Alerus Financial Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 25, 2024

There are 9 speakers on the call.

Operator

Good afternoon. Welcome to the Alaris Financial Corporation Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

Operator

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 Valeris Financial Corporation President and CEO, Katie Lorentz. Please go ahead.

Speaker 1

Thank you. Good morning and thank you for joining Valeris' Q2 earnings conference call. Joining me on the call today is CFO, Al Villalon Chief Risk and Operating Officer, Karen Taylor Chief Banking and Revenue Officer, Jim Collins our Chief Retirement Services Officer, Forrest Wilson. I will kick off the call today with an overview of the results for the quarter, a recap of some strategic highlights, some additional color on credit during the quarter and an update on our pending acquisition of HMN Financial. For the quarter, we reported net income of $6,200,000 or $0.31 of earnings per share.

Speaker 1

Operating results for the quarter generally exceeded expectations with continued improving trends across our diversified sources of revenue, driving impressive improvement in PPNR or pre provision net revenue of 48% on a linked quarter basis. The team we are building continues to excel in adding full client relationships across our commercial wealth and private banking segments. Notably, we exceeded expectations for deposits at the end of the quarter with our 5th straight quarter of deposit growth in a very difficult and competitive deposit environment. A huge shout out to our team members who have done a fantastic job again sourcing new core deposit relationships, retaining inflows and capturing liquidity opportunities. This success allowed us to see deposit balances tick up and offset substantial seasonal outflows.

Speaker 1

Deposit wins were sourced from all markets and generally the result of our One Alaris approach to holistic opportunities to serve clients across the suite of commercial and private banking, treasury management and wealth advisory services. In addition, we continue to build balances across our synergistic deposits, including our health savings accounts and wealth management and retirement money market portfolio. Our loan to deposit ratio ended the quarter at 88% and continues to be a high quality deposit portfolio that is well diversified by size, geography and type. We saw some growth in our CD base, which notably has a low level of CD only clients. And as emphasized in the previous quarters, we continue to operate and fund our loan growth with 0 broker deposits.

Speaker 1

For the quarter, we grew loans 4.2%. We remain highly selective and disciplined in both pricing and credit, and we continue to build a best in class team of bankers and risk management experts who have strong credit acumen and deep experience in vetting opportunities and working with entrepreneurs, business banking and mid market commercial clients. Consistent with our efforts and focus on commercial banking, we added a team of veteran equipment finance professionals in our Arizona market to complement our strengths in C and I and to continue adding to our already well diversified loan portfolio. All these efforts resulted in an increase in net interest income of approximately 8% and adjusted net interest margin expansion of 13 basis points during the quarter. Moving on to fee income, which is the strategic differentiator for Alaris.

Speaker 1

It contributed to over 53% of total revenues and we ended the quarter at $43,600,000,000 of AUA and AUM. All core underlying businesses business lines saw fundamental improvement with total fee income increasing 8.1% during the quarter. Our retirement leader, Forrest Wilson, who joined us just a few months ago, has made an immediate impact, including assembling a talented retirement leadership team and addressing strategic opportunities, which we believe will continue to improve client retention, client acquisition and overall profitability of this highly valuable division. The retirement industry national rankings were recently published with Alaris moving ahead for the first time to a top 25 or better in all categories measured, including assets, plans and participants. Our growing wealth management division delivered another solid quarter of results with continued momentum driven by strong core business within the mass affluent and the high net worth client base.

Speaker 1

New revenue pipelines remain strong and synergistic opportunities are building. We delivered a solid quarter of managing expenses with expenses down slightly. While we continue to invest in talent, we remain committed to thoughtfully managing these investments through FTE count. These disciplined efforts focused on constant improvement, leveraging our technology platforms better, and seeing higher production and revenue generation with similar expense base are all part of our path to continued improvement in efficiency and profitability. During the quarter, we recorded a $4,500,000 provision expense resulting from expected gradual credit normalization towards more historical levels from the past years of completely benign credit metrics.

Speaker 1

After 15 straight quarters of immaterial charge offs or net recoveries, we had a charge off of a non accrual C and I loan that was nearly fully reserved for in previous quarters. Our allowance to loan losses remained at 1.31 percent consistent with prior quarters as we replenish the balance to account for loan growth and the impairment of a previously identified problem loan, which was moved to non accrual during the quarter. This previously classified loan is a commercial real estate construction loan that has had missteps in the construction process. The market data supports the feasibility of the project and the borrower has injected additional capital into the project. They have additional levers to pull to keep this project moving forward through stabilization.

