Good morning, and welcome to the investor call acquisition of HMN Financial, Inc. All participants will be in listening-only mode. Should you need assistance, please signal a conference specialist by pressing star key followed by zero. 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 statement. Important factors that could cause actual results to differ materially from those indicated in the forward-looking statements are listed in the company's SEC filing. I would now like to turn the conference call over to Alerus Financial Corporation, President and CEO, Katie Lorenson. Please go ahead. Thank you, and good morning, everyone. Welcome, and we appreciate you all joining our call today. Earlier this morning, we jointly announced the franchise-enhancing strategic expansion into the Rochester, Minnesota market through the acquisition of HMN Financial. Joining me here today in the Home Federal Rochester office is Al Villalon, CFO, Jim Collins, Chief Banking and Revenue Officer, Debbie Lang, Chief Credit Officer, and Brad Krehbiel, CEO of HMN Financial. I am pleased to be here today to discuss this transaction, which marks the company's 26th acquisition over the last two decades and creates a premier $5 billion diversified financial institution, positioning Alerus as the third-largest community bank in Minnesota. This partnership represents the largest in Alerus's history, with HMN having over $1 billion in assets and deposits and 14 locations throughout its footprint. We have been familiar with HMN and its management team for quite some time, and through our interactions, have been able to diligently assess their business model and cultural fit. Strategically, Home Federal is a natural extension of our commercial wealth bank into the vibrant and growing Rochester, Minnesota market. Rochester is known nationally for being the home of the Mayo Clinic, which recently committed to a $5 billion investment in the market. Home Federal's locations allow expansion into the Southern Minnesota market as well as Wisconsin. These markets represent strong opportunities to grow C&I banking with a concentration of commercial businesses across the footprint. Additionally, it provides the opportunity to layer in our diversified wealth services to new clients and markets, none of which have been modeled in. A key strategic focus for Alerus has been building a strong core deposit franchise, and over the past several years, we have added additional investments in treasury management professionals and technology, as well as growing our synergistic deposit base. Home Federal maintains an excellent, long-tenured core deposit franchise, and this addition builds upon the foundational balance sheet's strength and ability to continue to grow our combined company. In targeted due diligence and more broadly in understanding the client base and relationships, we look for consistency in credit culture. In Home Federal, an OCC-regulated bank, we found a strong credit discipline, great asset quality, and importantly, a highly granular and diversified client base and loan portfolio. From a culture fit perspective, we believe we have a well-vetted view of complementary missions in serving our clients, alignment in core values, and a strong consistency in credit culture, three critical areas to execution. Al will get into more details, but overall, the financial metrics of the transaction are quite compelling and are based on conservative assumptions. The combined organization is projected to deliver top quartile ROEs in 2025 and an ROA of almost 1.2%, while maintaining top decile fee income at over 40% of total revenues, as well as a fortress balance sheet of strong capital levels, a well-diversified loan portfolio, robust reserves, and a long-tenured core deposit base. With the enhanced benefit of additional scale and operating leverage, we are excited about the future growth prospects of our combined organization. With that, I will hand it over to Al to discuss the financial metrics of the transaction. Thanks, Katie. We have posted slides related to this deal on the investor relations part of our website. Let me go over the financial implications. This transaction is a 100% stock transaction, which is our second in our company history, which we've issued—where we've issued stock, with the first being our most recent deal with Metro Phoenix. The transaction value for HMN Financial is over $116 million, which represents a slight premium to tangible book value. The exchange ratio is fixed, where we are issuing 1.25 shares of Alerus stock for each HMNF share. We expect an increase to shares outstanding by 5.5 million, for a total of approximately 25.3 million of common shares outstanding, which equates to approximately 22% of our pro forma shares outstanding. On a pro forma basis, the combined entities will have total assets of $5.5 billion, gross loans of $3.7 billion, and deposits of $4.3 billion. We are targeting 30% of cost saves that will be fully realized in 2025. This will translate to over a 600 basis point improvement to our efficiency ratio on a fully run rate basis. We are forecasting for HMN loans to remain stable over the next several years and a slight decrease in deposit levels as we expect their broker deposits to run off. Even with these conservative growth assumptions, earnings accretion will exceed 45% on consensus estimates of $73 for 2025, and we calculate an earn back of 2.2 years with an initial tangible book dilution of approximately 11%.... Without interest rate marks, EPS accretion is still strong at over 20% in 2025, and the deal would be accretive to tangible book value per share. Common Equity Tier 1 is estimated to approximately 11% at closing, while