Good afternoon 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 will be an opportunity to ask questions. Please note, this event is being recorded. This call may include forward-looking statements, and the company's actual results may differ materially from those indicated in any forward-looking statements. Important factors that could cause actual results to differ materially from those indicated in 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. All right. Thank you, Angela. Appreciate it. Greetings all, and welcome to the Q1 2024 Alerus Earnings Call. We appreciate you all taking the time to join us today. Joining me here today in Minneapolis is Alerus's CFO, Al Villalon, our Chief Operating and Risk Officer, Karin Taylor, our Chief Banking and Revenue Officer, Jim Collins, and making his debut earnings call with us today is our Chief Retirement Services Officer, Forrest Wilson. I am incredibly proud to be surrounded by these talented professionals here in this room, as well as widely and deeply across the Alerus franchise. Earnings for the first quarter of 2024 matched expectations, as our team members delivered again in executing our organic growth One Alerus strategy. Client wins came through in all parts of the business, and most notably resulted in strong deposit and wealth management growth and inflows. We saw new client wins in C&I, which came with lending opportunities and full treasury management relationships. Our One Alerus business model and holistic approach to serving clients continued to differentiate our company with an impressive quarter of net inflows in wealth management, and strong production was driven by business owner liquidity events as well as robust rollover business sourced from our Retirement division. The synergies between private banking, w ealth, mortgage, and c ommercial banking continued to emerge even faster than expected. The results of these efforts by our team members and support services were evident, with deposit balances increasing over 6% in the quarter and commercial loans growing over 2% during the quarter. Highlights for the quarter included an improving core net interest margin, as we saw the benefits from the balance sheet repositioning, as well as the impact of organic growth. Fee income, which accounts for over 50% of total revenues, delivered ongoing positive momentum, showing growth across each of the fee-based businesses. Alerus remains in a uniquely strong position to grow, with a highly diversified loan portfolio and robust liquidity. Loan balances grew for the ninth consecutive quarter, while deposit balances increased for the fourth consecutive quarter, displaying our proven ability to grow and attract new clients. While deposit growth for the industry remains very challenged, we continue to see strong client flows from within our banking markets, as well as nationally through synergies with our retirement and benefits businesses. We remain consistently disciplined in our risk management and infrastructure investments, while selectively taking market share and supporting our clients in our communities. Our commitment to our shareholders and our fortress balance sheet is unwavering, with an allowance to total loans of 1.31% and a CET1 capital ratio at 11.85%. With our quarterly dividend 5.6% higher than the same period in the prior year, we maintained our history as a dividend aristocrat, and we continued our streak of 40 years of paying a dividend and consistently increasing our dividend. Asset quality remains strong, with less than one basis point of net charge-offs and consistently low levels of non-performing loans. We remain confident in our strategic initiatives, including our focus on building efficiencies, and we will continue to get better at managing expenses, proceeding on our path to returning the company to top shareholder returns and earnings per share growth. With that, I will turn it over to CFO Al Villalon. Thanks, Katie. I'll start my commentary on page 11 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 3.1% on a linked-quarter basis. The increase was driven primarily by organic loan growth, strong deposit growth, and an arbitrage opportunity using the Bank Term Funding Program. Net interest income represented 46.7% of revenues. Switching to fee income, non-interest income decreased 0.4% on a linked-quarter basis, primarily driven by client swap income of approximately $1.3 million that was recognized in the prior quarter and other non-interest income. Despite not having any swap income in current quarter, we did see fee income increase across all of our fee income segments. I will go into detail about each of our fee income segments in later slides. Turning to page 12, net interest income increased to $22.2 million in the first quarter. The BTFP arbitrage was accreted to net interest income by $349,000. We can pay back the BTFP anytime before its due date in 2025 with no penalty. Adjusted core net interest margin, which excludes the impact of the BTFP arbitrage, was 2.44%, an increase of 7 basis points from the prior quarter. During the quarter, higher loan balances and rates, along with lower borrowings, helped drive margin