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Alerus Financial (ALRS)

Participants
Katie Lorenson President & CEO
Alan Villalon CFO
Karin Taylor Chief Risk Officer
Jeff Rulis D.A. Davidson
Nathan Race Piper Sandler
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 pass I would Alerus Corporation and President, conference to Katie your Financial Lorenson. the CEO, now host, over to like go Please ahead.

Katie Lorenson

Thank for into morning, our call you good you, Thank today. and everyone. dialing

from three our for Joining diversified via continue deliver months I company higher proud services downs firm deliver to periods of very business Officer, uniquely annuitized and me strategy. returns the I'm our our through and background a economic and a today This returns is and mix. consistent Al's take we ourselves financial was joined Al of ago. also Karin to as us new Villalon, will experience others, Taylor, time just This what will mix who our through cycles. heights, highly we distinguish Alerus new as about as longer Chief Risk just apart through Alerus CFO, revenue introduce more to is one we strategy looking and sets ups

and on company's I of quarter, the ability reflect talent. am proud to exceptionally I As first attract retain our

special part unique strong bar and in of be model a our create are business talented positioned foundation just a another diversified be a additions, people professionals It value a and and want to has the with example shareholders. special Alerus who story grow with a to for raising We itself story it. tremendous Midwest, is continually to and and the of part of new future. our Al is are looking

low our housing thank construction volatile and of It I'll inventory successfully clients. take and Al, join historically to quarter five-person a the markets service of was Cities this to of talent a members quarter lending to we privilege listed out addition for Twin additional strong In organization. sales team, Alerus another to and our team opportunity seeking have great our also levels. commercial

excelled $XX.X million, driven by control. company. continued and where management, reported level our of the However, loan resource net I'm XX.X%, we of Alerus supported credit proud we pristine which have and a reserves quality. by of annualized ex-PPP, growth, a discipline and strong income remained expense high of throughout

Our mortgage historically purchase business, on XX% and origination realtor XX% our members team of are focused which relationships is to volume. their

We business also had model numerous our how examples of wins.

new our you numbers, down in on based in strong one can new clients. assets of we from proceeds sale AUM our being despite production a increase large market, long-term see and in As saw commercial our of

model outperformance focused advice will our bringing the is to I all to journey. along and the sets it drive hand what long-term our compared their us on financial value that, continue to details financial will to Our apart clients discuss off With peers. to quarter. what and It's Al of

Alan Villalon

investor Thanks, website. Katie. on my find on Page you can XX on I'll deck, the our commentary which start

reported For declined on basis. average linked-quarter points quarter basis the loans a first XXXX, XX of

loans production, was C&I core clients tapped growth we $XX.X quarter of year, had the outflow deposits the utilization several deposits their fourth related estate, PPP higher their a commercial quarter. as linked-quarter deposits quarter, but increase At XX% Within in in average saw to million seasonal on a pickup an end lines. loan core had X.X% to a consumer. XX% increased average during and in driven basis due increased on basis. Average of approximately uptick those outstanding. rates, from synergistic Excluding loans C&I, in in with in the we real declined utilization into first typical along seasonal existing saw the We deposits. the non-interest-bearing in prior in X.X% balances the growth PPP, in impact X.X% loans the growth X.X% of a X.X% of decline quarter. a first C&I, to by linked-quarter The

to recoveries had basis of the recoveries to the Page quarter. compared basis points points quarter, to in XX, XX very remain net of first in three Turning strong. credit We continues net prior

Our non-performing basis basis to XX assets prior the points points nine quarter. compared was in

Our allowance end is of loans. X.XX% period

As a institution. reminder, we are a non-CECL

of the in are We implement more CECL implementation closer to we date. preparing details on have to already get X January XXXX. as CECL We'll