tangible equity ratio will be close to 7%, inclusive of all the interest rate marks. We also expect the following mark-to-market adjustments in this transaction. On the loan book, a total interest rate discount of $54.2 million will be amortized over 3.8 years. Additionally, a credit discount of $14.9 million will be recognized, which is a 1.71% of HMN Financial's gross loans. Within that credit mark, $11.2 million will be related to the CECL double count. Other marks include a core deposit intangible of $30.7 million that'll be amortized over 10 years on an accelerated basis. Their existing AOCI will be accreted back over 1.6 years, and we have a $3.9 million write-up of MSRs accreted back over 5 years. $2.8 million write-up on fixed assets accreted back over 27.5 years, and a $1.5 million write-down on time deposits accreted back under 1 year. We expect our net interest margin for the combined entity to exceed 3% in 2025, with about 10-12 basis points of deal accretion affecting the margin each quarter. Based on 30% cost saves and no forecasted revenue synergies, we expect the combined return on equity to be in the top quartile performance. You'll see page 10 in the investor deck. The combined entity will have a pro forma return on equity in the top quartile. Fee income as a percentage of revenues will still be in the top quartile, and overall loans to deposits close to top quartile. We believe this is a great opportunity to combine companies that are very much culturally aligned and to grow into a new MSA within Minnesota. The deal is financially compelling with the ability to drive significant earnings accretion and grow value for all shareholders. We welcome everyone from HMN Financial to the Alerus team, and we look forward to working together and getting this deal completed and to creating industry-leading performance. I'll now open it up for Q&A. Thank you. If you'd like to ask a question, press star followed by one on your telephone keypad. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Brendan Nosal from Hovde Group. Hey, good morning, folks. Hope you're doing well. Hi, Brendan. Maybe just to start off here, Good morning. Good morning. It looks like you've identified revenue synergies kind of in the materials, but are not including them in the modeling as is appropriate. Maybe just talk about what opportunities you see on the synergy side, and how that could factor into getting the fee to revenue mix kind of back up after that initial step down on day one. This is Jim Collins. I'll take that one. Brad's team is very experienced and aligns really well with our existing teams. So what we see is, you know, in the modeling is they just need to concentrate on keeping the customer base and keeping the employee base. And as we know, once you do these announcements all the way through conversion and past conversion, it's constantly working with the client base just to retain what they have. So that's why we did not model any additional growth. I will tell you the cultures are really similar. Credit quality, credit risk tolerance is very similar. So we expect that with our balance sheet, we will be able to leverage that over time. But for us, the most important thing is to keep the customer and the employee base together. Yeah, Brendan, and this is Katie Lorenson. Yeah, yeah. And I would add, similar to how we approached the Metro Phoenix partnership, we did not model in revenue synergies there, as we know it takes time for the team members to focus on retention first and foremost, and building relationships and trusted partnerships with the individuals and advisors across wealth management, private banking, mortgage, et cetera. But we did and are seeing those synergies come now with time with Metro Phoenix transaction, and we expect that'll be one of the many upsides of this partnership together. Yeah, yeah, that makes sense. Okay, perfect. Perhaps one more from me before I step back. Just kind of curious how the deal and the addition of their balance sheet changes your pro forma interest rate positioning once it closes? Yeah. Brendan, so initially, it doesn't change much. I mean, we are, you know, we are looking at this right now, and, you know, they're, they're liability sensitive like we are liability sensitive. So we do expect, and hence why we gave the guidance of that 3%, you know, manages margin to be there in 2025. So, you know, but again, when, you know, as we dive in a little bit more, you know, what I said on our earnings call, though, we'll probably, you know, look at just the tail risk out of that interest rate risk management, but nothing—no initial changes. All right. Fantastic. Congrats on the deal, and thanks for taking the questions. Thank you. Our next question comes from Jeff Rulis from D.A. Davidson & Co. Thanks. Good morning. The first question maybe for maybe Brad could jump in. But just first on just the transaction itself and how the relationship with HMN has been and Alerus and then if you could comment on was this you know a negotiated transaction or was were other suitors involved? ...Thanks for the question. This is Brad. No, other suitors were not involved. It was a negotiated transaction. It's been something that we've been working on for quite some time. And, you know, while, you know, we enjoy—Home Federal enjoys some great markets that we're in that are attractive to a lot of banks. But we understand that, you know, execution risk is very, very important, and client retention is important. Katie and I talked about that at length through our conversations, and we saw a real good fit there in terms of, as she put it, our culture, and you know, how we do business. Because at the end of the day, after