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Alerus Financial (ALRS)

Participants
Randy Newman Chairman, President and Chief Executive Officer
Katie Lorenson Chief Financial Officer
Karin Taylor Chief Risk Officer
Jeff Rulis D.A. Davidson
Nate Race 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. [Operator instructions] Please note that this event is being recorded. This call may include forward-looking statements, and the company’s actual results may differ materially from those indicated in any forward-looking statements. Important factors that could cause actual results to differ materially from those indicated in the forward-looking statements are listed in the earnings release and the company’s SEC filings. I would now like to turn the conference over to Alerus Financial Corporation Chairman, President, and CEO, Mr. Newman. Randy ahead. go Please

Randy Newman

pandemic. and Officer, our everyone. to first-quarter on Shared Lorenson; Ann the current Cameron, Chief Officer, by intend Officer, Services Taylor; Financial give morning, and to update Katie COVID-XX of impact discuss XXXX Chief the I’m good you, joined This our Risk morning, our we a Today, Karin Thank McConn. and Chief also our

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

We started we’re mortgage our join carried are XXXX. initiatives, performance through XXXX with client our quarter. advisor-focused well our record end to growing Cities and of and the the holistic several first with positioned pleased the base, continues top have We and to quarter two diversified pleased report large of producers of in business team for growth of in XXXX the region Alerus Twin model, be approach to our clients. to hiring serving first

continue talent that on organization, our adding to focus grow revenue. areas will in especially We to

lines and recent income and over as delivered clients benefits as continues our increased our quarter almost local advisors revenue and results, of RPS/XXHourFlex X% go planned. originations our grew footprint to exceeding with business $XXX as quarter. outreach million revenue fee Our proactive remain X% integration the Retirement management acquisition Wealth mortgage of for our the during to the focused nationwide. on strong

see deferrals. economies low loan and continued we local to levels quarter, stable credit the strengthening quality, During of

loans, of over remained reserve very levels Our at PPP. X% robust excluding

pipelines. loan uptick modest demand in saw and we utilization, addition, In solid commercial a building line

a on started growth, also focused journey XXXX. emphasis we In addition technology our on which to in are investments,

processes and is became of we allow several in last focused automation XX banks. now, clients, technology debt for one and robotics improve – redeemed limited trends at will that of business first partners support our initiatives. continue X.XX% consumer this the for community landscape. issued Over fund our and Bank Also Furthermore, our in recently in quarter, with of to in growth the community We abreast our ongoing acceleration believe emerging previously and and have to technology other Dakota develop to a a efficiency we years, we at invested rate a stay partnership technology the both new banking commercial the the we in X.X%. of of North of valued the a us rate refinanced on sub

strong, with believe and top-tier with we tandem of ability we believe return stockholder financial strong execute buyback our execute stock maximize Our in remain diversified value to long-term. yields ability plan. business M&A, We capital approved model capital a our potential strong foundation history to have and levels accretive will dividend our newly our our proven

year made, We has our repurchase share the payout annual since cash would the conditions. At our averaged our Board XX%. also in XXXX over of back records show of XX% buyback cash and cash for XX%. when increased program year market When based for of open an cash measured an XXX,XXX up effective to Meeting, immediately. approved first cash per the our that stock and increase annual Repurchases, three-year XX approved in upon be the average payout a has years, dividends a cash dividend payable every and with in if dividend XXXX, February market shares average X.X%, to XX dividend. the average a have at $X.XX years, ‘XXs per My paid dividend we with But Alerus dividend late an always go past quarter. of Board

list Star to named been like quarter, Banker that XX announced Sandler we that to mention I’d had addition, All Work we the to Best Banks also For. last and the American to In Piper

D inaugural we the This List announce named High were Raymond Bankers proud are we to that to quarter, into Performers for Community the Cup Hub XXXX. James

on our satisfaction XX%, shareholders. most over our an driving survey, the score know clients, continue driving and continue during to Finally, Katie. me are our where successful employee proud XX% annual because let employees, significant our five we us quarter. wins to to overall right with a With challenging from our our year. by growth run, for and the of in increased ability succeeding satisfaction increase clients a way focus it to turn points, to success We very another with valuable to These that, we our recognitions are growth improvement communities long-term serve the long evident our focus of we

