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Alerus Financial (ALRS)

Participants
Randy Newman Chairman, President and CEO
Ryan Goldberg Chief Revenue Officer
Katie Lorenson CFO
Karin Taylor Chief Risk Officer
Jeff Rulis DA Davidson
Nathan Race Piper Sandler
Call transcript
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Operator

Good morning, and welcome to the Alerus Financial Corporation Earnings Conference Call. [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 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 forward-looking statements are listed in the earnings release and the company's SEC filings. to President conference and like Financial to now Chairman, Corporation CEO, would turn over the Alerus I Randy Newman. ahead. go Please

Randy Newman

and Thank through proud members they on and to even thank and and another quarter to how to morning, proud holistic financial taking our unparalleled report call serving Good results incredible our very time service. listen join focus of you I'm continue today. more advice to of the clients or you. for everyone, our team

Our and diversified attracting on in become built of decades of us apart also execution set advantage business model returns. talent. attributes continues in total key have competitive to both These company performance our a shareholder

the commercial to our clients led Chief are The our made our client Alerus team, in country base. on we value Officer, With of During by we technology, our joining of over significant of base who set and training product clients million apart base we employee will and believe, to business new in well X.X continue more focused in help force and investments business clients. the quarter, sales the both consumer have added in relationships as clients. our call with the will Ryan one talented strong growth us we on and bringing than expanding is believe organic us Revenue today. Goldberg, in XX,XXX as Strategically, this laser this of we experience our differentiate the clients we bring expertise to the teams best and SBA

historical utilization, products Low have been see continue our building During liquidity pipelines headwind. continued sustained and of than the levels momentum all line were and strong we quarter, prepayments extraordinary to second levels a production in PPP. higher and on

management, improvement organization. In to growth, efficiencies expense and are on our concentrating driving we process addition also in

the how reinventing who with automation throughout areas members robotics, talented ways we of of and grow all the finding These intelligence. a so product efforts to allows scale we our processes acquisitions. are as better organically are team continue artificial that through impressed with and effectively, of and us manual our just lines, profitability important, do soon, both We will to business company, business replace provide client improve as experience to units

Speaking to business synergies a opportunity an integration a The player to competitive to from standpoint. very line client in are in acquisitions, Colorado in remarkable our extract right transaction continues model be us space. can and affords employee well our Results a our with very and are go modeling. we M&A

with pipeline partners continue a opportunities of income build In sale shareholder great exit. outreach We as strong and companies, fee returns. currently potential acquisition banking looking to on well as side, proactive another or quarter the are summary, our and for exploring on which to

strong Our business Officer, capital for of Alerus turn allowance it now to Revenue model, our strategies robust continued and Ryan success. and foundation will have our Chief Goldberg. over I our positioned levels

Ryan Goldberg

much, very Randy. you Thank

the first the our future build each the are who with as seeking how which environment. interest on advisors business for on understanding value-added such participants, clients be to retirement consumer offering client the increases rate during having can proactive remained management services Wealth attributed this rollovers sales and then and assist individualized interactions, to continue owners, can creating for liquidity revenue attractive additional returns are in events more discussions to quarter remaining low successes and building The quarter. basis. of financial businesses, XXXK on focused plan and Second realized on financial better appropriate in team client, a business focused solutions an recommending Alerus most

new of and expanding in making solutions. have and retirement that the we our the the with administrative services, of our been health progress are pleased acquisition in fiduciary, from we the obtaining areas welfare clients are and Alerus at plans group, services very Looking with

