Good day, everyone. And welcome to the Mercantile Bank Corporation Fourth Quarter and Full Year Earnings Results Conference Call. All participants will be in a listen-only mode. (Operator Instructions) Please note that today’s event is also being recorded. At this time, I would like to turn the conference call over to Mr. Robert Burton with Lambert, Edwards Investor Relations. Sir, please go ahead.

Thank you, Jamie. Good morning, everyone. And thank you for joining the Mercantile Bank Corporation’s conference call and webcast to discuss the company’s financial results for the fourth quarter and fiscal 2013. I’m Bob Burton with Lambert, Edwards, Mercantile’s Investor Relations firm and joining me are members of the management team including Michael Price, Chairman, President and Chief Executive Officer; Robert Kaminski, Executive Vice President and Chief Operating Officer; and Chuck Christmas, Senior Vice President and Chief Financial Officer. We will begin the call with management’s prepared remarks and then open the call up to questions. However, before we begin today’s call, 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 the important factors described in the company’s latest Securities and Exchange Commission 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 issued by Mercantile today, you can access it at the company’s website www.mercbank.com. At this time, I would like to turn the call over to Mercantile’s CEO, Mike Price. Mike?

Thank you, Bob, and good morning, everyone. And thank you for joining us to discuss our fourth quarter and full year 2013 results for Mercantile Bank Corporation. On the call today our CFO, Chuck Christmas will provide details on our financial results followed by COO, Bob Kaminski with his comments regarding asset quality and other operational successes for the quarter and the year. Before going on the lever, I’d like to update you on progress regarding the pending merger with Firstbank Corporation. At separate meetings with the shareholders of both companies in December, the merger was overwhelmingly approved. We continue to work with the appropriate regulatory agencies to obtain final approval. At the same time, our integration teams have made tremendous progress and we are excited to bring this transformational project to fruition. With regard to this quarter, it is worth noting that the as reported numbers for the fourth quarter include $500,000 in after-tax merger related costs and still the company’s results are excellent. Hopefully, you’ve all had chance to review the quarterly performance, which was highlighted by stronger net interest income, improved bottom line profitability and continued success in loan originations. For the full year 2013, we saw 6 basis points gain in net interest margin, a 63% decline in non-performing assets and a 48% increase in net income attributable to common shares. Our near-term delinquent loans at the end of the year remained at negligible levels. As part of our improved capital position, earlier today we also announced another quarterly cash dividend of $0.12 per share. 2013 certainly was another year of accomplishment, the success for the past few years was critical to our ability to announce our exciting merger with Firstbank. As we look ahead, we are confident in the direction of economic recovery for both West and Central Michigan. The consummation of the merger will ensure that Mercantile remains well-positioned to continue as a market leader in 2014. We will continue to do this while remaining focus on building our franchise and help the new communities we serve to prosper. At this time, I’d like to turn it over to Chuck.

Thanks Mike. Good morning, everybody. This morning we announced net income attributable to common shares of $5.2 million for the fourth quarter of 2013, a 69% increase over the $3 million earned during the fourth quarter of 2012. Our net income attributable to common shares for all of 2013 were $17.0 million, a 48% increase over the $11.5 million earned during 2012, and a diluted earnings per share basis, the $0.59 we earned during the fourth quarter of 2013 was an increase of 69% over the $0.35 we recorded during the fourth quarter 2012, while $1.95 we earned during all of 2013 was an increase of 50% over the $1.30 we recorded during all of 2012. The results for 2013 include cost associated with the pending merger with Firstbank Corporation. On an after-tax basis we expense above $0.5 million during the fourth quarter and $1.2 million during all of 2013, nearly all of which was recorded during the third and fourth quarters. We expect to expense further -- we expect to expense further merger-related costs during the next three quarter's, although the exact amount and timing are not currently known. The quality of our loan portfolio continues to improve, which -- when combined with significant recoveries on prior loan charge-offs supports our negative provision expense. In addition, problem asset administration costs have substantially declined. Nonperforming assets have declined by $108 million or 91% since their peak level at March 31, 2010, and are currently at their lowest dollar volume since year end 2006. Our improved earnings performance and financial condition also reflect many steps we have taken over the past five years not only to mitigate the impact of asset quality related costs in the near-term but also to establish an improve foundation for longer term performance. We have increased…