expansion. We expect our reported net interest margin to continue to improve in 2024. After 2024, or when we repay BTFP, our reported net interest margin will revert to the core margin we show, primarily due to reduction in average earning assets. Should the Fed remain on pause, we continue to expect our net interest margin to improve. While the Fed outlook is uncertain, our ALM modeling shows that with a static balance sheet and at current spreads, our net interest margin will exceed 3% for the full year in 2026. Should the Fed cut interest rates sooner, we expect to get to 3% net interest margin sooner, depending on the timing and magnitude of rate cuts, especially as our net interest margin returns to being liability- sensitive, with $400 million of swaps maturing in July of this year and another $200 million of swaps in January of 2025. Let's turn to page 13 to talk about our earning assets. Total loans grew 1.4% from the prior quarter, driven by organic growth in C&I and commercial real estate. Our investment portfolio declined 2.2% as we continue to remix low-yielding securities into higher-yielding loans. For 2024, we continue to expect to see modest loan growth. While 7%-8% of loans are expected to contractually pay off during the remainder of the year, we do expect loan production to offset this runoff and expect our earning assets to continue to grow. Turning to page 14, on a period-ending basis, our deposits increased 6.1% from the prior quarter. The momentum in deposit growth we saw in the prior quarter continued into this quarter. While overall deposits grew, non-interest-bearing deposits balances decreased 4.9% and now represent 21% of total deposits. Overall synergistic deposits, so those sourced from our retirement wealth businesses, increased 3.7% from the prior quarter. Given the strong deposit growth, we saw our loans-to-deposit ratio decrease to 85.2%. For the second and third quarters of 2024, we do expect a seasonal outflow of approximately $200 million, mainly from our public funds. While these outflows will pressure deposit balances in upcoming quarters, we do expect deposit levels at the end of the year to rebound to the end of the year higher than where we ended 2023. Turning to page 14, I will now talk about our banking segment, which also includes our mortgage business. I'll focus on the fee income components now since I already covered net interest income. Overall non-interest income for banking was down $627,000, or 15% from the prior quarter. Most of the decline was attributed to $1.3 million of client swap income that was recognized in the prior quarter. This swap income does not relate to our balance sheet swaps. Rather, these swaps are done at the client level when a banking relationship would like to lock in a fixed rate by swapping out a floating-rate loan. This type of swap income tends to be lumpy and unpredictable. For the second quarter, we do expect the overall level of non-interest income to increase from the first quarter level, as we expect mortgage income to improve with a typical seasonal pickup in the second and third quarters. The current level of other non-interest income of $1.5 million is a better run rate on a go-forward basis, and we expect that level to be stable, as we do not expect any client swap income in the upcoming quarter at this moment. On page 16, I'll provide some highlights on our retirement business. Total non-interest income increased 2.2% from the prior quarter. End-of-quarter assets under management increased 4.9%, mainly due to improved equity and bond markets. Participants within retirement grew 1.5% during the quarter. As we did in our 10-K, we broke out the non-interest expense that is allocated to the retirement segment. The table in the top left does not include any credit for our synergistic deposits, since those earning assets of those deposits are within the banking segment. These synergistic deposits are highly valuable when compared to borrowing at FHLB, which are currently in the low 5% range. While almost 53% of our retirement synergistic deposits are indexed, 16% are non-interest bearing, and 31% consist of HSA deposits, which only carry a cost of funds of around 10 basis points-15 basis points. For the second quarter, we expect fee income from retirement business to be stable at $15.7 million, despite the recent downturn in the markets. Turning to page 17, you can see highlights for our wealth management business. On a linked quarter basis, net revenues increased 9.3%, while end-of-quarter assets under management increased 5.5% due to improved equity and bond markets. Over 85% of revenues in this segment are asset-based fees. Similar to the prior slide, we show on the top left the non-interest expenses allocated to the wealth segment, but we have also excluded any credit for our synergistic deposits. As you can see here, 88.6% of our synergistic deposits and wealth are indexed, while the remainder are non-interest bearing. For the second quarter, excluding any market impact, we expect fee income from wealth business to be stable given recent market volatility. Page 18 provides an overview of our non-interest expense. During the