Looking internal been new utilization to by line have at loan but lending performance, sheet larger can our our that expectations, reductions, liquidity be and line currently. consumer expected has muted and benefit balance lower the than in to and excess of which balance originations access business are credit the prepayments attributed with borrowers

building, expertise base. volume integrated where the that borrowers and in the there joined is in loan volume continues much We're a consider we not recently points is trend the Second their positive saw SBA to us. entry pipeline these quarter previous be of what the has direction. of lending being a the already is loan is to to out exceptional pleased company with opportunity process, with loan the multiple new identifying attributed They the very with during into well awareness closed. second for quarter. quarter team expanding SBA necessarily of have and client Alerus was is favorable. being an and client options stronger it impact SBA first sentiment can PPP Coming The programs willingness opportunities SBA was of realized, into than our Alerus more

addition, to loans market. In segmentation have add plan serve. solutions COVID in make after application, to Through options in our we on mitigate lending adding strategies, and risk talent and relationships communities market. our provide segments our C&I advisors focus we continue CRE a and can producing expertise the us of in in aggressive components with more We individuals the that identification for our focus to approach allowing lending to of revenue businesses pandemic, of provides worst that this a of rebounding many the certain set plan

just Services Mortgage for point, recently within team, commentary. the Group, hires turn but have Wealth Retirement Segment this high to to the Katie seen We Management some going CFO, and additional I'm also call At our our SBA over Lorenson, beyond quality financial Group.

Katie Lorenson

on morning Good some Ryan. highlights this of spend you, I'll of just quarter hitting excellent minutes Thank another a morning, truly results. everyone. few

continue risk and pre-tax performance require to First our a which key Alerus's and capital foremost, peers credit no non-margin and earnings, in differentiator annuitize is our significantly results outperform less dependent have allocation. ratios by driven notably Alerus's pre-provision

As all-time than quarter the exceptional earnings the however, further business deliver to expected; our shareholders. and and remained liquidity continues PPP Alerus to forgiveness our at highs, returns diversified levels during model NIM accelerated contracted

weighed we and the quarter. the On decline start strong fee to have Alerus several execute mortgage division, by income in revenue side, I'll pull exceptional to origination, over had fair results guided sale quarters. with continues value margins gain which expected hedge, what is last the level, on the another the in which were of down The through,

to about only Historically, refi's make of side. to up our XX% business volume. our seeing the are return purchase XX% We origination

are highest a quarter purchase return second was The that Alerus our to application side. trends for ever volume and purchase of reflecting quarter

typical We returning quarter fourth third more to the a remain quarter and production expect volume strong, to but the levels volume down level. quarter trend second QX from

and acquisition. the retirement, of benefits earnings On recently accretion strong our side, revenue it health welfare completed continues from be to with

run conditions expect for rest million year, the rate hold assuming that $XX.X in to around market settle We the steady. the of

year-over-year was on Our a XX% up wealth management revenue basis.

financial impressive production record advisors as mentioned, results and Ryan levels numerous have four business new years. these in invested over we by of the past driven were As

standpoint, but talent of quarter we controlling base. From grow our expenses. managed not continued an and expense expense execution another in and pleased cost massive our management. consumer solutions expand to of least, our continues, adding success delivered are in with Last We client solid

extract processes, robust in clients We technology and to client closures our our facility efficiencies continue and investments. growing base and operations while engaging our

will and turn recognitions Karin satisfaction of employee scores of Risk as continue while our over All it this to employer an distinguish that, Alerus With Taylor, I Chief to Officer. choice.

Karin Taylor

you, Katie, and Thank everyone. good morning

marked moving second in our The new progress quarter normal. toward

of employees flexible to environment work allowing our many a adopted our long-term. from have to We work approach home

more our employees return office in implemented widely Alerus the spring, became will who vaccines an from our those we office. offices As work reopening and available plan, to phased returning

We expect phases the all September. in plan to be complete of

date. balances. July our deferrals of of Comprised remained under portfolio. loans payment loans. of $XX family million or PPP first-round million lien just $XXX entirely in guaranteed These forgiven outstanding are loans through that million of had in Remaining As $XXX one-to-X XX, million and the almost totaled on $XXX X.X% and million been second-round first in $X books.