Thanks Chuck and good morning everyone. Mercantile concluded a very successful year 2013 with the building of some great momentum and growing its loan portfolio. For the year, Mercantile generated new loans to new and existing customers of $227 million, 59, excuse me -- $53.9 million of that in the fourth quarter. These robust loan growth numbers were generated through the ongoing relationship building efforts of our lenders and our entire sales team. On that, loan growth was tampered somewhat by the successes of our efforts to move problem assets off the books. We are still very pleased with the final results. The pipeline of new loans remains very healthy as our lenders continue to generate new loan opportunities and potential clients will play some importance of the ability of the lender to add value to their relationship -- relationship banking. As we have outlined in previous quarters, we have diligently managed our efforts to improve the quality of our loan portfolio. In the fourth quarter alone, in addition to the $2.6 million reduction in non-performing assets, we had another $15.5 million in watch list rate loans leave the bank either through sales of the underlying assets by the borrowers or through refinance of the debt by another institution. In other situations, we had some commercial real estate exposure leave the bank due to aggressive financing packages offered by other lenders with pricing and/or terms that in our opinion was not merited for the particular borrower. We remain pleased with each of the metrics of asset quality measurement of the portfolio. NPAs continued their downward march, the allowance for loan losses excelled in at a very healthy 2.17% of loans for December 31st. 30 to 89-day delinquencies were once again virtually zero and our watch list has had a slowest level since late 2006. We ended the year with a net loan recovery position, which validates a conservative approach to loss recognition. Operationally, with our ongoing commitment to provide our customers with topnotch banking products and services, during the fourth quarter we successfully implemented the rollout of our new Internet banking system through our retail client base. Commercial will be transitioned in the coming months. Regarding the activity related to the merger with Firstbank, integration committees from both organizations are working together to ensure a smooth transition. Our goal is to ensure a transparent integration for all of our customers, allowing them to quickly enjoy the benefits with a combined organization, we will be able to provide to the markets we served. Those are my prepared comments. I will be happy to answer questions during the Q&A and I will now turn it back over to Mike.

Thanks, Bob and thank you, Chuck as well. Operator, if we could open it up for questions at this point, it would be great?

(Operator Instructions) And our first question comes from Stephen Geyen from D.A. Davidson. Please go ahead with your question.

Hey, good morning, guys. Maybe starting off with a question on the margin, Chuck, you talked a little bit about recoveries and unaccrued interest on NPLs and prepayments and fees. Can you kind of give us, what the benefit was this quarter versus and give us kind of a core number?

Yeah. Exactly, Stephen, we recorded an unaccrued interest on non-accrual loans at the time of payoff in the first quarter about $1.5 million. And for all of 2013 and actually the difference is really more of a third-quarter event, we did about $8.65 million and again the difference is primarily in the third quarter. I don't have that in terms of basis points what that is, but those were the dollars. One of things that I mentioned in my prepared marks is we had a tremendous amount of excess liquidity, even more so than we've had in previous recent quarters primarily seasonal increases in deposits. But if you kind of back off the collection of unaccrued interest income and the excess level of Fed funds if you will, our margin was pretty close to what we did in the first and second quarters, down from the third quarter but again the third quarter was also benefited from the collection of unaccrued interest income. So if you look at all four quarters throughout 2013, the core margin was about the same or in a pretty tight range.

Okay. Perfect. And maybe a question for Mike or Bob, on loans you had some payoffs towards the end of the quarter, how much do you think of that was seasonal?

I don’t necessarily think it was seasonal. We did have some line activity, both up and down towards the end of the quarter as it is typical for year end. I think the paydowns that we saw were mainly term debt of assets that were sold by the customer paying off the underlying loan or some refinances of other bank and so that was probably more of the case than the seasonality.

Okay. All right. And maybe the last question, for 2014, Mike, what are you hearing from commercial customers as far as their outlook and as far as their budgets for 2014?

Yeah. I think that’s a good question. We are hearing a lot of positives from customers and potential customers and we are seeing a continuation of what we saw in ’13, which was real opportunity to expand the portfolio and put some good new volume add. Chuck and Bob both mentioned and you could see by the numbers. We made some very nice gains in 2013 in new loan originations, but we continue to pair down the watch list and a lot of the payoffs we got during the course of the year came from the [wide source] and part of that was, I think Bob alluded to you a little bit, some of our competitors have got pretty aggressive and decided that our [wide source] is a good place to go shopping. We are not totally -- that is a [hurried up release] too much and in some of the other issues that came for bare in the fourth quarter for the first time in the long time is that the real estate market has recovered enough around here that people, it will hung on during the great recession with some real estate, we are able to sale it and either get out of it or make a little bit of money and some of those underline loans were paid off. We don’t expect to see as much of that in ’14 but that remains to be seen, but we do feel pretty positive that ’14 is going to give us a real good opportunity to put some more volume on the books.

