Good morning, afternoon, evening, and welcome to the Alerus Financial Corporation Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there'll 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 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 President and CEO, Katie Lorenson. Please go ahead. Thank you. Thank you, Harry, and thank you to everyone joining our call today. We appreciate your interest and your investment in Alerus. Joining me today is Alerus's CFO, Al Villalon, who will discuss our financial performance and results for the quarter. Also on the call is Karin Taylor, our Chief Risk Management Officer, and Jim Collins, our Chief Banking and Revenue Officer. This morning, I will provide some commentary on an excellent quarter of execution in key areas of the company. We've been working with incredible urgency over the past two years to strategically transform the Commercial Wealth Bank. We began with assembling a new executive leadership team, in addition to putting the right people in the right seats across the company. Over the course of the past 18 months, we have completed 5 restructurings and added over 120 new team members of the company, while managing to reduce overall headcounts to nearly 10%. The resulting transformation of our Commercial Wealth Bank is evident with exceptional deposit growth, supporting high-quality loan growth during the quarter. In addition, the well-executed balance sheet repositioning in December provided additional flexibility and continued momentum to improve financial performance heading into 2024 and beyond. We believe this quarter marks a notable milestone in turning the corner on our return to top-tier financial performance with improving PPNR. The ongoing execution of our One Alerus strategy resulted in continued key talent wins, including adding four commercial bankers in Arizona, as well as success in taking market share of well-established commercial businesses in the form of full banking relationships with lending and treasury management throughout all of our footprints. In addition, we decreased leverage on the balance sheet and paid down FHLB advances, our highest cost source of funding, as we have yet to tap into any brokered CDs or brokered funds markets. We finished the year with a loan-to-deposit ratio ticking down to 89%. The culmination of the efforts of our team members and our board's strategic prioritization of bringing long-term value to our shareholders, our clients and communities, led to net interest margin expansion in the quarter. Net interest margin expansion is another milestone and a critical turning point in our return to top-tier performance. Our uniquely diversified revenue mix is a differentiator in the industry, with a robust contribution of 54% of total revenue. During the quarter, we restructured and integrated the standalone mortgage division into our private wealth banking franchise, and we are already seeing the benefits of the synergies of these teams and back rooms working together to serve clients throughout the Twin Cities, Arizona and North Dakota. Outside of the mortgage business, the majority of our diversified revenue mix, or approximately 90% of our fee income, is highly annuitized, recurring and non-cyclical revenue, with minimal capital allocation or balance sheet risk. Alerus's top 25 ranked national retirement services business delivers most of the fee income. The business ended the year with record level of sales and new revenue, and the retirement business remains highly valuable, and we are committed to extracting this embedded value by achieving net revenue growth in our scaled and highly profitable product lines in this business. The synergies between the Commercial Wealth Bank and the retirement remain as a source of deposits as well as wealth management assets. In the fourth quarter, we commenced a nationwide search for a Chief Retirement Services Officer, and we are incredibly proud of the caliber of deeply experienced professionals we are attracting to this organization. Shifting over to the next highest contributor to our 54% of fee income is our wealth management business. Again, most of our wealth management business is full relationship, advice-based business. Less than 10% of our business is transaction or brokerage. The milestone I would highlight for wealth management this quarter is another great One Alerus success, this one in our Arizona market, in partnerships between the commercial teams and the wealth advisors in capturing business owner liquidity opportunities. Moving over to provision expense in the quarter was driven by loan growth, as credit quality remains strong, with low levels of past dues and non-performing loans. Alerus experienced another quarter of net recoveries to loan losses remains robust at 1.3% of total loans. We remain highly selective in our lending and are committed to franchise-building full banking relationships. Capital levels also remain robust, with TCE of 7.96% and CET1 of 11.81%. During the quarter, we grew tangible book value 8% and returned $5.8 million to shareholders through dividends and share repurchases. This was a breakout quarter for the team and the company after implementing significant change throughout the banking division. We are building a stronger-than-ever franchise with the best in the business talent. We are prudently adding new client relationships and improving profitability through infrastructure rightsizing and optimization. Each move is purposeful and strategic in positioning Alerus to bring expertise to our clients in a fast, frictionless, and highly responsive manner, while delivering value which we believe will directly translate into value creation for our shareholders. With that, I will turn it over to Al to talk