Speaker 1

We continue and remain committed to prompt identification and movement in credits where there are challenges. And given the additional time needed to execute these particular credit, we determined it was prudent to place this credit on non accrual. We have reviewed our commercial real estate construction deals all are performing as expected. The broader loan portfolio continues to perform well and overall classified loans trended down in the Q2 with material upgrades and payoffs. Our priority and core focus continues to be building our commercial wealth bank and our loan mix will continue to trend higher levels of C and I, which today accounts for approximately 30% of the portfolio with another 30% percent of the consumer and residential and the remainder in a granular and well diversified CRE portfolio.

Speaker 1

Overall, investor CRE levels at 213% remain well within regulatory threshold and well under most of our peer group. In addition to robust reserve levels at 1.31%, we remain well positioned with healthy capital levels with a CET1 of 11.7% and adjusted TCE of 7.91%. During the Q2, we continued our long history and raised our dividend of dividend raising our dividend and raised it by another 5.3%. Lastly, a quick update on the recently announced acquisition of HMN Financial. As a reminder, this is our 26th acquisition and the teams are working great together leveraging the experience and the expertise to seamlessly integrate our 2 great companies.

Speaker 1

We are also progressing on schedule through the regulatory and shareholder approval process and we continue to anticipate a closing in the Q4 of this year as indicated previously. I will now hand it over to Al Villalon, CFO for additional recap and guidance.

Speaker 2

Thanks, Katie. I'll start my commentary on Page 13 of our investor deck that is posted on the Investor Relations part of our website. Let's start on our key revenue drivers. On a reported basis, both net interest income and fee income grew over 8% during the quarter. The increase in net interest income was driven primarily by strong organic loan growth, growth in non interest bearing deposits and continued expansion in our core net interest margin.

Speaker 2

Growth in fee income was primarily driven by an increase in oral asset based and non market based fees within our wealth and retirement businesses business lines and a seasonal rebound in mortgage. Fee income continues to be a large component of overall revenues and a differentiator for Laris. I'll go into detail about each of our fee income segments in later slides. Turning to Page 14, net interest income increased to over $24,000,000 the Q2, primarily driven by improving loan yield and strong loan growth coupled with stable deposit levels. The bank term funding program arbitrage was also accretive to net interest income by $459,000 Within the quarter, we recognized approximately 10 basis points of total accretion from the 2022 Metro Phoenix Bank acquisition.

Speaker 2

Excluding purchase accounting accretion from the Metro acquisition and the impact of the BTFP, core net interest margin still expanded 6 basis points to 2.46% from 2.4% in the prior quarter. In the upcoming quarter, we still expect our net interest margin on both a core and reported basis to improve a couple of basis points. Excluding the impact of NPB and our swaps, our ALM modeling shows our NII increasing mid single digit should the Fed cut by 100 basis points. Based on Fed dot plot, we still see a path for our NIM to exceed 3% in 2026. Should the Fed cut more aggressively, we anticipate reaching 3% sooner.

Speaker 2

Let's turn to Page 15 to talk about earning assets. Since the acquisition of Metro Phoenix Bank, we had our 7th consecutive quarter of loan growth. Over those 7 quarters, we grew loans at an average unannualized rate of over 3% per quarter. Continue to let our investment portfolio run down as we remix low yielding securities into higher yielding loans. For the remainder of 2024, we continue to grow loans even with 6% of our loans contractually paying down in the second half of the year.

Speaker 2

Turning to Page 16. On a period ending basis, our deposits increased 0.4% from the prior quarter. While we saw our usual seasonal outflows from our public funds, we continue to drive organic deposit growth to offset these outflows. Importantly, non interest bearing deposits grew 1.3% in the quarter and remained stable at 21% of total deposits. During the quarter, our deposit activity was impressive as average account size wins were double the size of accounts lost during the quarter and we continue to experience a net increase in overall accounts as well.

Speaker 2

Given the stable deposit levels, our loan to deposit ratio was well below our target level of 95%. For the Q3 of 2024, we continue to expect a seasonal outflow of approximately $800,000,000 While these outflow pressure deposit balances in the upcoming quarter, we do expect deposit levels to be slightly higher from current levels at the end of the year. Turning to Page 17, I'll 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 from banking was up $1,400,000 or 39% from the prior quarter.