Great. Thanks for your time.

You bet. Thanks Steven.

Out next question comes from John Rodis from FIG Partners. Please go ahead with your question.

Good morning, guys.

Hi, John.

Chuck, maybe just a follow up to the margins spread income, as far as if you look at the core margin sort of going forward, just for Mercantile? Do you think you can sort of maintain it around the 3.60, 3.65 level that was in first half of the year?

Yeah. I think, a lot of things we’re still struggling with, although, it’s coming down a little bit and we would expect it to come down a little bit further as a quarter goes on, as we start getting anticipated withdrawals out of deposits, we do expect the Fed fund still balanced to decline but that certainly is going to take a good part of the quarter if not the entire quarter. So I’d expect assuming no collection of some of the income that we did in the previous two quarters that the core margin or the resulting margin, I should say, would be, probably more closer to 3.5, 3.55. And then going forward, I would -- I am kind of looking for margin on a standalone basis around 3.5 to 3.60, certainly with the very low rate environment and the excellent customers that we are bringing on, obviously deserving some relatively low rates, especially in relation to the loans that we have got on the books, some of which were made in higher interest rate periods several years ago, some compression in our margin in ’14 -- in our core margin in comparison to what we did in ’13.

Okay. Okay. Fair enough. Just, Chuck, I guess, will I have you to just on the tax rate bumped up a little bit and I think that was probably related to the merger charges is 31% sort of on a core basis against sort of the right place to be still?

Yeah. I am looking at 31, 31.5, yeah, on a core.

Okay. And Mike, maybe just a question for you on the deal, obviously it’s been delayed a little bit? Is it still sort of your assumptions that the deal hopefully closes late February, March? And I guess, is there anything else that you need to provide to the regulators at this time?

Yeah. That’s a great question. We really, it's hard to get any indication from the regulators exactly we are on the process, we are assuming that their fairly on the far along because we have provided them for -- with everything that they have asked for. We suspect that they are going to want some updated financial information from us which Chuck is in the process of preparing and we will send that away. So, yeah, it is the process where they don’t give us a lot of leadership, as far as, we do expect, certainly answers that (inaudible) we’d like to think that by the end of the quarter we will have clarity as to when we can close the deal.

Okay. And just maybe one more question, just as it relates to FBMI without getting into specifics, have there, are the results sort of in line with what you guys have been expecting I guess so to speak?

Well, I would say, it’s a great question asked, but you can probably anticipate my answer, which is we let FBMI when they released next week, they will fill in all the details but that’s I can do now with, John.

Okay. Fair enough. Thanks guys.

You bet. Thank you.

(Operator's instruction) We have an additional question from John Barber from KBW. Please go ahead with your question.

Hi. Good morning, guys.

Good morning, John.

I was just wondering if we can talk a little bit about the $62 million of loan originations you had this quarter. What percent was from new borrowers versus existing customers? And also it was down a little bit from kind of the run rate of originations the last two quarters, if there were any particular reasons for that?

Well, John, I think, the thing about loan originations is that sometimes it’s a matter of timing, when you make a new loan commitment with the customer, if they are paying off something with another bank or they are purchase an asset, sometimes you don’t necessarily control the timing of that and so, you get ebbs and flows, and some things that maybe were invoked in the fourth quarter that pushed to the first quarter. So you see that a bit. In terms of percentage of customers, new customers to the bank, I would say, probably, half of that $52 million was generated from new customers to the bank and the rest of it was from new commitments to existing customers. So the bottom-line is it is hard to just probably measure quarter-to-quarter with origination because it’s a moving target. Sometimes, it is hard when the deal could actually get closed. And then, we have a close commitment, we have funding that takes sometimes as well, so it’s a moving target.

Okay. Thanks for the color. And then just as it relates to the deal, I guess in the last release you guys had cited two kinds of potential hold-ups. It was a CRA requirement and then funding for the special dividend, is one of those issues taking longer than the other or is it really both?

Well, it’s truly one question before the Fed and both. They had few issues for us that they wanted further clarity on. We have provided them clarity on all the issues that they wanted. So without really sitting in their office, John, it’s hard to know if there is one that they are focusing on or not. I think they’ve just explained to us, they’ve a very thorough process and it was our responsibility to get all the information for the questions, which we according to them have done. So we are not purvey to, where they are or any of these specific issues that they may or may not still be looking at.

Okay. Thanks, Mike. And I guess the last question I had just about the deals well. You mentioned that the integration teams have been working diligently, any positive or negative surprises from those practices?