about the financial performance for the quarter. Thanks, Katie. I'll start my commentary on page 14 of our investor deck that is posted in the Investor Relations part of our website... Let's start on our key revenue drivers. On a reported basis, net interest income increased 5.7% on a linked quarter basis. The increase was driven primarily by strong organic loan and deposit growth. Net interest income represented 45.9% of revenues when excluding the loss on investment securities. Switching to fee income, non-interest income, excluding the loss on investment securities, decreased 10.5% on a linked quarter basis, primarily driven by the gain recognized by the specialized ESOP trustee business being recognized in the prior quarter. Excluding the ESOP trustee gain, non-interest income was relatively stable on a linked quarter basis. I'll go into detail about each of our fee income statements in later slides. Turning to page 15, net interest income was $21.6 million in the fourth quarter. Net interest margin was 2.37%, an increase of 10 basis points from the prior quarter. While some of our index liabilities repriced in October due to the last Fed hike in July, we saw the lowest quarterly increase in interest expense. During the quarter, we had gradual net interest margin improvement as our balance sheet continues to remix towards higher-yielding assets and strong deposit - strong organic deposit growth helps lower borrowings. Based on the recent Fed commentary on a potential pause, we do expect our net interest margin to improve even without any rate cuts. Should Fed cuts, should the Fed cut rates later in the year, we anticipate our net interest margin to continue to improve faster. Any increase in funding costs will be related to competition and a shift from non-interest bearing to interest bearing. Let's turn to page 16 to talk about our loan portfolio. Total loans grew 5.7% from the prior quarter, driven by organic growth in commercial real estate, C&I, and residential real estate. Excluding the impact of PPP, this was one of the highest organic loan growth that we have experienced. Growth across the board was driven by newly onboarded talent and legacy producers as well. We continue to attract high-quality talent in our growth markets, and they've been able to drive growth quickly for Alerus. For 2024, we continue to expect to see modest loan growth. Turning to page 17. On a period-ending basis, our deposits increased 7.8% from the prior quarter. Just like loans, this is one of the highest organic deposit growth for Alerus. Non-interest-bearing deposits balances increased 1.4% and represented 24% of total deposits. Client retention remains very high, and we continue to attract new clients, especially in the mid-market commercial space. For 2024, we expect deposit levels to remain stable. We also expect the usual seasonality in deposits, with public fund outflows occurring in the second and third quarters. Turning to page 18, you can see a further breakdown of our strong deposit base. Our synergistic deposits, those funds sourced from our wealth and retirement businesses, grew 23% over the prior year and 11.5% from the prior quarter. The continued growth in synergistic deposits was driven mainly by strong organic client growth within our retirement and wealth segments. Synergistic deposits sourced from retirement wealth businesses now account for over 27% of our deposit base. As you can see here, continued growth in our synergistic deposits shows the strength of our unique and differentiated business model. Turning to page 19, you'll see details about our investment portfolio. Currently, almost 62% of our securities are available for sale versus approximately 38% in held to maturity. Excluding the loss trade, we did see improvement in unrealized losses as the bond markets rallied, given recent Fed commentary. We continue to remix the balance sheet towards commercial lending relationships that will add higher-yielding loans and treasury management relationships. On page 20, I'll start talking about our fee income businesses. On this page, I'll provide some highlights on our retirement business. Excluding the impact of the ESOP trust services gain and non-recurring ESOP trustee revenues in the prior quarter, revenues increased 1.6%. End of quarter assets under management and administration increased 6.2%, mainly due to improved equity and bond markets. Participants within retirement have grown 4.4% over the prior year. For the first quarter of 2024, excluding any market impact, we expect fee income for our retirement business to be stable. Turning to page 21, you can see highlights of our wealth management business. On a linked quarter basis, revenues increased 12.7%, while end of quarter assets under management increased 7.9%, again, due to improved equity and bond markets. Over 83% of revenues in this segment are asset-based fees. For the first quarter, excluding any market impact, we do expect our fee income from our wealth business to be up slightly. Turning to page 22, I'll talk about our mortgage business. Mortgage revenues decreased 49% from the prior quarter as originations decreased 41%. We saw our usual seasonal decline in mortgage production, given that most of our production comes from the Twin Cities. For the first quarter, we expect mortgage originations to decrease 40% from the prior quarter as we enter, again, another seasonally weaker quarter for our mortgage business. Page 23 provides an overview of our non-interest expense. During the quarter, non-interest expense increased 3.7%. Excluding one-time items such as severance and a donation to Minnesota Housing, non-interest expense grew 2.4%. The increase in expenses is mainly due to inflationary pressures experienced in our technology