reduction of underlying credit values. A vast majority of the provision expense during the first quarter of 2009 was related to commercial real estate loans and C&I loans compared to a year ago when residential real estate development loans were a significant contributing factor. Net interest income during the first quarter of 2009 totaled $11.8 million, an increase of $0.4 million over the $11.4 million recorded during the first quarter of 2008. Average earning assets equaled $2.16 billion during the first quarter of 2009, an increase of $140 million from the level of average earning assets during the first quarter of 2008. While historically the growth in earning assets has been led by growth in total loans, in this case the temporary increase in short-term investments during the first quarter of 2009 is a primary contributor for the increase in average earning assets. While average loans were up about $27 million, average federal funds sold and CD investments were up a combined $82 million. During the first quarter of this year and in particular the last half of the quarter, we experienced a significant influx of cash resulting from a…

Thanks you Charles and good morning. My comments this morning will focus on the bank’s asset quality. I will start with the review of the asset quality headlines from the past several quarters. In the first quarter of 2008, there was a continued deterioration of residential real estate plus we identified some deterioration in the commercial real estate and C&I portfolios. In the second quarter of 2008 there was continued deterioration of commercial real estate loans previously identified as distressed including significant charges taken for degradation of real estate property values. In the third quarter some previously identified [impairable] losses were charged off, additionally the bank identified some loan upgrades in past that helped offset the reduced influx of new problem loans. In the fourth quarter we saw continued stresses on real estate values including commercial real estate. In the first quarter of 2009, we saw further deterioration of some C&I credits and some commercial real estate credits. Real estate and equipment values of credits going into liquidation continued to be challenged. New non-performing loans consisted of a mixture of previously classified watch credits as well as come credits that experienced a rapid deterioration due to economic conditions. These rapidly deteriorating loans were credits dominated in terms of dollar value by the automotive industry related businesses. Previously classified watch credits migrating to non-performing status were primarily commercial real estate in nature. The resident real estate components in the portfolio appear to have stabilized. Lending personnel are spending countless hours working within their lending groups to appropriately monitor all credit relationships. Commercial real estate borrowers are being tested by their lenders to identify any weak links in the performance of their tenant basis. The lenders maintain continuous contact with C&I auto related borrowers to gain the latest updates on production backlogs,…

Thank you Robert and thank you Charles; at this time we’d like to open it up for questions.

(Operator Instructions) Your first question comes from the line of Jon Arfstrom – RBC Capital Markets Jon Arfstrom – RBC Capital Markets: Charles you talked, a phrase you used in your prepared comment, right sizing the balance sheet, can you maybe expand on that a little bit and give us an idea of where you expect the size of the balance sheet to go.

Yes Jon, what I meant by right sizing the balance sheet is we had a pretty significant level of federal funds sold as well as some CD investments we made at a correspondent bank with some of those funds that came in as a result of the reduction of our loan portfolio and also some of the local deposit growth that we had. Going forward what we would expect is that that fed funds sold, maybe some CD investments, will probably be in the range of $30 to $35 million on an average basis, which is obviously significantly lower then we were on average in the first quarter but also at the end of the first quarter as you saw in our financial statements. So that’s what I mean by right sizing the balance sheet, is bleeding off quite a bit of that current short-term investments and using those funds to let some of the brokered CDs and possibly some federal loan and bank advances go without replacing as they mature. Jon Arfstrom – RBC Capital Markets: How is the market in terms of loan demand, I think Michael you talked a little bit last quarter about more rational lending occurring in the market, it sounds like things maybe changed pretty severely over the last few months.

Yes, back to your original question, what is the loan demand out there, its pretty soft right now as you might imagine. Charles’ comments highlighted the fact that we saw a significant reduction in loan balances out there. Part of that was intentional on our part where we’re deliberately trying to move some commercial real estate out of the bank and we’ve been fairly successful in doing that. But another fairly good sized portion of the loan reduction came from less line balance from our commercial C&I customers and that’s the direct result of there’s just not a lot of economic activity or certainly at a reduced level. New loan requests are fairly scarce these days and what we do see are things that we deliberately do not want which is commercial real estate because our portfolio is already got enough of that in there. As far as, the real good news is on what we do see out there, is that rational lending has made a very welcome return back into the marketplace. Pricing has gone where it needs to be and should be and structures definitely been to a point where we think it should be, and that is good to see and hopefully we will continue to see that going forward. Jon Arfstrom – RBC Capital Markets: In terms of the non-performing balances, what is your attitude for potentially selling some of these loans versus hanging onto them, working them out, and just secondarily, how is the health of that market in terms of the gap between what buyers are willing to pay for some of the loans that you might have on your books versus where you—

Your second part of the question answers the first, and that is right now there’s very, very little market out there for people, private parties buying banks, stressed assets, and the main reason for that is everybody is still waiting to see how the government program is going to work. So, that may change relatively soon here when the government program gets up, ramped up, and we’ll be curious to see how that works. Prior to this last let’s say three or four months when the government was rolling out its ideas for the plan, the market was very soft and even if you had the intention of gee, let’s sell some of these assets, you were far better off trying to work them out and even though there were in some situations, very distressed asset realization values, the secondary market for these type of assets really got flooded and as you might imagine, then the prices offered for stressed bank debt went way down. Jon Arfstrom – RBC Capital Markets: But you don’t have an aversion to selling some of—

No, I think in certain situations, if the price was right and the situation was right with the customer, and the situation we don’t have a stated aversion to it, we would never say we wouldn’t do it. And we continue quite honestly to look into that and we follow what’s going on in current trends out there as well as we’re very interested to see how the government program works out. In theory it looks great, but we’ll see what happens in practice.

