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Alerus Financial (ALRS)

Participants
Randy Newman Chairman, President, and CEO
Katie Lorenson EVP and CFO
Karin Taylor EVP and CRO
Jeff Rulis D.A. Davidson
Nathan Rice Piper Sandler
William Wallace Raymond James
Call transcript
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Operator

Good morning and welcome to the Alerus Financial Corporation Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. This call may include forward-looking statements. results statements. materially actual in those company's forward-looking any the may from differ indicated And that cause are factors filings. indicated earnings Important could and in from differ release the those materially forward-looking company's statements the listed the actual in SEC results to would the over Financial to to Randy Newman. turn and Chairman, President CEO, like now Alerus I conference Corporation Please go ahead.

Randy Newman

XXXX also This Thank and our Today, our to IPO since sixth Ryan Officer, earnings you, Grant call and discuss results and our financial and to good Chief Katie a COVID-XX give Taylor; current September impact Revenue year-end morning, and I'm Financial morning, XXXX. Goldberg. everyone. the of Lorenson; fourth intend Chief pandemic. quarter Karin Chief our This is Risk Officer, joined our we by our Officer, in

appreciate your remark. our of in interest the and our introductory at questions invite always, As we your end company

XXXX driven to employees purpose their almost and Let are achieve and significant me a of their Alerus. to reflect they all first passion in our centered a thanking pride begin their that the ethics recognizing goals. have principle very always Alerus at a efforts and with performance clients standards, is Alerus all principles, values, on thing right do help and guiding were in strong result our XXX by achievements and and dedicated of organization financial customers

employees are clients that During the and during our of fourth quarter continued safe, period uncertainty. that of XXXX, meet ensure of this the we we needs our to

and I like anticipate the else, of financial -- in Katie upon same and XXXX. specifics record give impact continued and clients. for achieved and XXth continuously That as brief focus they continue our performance our and strategies quarter we achieved throughout remain of on We in to continue did, to by net we despite us fully fee that that the organic million, of equity XXXX. return successfully impact would XXXX. COVID and very of everyone an XX.XX%, as XXXX. We, announce financial our share, or we said on on record of and to on acquisition as more income results capital has, the and of of focus a strong XXXX, inorganic fourth $XX.XXX will XX.XX%, being record not the like summary efforts did and and financial Alerus will I'm this Our build proactively disruption meeting an uncertainty, their share ROA going pleased X.XX% it completed reports. income Alerus forward. began to growth it into continue our in tangible head Karin have and consisted very foundation have It its $X.XX to this employees XXXX diluted respectively, earnings for totaling per per return needs year. execute

for at today's had Rocky Colorado. per follow-up Mountain Xst, region of industry low for Our increased the the in Banker, cap on time, presentation. of the some and and needs quality X, the turn from on stock April the Best employees small over XXXX a another January by named to institutions, XX of acquisition in At fee XXXX significantly share. it Katie? to XXXX this in reflecting Star with I'll our and pandemic Banks and to that credit concern remarks of $XX.XX to Katie safety share of in XXXX income Sandler being XXXX, Lorenson a price concluding of All the on year clients, XXXX finished end the our successfully the meeting Work throughout financial one financial Piper $XX.XX being American closing end For list $XX.XX named for protecting record proactively Achievements performance, at included the

Katie Lorenson

Thank Good incredible you quarter What for Thank and call an joining a today. our morning everyone. you, Randy. year indeed.

are, even team of proud of and of our we members. got of amazing there course, Alerus financial our more all how We results, very but proud

