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Alerus Financial (ALRS)

Participants
Randy Newman Chairman, President and CEO
Ryan Goldberg Chief Revenue Officer
Katie Lorenson Chief Financial Officer
Karin Taylor Chief Risk Officer
Nathan Race Piper Sandler
Jeff Rulis D.A. Davidson
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 and the company's actual results may differ materially from those indicated in any forward-looking statements. SEC cause the to in forward-looking release the could those materially the that and in indicated statements company's factors actual differ results from earnings Important filings. are listed turn I would Corporation President, CEO, and conference to Newman. Alerus Chairman, the Randy now Financial over to like Please ahead. go

Randy Newman

we is CFO, and joined announced, you. Taylor, by recently Thank who our morning, and Katie today. and call Chief welcome and our Good Officer; Lorenson, Karin current our Today, as everyone Risk president future to joining I our am CEO.

retain XXXX, ability plan. of Board: In the to three the to strategic also announcing to our Schurtz, new is talent the professional addition Zimmer. our entry-level and of Estep, Janet to leadership key grow from transition to addition the Mary differentiator our Katie execute in in ability and we boardroom corporate and a Jill to directors Alerus' announced attract

was quarter third another results. impressive financial The of quarter

RPS. book the another XXHourFlex the a Tangible intangibles recognized showed as strong improvement quarter. and the $XX.X quarter, million earning with acquisition net Our diversified common Paycheck loans December year and net retirement, generated management, over We negative was expected for business through ago, performance on XX%. return with Program with XXXX income excluding equity of assets total while the model the drive mortgage recovery PPP growing wealth of tangible of average interest over quality continues financial quarter a businesses, loan includes driving incremental third grew than momentum XX.X% year-over-year. we growth, our in continued to in Protection X% Denver-based which revenue better Credit provision ended value a or from

employees produce exceptional we quarter, to remarkable their and to converted all levels performance. us ongoing growth. clients our hard I and pleased greatly appreciate strong the current are serving am shareholders. see help their of engagement retention the and so We XXHourFlex ability of for Alerus, of to dedication our to and client continued our proud During returns we and work, client for clients historical company's

to the situation created Alerus XXth the and Forks, I both proud famous flood devastating for peers community Grand crisis am passion state satisfaction. that and a well separate that well our North talents from define well I professional company financial of outperformance client on company. performance the we of will and is and anniversary that while a in strong Alerus a enormous of we the and of XXXX performs immensely for what pride that Dakota this fire for is non-financial use and and I I April us into our with is competitors blessed do the Next focus the drive continued success achievements have company and line of how future. the exceptionally am I that when believe purpose-driven Alerus, in our

a to leadership company. during C of record public several we leaders with suite includes I – top significantly past Katie the interfered years. in transition product the I'd a has council, the over market the In with Before addition became Board it years, occurred staff and executives. just This pandemic earnings created past Alerus our not XXXX, our like say our company Alerus Karin, leadership our XX which over turn to and to several seamless our successfully and that and improved

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Katie Lorenson

leading and within exceptional the results Randy spend on today quarter years a this today. your I another many, will we of just momentum touching and of that for have excellent of couple continued many minutes you building thank company. Alerus highlights the you, thank of Well,

spotlight the our revenue-generating team First, efforts of members. I'll incredible

growth, all with of balances flow. clients of base product experience business offerings. to to into have I SBA believe our clients. ending across be bring the team, to to differentiate loan and team our strong guides numbers business organization. company. continue We've and With integrated we the solid continue Our first the advisors help turned quarter addition value financial for so have The a year. remains our up pipeline product we to and and believe Alerus the our impressive has and this and commercial and we well a and The time continues a of good up will offering couple significant welcomed the expertise so this we corner on team put quickly opportunity already closed deals this pipelines

a another of expansion quarter sales product and business management Consumer prove and upsell Within to quarter has our kept account synergistic provided quarter, and not digital business for strong our client segment, only seamless treasury management for members, opening, Our simplified at efficiency the revenue management last for opportunities a our pace exceptional with and We both model growing which delivered clients. but business continues team with in our wealth retirement lift new a wealth strong. level. out out big process our rolled had has remaining

clients. serving great over unit had consumer another Our quarter X,XXX mortgage

the to averaging approximately quarter. our business to volume historical in of purchase with XX% production the Our evolve mix continues back

drop this an the heightened. As a the fourth expected, in saw $X.X the value unwind in million. the of headwind quarter we liquidity to on with hedge and of unwinding of the Briefly revenue XX% see more did volume quarter, continued of hedge a the margin, We $X.X about of about the we stimulus-driven additional seasonal estimate same million. remaining

continue and We this months could to cost further seen to into and inflow these first shift on management. Last, some which at we've consistently deposit an a increase in quarter, billion balances significant have deposit to growth. with solid pre-COVID nine see loan did income quarter but big expect We've as from least, we we to this controlling another lead of increase here be Once built not loan this in see a we dollar XX% – the standpoint, trend expenses. we on ending investment interest would $X.X held and balances. delivered from ex of pressure expense XXXX expect to portfolio October some for net improve an put as the incredible in and Our clients continues – managed continue growth. of From our XXXX, we PPP QX billion intra-quarter, execution stabilize investments expect expense be term the longer funds, outflow we margin. to expect we balance