quarter, non-interest expense increased 0.9%, mainly due to higher seasonal compensation and benefits. As we continue to deal with inflationary pressures, we continue to expect expenses to grow for 2024 to grow low single digits when compared to 2023 on a reported basis. Turning to page 19, credit continues to remain very strong. We had net charge-offs to total loans of one basis point in the quarter. Our non-performing assets percentage was 17 basis points compared to 22 basis points in the prior quarter. Our allowance for credit losses on loans to total loans was 1.31%, or 498%, over non-performing loans. I will discuss our capital liquidity on page 20. Our Common Equity Tier 1 capital-to-risk-weighted assets is 11.9%, which is almost 200 basis points above the 9.9% stress minimum required by the largest financial institutions subjected to the Dodd-Frank stress test. On the bottom right, you'll see a breakdown in the sources of over $2 billion in potential liquidity. Overall, we continue to remain well-positioned from both a liquidity and a capital standpoint to support future growth or weather any economic uncertainty. While we did not repurchase any shares during the quarter, we have an active 10b5-1 share repurchase plan out there that is very disciplined in our share repurchase approach. The recent sharp runup in our share price ended up being above the repurchase levels we set in our 10b5-1 plan. Our 10b5-1 plan currently remains in place today. So to summarize on page 21, the momentum we had in the fourth quarter of 2023 continued into 2024. We continue to see organic loan growth and strong deposit growth. Our net interest margin continued to improve in the quarter. Even if the Fed remains on pause, we continue to see a path of the margin to improve to over 3%. Our fee businesses, which are non-spread-based, represented over 53% of revenue in the quarter and continue to be a differentiator for us. Our capital levels remain strong, and we remain committed to returning capital prudently. With that now, I will open it up for Q&A. Thank you. We will now begin the question and answer section. 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 headset before pressing the keys. To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. The first question comes from Brendan Nosal with Hovde Group. Your line is open. Hey, good morning, folks. Hope you're doing well. Hey, Brendan. Maybe just to start off here on the BTFP trade. At this point, is the intention to keep it on for the full 12 months, and then is it safe to assume that this is match-funded for 12 months? That is correct, Brendan. That's a safe assumption. The only time we would probably repay the BTFP is if we see that arbitrage opportunity not be worth our time. Yep. Yep. That makes sense. And then, I guess, following up on that, in terms of the margin more specifically, I appreciate the longer-term guide for 3%. It's certainly nice to see the continued core margin expansion this quarter. Can you maybe put a finer point on the NIM outlook for the rest of this year, kind of assuming that the Fed doesn't do a whole lot here? Yeah. So right now, we're a little bit asset-sensitive given our swap position. So there'll be a little bit if the Fed remains on pause, we still will see continued NIM improvement, and our liability sensitivity will return as our swaps roll off in July and then January of next year. So right now, the biggest wildcard for us, we'd have to say, is the deposit environment, Brendan. So we do expect gradual improvement through the year. But what I'm trying to give you to is even if the Fed is on pause between now and 2026, you could see our NIM where we are today on a core basis of 2.44%. You can just kind of map out gradually getting to an average NIM in 3% in 2026. That's how I would think about it. Yep. Yep. Okay. And then one more follow-up. Can you just remind us how much of a drag on the margin each of those two swaps that are rolling off later this year and early next year? Yeah. So the drag right now, I would say I mean, really, the way to think about it is in terms of the way we look at it in terms of our ALM modeling is that when we look at our disclosures right now, when we look at a down-100 scenario, right now, our NII is going to be down probably, let's say, 1%, okay, on a down-100 scenario. But then if you think about where we disclosed this back in 2022 when we didn't have the swaps in, our net interest income on a down-100 scenario was going to be up around roughly 6% or more. So that's the way I kind of think about it, though, how this impacts the swaps, is that we've gone from liability-sensitive to asset-sensitive. We eventually will return in a down-100 scenario to our NII being up around 100 basis points, sorry, about up around 6%. All right. That's fantastic. That's super helpful. Thanks for taking the questions. Okay. Thank you. The next question comes from Jeff Rulis with D.A. Davidson. Your line is open. Thanks. Good morning. Hey, Jeff. Just to follow up on the BTFP, the timing that you brought that on in the quarter and more specifically, thinking about does that represent a full quarter of impact, both NII and