So, a mentioned of will billion I'll for past the quarter go an right mortgage, $X.X third the year and left briefly with highlight before, to which and off technology quarter's off credit where provisioning. end hand on again noting volume not those some originations. would $XXX The to I we've originations right and it's and I'll have blowing steam trends PPP, into update the was worthy walk been matters, I'll highlights Karin, right time up fourth through unprecedented but the the quarter long-term it who then again provide picked possible this quarter in of related I've digital. made it of million nearly that at without last investments record think surpassing this for

towards purchase our loan to mix the shifted in XXXX and XXXX. did the as of mortgage originations weighted in expected Although Purchase total refi the produced over on space. average strong in XX% our million typically XXXX in side, originations officers volume are remain $XX

year and operations strong purchasing or chimed home rate with their almost with teams markets with through our pull margins on mandatory We continued XX% delivery. nearly ended refinancing X,XXX capital and Our a Alerus. the clients

across results and our these grateful make division the team who within and possible. company helped of proud the We members are

the decreased record just mark-to-market revenue over the a As $XX came the application mortgage ending at million of in levels, down $X.X quarter, the of $X.X the nearly of million gain mortgage year pipeline volume reported. forward its the valuation million from

over the be for volume. but the Sticking from fee quarter, volume quarter of comprised down first total than of the fourth XXXX. revenue with first higher income expectations. theme, XX% with levels in line which record the finished quarter XXXX for usual in to revenue expect We Retirement

of on volatile environments team's had focusing with Assets we jumped conversion. billion, of conditions of management first strong RPS, the and certainly leaders we overall in the in the and these the $XX Wealth the XXXX. to the the closing fit companies given production expectations, transaction division are the by client From strong our market and driven culture up believe XXHourFlex-RPS mid-December. strong finished conversations exceeding impressive year retention with and integrating well seeing a

increase while higher balance on but for average deposits with cash NIM grew levels X.XX% continued few it forgiveness expenses linked-quarter to QX over highs most Cost year, short on appears of despite loan basis we On million continues the remain ballooned than longer efforts, end a net basis. of build mark was and ongoing from dropped decreased the despite continuing, nearly not forgiveness. quarter a the the cash weigh range X% held points, the both investment the did XXXX. of efforts a But heavy linked-quarter of core and in on basis, core margin PPP From standpoint, ongoing to X.XX%. burden the Excess to from interest we the total least sheet, adding of due reduce be the liquidity a these basis to a levels billion Last, deposits. anticipated. interest outliers. purchases. sale of the have to expenses, $XXX at $X at the PPP On quarter which the nine another consistent these for in the cash a margin funds in net assets with cost the a loans the million and With long-term portfolio, $XXX million remained $XXX historic and will another

mortgage and sold. originated, First compensation just the an in accruals not conjunction for in the loans with increase foremost, rolls increase volume in and total

were made end accruals In adjustments the addition, of performance financial relating year to one-time the outstanding to company.

to over decision impact permanent physical for was another also over and During The four QX the In to footprint. of the the our business included of to related office the -- financials quarter, -- transition of quarter our our a our we office. a services to of employees total one-time locations or to of we XX% some the six, for bringing exit $XXX,XXX. made home the technology some six year expenses line, closures the

services accelerated the per we quarter run XXXX we for closed normalize XXXX. into the and few the a range. expect we during rate addition, merger million $XX related the In projects acquisition expenses in Professional quarter to included expense

One our talent our pleased into and technology translate point, see results. culture; As in to a we our final are investments Alerus

are expenses. reduced identify grow additional and to clients relationships to efficiencies urgency increased with our teams expand and opportunities as working base Our as well

Officer. for incredible remains XXXX, company our the it uncertainty is I challenges. it Risk enterprise over Although to turn value of Taylor, resilient Chief clear strong our now and to Karin will is

Karin Taylor

Katie Thank everyone. morning and you, good

Dakota surge this an of and significant came update Those on time. our to through experienced both restrictions December. increased case North restrictions First, much and on continue businesses November numbers business, a while surge remained Arizona in a Minnesota banking were Minnesota open month, elevated earlier Minnesota during for Dakota decreased. they experience lifted and cases. number that of later brief cases North markets.

contributing This We are by increase of $XXX and serving rate an was programs consumer liquidity and year-end at increased This conditions. Increased of loans. end the increase to relief $XXX.X XX%. markets; borrower to needs million Loans of in lower of decrease at rate. all by line since real attributable in compares at PPP various virtually, to million. and commercial million in the loans, offset person December is XX% the based loans of clients to estate remained that a on in of is PPP in digitally, utilization XXXX. $XX low C&I by This Commercial year including driven growth XXXX. market utilization utilization $XX.X an million due

securing loans for successfully executed PPP $XXX As know, we the you X,XXX first of clients over round the totaling on million.