Speaker 2

Most of the increase was attributed to a seasonal rebound in our mortgage business. During the quarter, we also recognized $628,000 in swap fees as we continue to grow our mid market C and I Banking business. As a reminder, the swap income is client driven, so it tends to be lumpy and unpredictable. For the Q3, we expect the overall level of non interest income to decrease slightly from the 2nd quarter level as we expect mortgage revenues to slow and another non interest income to be closer to a normalized level of $1,500,000 On Page 18, I'll provide some highlights of our retirement business. Total revenue from the business increased 2.7% from the prior quarter driven by both asset based and non market based fees.

Speaker 2

End of quarter assets under management increased 2.3% mainly due to improved equity and bond markets. Participants within retirement grew almost 1% during the quarter. For the Q3, we do expect fee income from retirement business to be stable. Turning to Page 19, you can see the highlights of our Wealth Management business. On a linked quarter basis, revenues increased 4%, while end of quarter assets under management decreased 1.7% mainly due to an outflow for 1 custody client in the quarter where we charged minimal basis points.

Speaker 2

For the Q3, excluding any market impact, we expect fee income from our Wealth business to be up slightly given the continued improvement in the markets. Page 20 provides an overview of our non interest expense. During the quarter non interest expense decreased 0.7%. During the quarter we also incurred $563,000 in one time merger related expenses related to the pending acquisition of HMN Financial. Excluding these merger expenses, core non interest expense decreased 2.1%.

Speaker 2

We now expect total expenses for 2024 to grow mid single digits when compared to 2023 on a reported basis as further merger related expenses will be incurred. Turning to Page 21, you could see our core our credit metrics. We had net charge offs to average loans of 36 basis points in the quarter, primarily related to a non performing loan, which already had an individual reserve allocated in the prior quarters. Our non performing assets of total assets percentage was 63 basis points compared to 17 basis points from the prior quarter. This is still below the industry average for regional banks of approximately 73 basis points over the past decade.

Speaker 2

As Katy mentioned, the increase was here was related to one previously identified construction loan that was moved to non accrual status. I'll discuss our capital and liquidity on Page 22. We continue to remain very well capitalized as our common equity Tier 1 to risk weighted assets is 11.7%. We also maintained our status as a dividend aristocrat. We increased our dividend consistently over the last 20 years.

Speaker 2

On the bottom right, you will see the breakdown in the sources of over $2,500,000,000 of potential liquidity. Overall, we continue to remain well positioned from both liquidity and capital standpoint to support future growth or whether any economic uncertainty. To summarize on Page 23, we had robust second quarter we had a robust second quarter as pre provision net revenue improved over 48% from the prior quarter. We continue to see strong organic loan growth and strong deposit growth that offset any seasonal outflows. Our net interest margin continued to improve as we continue to see a path where margin can improve to over 3%, even if the Fed remains on pause.

Speaker 2

Our fee businesses also drove and improved returns, which continue to differentiate us in the industry. We remain focused on driving revenue growth and managing expenses, leading to positive operating leverage improvement during the quarter. Both our reserve and capital levels remain strong to weather any economic uncertainty. And with that, I will now open up for Q and A.

Operator

The first question comes from Brendon Nosal with Holt Group. You may proceed.

Speaker 3

Hey, good morning folks. Hope you're doing well.

Speaker 4

Hey, Brendon.

Speaker 3

Just want to start off on the construction credit that migrated. Just looking for a couple of additional color points here. Just kind of curious what the reserve is against it at this point? How far through the construction phases in project? And what your evaluation of default risk is at this point?

Speaker 1

Hi, Brendan. This is Karen. We have about 25% reserved on that particular credit. The project is 80% complete. And at this point, we believe that they have very feasible options to deliver the remaining equity needed to

Operator

complete the

Speaker 1

project. However, we learned about this fairly late in the quarter, in fact, shortly after quarter ended. And so we've got some more work to do to assess those options.

Speaker 5

Okay.

Speaker 3

And then, Al, just turning to the margin commentary you gave, just want to make sure I understood the outlook properly. Is it correct that you expect a few basis points of expansion next quarter off of that 3.57% core number?

Speaker 2

Not $357,000,000 of the core and reported number.

Speaker 3

Sorry, yes. Yes. Okay. And then how does the $400,000,000 of swaps rolling off kind of impact this next quarter?