margin, in Q1? No, Jeff, I think there's a little bit more we could pick up there because we picked that up late January. Okay. Couldn't that be then, Al, a little more accretive to NII and a little more dilutive to margin? Correct. That's the way to think about it, Jeff. And then. When we say dilute the margin, we're often diluting the reported net margin, not core margin. Right. Right. Right. To that point, as long as you have that out there, again, we can kind of track reported and adjusted and then just assume that gap closes once retired. Is that how to sort of think about those two items? Correct. That's the way to think about it because there's a denominator effect on our average earning assets. So we have approximately in the around $300 million-$350 million range of average earning assets that's impacting that. So then if you take that out of the denominator, that's going to have a great impact. Yep. Okay. Maybe I'd pop to the retirement and benefits and Forrest being on the line. I wanted to get a sense for any, I may know the answer to this already, but just any tweak to the strategy. And I think one of the big parts of bringing ahead on here was also on the M&A or strategic end of things. So just anything to add while we got Forrest on the line? Yeah. Well, thanks, Jeff. Forrest Wilson here, and glad to be here. But yeah, I mean, really quick observations would be that this is a very solid business. It's not broke. There is opportunity for improvement, which I can address in just a second. But I've been very impressed with the team, a lot of tenured folks that are smart, experienced, dedicated. But there is a lot of opportunity here as well. Organic growth, I think we can see some nice pickup here over time. It's going to have to be paced out, if you will, but there's an opportunity for more partnerships like the one we have with MassMutual and the PEP market, which we have a nice foothold in. As you just kind of alluded to, Jeff, there's definitely some opportunities for acquisitions as the space continues to consolidate. I think we have to be really thoughtful with this. It's something that I have some experience with throughout the years. And as excited as we can get about acquisitions, and I do believe we'll likely do one, two, three, a few of them over time, we need to be very thoughtful as they can push you in the wrong direction as well. In line with that, Katie and I looked at one already that was going to look good at first, but when you dug in, it really wasn't going to be accretive to driving shareholder value, and we stepped out of that. But kind of the third and final thing that I'm seeing is that there's opportunity for efficiencies gained just through structure, which we're working on. There's a lot of process improvement that can be done. And then although we have a good technology platform, AI is coming in quick to this business, and there's a lot of opportunity there to leverage that. We're looking at that as well. So hopefully, that kind of gives you a little bit to answer your question, Jeff. Yeah. Appreciate it. Great overview. And maybe last one, just on the loan growth outlook. Coming out of the gate's pretty strong this year, and I think you sort of tamped that down. Could you just remind me why that sort of is it conservatively thinking for the balance of the year, or were there payoffs or anything that kind of moderates that growth outlook from a pretty strong first quarter? Jeff, this is Jim Collins. I'll take that one. I think it is, it's a little conservative, but I think we're being a little conservative because rates are staying higher. We did a lot of some growth in investor CRE and multi-housing in both of our largest markets, and we really need to make sure those stabilize and we don't go into those markets and put too many on the books right now until we see how those markets are going to develop. That was a lot of the growth we had at the back end of last year, which floated into the first quarter. We've had some solid C&I growth, a lot of new relationships, full TM loans, deposit relationships flowing in the first quarter. I'm bullish on that, but those relationships take a little while to develop. So we're just kind of harnessing that loan growth. I expect we'll definitely hit budget, maybe exceed it, but we don't want to throw out some numbers that we can't achieve. Great. Thanks, Jim. Thank you. The next question is from David Feaster with Raymond James. Your line is open. Hey. Good morning, everybody. Hey, David. Maybe just following up on some of this commentary around the balance sheet, managing it. You guys have been very active, right? We got the balance sheet restructuring. You put on the swaps, and liability sensitivity is going to resume in the back half of the year, like you alluded to, Al. I know you talked about NIM expansion exclusive of cuts and getting back to +3%, but I'm curious, how do you think about managing the balance sheet at this point and anything that you're considering or looking at and whether the prospects of a higher-for-longer environment impacts that at all? It doesn't sound like you're looking to put more swaps on, but I'm just kind of