On interest XX, on net Turning income some X.X% to a reported Page basis. declined metrics. key are here a revenue linked-quarter basis,

portfolio. a income declines of Excluding banking interest income revenues. impact basis interest due wealth detail on the retirement declined in later to net investment Non-interest XX.X% into those PPP, mortgage management due increased I'll from linked-quarter income to about slides. higher the go X.X%, mainly lower

net Page basis of from XX, to quarter, margin X.XX% decline was Turning first a point in interest quarter. the prior the one

interest portfolio. X.XX%. Excluding was margin the our along margin portfolio yields, higher impact from quarter. of an loan C&I from portfolio, lower prior from the yields net PPP, from with That's offset net yields a XX interest basis core benefited higher Core of our consumer investment points increase by

of this as or floating, the were rate investments on the that to higher accretive, Page loans investment During that you'll compared see maturing. slide. can XX, were rate was have $XXX of you XX% a right reinvestment our portfolio at are see the quarter, of we On million top investments as our new

On due strong. PPP saw On interest decline rising consumer of interest see both our net and our the impact our I’ll to the earlier. can net income $X.X yields talk Page the the on higher to a XX, remains rates. Offsetting minimal Despite retirement was business. increase to that in margin. costs about in was On mix Page funding a investment some due costs, balances decrease and increase interest A small the PPP waterfall deposit We interest expense discussed and margin. XX, our interest income deposit in negatively the left, funding a very impact, portfolios you impacted million core from of portfolios. net bottom higher

market declined outflows. to net due administration under volatility mainly Assets to partly and and management X.X%,

While declined to prior Revenues X.X% the AUM see versus participants lower did mainly the asset number due approximately declined, of XXX,XXX XXX,XXX loans. prior increased from that quarter. the we to in quarter,

XX, highlights due Despite Turning due quarter. of lower assets a at markets challenging administration lower We administration Revenues impacted quarter. assets due you in fees the the average approximately average end X.X% market due declined assets recognized quarter. to increase in was under the mainly the higher management to quarter, year-end roughly can Management million prior by saw volatility, to near an during see time Wealth and from custody assets and deal business. the of new under to to during the in the Page our brought that brought $XXX

from XX-year about Turning I'll higher interest rates recently the X%. the in Page originations to as talk refinancing The prior XX, eclipsed mortgage quarter lower purchase declined to due quarter, decline in driven activity. approximately the business. XX% mortgage and Mortgage activity by our was rate

Additionally, lack are the during of negatively main than saw volumes the in markets. we We low XXXX. still saw a similar period inventory our Despite housing housing our impacted XX% the quarter. inventory record current volumes that in higher time markets, our challenging

our to Page is expense. of overview an non-interest turning Lastly, XX

to due activities. quarter, X.X%, the mainly related During expense incentive to lower declined non-interest compensation revenue-related

more of to fees the to issue a believe M&A decrease the of lower in this expenses expenses. is a up quarter. marketing saw and expenses of year. We decreased the in lower course marketing Other expect due professional pick also timing a result We as through

Now, I'll forward-looking some provide guidance.

still For expecting digits. single growth are XXXX, mid we average be the in to loan high to

to low And expect digits business, we compared digits I'll be compared XXXX We single unforeseen for volatility low the to revenues We impacted down to lastly, revenue when the market where wealth has businesses. inventory trend our be retirement in expect headwinds variable recent mid-single our of now remain down open expect mortgage has and to us. XXXX. is to to our Also, lack up The biggest to when overall XXXX. caused strong. now Q&A. expenses outlook

Operator

now begin question-and-answer session [Operator We’ll the instructions].

of is D.A. with first Jeff Davidson. The the question line Rulis from

proceed. may You

Jeff Rulis

morning. Good Thanks.

a on sense a sustainability of but any talk you've I Just pretty I could sort the of side strength. Thanks. about start get big a a guess, the wanted geographic you year of kind rattled that. the loan to of detail, segment a the question growth to if breakout, of and for things, just through bit know