January totaling million. XXX totaling had approval SBA forgiveness -- $XXX the million. approximately those applications XXX totaling applications As for from XXth, received SBA the We of $XXX we of had to submitted approx

portfolio. applications consumer to XXth, extremely million Requests loans. million. on Requests the balances respect the received fourth X% some $XX low grow to and month for granted accepting of were on type on for deferral two one we requests of With were in during through Most commercial $XXX round are We of XXX January payment the we relief have about PPP applications quarter. or remained limited. loans deferrals, for had

deferral year-end, about of period. remained one our a million second to loans were in outstanding are balances second family an guaranteed deferral on $X.X $X.X period portfolio. loan million Balances $XX deferral of those in balances. four about in are almost entirely million on loan or of and As residential deferral initial and in X.X%

the and to basis pandemic third industries of of including result problem during very XXXX. a $X.X the strong and million primarily non-accrual further the it most restaurants write-down that the was XX remained during quarter quarter; metrics quarter by $X.X million or downgraded manageable total second remained recovery loan a at non-performing these remained of partially and assets charged on recoveries offset included loans loans to a credit for the and was levels a a the to recorded net credit prior borrowers quarter. hotels. by assets charge-off points, moved recovery pandemic. during on from Loans off business the unchanged fourth at the Both small impacted Our loan. of quarter. weaknesses to This was commercial a of had The We

million potentially Our $X.X the the I from to allocations the fourth to We did provision well quarter result recovery of a economic quarter, segments conditions, as expense loan risk mentioned. of decreased all for third primarily portfolio. current portions $X.X increase million to higher as in

of to X.XX% unguaranteed compared the balance to quarter. at to third of loan total allowance ratio with Our end X% the increased

allowance loans increased Our XXX%. to to non-performing also

the Our of than credit better in had spring performing anticipated we is XXXX.

of some uncertainty to additional the gap whether stimulus businesses. enough be the degree for to high remains actually bridge as However, will

experienced and we we of be relatively we well. us withstand more higher While, strong in than culture, losses geographic economic what footprint continue and believe XXXX to impact during loan the expect portfolio credit will our to diverse emerge help COVID-XX XXXX,

make part high expect growth first some through hesitancy still challenged at to XXXX there be loan of on in year will half due so while investments much borrowers We of to of the the the uncertainty. is levels least continued and liquidity

pipelines their our concludes comments. That and and that lending Our were standards. extending finding business opportunities meets our advisors we build to continue credits prepared

We will up questions. now open it for

Operator

[Operator will question ahead. Instructions] come D.A. with Our Jeff from Rulis Davidson. first Please go

Jeff Rulis

morning. Good you. Thank

Karin Taylor

Jeff. morning Good

Jeff Rulis

expenses a unit, mortgage on production for side? but year and/or piece I fee or income the on of back of -- low the that $XX is -- outlook expectations mean, fee kind million thoughts that towards you Simple on -- revenues it's income the mentioned fee a comments for thoughts the the first Appreciate tracking replicate, I quarter, in the I big there any income? absolute side, in to just tough kind of any the imagine a net but quarter tough range.