curious how you think about managing the balance sheet. Thanks for the question, David. So as we think about the balance sheet right now, I'd say first, let's just start with the investment side. I don't think there's much more to do there because our investment portfolio is in our targeted range of 15%-20% of total assets. And even though you saw yields come down in an investment portfolio just a tiny bit there, that's because a lot of our munis are low-yielding, and they're the HTM sides, which we're not going to sell. When it comes to the loan side out right now, there's just not much of a market out there to really sell some of our loans. So right now, it's just remixing the balance sheet, especially as Jim and his team kind of comes in with more commercial relationships and kind of just which is going to come in with higher-yielding loans for us. So it's kind of that remixing that's going to happen there. So if there's an opportunity for us to maybe offload, especially some one-to-four family, we'll look into it, but that's going to take some severe rate movement to happen. And then the last part of it, in terms of the swaps, I mean, I think the only thing you'll see us probably do as a liability-sensitive returns is that we're probably going to do something, a swap in the sense that just making sure that we're still managing our interest rate risk from an ALM modeling standpoint because we do have, as I alluded to, that on a down-100 scenario, our net interest income will improve high single digits. We just want to make sure on the tail risk that we don't have any sort of tail risk that we need to worry about. So we might just employ some swaps on the tail end, just probably collars of some sort to maybe just manage that risk. Okay. And then maybe kind of too, just kind of following up on that, I guess, do you have any details on the repricing side for your fixed loans or fixed-rate earning assets in general that are going to be maturing in the next 12 months or so and the pickup that you'd expect on those? And then how do you think about funding the public fund outflows that you're expecting this quarter and next? Yeah. So on the first part of it, in terms of what's coming on the book and what's going out, I mean, we're probably going to get a little bit of a pickup here of a couple hundred basis points of what's rolling off to the stuff we're putting back on. So that's the way to think about it. And then, like I said, about 7%-8% of our book, our loan book, is going to roll off this year in terms of just gross loans. And then. On the deposit side, David, I would say we picked up 12 fairly significant C&I relationships in just the first quarter in just the Twin Cities. Clearly, we have public funds that come in for six months, and then they slowly drain out, and then they come back towards the end of the year. A lot of the prospecting that the C&I teams are doing in all markets are going to help fund some of that public funds deposits that are leaving. They won't be able to fund all of them right away, but those relationships grow deposits over time. All those deposits don't come in right away. So we will see some good deposit growth, core deposit growth of existing and new relationships to help tamper down the public funds leaving, but there will be a differential that we'll have to fund. Right. And David, this is Al, one more just to build on what Jim said there too. While we see seasonal outflows in our public funds in the second and third quarter, we do see that building back up both in the fourth quarter and in the first quarter of the next year. So we're just seeing a temporary seasonal outflow right now that should pick back up in the back half of this year. Okay. And the gap between the deposit growth, would you just plan on using cash, or just kind of curious how you think about funding that gap if there is any? Yes. Probably cash or if we need to develop some short-term borrowings. Perfect. And then just touching on the credit front. I mean, credit remains pristine, right? You guys have a great reputation as a really conservative underwriter. I'm curious, as you step back I mean, obviously, there's a hyper-focus in the market on CRE, right? As you step back and look, and you look at your portfolio, you stress things, and you look in the market, I'm curious, what are you watching closely? What are you seeing? Is there anything that's causing you any concern at this point? And then just maybe from a competitive standpoint, is the competitive landscape maybe a bit more rational today? Curious kind of what you're seeing on that front. Sure, David. This is Karin. I'll take that one. We obviously take a look at our refinance risk. We're fortunate in when we started growing our CRE book, rates started to increase. So our refinance risk, we feel, is limited and very manageable. We do have some construction deals on the books, and like others, we're just watching the stabilization periods. Our deals are performing well, but we're certainly cognizant that we could see some slowness in stabilization. Generally speaking, though, the fundamentals in our market for the asset classes we're in are very strong. And