contract renewals and due to higher audit and examination fees. As we continue to deal with inflationary pressures, we do expect our overall expenses for 2024 to grow low single digits on a reported basis. Turning to page 24, credit continues to remain very strong. We had net recoveries of 4 basis points in the quarter. Our non-performing assets percentage was 22 basis points compared to 23 basis points in the prior quarter. Our allowance for credit losses on loans to total loans was 1.3%. We had a provision during the quarter, mainly due to strong loan growth and unfunded commitments. I'll discuss our capital liquidity on page 25. During the quarter, we repurchased $2.1 million of outstanding stock at an average price of $17.65. Our capital remains well above regulatory minimum levels, which is well above the 6.5% minimum threshold. On the bottom right, you'll see the breakdown of our sources of over $2 billion in potential liquidity. Overall, we continue to remain well positioned from both a liquidity and capital standpoint to support future growth or whether any economic uncertainty. To summarize, on page 26, we ended the year on a very strong note with great momentum going into the new year. We saw strong organic loan and deposit growth, the highest since the highest in our history. Our net interest margin improved as the Fed finally paused, and strong organic production helped continue to remix the balance sheet. We expect continued improvement in our net interest margin going forward. Our fee businesses, which continue to be a differentiator for us, and over 50%—54% of our revenues are non-spread based. Our capital remains strong, and we remain committed to returning capital prudently. With that, I will now open it up for Q&A. We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will momentarily pause to assemble our roster. The first question today comes from Jeff Rulis of D.A. Davidson & Co. Jeff, your line is now open. Please proceed. Thanks. Good morning. Just a question on the maybe the loan and deposit growth, just it really strong and wanted to get a sense for if there was anything, you know, kind of lumpy towards the end and/or did you pull forward... Looking at kind of a little more muted growth in 2024, did you sort of cannibalize some activity? Just a really strong quarter. Wanted to see if there was some production that maybe you pulled into the into Q4 versus what was maybe going to book in in 2024. Jeff, this is Jim Collins. No, I would say we didn't pull anything forward. The real loan growth and deposit growth, specifically in the fourth quarter, was just the buildup of the talent that we acquired throughout 2023, and their pipelines coming forward into production. I anticipate that those pipelines will continue through 2024. Typically, we will see a strong second quarter, strong third quarter. First quarter will be a little light, and then fourth quarter generally is a little light. So it usually goes second quarter, third quarter, first quarter, and fourth quarter. So I do anticipate that those pipelines will continue, and there wasn't anything lumpy necessarily. All of what was getting booked are stronger mid-market C&I loans and then again our continued growth in commercial real estate. But the focus still is mid-market C&I, and we're pulling in the full relationship, and that's what I anticipate for the rest of 2024. Thanks, Jim. And just, was that growth also pretty even through the quarter? Kind of thinking about margin and if it was sort of back-end loaded on the loan side, or was it pretty steady throughout fourth quarter? Hey, Jeff, we did see a little bit more pickup after October, so I'd say that was probably more when the activity came, you know, after October, November, December related. Got it. Al, just to kind of circle back on the margin, you know, I'm reminded of the coiled spring reference, and just wanted to see if that's kind of the beginning of this releasing. So that's part A. Part B is when we do see those rate cuts, I don't know if you've got sensitivity on either NII or margin bump per each 25 basis point cut, should we get this? Yep. So Jeff, thanks for that. I mean, this is the beginning of our net interest margin to improve, so we're very optimistic here about the trajectory of our net interest margin, given the pause now in the Fed and potential rate cuts. With in terms of sensitivity, you know, one thing you'll notice on our disclosures, if you look at our last 10- Q, that, you know, you did see a little bit of that liability sensitivity decrease because we did put into effect a little bit of balance sheet swaps last year. Those swaps will be rolling off during the course of 2024, and the liability sensitivity will begin to increase again. So you'll see more improvement on our net interest margin, probably towards the back half of next year. So with that being said, though, I'd probably, probably have you look at probably our disclosures in terms of, you know, net interest margin improvement, net interest income improvement, probably mid- to high single digits, which jives with what our 10-K was last year, prior to the swaps being put on the balance sheet. Okay. So just to your comments of, you think in Q1, you know, in a steady state, see some margin improvement, but cuts should accelerate- Yes. -that improvement? Okay. That is correct. And maybe one last one. Okay. Thank you. One final one on, Yeah, and Jeff. Maybe. Go ahead. Go ahead. I'm sorry. Go ahead. No, no, the rate of the improvement will also be dictated by deposits as well, because we did have very strong deposits in the fourth quarter. So you know, as you know, we know there's a pretty much strong deposit demand out there right now. You know, we continue to keep deposits