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

on of this, it employer I'll some an of brief to scores over allowance. while remarks. credits That’s for All and the distinguish continue wrap turn for Alerus comments recognitions my choice. as and the Karin employee to satisfaction

Karin Taylor

morning, Thank you, and Katie, good everyone.

wind the to continued down programs COVID-related Our lending quarter. during

our As or PPP the on of on residential $X.X loan approximately had million million, XX, books. deferral we estate on eight balances $XXX of remain real loans, of $XX forgiveness just loans. first total of million October Remaining primarily received comprised round loans XX%

Asset is of points quality for last basis the have excluding $X net continued all quarter. in resulted average in PPP to assets recorded XX remained the $XXX,XXX loans. strong out This Non-performing quarter during were quarter. of assets total quarter. recoveries We the the our combined million That metrics of reserve the release strong recovery. and we during with recorded an of conditions five improving a in economic which markets credit fourth

ratio allowance-to-total questions. loans of excluding we up PPP allowance was now to was the That it non-performing open and X/XX, the As will XXX%. the prepared of concludes loans; the ratio loans X.XX%, comments and our of for

Operator

from go Piper [Operator come first instructions] question Please The Sandler. Nathan of will ahead. Race

Nathan Race

Yes. Hi everyone. Good morning.

Katie Lorenson

morning, Nate. Good

Karin Taylor

Good morning.

Nathan Race

suppose the guys of your expectations, argue guys, industry strategy. a gathering on start others of just lot like the flows over positive of I more Maybe what quarters. most had overall doing some several could Alerus’ just growth in of is But off last to balance function you kind are what deposit that the sheet You so across I a

of just quarter kind outflows out year of low and single-digit asset just kind kind well? the next growing balance sheet earning to growth kind curious here. fourth from overall as overall look to any in expect as about you kind assume of loans, Do and So we how should as well, we deposit that base or of think the we should the of into of

Katie Lorenson

that Nate. Good assumption a regard. in believe is sound that I question,

do we will base what declines will on synergistic We are anticipating replace continued we the this not deposit deposits. side out, at with and flow management the believe treasury significant point in and growth in

Nathan Race

volumes helpful. – on mortgage the quarter. on then, your kind we I the of margin. third thoughts decline And potential gain about also Very Great. compression or in expected for sale think the appreciate should How

the slide in the mortgage far banking kind as thus near-term? How pressure of of held indicated think we about I accelerate relatively deck. it line fourth on up Are be revenue the well that seeing quarter? that thinking you component should

Katie Lorenson

We X.XX we do well margins have expect held somewhere would but – and from see expect very obviously, settle X. them those to compressed between to we in

Nathan Race

be management of And retirement last and expecting revenue increase what the kind fourth above quarter. are helpful. what as on guided line and quarter perhaps you – Very in XXXX, and one maybe Great. last Okay. of fees. How trajectory thinking were business continue the Perhaps just that benefits quarter. to on a may of the bit little well? into to, Wealth of the you we services those of particularly kind RB&S lines

Katie Lorenson

quarter, did have earnings some question, fees restatement we the accelerated in good disclosed a in the but we doc release. It's which

to and expect million the ended that for revenue, for this bit we would And basis. this that's $X pull runrates And similar numbers but little XXXX to – annual be a so, with up where quarter we an quarter. up I we'll the document XXXX, end of helped recurring revenue have about on the will for not the restatements fourth that quarter.

So a XXXX. for of us bit headwind that'll a into be

year As is revenue the where we at – consistent in with about levels, expect we the if fairly to look would assuming we land think historical market for XXXX.

Nathan Race

kind the some in think, Got around investments and And was cost costs or also perhaps automated of had saves intermediate around the terms Okay. perhaps a efficiency release And dollar improvements do term? integration. in it. Was I expenses mentioned some, generate one-time you the processing quarter near those to in investments well of there additional amount over what in that that quarter? significant as the in

Katie Lorenson

some technology relate our in help with Yes. with Those to some expenses to technical pulling investments. consultants –

XXXX. really to it's shift expenses just so, And XXXX the from in

Nathan Race

Great. now from and promotion. on congrats Thanks, Katie, again, Okay. will I back everyone. step the

Katie Lorenson

you. Thank

Operator

Jeff from Please ahead. is The go next question D.A. Davidson. Rulis of

Jeff Rulis

Thanks. Good morning.

Katie Lorenson

Yes.