so we're not overly concerned but certainly watching it. In terms of competition, yeah, I would say it is more rational. I mean, there certainly are players who have concentrations. We've seen growth, but we're not overly concentrated. And those that are have pulled back and aren't lending to the same degree they were. Perfect. That's extremely helpful. Thank you. Thank you. The next question comes from Nathan Race with Piper Sandler. Your line is open. Hi, everyone. Good morning. Thanks for taking the question. Hey. Good morning. Just thinking about the wealth management revenue growth outlook going forward, curious to get an update just in terms of the success you guys are having in terms of transitioning clients from the retirements platform onto the wealth and what added tailwinds we can expect in terms of organic AUM growth with some of the private bankers that have been added over the last few quarters. Yeah. Hey. This is Jim. I'll take that one. So the terminated participant plans, so the plans that are rolling off of our 401(k) group into our wealth, we've implemented some new tactics and some new tracking mechanisms, and that is actually increasing and going extremely well. We anticipate that that will only increase over time as we learn from how we're building this out a little bit better. So I suspect that that will continue. We are also a little bit more active in recruiting some additional wealth advisors in that space because we need more capacity. So we're actively recruiting, and I think we're finding some pretty good success in recruiting some of those individuals in that space. So that will help as well. As far as the private banking team, they really launched the end of last year, early this year. We're having a lot of success with the private banking team and the mortgage department as well as the wealth team. We've also had some pretty good success with commercial businesses that are selling, with the wealth group and the private banking group getting in early before that announcement of the business sale and that liquidity event and capturing a big chunk of that liquidity. We had one specific large event this quarter. That's that example, and we'll probably harness about 2/3 of that liquidity event in our wealth department. So as that continues to build in all markets, really, we're focused on the private banking and the Twin Cities now. We should be launching in Arizona later on, second quarter, early third quarter, and continue traction. I only see positives out of that. Okay. Great. Very helpful. And then just curious to kind of think about kind of the trajectory of deposit costs over the course of the quarter and if you have a spot rate on deposit costs at the end of March? Yeah. So the way I think about it right now is we continue to see migration from non-interest bearing to interest bearing. So right now, I mean, we continue to see that pressure, which is going to be pushing up our deposit costs slightly. But I'd say that our overall deposit beta has slowed down dramatically. So I'd say right now that we probably see just marginal increases in our overall deposit costs from these levels, but there's still going to be pressure, and the bigger pressure will just continue. The question is now going forward is how much pressure comes on the non-interest bearing side as people move into interest bearing. Yeah. I guess as the competitive environment stands today and based on your pricing, I mean, is it fair to expect, at least, that the magnitude or pace of deposit cost increases slows from here? Yeah. I think that's fair. I mean, we've seen CD rates, especially from our competitors. They've rolled back some and so have we. So we've seen at least those, especially in anything beyond 12 months, have come down, especially with the inversion on the curve. But overall, I'd say that our cost of deposits today are still somewhere in the Fed funds - 75 to -100 basis points. Okay. Got it. And then just lastly, I got in late, so I apologize if you already touched on this, but I think you guys have modest loan growth, at least near term. You guys have exceeded that based on the similar guidance here for the first quarter. So just curious, is it just elevated payoff expectations potentially that's weighing on that outlook coming into 2Q, or just any other thoughts on how we should think about loan growth over the remainder of 2024? Yeah. No problem, Nate. I'll turn it over to Jim here in a second. Just so you know that we're expecting about payoffs of around the 7%-8% of total loans for the remainder of the year. And then Jim can comment on the color of what's going on. Yeah. So some of the growth we had in the tail end of last year and this year was really centered around investor CRE. There's a heightened focus on C&I growth in all markets, and that tends to be larger lines of credit, but that aren't funding automatically. And those relationships take a little bit more time versus a transactional CRE deal that funds right away. So that's what's tempering that in our forecast. But we're still very bullish on bringing in new relationships for the rest of the year. Okay. Great. I appreciate that, Collins. Thank