you put the two companies together, it's what it looks like, you know, a year from now that really makes sense. So, that's what we're confident on, that we really feel that our teams will work well together, and be able to to make sure we see it through, so that customer retention is not an issue. Appreciate it, Brad. And one for Katie. Just to check in on M&A appetite, and do you view kind of the pursuit of the retirement benefits acquisition kind of a different channel? Or, in other words, do we -- as you're concentrating on this transaction, does that exclude or negate or suspend the pursuit of maybe acquisitions on the R&B side? Yeah, great question. It does not. As you referenced, it is a different channel. It is different resources. It is not... Those acquisitions on the fee income side do not require regulatory approval. And so we intend to continue, as we are sourcing and building relationships, on the fee income, specifically retirement benefit side, as we progress in executing and integrating, this transaction. Thanks. And Al, I'm sorry, I had one other one. The conversion plan conversion, if this closes at Q4, should we just assume early 2025? Right now we are targeting a close and conversion in the fourth quarter. Of course, that is, that is dependent on regulatory approval, which, you know, we believe, we believe will be as favorable as possible in this environment. But that is both for a close and a conversion in the fourth quarter. Okay, thank you. Thanks, Jeff. Our next question comes from David Feaster from Raymond James. Hi, good morning, everybody. Good morning, David. Maybe just starting on the credit front. You know, 171 basis points of credit marks, it seems pretty conservative, just kind of given my quick review of their historical asset quality. I'm curious, how do you think about their credit profile, what you focused on as you did your due diligence and kind of your comfort level coming out of that review? Hi, David, this is Debbie Lang, and I can take that question. You know, overall, from a credit alignment standpoint, we were very comfortable with what we saw during the due diligence review. We were fortunate to get a high percentage coverage of the portfolio, looking at not only the C&I portfolio, the CRE portfolio, A portfolio, we also sampled some SBA loans. As we've noted, this is an OCC bank, and so looking at the review, the credit quality, the credit culture, the underwriting standards, very much in line with what we were expecting to see. Okay, that's great. Maybe another one on the balance sheet, Al. Just obviously, look, the deal gives you a lot of financial flexibility, right? Since we marked the acquired balance sheet. I'm curious, how do you think about using that flexibility? Whether is there any interest in loan sales or security sales to maybe help accelerate some of the, you know, higher cost funding remixing? I'm just curious how you think about that flexibility and some of the options that are at your disposal. David, we're going to be, well, like, weighing all options here for sure. You know, none of that was modeled into, you know, the forecast for us on that earn back. None of that was considered in there, so that's why conservative. But we're going to take a look at the balance sheet and, you know, what I call it, you know, optimize it. You know, we'll be looking at, you know, where we have opportunity for sure. Okay, that's great. And then last one, just, you know, look, this gives you some... You've done a great job on the organic growth side, attracting new talent to the bank, and the deal gives you access in a small way to some new markets, right? In Wisconsin and Iowa. I'm curious, how do you think about those markets and potential expansion opportunities there? I'll take that one, David. We have a lot of experience collectively in the state of Wisconsin, so I'm very bullish in Wisconsin. I think Wisconsin acts a lot like all the Midwest states, but certainly like Minnesota. We have an awful lot of contacts, contacts in Wisconsin that can fortify Brad's locations in there and possibly expand through there. We can also look—you know, we also enter in Iowa. We'll take a hard look at what the opportunities are down there as well. But I, I would say for sure, we are very bullish on Wisconsin. Okay, that's great. Thanks, everybody. Congrats on the deal. Thank you, David. Thanks, David. ... Our next question comes from Nathan Race from Piper Sandler. Hi, everyone. Good morning. Thanks for taking the questions. Morning, Nate. Al, I just want to clarify on your accretion guidance for next year. I think you said, which gets to, like, $6 million annually. Is that, is that kind of what you're including in the accretion guidance for 2025? Yeah, that sounds about in the ballpark. Let me just verify that for a second here. You want to go with your next question? Yeah, sure. I was also just curious, you know, the pre-tax deal related costs, you know, come to just under 20% of the deal value. That seems relatively high compared to other acquisitions that we've seen historically. So just curious if you can provide any other color around why the why those costs are relatively elevated? Sure. I can provide some context around that. You know, we really, I believe, had a deep level of operational diligence in addition to credit diligence. And that allowed us to really look into the franchise and look at some things to kind of clean up. You know, one of the examples was a pension plan, terminate that, and kind of move that stuff off so that when we come together as a combined organization, we really have well-aligned business lines, segments, products, as well as benefits and those type of things. And so, that