remain loan. estate loans increased during non-accrual, second the the two to strong commercial during assets one quarter moving due metrics to real quarter. and quality Nonperforming one Asset commercial loan

uncertainty. impact real would excluding quarter the estate quarter. economic the securing the due reserve to collateral we the owned of addition, increased loan this characterize pandemic. in driven net balances the at recovery $X,XXX was the recorded strong due loans took the In loan to was the The be credit We I to migration and adjustments end decrease was allowance and of ratio of possession to in quarter of specifically loans during recorded by total loan. balances. provision to for metrics the of No XXX%. nonperforming as long-term continues attributable to normal the of workout portfolio, the qualitative a not level a allowance as X.XX% PPP The a

due high levels of As Ryan noted, to headwinds continue be to utilization line growth. to low and prepayments liquidity, loan

discussion comments XX, XX% Randy June prepared with on high We'll compared XX, from XX% mid was in normally for our lines historical March seasonal of utilization range. our up XX% comments. open and As the rate follow. That C&I to utilization questions, closing concludes under on to to a it and

Operator

question first ahead. Jeff from DA comes go Rulis The of Please [Operator Instructions] Davidson.

Jeff Rulis

left the Question more and on size what's portfolio, growth on side, to I loan of how check wanted in the - of of the a Indirect couple things, run-off? much that kind to wanted

Karin Taylor

$XX million is that. $X about This We've quarter million been on run-off million Karin. portfolio Jeff. Sure, seeing $X to left that we've got about in a and

Jeff Rulis

guess indirect maybe on SBA and if net got see the in a absent you just the portfolio, a check we Karin just to of balance growth talked on about of inflection, had just kind the team team, the Ryan, continue sort of thinking what and to look like the want that there PPP? you I about point SBA, year, could inflection modest or some And drag

Karin Taylor

you do take Ryan, want to that?

Ryan Goldberg

Jeff. you, Thank Sure.

have start you forward we what I we our a, off with at So would is, I a to team. start we tell as SBA would go than are expectations expected. faster some They say, the

program. the attributed We're we about what They're Alerus years. our this seeing that we into for broad-based this next be is brought year like the look the of working the set quality to evaluation. close already They're of particular couple will for the the to of group have that this come think rest We're of a as that would and establish believe within into have move optimistic team I catalyst starting the business. hard opportunities loan really to foundation in. just

Jeff Rulis

balance net portfolio the to the tough at - you I know look of overall peg, given? growth kind is the that of And loans but you net activity half, so a - position terms in do in payoff second said of

Ryan Goldberg

on We achieve a options in levers terms of at do. in classes exactly in digits us the point the for time. will have We're where of asset the expectation variety of to growth of at items an growth, some out lending when that There's but is look single things different aggregate our low for pull line basis. to this all of you our each not play we sure

of to opportunistic. that's Some going be

in rest that, on going that to year Some for what initiatives our what is aspiring that's earlier based and at mentioned in the digits activities the but of the low and to that's single I that different this comments. expectation be it's environmentally-driven, we're point my is, of

Jeff Rulis

kind volumes where of net QX net I the versus - but QX, Thanks, just you've but volumes guide, I'm coming it's That's me to what you MSR sale indicated line, of on heard of of surprised, of a kind lost banking Ryan your the remind the - in, gain adjustments, a the increasing some maybe to bit. you've mortgage the guided pretty is number, comments a any I Katie, on your could into about remain I significant strong. and that. track back - kind know I quarters. pretty kind and previous wanted

Katie Lorenson

question. the Yes, Thanks, no problem. for Jeff

high the under to standpoint, XXXs. do upper for origination the probably in third million level of for around sale XXX probably and to watermark we'll unwind year. do an to hedge I This was from the but quarter, drop. margins of us think the gain So for $X a go the then rest have probably on $X expect we We

so, the consider in would And I also. that headwind

Jeff Rulis

just or quarter remaining? that Is per

Katie Lorenson

In total.

Jeff Rulis

Okay.

correctly. pretty So mean, reading and took to quite well. that's quarter going relative up minimize to I I'm that If may be, you this a significant that's or, the a - hold net you so figure bit can that,

Katie Lorenson

regards so, quarter, in think. in - around we'll headwinds, revenue with we'll the significant - continued we, headwind plus or the originations there, million see see. mortgage in to the but settle took this had Yes, that drop a in probably We revenue $X drop we obviously

Jeff Rulis

Okay.