Katie Lorenson

you, the you you our of and the one Thank a of financial reporting generally or my and be are do quarter Alerus expectations. income. our quarter this who listening is I call results thank non-interest believe linked brief growth joining very in morning right. with to were All this in institutions later I’ll in morning as Randy, all at time. few line income or strong comments fee

start I prepared remarks. will with my So there

pipeline slightly highest As strong had volume. At of not first quarter. the quarter end another XXXX, The value and and first market the a ever steady historic but mortgage pricing the continued delivery mandatory increased did for quarter to mentioned, anticipated of quarter actually anticipated. related of the volume. the decline is and, in valuation a This pipeline Randy some, we during also as to to the secondary increased. level the of pipeline decline loans fact, And the in record we our refi

the seeing We decline. the business and with the the pipeline market slow, consistent valuation refi are of

the gain we high first watermark decline to for anticipate normalized. and be quarter the revenue do originations such, on as mortgage margins As sale the

will pipeline the reported headwind declines, an forward revenue. as mortgage in the the value decreases As to additional its act

that two division and high-producing As purchase-focused the originators and our added the on Randy note mortgage we release, the business. have and we always it’s mentioned and mortgage of in team team, focused predominantly quarters, earlier, first to Alerus during purchase our historically successful our side been our important to highly mentioned two

XX% is typical division Our despite the continue revenue and mortgage see the on in the inventory did first higher strong at business. purchase pullback volume Twin refi of we levels for origination In Cities. the expect shine and purchased, we levels our lack to quarter to peer split summary, and than deliver despite the

our and tremendous on employees and least, done Alerus of a wealth We’re job the and and growth that’s Last linked team client And our acquisition. typically, really opportunities converting growth income for the seamlessly all first in which grew quarter. and the to network. also on quarter well, the a to retention, fee with clients XXHourFlex the revenue report from seasonal low management, pleased The quarter. go RPS integration the revenue of was identifying of the teams of full continues recent business a members have the side into not but us retirement

growth advisors strong year-over-year So and who on to revenue really delivered XX% of shout basis. a out Alerus production our

what margin regard, has on today. business in we and know of say backdrop I to on brief on outlook As the been In revenue every commentary environment. over diversified the the call, turn we the related never it based I’ll that believe model valuable more our and

have quarter, and be deferred million interest loan and $X interest approximately we of $X recognized recognized. fees approximately the million PPP remaining to of income During PPP we and revenue,

commercial the the ended the due the move stimulus, portfolio, at at in continue increase, as government success million which and forgiveness. We into $XXX cash grow deposits nearly remained to cash continue PPP million. to acquisition quarter investment the levels Despite $XXX to side

points. basis moving X% sheet. Our of scratching liquidity further low, margin the from anticipate the deposits get impacted interest total future. could be huge balance our cost heavily our a is to XX to the And amount in of margin record X.X% continues see core by that We to and net at on

our with Lastly, touching on expenses expense management. generally pleased

items. in correlation see remarks. piggyback mortgage in opening quarter, to mortgage which occupancy linked declining. to You’ll decreasing note a those our high-level with of or other $X.X Randy’s of last There just incentives the line from volumes rate items quarter, for I’ll announced with XX% and compensation were expect result due non-recurring in year. And that the primarily no really dropped we is a and to see $X.X office dropped closures Compensation we million our million to outliers comment decreasing end the

Alerus be First thank our you off, and team of I most whom to listening many to will are shareholders members, call. – to want say whom are this of

business. do all serving just our and You work our growing to continue clients amazing in

we and financial face results. industry deliver the we to and by revenue so to our and our financial driven headwinds, to believe continue execute will compared passion despite that of are team prove we members many purpose our clients, peers and institutions, we who all serve face. We full exceptional business like to above-average diversified institutions headwinds model, returns Although, deliver continue

over Officer. our to Taylor, So Chief with that, Karin turn I’ll Risk it

Karin Taylor

Thank morning, with you, our Katie, quick everyone. and I will good update a market. banking on begin

the the markets. in our vaccine lifting of business all of and up activity rollout With restrictions, picking is continued

the the is as exit typically remains decreases it the while PPP decision was virtually portfolio lines, to XX%. also runoff closer just first decreased home to serve round making while due consumer during mortgage activity utilization, forgiveness due in lobbies footprint, the following indirect are line. clients by up decrease expanding continuing progress low picked slightly as portfolio portfolios. to production, refinance quarter second historical line under paying PPP well The million business and XX% loans in our commercial We in our equity and to down that in consumer to C&I of our reopening which to utilization to compared and the $XX and across Loans outpaced digitally.