Alan Villalon

Thanks - particularly, broad-based consumer, Hey, and It's for loan seeing We're growth especially Twin especially markets Al. there would the all across the it's portfolios, question. much thus Jeff, C&I, it’s in the far markets, in pretty portfolio. our pretty we too. I and our say Cities very broad-based again, activity CRE. both good economic too across But some saw

Jeff Rulis

as pipeline got level entered the to draw pipelines, of you that? down you Maybe speak the just exited? I does on put as mean, growth, quarter of the sort that you’ve this And rebuild to and typically and you

Alan Villalon

our by big innovation good. recently It's I there sales the look pipelines, in a data on we're recently we're they're we for And just now, as right been thing coming what one looking I our The pipelines - us. very looked Yes. would implemented at We product, or a at highlight big force. seeing. and encouraged

Jeff Rulis

Okay.

good are as quarter QX? pipelines So, as were as they entering were entering you the

Alan Villalon

Yes.

Jeff Rulis

had quickly some were expectations? - you income of I outlook. those the I rattling Okay. on delivering you the mind audio Thanks. the - through had I apologize. just when And, call Do some right Al, fee each issues

Alan Villalon

didn't the some said we to commented on our on pickup hopefully That's talked because there was back market now we're about just mid-single and hoping Yes. call seasonal And given was that to the expect Actually, seeing right pick low we're we're revenues that right we because challenges our on, so, inventory I of inventory is overall expect we in that expect just there Jeff, low revenue. digits. retirement and overall in we And down be conditions now. thing impact seeing inventory some did to there'll what what winter but that that main foresee, wealth is biggest up. I we what - volatility And the then business low business, to I be that markets. mortgage is there a something

be when as was it to didn't expect the So, initial came outlook. to we it quarter our volatile as

Jeff Rulis

is a balances QX Okay, then it maybe announcement, kind much as update Metro growth or pretty And last one if is be in you at the standpoint, a those And Phoenix terms announcement I June? did could like timing, will kind deal a through great. they at expected, looking in checking or again, May bit just just that of of potential if on close? how of in could,

Alan Villalon

I mean, can - ahead, I Yep. comment Katie. go on briefly

Katie Lorenson

Sorry regards sheet growth. performance one. net to it and I'll in line income, terms that our as in with expectations, In Metro balance theirs of about both take well that. was as

close won't strong good have it we through but quarter. to their going in it's no process. second timing, first quarter, so, the reason are regulatory to And the start believe to we regards In that

And of so, in control out our regard. that

Jeff Rulis

Okay. Thanks. step back. I'll

Operator

with next comes Thank of the Nathan you. The Race Piper from question Sandler. line

proceed. may You

Nathan Race

everyone. Hi, in bit And case. management AUM year-over-year, it retirement morning. like I a were client benefit I drill little quarter the nice curious wealth levels. still about if more, Good think last had that that's thinking to wanted guys in the quarter, drove revenue flat a a sounds increase you Yes. services win we nice

And in does hedge so, last pieces single-digit of that quarter. kind coming overall of to kind I'm And the decline kind contemplate get to trying mortgage you - gains to guys I'm through of single-digit also this year? to had the sorry, low together mid that just fees it put high

Alan Villalon

want to I Hey, down make low not we high, mid-single-digits, that guided to so Yep. just correctly. you just to sure, got sure to make mid actually Nate,

So, it's low to mid.

Nathan Race

Yes, got it.

Alan Villalon

And some the have we we biggest quarter, then, business thing annual our right retirement fourth in about fees that so so when now, impacted. the that not are did in think yes, nature

decline. So, also, our markets And asset impacted the had in level. volatility that's a which the we

little - right we're a bit of headwind So, that's now. to be going facing just

outlook revenues markets little So, they the on that where say for to can as now, a given now. business, we bit our as there right are we're might challenge, right be keep fine retirement I'd trying but

Nathan Race

mortgage expectations volume of the kind of think in year? And we'll rate pick run expenses, deals we overall in course QX to light But thoughts mortgage kind up. rate I just about just terms kind this great. excluding see just directionally increase similarly run how of should of quarter, the just that Okay, Arizona? over this through the imagine an in in your QX, any on of volumes

Alan Villalon

Yep.