Your next question comes from the line of Terry McEvoy - Oppenheimer

I was wondering, could you just tell us the size of your auto related portfolio and what percentage of those loans were non-performing at the end of the first quarter.

We spent a lot of time analyzing the degree of the automotive component of our portfolio, that’s kind of a hard question to answer because there are some credits who have a very small percentage of their work that involves auto and there’s some that are quite concentrated. Its something that has been on our radar screen for a year now as we saw the downturn in the automotive industry becoming very acute and I think a lot of the increase that I mentioned in non-performing loans over the course of last quarter was directly related to some of the stresses coming to a head on some of our credits. That being said, there are parts of the portfolio that is commercial and industrial in nature that has some auto components that are doing quite well, but there are some that are experiencing severe distress and that was obvious in our numbers that we showed and the numbers that I outlined for the non-performer loans, performing loans and the charge-offs for the quarter. So again trying to give you number as far as the size of the auto portfolio is pretty difficult but its one that we’ve got on our radar screen and continue to watch very closely for any companies that may have involvement in any aspect of that industry.

And a question just related to the $21 million under the CPP, you’re evaluating the decision whether to essentially to take that capital, could you just go through your thought process, where you are right now and some of the key factors in deciding whether that’s going to happen.

In general terms we certainly as we always say on these conference calls, continually evaluate our capital structure and capital planning techniques and the CPP program and its preliminary approval is just one of the tools to add to the toolbox. Without going into a long dissertation about TARP because I think probably everyone on this call or listening to this call later is thoroughly vetted TARP on their mind, but I think we can all say that or at least our management board, feels that there’s many reasons to consider it. There are certainly reasons to take pause before deciding to participate in it and we will thoroughly discuss each one of those in analyzing the decision whether or not to participate.

Any coincidence at all in your real proactiveness in getting rid of some of those brokered CDs and then what I would define or describe as maybe a late TARP approval on April 13 or were those two events not connected at all.

Well the reduction in brokered CDs is something we had been trying to effectuate for a long time. Its something that before this economic crisis hit we had worked our wholesale funding down to less then 60% of the balance sheet. We were pretty happy with that. Then the economic crisis happened. Some of the things changed in the marketplace and it pushed our wholesale funding up to a level that even though we’ve always used it, we’re very comfortable with the strategy, we wanted to get it down. TARP applications, I don’t know of anybody that can give me a rational answer as to you know, the whys or [wherenots] as to when you got information back and approvals. I do know that the Treasury from everything we were told, was extremely backed up with applications and we’ve watched and you’ve probably seen the same thing, they kind of go in waves and apparently they finally got to ours. But as far as we know there was no direct connection to that but quite honestly I think you’ll talk to every bank CEO that applied under TARP, it was a very hard process to understand because once the application left, we really didn’t get a lot of information.

Your next question comes from the line of Joe Stephen – Stephen Capital Joe Stephen – Stephen Capital : Isn’t this sort of your annual time for your normal exam, and then if it was, was there anything to do or how did, can you sort of talk about that and did that have anything to do with the uptick in the NPAs.

We annually get reviewed by our regulators and we are not at liberty to discuss those results but I can tell you we’re in very good standing with the regulators and we don’t, we have never had any problems with the regulators, and what you see as far as on a quarter to quarter basis, I can tell you is all driven by our internal analysis of what needs to be done. I don’t know that I could say that for every bank, but I can tell you that as far as our bank goes. Joe Stephen – Stephen Capital : But don’t you typically have your exam right around year end though.

What I can tell you is that we really don’t discuss about when we have exams publically and I’ll just reiterate what I just told you and that is I can tell you 100% confidently that what you see as far as what’s on non-performing and what we do as far as charge-offs go or downgrades or upgrades, are 100% the reaction of management. So if you listen closely you’ll probably get the answer to your question.

Your next question comes from the line of Stephen Geyen – Stifel, Nicolaus Stephen Geyen – Stifel, Nicolaus: The deposits were up, I’m just wondering, the rates on the CDs that you paid end-market, where those significantly different then the brokered CDs. I think you gave the 1.25%.

Yes, that 1.25%, let’s put things a little bit in perspective. We started our retail CD campaign I believe towards, I know we set the rate at the end of January and ran that campaign throughout most of February and into the first couple of weeks of March. At that time the 1.25% I mentioned on brokered CDs was actually above 2%. The CD campaign, the rate that we had was above brokered markets but as we’ve always talked about in general, the rates offered in our markets for CD products are usually at or above brokered markets anyways. There was certainly a little bit of a premium in regards to our retail CD campaign and it brought in a significant amount of money. The other part of that increase in local deposits, a good chunk was municipal deposits and those rates were right at market. Stephen Geyen – Stifel, Nicolaus: Can you quantify what part of the increase in reserves was general reserve versus specific reserve.

Our reserve is calculated as it has been since we opened the bank based on a specific formula that basis the calculation on grade of the loan as well as specific impairments identified in loans that have become distressed and placed on non-accrual. So we don’t allocate blocks of dollars to the reserve just to boost it. Its all based upon a calculation that [drive] at the loan grade. With that said, we’ve had some downgrades on credits, we’ve had increased impairments and that drove the increase in the overall reserve to the 179 that we saw at the end of the quarter. Stephen Geyen – Stifel, Nicolaus: I just want to clarify, the FDIC assessment in first quarter, is that a good rate including the possibility of the one-time assessment in 3Q?

No, the one-time assessment will be a second quarter event. Stephen Geyen – Stifel, Nicolaus: Okay so the initial reassessment in first quarter excluding the second quarter additional assessment you’re talking about, is that a good run rate for third quarter and fourth quarter.

Yes.

There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.

Thank you all for your interest again and for your questions and if you have any further follow-up questions, feel free to give us a call directly. At this point we will end the call. Thank you very much.