Katie Lorenson

Thank question. you the for Jeff. Morning, Sure.

to mortgage certainly, the the side, quarter year. high peak for first mentioned, be expect we likely do the So, year quarter relatively as the compared I and prior to on

overall And industry. so origination consistent XX%, we are decline which by estimating an is with around in the

which other almost component pipeline is to, valuation, that expect year we $X million, the during ended of which positive The unwind the course, that at related a year. also of to

you little should regards a to give the there. that revenue on in So, mortgage color

one this The acquisition a to other growth so specifically of to rate we side. components, incremental maybe from total the this There of RPS-XXHourFlex standpoint, million, revenues the percentage, a to retirement two for million in the probably should in team, maybe retirement overall, legacy that's then year. and with bringing X% to about the closer $XX probably speak flat, add the up we business or the the to division, $XX.X see lower run expect core course, fairly us should addition

Jeff Rulis

you management, priorities imagine pretty of on That's I colors. into in the Great. on the Thanks. you activities, side? look Randy for funding of pipeline this on what one kind dividend checking and And good of the and that. did RPS steady back capital could one, other your wealth of other or of kind just kind plan capital and/or you organic Maybe we'd number on kind do opportunities at do but -- close of

Jeff Rulis

you what mentioned of there. All

to fit, down earnings buildup its for and save company discuss my a is close both successfully capital with the It the business I'll make our sure also place quarterly -- things remark know, all mentioned, something putting make manner remarks very, the with the management of capital gone on all, with that is good acquisition very the And cultural really meeting. perspective, capital as and discuss a having as things our that a to you good continue pleased as really governance the will which end IPO come and and attention I'll really the Board of fit through a everything as that to Board acquisition Alerus. able both review the of a Where now we're First very that and turns to of to well we very is from very, was the we're in to strategy, basis that were as we properly you good just to from well to just going corporate the forward. managing a dividend -- and on.

Jeff Rulis

Okay. step I'll Thanks. back.

Operator

with Our Rice next Piper from question ahead. come Please Sandler. will go Nathan

Nathan Rice

Yes. morning. Hi, everyone. Good

Karin Taylor

Morning, Nate.

Nathan Rice

Perhaps just on B&S get just additional partners. going discussions an curious, deployment are to of capital in terms potential with how continuing update, that Be just discussion.

last from is You or state guys seem in discussed a flux it pretty post-RPS affairs of of much similar what we quarter? opportunities

Randy Newman

Katie, do you want to?

Katie Lorenson

-- Katie been fairly what what's is would last I quarter. it's we've This yes, with -- say seeing absolutely. the consistent since pipeline in with

Nathan Rice

to ex-PPP, was liquidity just think kind this as how of levels kind how thoughts to lot core outlook the kind any how about margin said over it. know But been of for you around I the course year and core Katie for thoughts any growth quarter. And this year. NIM I the projects but of of trends we've from that outlook here, a of loan kind depend Karin first ex-PPP? the of trying on excess believe that of part on it just Okay. Got X.XX% a just alluded flattish then the and just

Katie Lorenson

seems continues position and was that increase. to I've guidance -- our I actually for Yes, And think X%, we're there. been scraping it the liquidity like my giving

loan as X.XX% seeing drop to into we without if time ex-PPP, think there's a loan loan long the will takes really utilization without X% on low I below possibility as demand year that side. good a the that potentially pick up any see growth, So, or it this X.XX%,

unfortunately. think is do I So, a to be know sub-X% it, we before a reality going

Nathan Rice

expectations. one you line XXXX? with the so last ask the I that is down or it -- about being industry XXXX, Mortgage I least of so for the could revenue, unrealized that at in expectations Does in gain that or If or may drop or down in include off banks Okay. which the just in XX% talked see XX% one. we kind think was

Katie Lorenson

not. It does

much. of to we So, that expect then in core on would the decline. kind revenue, that decline headwinds And expect of of addition, would we the see the hedge to top

Nathan Rice

color. Okay, everyone. it. Thanks appreciate I the all got

Katie Lorenson

Thank you.

Operator

James. Please ahead. William Our Wallace from Raymond next with question come go will

William Wallace

you. morning. Thank Good

the for sale Just that question, the following -- on year? are your on last the what thoughts on gain mortgage

Katie Lorenson

question. good Yes,

to the levels. are pre-COVID margins back that return kind will We at point this of the anticipating

So, X.X% levels.