Jeff Rulis

coming And growth the year? for the outlook The maybe question higher want you on – anything expectations the even to terms the – I quarter? – payoffs, just loan in of was are that seeing in

Katie Lorenson

have a of quarter, one did We of couple markets. significant million $XX in our this payoffs

the the to For upper would third pipelines the similar the quarter. to that next we with seeing momentum year. would growth look to of are fourth and mid building, growth, we But expect to return expect we quarter to loan single-digits

Jeff Rulis

missed Katie, Got may you. the I And, spread comment. have income

NII terms was management investment securities, of think did up that expectation? can of what you stay In say here? that Or you

Katie Lorenson

Yes. quarterly expect continue, and will NII PPP a continue do on that without to grow We will annual basis. we

Jeff Rulis

Got it.

just plan, where discussions and there strategically? you being it's even last in M&A anything one, the opportunistic capital landscape And and And the on bit interested last transaction. about Okay. thoughts that's been maybe on stand on just a out other those since

Katie Lorenson

those on the we then are that sources we stage we've Yes, wherever in having as business and units, really we really touched establishing well to to across building before. various through geographies. upon and that focus makes the of relationships we across where conversations it sense are today But Yes. like at as pipelines regards continue

Jeff Rulis

best Randy, all it. Got the retirement. in

a been leadership. Katie's great and looking forward ambassador You've certainly to

So, thank you.

Katie Lorenson

Thank you, Jeff.

Randy Newman

Thanks, Jeff.

Operator

The comes William next Please Wallace question ahead. of go Raymond from James.

William Wallace

of Yes. transitory. like some you maybe quarter. pulled in suggesting lot I sounds am kind the relative do I what you expense into of could We've base were if help expense hearing so you the that be year? you commentary was inflations expense expenses wage next your anticipate base, think runrate might circle commentary. pressures a you being might to back think been the and about some you've on hoping maybe just where pulled to the And about kind on going then, It not Hi. on expense curious the forward that forward? us inflation

Katie Lorenson

the – question. expect big is year we industry Obviously, about saying pull mortgage our XX%. We trend volume, a apply the expense would It's going – if next about and purchase do of with year. down down to you is runrate that business to the a industry with what volume, good piece Right. next refi what's our variable happen which

do better industry. much So than But we will our believe impacts we side. certainly the actually expense that

we believe so, current mortgages the we And bottom-line our to compensation the trend related recruiting But invest down. as as continue that hit as the talent, new to that won't expect do business. to revenue-producing talent we in well of in side

million on within or mortgage from million side an outlook is take from an average, couple on our what with today items. or on expense give depending so, And - $XX expense either probably the so happens side runrate a and unforeseen

William Wallace

So compensation will that that not variable is – but million declining, runrate contemplates XX%. $XX mortgage to be your related it's that by

Katie Lorenson

Right.

William Wallace

what pressures? suggesting I investments or I Were business you the on think and what the any mortgage SBA side. misheard for and play the offset sample income And Okay. in then, talking you are fee misunderstood platform cetera you seeing that think then, you're about et like will in

Katie Lorenson

be don't industry. the better What unwinding, the in to say I we hedge mortgage we And regards which is deal this about headwind business anticipate wealth. the would our continued we we that that, do in not next and will That that mortgage year-to-date in year $X having probably have think million will year is growth an expect we believe with than we headwind it'll to something in be mortgage.

to I be year. look will net And where able to revenue, stay close we so, at as believe this were pretty that we just we

William Wallace

kind that, worry keep feel we would think liquidity be? or whether think Can pressures – not pressures And flat you and talk to loan portfolio Okay. be NIM would on a were core you a got the on do pricing? have of Do net on from side trajectory about still NIM, pressure pricing? seeing understanding the or what interest reported to obviously then, like liquidity not worrying margin, loan what Or not will you've in you continuing stability pricing just about you if you improving that NIM. you're you pressure? just think pressuring that the is And

Katie Lorenson

No.

think… I

Karin Taylor

Katie.

Katie Lorenson

some Karin. We've stability. ahead, go Oh, got

Karin Taylor

over just that, it we Yes, fairly quarter. But continue the certainly stable has see say pressure pricing. been going I was to to on

William Wallace

Okay.

appreciate enjoy exciting Randy, all sentiment. I you That's your the echo with working I'll you're and and, able your free time. had. I other Okay. it's Katie, to time hope all really I

Katie Lorenson

Thanks, Wallace.

Randy Newman

Thanks, Wallace.

Operator

I closing turn this over like session. now concludes any conference question-and-answer Newman remarks. to our to would back And for the Randy

Randy Newman

Right, you thank to listening for our this everyone call you and joining questions. morning. also for asking Thank

Our performance through the position first to nine future for months success. us well continues

outperform base grow client significant and model to business and opportunities peers. create diversified Our to our continues

a are retain purpose-driven professionals. which to attract We our our organization, differentiates ability talented and

sales driving and level communities our business made our training our culture, high it’s all have remain team We of investments led within We across and a technology, engagement to focused clients. which new lines. has product in significant and production our on and

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

Operator

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

You now great day. lines. your Have may disconnect a