you. Thanks, Nate. Oh, and sorry, if I could ask one more thing. Oh, sorry. On the tax rate going forward. No problem. problem. Oh, yes, Nate. I would suspect our tax rate. We did see a little bit of gravitating up in other states, some taxes, just some recent changes. So I would say somewhere around 24% approximately is a good tax rate to use on a go-forward basis. Thank you. The next question is from Damon DelMonte with KBW. Your line is open. Hey. Good morning, everyone. Hope you're all doing well today. Just curious on the mortgage banking outlook, with rates remaining kind of stubbornly high here, is there any concern that the typical seasonal increase here in the second and third quarter might not be as favorable as it has been in the past or that you may be expecting? We're still tracking pretty close for the second quarter, but we won't be surprised given that the rates are higher and the inventory is a little lower in our largest markets, that we're going to follow up a little light on that for the second quarter. And then we'll see what third and fourth quarter look like. But second quarter and third quarter are really where we're going to see some should see that growth. So our budgeted number, we're still keeping that number because we can, I'm pretty confident we can come close to that, but second quarter might be a little light based off the rates and demand. Got it. Okay. That's helpful. And then with regards to the loan growth and the opportunities, how does Arizona factor into your outlook? Is that a meaningful contributor to the overall growth, or is it still being driven primarily by the Twin Cities? As of right now, it's driven more by the Twin Cities than Arizona, but we added a fair number of bankers last year that are getting through their learning curve. And then we have our existing team down there. Certainly, the expectations this year and what seems to be in the pipeline is very advantageous. So they're going to be a larger contributor over time, but I think this year we'll see a significant contribution from them versus what we've seen in years past. Okay. Great. And then just last question. All my other ones were asked and answered. With regards to the expected fair value accretion, I think it was a little bit lighter this quarter. Al, what would be a decent level we could incorporate into the margin for that? I'm sorry. I missed the question there. Damon, one more time? Fair value accretion expectations. I believe it came in lighter this quarter than we had seen the last couple of quarters. But is there kind of a scheduled level that you would expect going forward? No. I'd say just using this level going forward, I mean, that's probably the way to think about it. Okay. Fair enough. That's all that I had. Thanks a lot. Appreciate it. Thank you. The next question is from Brendan Nosal with Hovde Group. Your line is open. Hey. I just wanted to circle back on the swaps. I realized that I probably didn't phrase my question the best way. We happen to have the pay and receive rates on both those chunks just because there are benefits to the margin now but would not be so if the Fed cut rates. Yeah. So Brendan, the one thing I could point you to in our latest K and Qs, you could see there where the disclosures are for our swaps, and you could see what we put on the books there. But basically, what we've done is we swapped out some fixed and put on some floating, which has made it a little bit more asset-sensitive. Hence why we've moved there. But we haven't really disclosed really the pickup there. Okay. Understood. Understood. That's fair. Thanks. Thank you. This concludes our question and answer section. I would like to turn the conference back over to Katie Lorenson for any closing remarks. All right. Thank you. Thank you to everyone joining our call today. Thank you for the questions. We appreciate it. At the end of 2023, we turned a pivotal corner in our company's transformation to return to our long history of delivering top shareholder returns. During the first quarter, the momentum grew and has put Alerus on a strong path for 2024 and beyond. We continue to see organic opportunities and improvements in our net interest margin, which will positively impact our earnings going forward. Our highly valuable fee-income businesses, driven mostly by stable annuitized recurring revenues with minimal risk and capital allocation, continue to bolster our performance and will be a key differentiator as we emerge from this rate and economic cycle to outperforming the industry. Our continued focus on core deposits and serving clients holistically with our talented team members across our unique business lines is growing our franchise and growing our brand. I'm completely confident in our ongoing success and our team's ability to execute on our strategic plans to create value for our clients, our communities, and our shareholders. I will end by thanking our talented team members again for your hard work, your dedication, and for making Alerus a great company to do business with and a great place to work. Thank you, everyone. Have a great day. Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.