Katie Lorenson

$X to $X million.

Operator

next Instructions] Nathan from Race of The go Piper Sandler. ahead. [Operator comes question Please

Nathan Race

going Maybe solid market get RB&S some line XQ. revenue contributed on imagine the saw your forward. that the to sequential second strength in hoping growth to we the outlook I for some quarter that color of in in the

growth curious within just kind back kind organic how So, RB&S versus market growth much kind that line was that outlook of you over out related and the in parse appreciation if the of ongoing of to growth of organic that just XXXX. of in half for the

Katie Lorenson

and rate today revenue basis, where on that the a look low probably market We digit. in on single Nate. around think go-forward is revenue then a we And to basis, grow question, today. there the what million settles in see good based run $XX.X Yes, we from

Nathan Race

thinking RB&S entities announcements the so along the saw updated on going done so of are last in - forward, thoughts going during kind have space, deals within believe to that relates acquisitions seeing And that lines to some hear and about future segment other guys it your other you we months and as love would forward I forth. I around some what few

Katie Lorenson

able our synergies we Yes, Katie. the very Alerus space. we to competitive elevated, the my this I'll I competition in and to that and be our acquisitions fee but extract, one. for income mentioned continues we're that we that opening is comments, M&A know the believe - in be with can take organization in

of players to intensify and of available to and attempting continue as the urgency capital - becomes team, with outreach competitive opportunities enter scale. we so, And or that from just our some our because are the continue space basis to a see widespread, company the to of nature efforts as competition as more around deploy reactive number that's the proactive build more awareness well

Nathan Race

it. Got Understood. makes It sense.

as the function Just some some I size and that and play deposit even the to on about overall continue inflows balance perhaps of growth know, the if quarter, so play imagine with mono if PPP balance and questions factors expectations days a just housekeeping I of sheet couple thinking those size just to macro you Alerus the liquidity just guys just we use sheet should forward, deposit in for expect as could, execute that these and you going continuing and synergy as growth, the process some you continued overall levels strategies forgiveness out clients come down. that's

Katie Lorenson

a balance that continuously that of surprised we're liquidity perspective, From I I maintains. level sheet think mean Right. the

funds, our have outflows, our some we $X are into did very which to We some a to we continue but deposit we portfolio, that quarter for more low are seeing billion public investment much. put From also money dollars. watermark up markets, the will balance side, move of as at a with we last retirement don't

- least at any outflow not believe we're this time. see liquidity I liquidity expecting don't So any at we'll

Nathan Race

one was if operating you back then other expense one the last of rate and lower the to overall quarter-over-quarter, half anything expense in thoughts apologize XXXX. about just touched guys just half, and already on this, And speak by of I there but just on run the line

Katie Lorenson

number that in both some that in I noise been Yes, think there's quarters.

from would rates million with of going million the that. think quarter. and we drop mortgage in from And potentially third of to I volume so the expense that's then forward to I origination fourth typical another declining, an expense an And $XXX,XXX quarter another expect more $XXX,XXX quarter the in a run In think down standpoint,

Operator

question-and-answer conference our turn for concludes like the This back to I Instructions] remarks. closing over session. would Newman to Randy [Operator

Randy Newman

everyone Thank you and for to our thanks Thank morning. listening for you and joining call this questions. asking

XXXX in was Our financial setting. performance record

first XXXX The this of second have quarters and pace. continued

success diversified Although industry because is of outperformed our for future headwinds, our remains which facing company, our the historically model. well-positioned has business peers,

to of team. client business and see our all new a momentum and engagement level for our expansion across products We in within pipelines continue high building

and by embraced and leadership best us in foundation our remain for clients and the retain steady interest value magnified We purpose our focused allowing long-term to serve have grow company. team strong our and constancy working to on This together and recruit top the is of that deliver a talent, we of is shareholders.

thank positively to listening you thank are We performance for year-to-date our in We call. And our with impact financial company. all potential. very pleased again, of shareholders team investment our daily work continued and clients for for to and support joining their thank our or today's who your members you and our interest

Operator

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

You may disconnect. now