stable. That will also dictate how much improvement we see. Okay. And Katie, just wanted to check in on capital and the buyback appetite in a pretty strong growth, but maybe if that ebbs, so that front, but also I did hunting around on the M&A side, you mentioned looking for a individual on the retirements front, but would you also consider kind of M&A on the retirement side as well? Yes, absolutely. So from a capital prioritization standpoint, they remain consistent in terms of our priorities. And so first and foremost, prudent and disciplined organic growth is our number one priority. Being selective, but taking market share, in a time as we're adding talent, in our growth markets is the number one priority. Returns to our shareholders remains a top priority, as you saw with the activity this quarter with share buybacks and continued dividends. But continuing to also be, as we have in our history, very opportunistic with strategic lift outs, market expansion, as well as acquisitions, in both the commercial wealth space as well as on the retirement side. Okay, thank you. Thanks, Jeff. Thanks, Jeff. Our next question today is from the line of Nathan Race of Piper Sandler. Nathan, your line is open if you'd like to proceed. Yes. Hi, everyone. Good morning. Thank you for taking the questions. Hey, Nate. I just want to go clarify one question, to your earlier response to Jeff's item on NII growth for this year. That mid to high single digit- Yep. kind of NII trajectory that I think you described, Al. Does that include maybe two or three rate cuts in the back half of this year? Yeah, thanks for clarifying for that. That is on the plus 100 scenario that we're, I'm sorry, the minus 100 scenario. Let me clarify that again. The minus 100 scenario that we had in the 10-K last year. Mm-hmm. Gotcha. And perhaps supporting that outlook with rate cuts, is the plan with some of the liquidity that you guys built with the repositioning late in the fourth quarter, is the plan to kind of keep borrowings where they're at, just to provide at least the short term debt where it's at, just to kind of provide that insulation to floating rate loans to the extent Fed cuts occur? Do you kind of plan on maybe bringing down wholesale funding to the extent, you know, deposit growth remains as strong as it was in the fourth quarter, and, you know, loan growth also remains, you know, strong, albeit likely not to the level that we saw in the fourth quarter? Right. So from the restructuring we did in the fourth quarter, we did use up that predominantly to support loan growth, as you saw that, you know, we had very strong loan growth. But on a go-forward basis, as you think about our borrowings, we'd like to decrease that, especially if we have more deposit growth there. I mean, we'd like to pretty much eliminate that if we can, potentially with and if we have continued strong deposit growth. Okay, great. I apologize, I jumped on somewhat late, but just in terms of kind of the loan growth outlook for this year, could you remind me what you guys are thinking there? We're thinking modest, but I'll let Jim also answer. Yeah, I think, I think we will have loan growth. Obviously, with the borrowing situation, depends on how much deposit growth we have. But with the talent that we acquired in 2023, some of the processes and procedures that we have streamlined in 2022 and 2023 helps our, the entire, commercial, lending group, as well as the rollout of our private banking group. Acquiring market share from some of the other banks that are not lending, we will definitely have some, some good, solid, profitable, loan growth. That's my expectation. Mm-hmm. Gotcha. In terms of commercial real estate maturities expected this year, is that a meaningful headwind to growth? Net growth, that is. We do not have a meaningful amount that will be maturing in the next 18 months to have a headwind in that, in that category. Got it. And just changing gears, Al, I think you mentioned retirement and benefit service revenue should be kind of flat in the first quarter versus the 4Q level. Yep. I noticed- Yep. in the release that retirement plan participants had some nice growth quarter over quarter. So just curious what you guys are seeing from an organic growth perspective in terms of adding new accounts onto that platform and just kind of how you're thinking about growth in that line this year, you know, assuming, you know, equity markets are relatively stable? Hey, Nate, it's Katie. I'll take that one. You know, from a new sales standpoint, from new plans, new revenue, new participants. It was a record-setting year in 2023. We continue to sustain headwinds as plans that leave through, they either get acquired, or move out for RFP, continues to be a headwind to that new business. And so, you know, considering stable markets, that's where we end up with a fairly flattish outlook for that revenue line item going forward. Okay. Katie, have you noticed that just the natural headwind from that line of business in terms of the natural attrition there, that's slowing relative to the past years, just as you guys have launched a number of initiatives and new sales efforts to kind of offset what occurs with that attrition rate? You know, it's slowing incrementally, and we're growing new revenue incrementally. But we think there's continued additional opportunity to improve that net revenue growth, year-over-year. And there are initiatives being put in place that contractually will do some things for us. There's also some efficiencies and some process improvements that'll be implemented in 2024 that will continue to help that net revenue pace higher. So I'm confident that we will see incremental continued growth, but it's going to take a little bit of time. And looking