That applications almost of $XXX round million. XX, for we second includes had X,XXX $XXX XXX As April million. for applications processed PPP

March balances loan X.X% remained our some $XXX in deferral the of We deferral With balances. relief concentrated for deferrals, $XXX,XXX and as an during or initial to to in in Request PPP work and and our on of our deferral and of deferred the quarter, loan very residential period totaling in additional in of deferral, the about were forgiveness about with X% outstanding or has family $X.X limited XX, million respect in guaranteed of the deferred balances process, on million are one-to-four of type the payment were we X,XXX granted the applications approximately approved $XXX balances, $X.X portfolio. balances portfolio. clients continue over SPA on million. million period,

strong as basis property best We points normal recorded quarter. levels total XX reserve at migration estate provision or real was was net to are during level This commercial the Non-performing and to credit that of moved non-accrual the in loans result on loans. primarily Loans the the pandemic. loans a write-down downgraded adjustments balances. to remained during of quarter. was the continues due low No during manageable The decrease metrics of onset uncertainty. charge-offs basis Our portfolio. dressed the strong the to credit during the characterized be very of the at recorded points, XX PPP loan or metrics by to remained driven qualitative economic in due quarter prior remained a excluding $XXX,XXX the and to quarter

X.XX% the the Randy of of to unguaranteed was to quarter, end at the first ratio the As total increased to allowance the allowance non-performing loans XXX%. mentioned, loan and balances

continues would perform expected spring. had to Our better we last credit than it

comes remains about future the stimulus to of uncertainty as end. some all However, an performance

address position to us sheet, pandemic. credit diverse loan continue and closely continued very our believe strong balance of to footprint and portfolio portfolio monitor culture, economic well impact the the geographic the We

be We will of part through quarter the challenged continue the to expect borrowers. levels of the second on high loan given growth liquidity

increasing However, reporting our activity. are markets

second our been pipelines on can our year as open half to to be opportunities we to seeing and prepared questions. expect new comments, will more up it approach as This for are development. focused of continue more PPP business as that the have and concludes strengthen business We we redirected now efforts advisors the

Operator

question instructions] Davidson. [Operator you. first go Thank from Jeff comes D.A. Please ahead. Your Rulis from

Jeff Rulis

morning. Good

Katie Lorenson

Jeff. morning, Good

Jeff Rulis

the imagine out outlook but line got high a item the detail. on watermark the read and the On Katie, there. and I clear we on growth think you kind if of just But would mortgage about MSR the you here was retirement and pretty – and see you back how the lines? with benefits a expect what wealth as bit sequential of management? RPS benefit then and one-off. retirement in I the wealth as from the do management well do a the push heard I I and some pull, Thanks. the

Katie Lorenson

on Sure. to Run expectations. moving in forward, rates side strong management exceeded regards both again, the production our wealth

million for quarter. this excess we of at were production I year. think we the in $XXX were Last million of $XXX year,

side. same I’d I line guide results the consistent stability in the retirement on So expect to – see, would And on the to wealth markets, that assuming pretty item. for

Jeff Rulis

Okay. just when wanted the about side. expectations Is And through and can Great. to And opportunistic but to pretty drop? I’m rate, it million expense kind expenses this sustainable you’ll talent about the You talked for see then that follow-on of sure for if I with look run hires be $XX a any continue comes. some year?

Katie Lorenson

on I think in dropping side today, Based to incentive consistent exception, also, this originations. that course, again, be guide I the line of of would the where item mortgage comp of we’ll with on the pretty

Jeff Rulis

you. Got

the But liquidity you’ve maybe and I last I one – to the funding on standpoint. touch down base? a more big the on times imagine just picture, in deposits got just what terms anything really, that’s from picture. Maybe big and also, so liquidity, noticed synergistic are still kind a a in Okay, of focus. seeing I of quarter, your you of ton mean, rare

Katie Lorenson

in good in being mostly, It’s deposits particular of in the that deposit. was markets the decline flowed The driven volatility into times redeployed XXXX, during as synergistic a synergistic cash saw that in money of retirement question. the market some we

liquidity, so a continue nice to – really was it commercial be overall, we’ll the continue we’ll really side decline. on of some on do core Even we’ll wins work acquisition levels able that put driver deposits. to and to the we’ve that both eventually. basis, build know the mentioned, that I despite as And deposits, to And of had we of funding

Jeff Rulis

Thanks, Katie. step back. I’ll

Operator

you. Thank

Piper Your from next Please go Sandler. question from Nate ahead. Race is

Nate Race

Hi, everyone. Good morning.