William Wallace

Okay. Thank fees, into that pressures, just helping on understand that's following questioning, the of then net to interest balance going bank come continues think all deploying you margin, us are of flattish with that to about the up NII help cetera, the can the that exclusive on line we And might maybe et NIM words, liquidity sheets drive growth, you you. on thoughts into so other add but kind NII NII how In on to dollar liquidity of grow? loan portfolio dollars bond to planning growth? growth are supplement any PPP

Katie Lorenson

will where to -- continue that's goal are from think certainly the we too still But levels probably that we at PPP. standpoint. were is the maintain year least be strong to last of NII ex Yes, headwinds I the

level or we of to least, But our that's our be growing on, to that's of is it made objective, lot regards made difficult cost that year, lower we will side to more in goal this the things continue lot last do to on can. a levers yes, a our whichever our of course, ability to -- of ground maintaining ground funds. up Of which at focus expense year

William Wallace

continue that the would were build, assume to we guidance if to And were NIM hold prior not liquidity today? to X% core that Okay. around

Katie Lorenson

That yes, assumes we've the around. liquidity the that liquidity sticks we're got, seeing

further though at anticipate And that this happening deteriorate so a don't point. I probably continued build would that,

William Wallace

Okay. curious Thanks. PPP if in round of whatever it you you And was stated of $XX believe, that just far call, level you could round it I'm or might million then were thoughts participation want ultimate in the two to applications prepared out? for give where think your remarks, shake two so I us on received. three,

Karin Taylor

is this Wally, Karin. Sure

William Wallace

Hi Karin.

Karin Taylor

far us significant applications so early to for We applications. think really draws. of We've shake seen the draw most where not It's will first received for new applications for it out. we've second tell that are

William Wallace

has And applications already has of, of round, steady? to obviously, pace Okay. remained kind but the started first or slow below it the

Karin Taylor

Yes. I get week. And we at the But mean to another the been as steady. applications had we it's certainly we'll the end update -- get start. strong of had here right we

William Wallace

million, was where That day? through $XX what that up

Karin Taylor

Monday was I applications too those received. this through should week. That of And clarify are

So, they're approval. They're not necessarily stages approved by of different SBA. at

William Wallace

okay. Yes,

let and Okay, you questions. that's I all out your will I else ask time. somebody had. Thank step for

Karin Taylor

Wally. Thanks

Operator

at [Operator no question-and-answer time, session. the to back over There conference will questions Randy further any being Instructions] this Newman I'd turn remarks. closing our like this for to conclude

Randy Newman

right, you. All thank

total I'd back than this everyone our revenue and our bank peers. every mention for call for paid extraordinary outperforming non-margin questions. increased Alerus long very our and just and for we years sheet our is strong total always shareholders. risk our we lines dividend years, to index extend My the into two a This has SNL average appreciation of to return a But continuing long-term our the Wally, Alerus that year ability late end high show XX% cash which adjusted of history per return shareholders. value this for Thank your our joined shareholder to deliver believe XXXXs past the for from like of We returns peers XXX% performance. remain we XXXX, you has the compares, also go shy and balance professional believe the of and since our records uncertainties have last shareholder the shareholder XX for services of dependent our business year. in all-bank portfolio, This index. driven return, XX% by return to loan the first achieved providing At continue total over annual Alerus XX at XXXX, me that of confident and our who to business model, a highlights drive of example, to a XXX% is an diversified stakeholders. SNL morning. operating our dividend. downturn, greater Jeff, all value our value XXX% to navigate cash consistently you Let our of Nate thank listening cap small for while has the

of we to As responded through am very challenging this of has and I XXXX, our navigate environment. the how remainder proud uncertain organization

which to times all for Our Alerus. and our model. joining Thanks accomplished support leaders efforts our despite much employees our so call. our business all all these testament in company COVID-XX, has their and again to is for levels to I'd thank of all extraordinary unprecedented continued you for interest a during at team, of and your today's like of

Operator

you Thank has conference today's attending now presentation. concluded. The for

You now disconnect. may