forward to having the Chief Revenue Services Officer and the executive team to help us guide through and prioritize some of those changes, as well as help us build out that acquisition opportunity list. Mm-hmm. Gotcha. And I know it's been an ongoing initiative, you guys, in terms of increasing the capture rate from the retirements platform onto wealth. We're just curious as to what extent maybe some progress on that front was evident in the wealth management revenue increase in the fourth quarter? Or is that just more so a function of some of the private banking teams that you've added, and also just given that equity markets were higher in the fourth quarter? We actually had one specific large win in that arena from capturing that terminate participant into wealth in the fourth quarter. It was a sizable number. But we continue to fine-tune and streamline that process, and over the years, we will continue to capture more of a percentage. And we will be adding additional wealth advisors in 2024 and 2025 to capture more of that piece of the business. Okay, great. And Al, just to clarify on the expense growth outlook for this year, that low single digit expectation, that's off $151 million in reported expenses in 2023? Yeah, off the $150.1 or $150.2 reported expenses. Okay. Gotcha. Good deal. And maybe one last one for Karin. You know, just curious if there's any additional tail to the recoveries that we saw in 2023, and if you're just seeing any major credit issues on the horizon. Obviously, it's not evident from the numbers that we can glean that you guys reported this quarter, but we're just curious on kind of your outlook for charge-offs in 2024 and how you see the reserve trending relative to loans as well. Sure. Hi, Nate. You know, most of those larger recovery opportunities have been exhausted, and so I expect that as credit continues to normalize, we'll start to see some level of charge-off activity. You know, just in terms of the general outlook for asset quality, I don't see anything significant on the horizon. We're just continuing to see some normalization. No specific patterns, just what we would expect as we return to a more normalized environment. Okay, great. Sorry, one last one. Just curious on the appetite for share repurchases continuing, at this point. I imagine you guys are going to be fairly opportunistic, but still have a good amount of, excess capital flexibility. But just curious, you know, to what extent you maybe want buybacks to be a kind of more recurring, component to your capital return to shareholder story. Yep, this is Al. Hey, Nate, in terms of buybacks, you know, opportunistic is a good word for it. You know, we do look at buybacks to make sure that the, you know, the earn back on those any repurchases is still definitely under three years. So, you know, we definitely look at, you know, where our stock price is trading relative to our deferment scenario. Okay, I will leave it there. I appreciate all the callers. Thank you, everybody. Thanks, Nate. Thanks, Nate. Again, if you have a question, please press Star followed by one. And our next question today is from the line of Matthew Renck of KBW. Matthew, please go ahead. Hey, everybody. Hope everybody's doing well today. A lot of my questions have been asked and answered, but just as a follow-up to the loan growth discussion, are rate cuts baked into that outlook, or do you think, and if they're not, do you think we'll see a meaningful uptick in loan growth in the back half of the year, perhaps? I don't the we didn't anticipate the loan cuts in that loan forecast of growth. Like I said, a little bit earlier, we should have a strong second quarter and third quarter. That's fairly natural when you see the business tax returns come in and businesses are planning for events. We had a strong fourth quarter this year, but that had more to do with the talent we brought on in 2023, and them getting their pipeline set and then starting flushing out and flushing out their pipeline. That could happen again in 2024. If we find additional talent, we're going to be very opportunistic to find good, solid mid-market commercial bankers, specifically in Minneapolis and Arizona. So if we do find that in the first half of this year, we might see similar results next year of a stronger fourth quarter than I'm anticipating, but that would be because of talent acquisition, not rate cuts. Okay, great. Thank you. I think that's all I had right now, so I'll step back. Thanks, Matt. Thanks, Matt. Thank you. As a final reminder, if you'd like to ask any further questions, please dial star one now. Okay, it seems we have no further questions in the queue, so this will conclude the question and answer session. I would like to turn the conference back over to Katie Lorenson for any closing remarks. Great. Thank you, Harry. Thank you for the questions. Thank you for everyone listening in today. As you can tell, we feel very confident as we move forward into 2024 about in regards to sustaining the momentum that we saw in the fourth quarter. Our unique strength of this company's diversified business model continues to differentiate our ability to attract and retain clients, as well as talented professionals. We remain absolutely laser focused on our strong and diversified balance sheet, our talent investments, fee income, and investments in those key business lines while optimizing our infrastructure to return this company to our long history of delivering strong profitability, tangible book value growth, and top-tier returns to our shareholders. Thank you to our investors, our analysts, and to everyone for joining our call today. Have a great day, everyone. The conference has now concluded. 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