Well, I will let, Bob, from our shop of Samsung from Firstbank a bit and have been leading those, but I could tell you from my approach, the only surprise has been very, very positive. And I’m not really all that surprised because we did lot of due diligence before hand to know that from our standpoint, we are working with an extremely talented group of people at Firstbank. And it is gone very, very well from top to bottom and I’ve been very, very happy with it. Bob can maybe add some more color.

The very exciting thing is that people from both organizations, comprises committees and the teams have worked very, very closely, very, very well. Everyone is working with a kind of goal of making sure that the transition is seamless for the customer and all the excitement that we see with the opportunities, with the bank mergers can be translated to the customers and make them see the same thing. So it is all very positive and obviously it’s a ton of work but we’ve got great teams on both sides and they are working hard to make sure that we accomplish our goals.

Great. Thank you.

Thanks, John.

And we have an additional question from Daniel Cardenas from Raymond James. Please go with your question.

Good morning, guys.

Good morning Dan.

Just a quick question on the margin side, are you seeing any change on the positive cost or you just starting to see increased competition on that side?

No. Yeah, it’s a good question but I think all of the entire industry and certainly the banks that we compete with, I think are having the same frustration and struggles with tremendous amount of liquidity on their balance sheet. While we have seen -- during 2013, we saw some deposit withdrawals by individuals going into buying some real estate, buying some new cars, those types of things but now we saw a net increase. We did have the opportunity as we do. On a regular basis, review rates and had the opportunity periodically throughout 2013 to flowing rates a little bit and we didn’t see any negative impact in regards to any type of runoff as a result of that. So we’ve seen virtually no competition on the deposit side, especially in regards to rates.

Good. And then what are you hearing from your commercial customers? Are they more willing now to drawdown on lines of credit to reinvest in their businesses, or they still sitting on the sidelines a bit in kind of wait and see what happens here over the near-term?

I think they begin recovery and Michigan is still gaining some momentum. And I think people -- our business customers are reacting positively and of course been very cautious still because of what the depth of recession brought to many companies. But I think you see some good excitement and some opportunities that they’re starting to look at more closely and pursuing in some cases. So from our standpoint, it’s encouraging.

Good. And then you said some out of state competitors starting to enter the market recently. Are you beginning to see them as you compete for loans?

I think from a competition standpoint, we've got point of plenty of competition in the West Michigan with the banks that are based there right now. And that was a primary competition that we have seen has come from to this point.

Okay, great. Thanks guys.

And we have a follow-up question from John Rodis from FIG Partners.

Mike, just a follow-up on the question with the regulators and as it relates to the special dividend, is -- as you understand it, the question is, their question was more about you borrowing money to pay the special dividends not so much -- not so much paying the special dividend, if that makes sense?

Yeah, John, this is Chuck and just to make it clear, you know the Federal Reserve have a policy of Federal Regulation but they do not like to see dividends funded with that and while I certainly would agree with that on a normal dividend basis, cash dividend basis that it should be a return of income. We felt we had a very good case that this is obviously part of a merger transaction and not necessarily something that we're going to do going forward. And we thought that was appropriately -- we're trying to manage our capital position, ultimately the bank would had to pay the dividends to pay the parent company, to pay the debt off. But we're just trying to manage those dollar amounts as that impacted Mercantile Bank. We thought we had a good case, but obviously as you’ve seen and as you’re talking about the Fed came back and had some issues with that. We have agreed with them and have submitted that with 90 day -- we are going to borrow to fund part of that dividend by $11 million or $9 million, excuse me, $9 million. We've committed that with 90 days after the confirmation of the merger that we will fully repay that loan to the corresponding bank. That's not a huge deal. Again we were just trying to massage the impact to the base capital position and when we look at the cash position, both Mercantile Bank Corporation and Firstbank Corporation, the parent, there is sufficient cash already in existence at those two companies that will be able to pay that loan often fall within their 90 day period.

Okay. So just to be clear, there is the special $2 dividend really shouldn't be in jeopardy at all. I mean…

No, it's not. No.

Correct. Okay, okay. Thanks guys.

Thanks.

And gentleman at this time, we will conclude our question-and-answer session. I would like to turn the conference call back over to Mr. Price for any closing remarks.

Well, thank you, Jamie. Mercantile's momentum is increasing and our team is motivated and dedicated to build on the success. As I stated earlier, our longstanding relationships and proven excellence at community banking are serving us well, as we continue on the path of achieving efficient and profitable growth. Thank you to all of you for joining us this morning for your interest in our company. We look forward to talking with you again soon.

Ladies and gentlemen that does conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your telephone lines.