So - right.

mortgage the expecting rest business the of for a a given So, comes when had bit to actually XQ it low now, quarter the year. of that pick we challenging the up inventory. right to in little and We're

of higher terms more revenues there'll we also, because So, be we there leverage but of production coming in that pick as do expenses have up some in we do we through, now. have computation little had to can - us we’re negative off segment, that a for manage to drop looked you trying we right did revenue the we at the impact saw from that environment And best a decline. in XQ. bit

Nathan Race

it. Got

Okay, robust great. expecting reserve. the It And like you reserve of outlook high then days. maybe very kind mid to for just sounds still you guys I guys to going loan growth turning a mean, operating these are with are level single-digit forward. the

forward. So, in of access grow Is provide still? just for going reserves into terms the that to of exist just kind plan the curious need to that any growth unallocated

Alan Villalon

… always I'm

Katie Lorenson

And loan we reserve this similar Good thanks, to morning, Nate. that previous large expect portion This growth. our of is by Good will Nate. point morning, Yes, quarters is at increases - factors. driven will have a be some watch to there. But year. continue qualitative to in provisioning reserved of environment later how we see growth, need we due as we the to we the terms be Obviously, Al. could in loan

Nathan Race

And that still but recently, contemplate low increases pre-pandemic that growth nice line does outlook, utilization? seen Understood. we've in increases additional does levels. loan

continuing much trying outsider of opportunity utilization terms of just in to understand growth exists with loan to So, potential increase? how the line

Karin Taylor

Do Al? you take to want me that,

Alan Villalon

ahead, Yes. Go Karin.

Karin Taylor

looking Okay. I rate our where $XX balances our in $XX million has I there's utilization been think, pre-pandemic, at range. historically Yes, upside to million would Nate, and the say available

Nathan Race

just on Okay. Maybe last capital. one one

decline you little are in AOCI last levels, your with few still of in stock buyback with You bit guys the swing operating but guys had peers quarter, capital a the most like ample over a of the TC months.

So, as in just just in get presently, an terms buyback kind what and you’re well just JV. of as to curious update of seeing the acquisition of terms appetite options,

Katie Lorenson

you. Thank

on do of And as sheet growth, it the So, course, comments place, the on to income key side. is on in plan income quarter our as loan in my Metro is growth, have our pipeline, well balance as building building sources to we close the is those regards our We from priority it would reiterate continues I suspended, fee but repurchase deals. as share - until deal. our focus prior well be for our

Nathan Race

Okay, in great. place, guys or there real then apologize, expect of guys non-solicits hit one the to Twin commercial the now could ground that I board? Cities. Are team And I running more those non-competes just you on any ask you added estate or kind they're in if the on that do

Karin Taylor

or degree the Yes, Nate, high this and is Karin again. a There are seeing we're activity from team. no non-solicits, of non-competes already

their So, we XXXX. of be expect rest that they'll the building pipeline through

Nathan Race

I on and color the Thanks. great it. the Congrats questions. you appreciate guys quarter. all a Got taking

Operator

like [Operator concludes would you. Lorenson remarks. closing back I instructions]. This to Katie Thank the any turn question-and-answer for our session. over to conference

Katie Lorenson

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

headwinds. facing is industry Our

for our future business model. well and Our company of has has company, but because some success outperformed, positioned own, remain historically again, our we this of

and new team engagement We in markets expansion, our our high see momentum of brand. building and our within and as as continue client level our a within business well pipelines our to and

our investment interest clients, you and thank great your shareholders. day. a members day, of of recruit is and deliver and is for We consistency company. serve our Have embraced and the all and and doing in we thank long-term to team by on in together We work have to value great allowing team, continued that best magnified interest grow. focused for for our our We leadership top foundation to retain shareholders our our and The support working every remain their everyone. strong steady talent, us purpose of

Operator

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

disconnect. may You now