essentially is what drove the higher one-time deal costs, which of course, we believe we addressed very well in the purchase price. Okay, great. And then, can you just going back to the previous question, just in terms of the appetite? Yep. Yep. Go ahead, Al. Nate, sorry. On the net accretion here, I just want to make sure I got the calc right. I mean, we're looking at just, you know, on using the 10-12 basis points, it's going to be in that $5 million range per quarter. Okay, got it. And then just going back to the previous question, Katie, in terms of the appetite for additional acquisitions on the retirement side of things, obviously with TC sub 7% on a pro forma basis with HMNF, it seems like maybe you're a little bit more constrained in terms of the size of targets that you could pursue. So would just be curious to hear, with this deal pending, if that kind of constricts you to some degree in terms of the size of potential partners that you can pursue on that side of the house. Well, you know, I think first and foremost, the accretion of capital is robust, with the strong earnings per share accretion, that of 40%+. Secondarily, the retirement benefits side is typically pretty bite-sized. That's been where we've been at historically. And based on where we are in our journey of conversations, as I kind of forecast out, I don't think we will miss any opportunities, because of our capital levels. Okay, great. I thank you. Thanks, Nate. Our next question comes from Kevin Ross from Van Clemens & Co Hi, good morning. Congrats on the deal. I like it. Quick question on the expense saves that you've got. Can you articulate a little, a bit more on what the source of those cost saves will be? Thanks. Sure. I'll start, and then Al can chime in. So expected cost saves are 30%. Again, those are pretty well balanced between where you would expect, between just like our largest line items on our P&L. It's compensation and benefits and technology. And so those would be the primary buckets of where the cost saves will come from. Yeah, and just to chime in, Kevin, on there. Go ahead. No, no, go ahead, Al. Yeah. So Kevin, when you take a look at, you know, HMN's trailing financials there, I mean, you can see the mix of their, you know, their expense base right there, and you can see what the buckets are. And you can expect that, you know, where it's heavily weighted, that's where, you know, there's going to be some focus on those areas. Okay. And in terms of the branch network, I mean, do you guys intend on just leaving it as is? We do. You know, we have a long history in our experience at Alerus of optimizing our branch footprint. And, you know, that's just something that we do in practice on a periodic basis and will now do as a larger company, in an ongoing effort to optimize our branch footprint. Okay. Thank you. Congrats again. Thanks. Thank you, Kevin. Our next question comes from Damon DelMonte from KBW. Hey, good morning, everyone. Congrats on a nice deal. Just the first question for Al- Good morning. On the margin. Morning. First question for Al on the margin and kind of some of the assumptions that go into that. You know, you guys had done the BTFP kind of arbitrage trade at least last quarter. Does this kind of maybe change your view on that? Is that something you will unwind prior to the closing? ... Nope. The guidance I gave on the 3%, for 2025, that accounts for the BTFP rolling off as scheduled, you know, in first quarter of next year. Got it. So the 3% is a full year expectation for 2025, or is it you'll reach that during the course of the year? That is a full year guidance. So and it you know, we're using the basic consensus. So, you know, as we look at consensus out there right now, we assume that there are some Fed cuts baked into that. So if, to be fair, you know, in terms of looking at it on, on no rates, because I gave that guidance on the last call, in terms of no Fed cuts, we'll probably end the year at 3% and maybe just, you know, touch upon it, at the end of the year, if there's no Fed cuts and staying higher for longer. Got it. Okay. That's helpful. Thank you. And then do you have a pro forma goodwill amount that you're expecting to, to hit the balance sheet? Yes, hold on for one second there. Just trying to look at that number. About $21 million. Yes. $21 million. Okay, perfect. Okay, great! That's all that I had. Thank you very much. Appreciate it. Thanks, Damon. Our next question comes from Jeff Rulis from D.A. Davidson. Hi, just a couple housekeeping. Al, I just wanted to confirm a couple figures. You said the tangible book dilution was 11%? Yes, that's correct, Jeff. Okay. The CECL double count, I think you mentioned, did you say $11 million or so? 11.2. Great. That was it. Thank you. Thanks, Jeff. We currently have no further questions, so I will hand back over to Katie Lorenson for final remarks. All right. Perfect. Thank you so much, and thank you for all joining our call today, for listening in and answering questions. We believe we put together a very strong partnership to expand the Alerus franchise into new markets with robust C&I opportunities, supported by a solid funding base of granular core deposits and clean credit quality. This strengthens our company to becoming the third largest community bank in Minnesota. And although this transaction is sizable, we believe we are very well positioned to execute, and the additional scale will continue to enhance our performance and expedite our return to top-tier returns, as well as value creation for all of our combined shareholders. Thank you, everyone, and have a great day. That does conclude today's conference call. Have a nice day. You may now disconnect your lines.