Katie Lorenson

Nate. Good morning. Good morning,

Nate Race

talking were you the Katie, discussion about on around outlook. that margin

X.XX for not in securities guys into you flat the along maybe timing context. expectations but in year, of you alluded quarters the get lately, the next think with doing over the be pickup two. single-digit in that expecting I’m within have curious trending additional that that guys I’d your Does loan and to, some liquidity I XQ growth. excess the you contemplate half few market this kind of in ex-PPP, redeployment pickup of the kind here kind just – book of range are been any sure low or back if growth color in range of to a

Katie Lorenson

Yes, yes.

quarter change. we’ve we guided So I just to from I seen think a the when X.XX last haven’t margin outlook, think much and

of how is replenish cash much guidance my so And some itself. to build move continue liquidity out, until the matter because we portfolio, no we see this investment the to just seems

we thought be so bottom, modestly the be I to we maybe starts probably I uptick challenged anticipated at going XQ. saw is fourth And and little in think we’ll to think than NIM in continue XQ, third utilization. point, growth maybe in this quarter. the to In QX, loan which in to regards second the now growth, But was line later mid-single-digit that come think quarter. We

Nate Race

just bit, credit outlook. of cost gears changing little thinking Okay. maybe a Great. kind the And about

outlook think end stand of of metrics any guys fairly quarter, in on tracking asset few quality deferral as to terms continue of I the you quarters? reserve at And just benign, over your remains ex-PPP where maybe of the the kind based loans, a see the of the percentage particularly improve. to next where All sense

Karin Taylor

Karin. Yes. This is

credit by year this driven provisioning to is growth be and/or loan deterioration. Our going

And the loss as we see what end, we’ll economic still comes our to know, adjustments is at deterioration accrued some don’t qualitative much looks, of factors. an model. see we that So happens stimulus are reserve on if this as performance for you of point, the how to due and

continued to I more sustained stimulus to and performance little we’d the that improvement of economic would and as reserves. see a we before so, release portfolio start want And think

Nate Race

Okay.

for perhaps kind term, step over the that, a you, So I of I appreciate a Thank Karin. stable appreciate had color. That’s outlook the near will back. I all I everyone. now.

Katie Lorenson

Nate. Thanks,

Operator

William next Thank instructions] mean, question your comes Wallace [Operator James. from I Raymond you. Please at go next – questioner ahead. Your

William Wallace

I’d about just understanding guidance loan weakness that an think that us in – NIM, liquidity morning, end. circle doesn’t Do ex-PPP? continued see to Thank potential your kind to there? just think drive growth does help what Or portfolio declines all. seem the you back you. from on kind means basis. like so Maybe Good pipeline of NII and pricing declines we continued dollar pressures of the

Katie Lorenson

I think to without going here. hold loan it’s be some ex-PPP tough to growth substantial

the So saw in I net think on first that decreases some we side. quarter will we income interest probably ex-PPP in much characterized like see the

William Wallace

fee what, the And Great. I growth or wealth talking business, expectations saying my continued line were current you stabilization Okay. about I when were did for or sounds Katie, you if was levels, on say growth. and income know you don’t retirements it apologize, like at cell-phone your but

Katie Lorenson

Well, I apologize.

would Based stable you of So items QX follow-up for we what see from on say today, level line be thank question. the those I will revenue. the

William Wallace

Okay. And or you, those for within either businesses? those if same there then don’t within two fee is are the businesses, seeing this I’m just – you I Randy, additional acquisitions Katie, know, are – but of along potential for opportunities curious, lines,

Katie Lorenson

I’ll we take that one. Yes, are.

We in continue explore be and we our continue too. to proactive to opportunities, outreach

to outreach out some us, more and come some seeing relationships of potential also with but of proactive pipeline establishing we’re So we’re continuing build to kind there. that opportunities partners

William Wallace

Okay. Great. I’ll stop you. there. Thank

Katie Lorenson

Thanks.

Operator

you. Thank

a is follow-up question Please from question next go Race. ahead. Your Nate

Nate Race

Thank I apologize. My follow-up you. question is answered.

Katie Lorenson

problem. Nate. Thanks, No

Operator

I’ll to now That concludes back Mr. session. our hand question-and-answer

Newman for remarks. closing

Randy Newman

will our financial pace. and and performance. our quarter company up catch asking our morning. Thank listening who industry and impact this also questions. first Okay. Thank Thanks this that is the continued you. at joined future XXXX know record-setting, performance facing call We the you to for everyone headwinds and large was

creates have shareholders growing on a is model. strong diversification years, and building of diversification. We why This we geographies a value believe long for across diversified diversification industries. business many revenue this have and long-term streams, of history our diversification diversification of market includes focused so For and

industry the shareholder facing long-term economic will for to Although, test model we deliver continue is still value. uncertainty, our our believe of time stands business and

talented very a on have engaging success with We growth, focused clients team is who leadership our employees. and all

to to attract do right growing acquisitions. We continue importantly, thing talent, right the retain in the organically operate. culture and Do our interest through we and are and best execute both top cornerstones to Most we way. continue it company strategic your our we and always and on how

proud quarter, you for the team company. our support continued call. our thank We your first interest you and are thank of accomplished very joining we Again, in today’s what and in for

Operator

Ladies that call concludes Thank gentlemen, and today. for conference our you participating.

may You your disconnect line.