Speaker 2

Yes. So we had $400,000,000 of swaps roll off in July and we have another $200,000,000 rolling off in January of 2025. What we're seeing right now is that you're going to see us return to slightly asset sensitive sorry, liability sensitive, let me correct that, from being asset sensitive. So as rates come down, you'll see us again probably have our NII improve about mid single digits should the Fed cut by 100 basis points.

Operator

Thank you. The next question comes from David Feaster with Raymond James. You may proceed.

Speaker 6

Hi, good morning, everybody.

Speaker 7

Hey, David.

Speaker 6

Maybe just staying on the margin topic, Al, I appreciate your commentary about the getting to a 3% margin even ex cuts because I mean there's obviously a huge repricing power. I just wanted to maybe get a sense of whether there was a timeframe that we could talk about getting there? And does that include the HMNF deal as well?

Speaker 2

Yes. So David, thanks for the question there. So the timeframe we're talking about is getting to 3% in 2026 on an average or for the full year 2026. So if you think about that, which should be in the low 3s for the full year 2026. So you can get that ramp up between now and then.

Speaker 2

And we're looking right now on basically on our ALM modeling on a static balance sheet basically. So just a remixing of what we're doing today and then putting on the stuff we're on at the current rates today. So just remixing. And this does not include HMN. This is just our balance sheet today.

Speaker 2

So with HMN coming on, we'll give guidance to that later, but there we're probably going to get there 3% is not going to change our outlook.

Speaker 6

Okay. But HM and A should be accretive to the margin? Yes. That's correct. To that 3%.

Speaker 6

Okay, perfect. Okay. I just want to make sure I understood that. Okay, terrific. And then I want to touch on it's great to see the equipment finance team that you guys added.

Speaker 6

I guess how quickly do you think this team can start adding to growth? What are some of the cross sell opportunities that you might see or other synergies? And do you think there's opportunity to drive deposit growth potential from that group

Operator

as well?

Speaker 4

Yes, David. This is Jim. The business strategy for bringing them on is that that's a key segue product in the mid market companies that are with other banks. So we will use that as a wedge product to get into those mid market companies and take over the full relationship. Typically, there would be an ask of 30% of the equipment note in deposits.

Speaker 4

That's our goal when we are just doing a straight up equipment piece. Now, obviously, we are going for the full relationship. So this team is building that out the rest of this year. We will have some activity this year, but the full activity will start next year. We are integrating them with our existing C and I sales force, specifically the commercial group that's doing C and I in the mid market.

Speaker 4

So the cross sell opportunities go along with our full commercial wealth business model where we want them to get us into the full C and I relationship for that company and then we want to bring in private banking, treasury management and wealth services and then tack on our 401 group. So the business plan is the same. This is just a better segue into some of the markets where we don't have firm mid market C and I activity.

Speaker 6

Okay. That's great. And then just curious, maybe given the move in rates, has your thoughts on balance sheet optimization changed at all? I mean, it seems like it might give you some more flexibility, especially with the HMNF deal. I'm curious just gives you some more flexibility.

Speaker 6

Has your thoughts on optimization or any strategies in the intermediate term change at all?

Speaker 1

I'll kick us off and then Ali you can come in after me. We are constantly assessing balance sheet, recapturing, optimization opportunities. And we do believe with the addition of home HMN that is going to give us additional opportunities to evaluate.

Speaker 2

And one thing I'd add on there, what Katie said too, I mean, as you could with HMN at that acquisition, with equipment leasing team coming on, with the impressive deposit growth we've had, we're constantly looking at ways to optimize our balance sheet. And it's not just for the short term, it's for long term because as we want to think about our balance sheet positioning, we are right now liability sensitive, but over the long term, we want to get to be slightly asset sensitive because we have an inherent liability sensitivity on our fee income set businesses with when interest rates go up, typically that slows the markets down, which will hit AUM in both the retirement and wealth businesses and also slows down mortgage. So we'd like to see that spread income business for us to be just a tiny bit asset sensitive, again, to provide that seesaw. So we're constantly evaluating opportunities to optimize and get our balance sheet to that position. Okay.

Speaker 6

That's great. If I could just squeeze 1 more in. Great to hear the commentary about the new account, the new deposit account growth that's extremely encouraging. I guess, where are you having the most success and kind of just your thoughts on continuing to drive that account growth and ultimately translate into core deposit growth going forward?

Speaker 4

Dave, most of our success to this point is in that mid market C and I and government nonprofit vertical. Again, bringing on the talent that we brought on in the last year and a half, having them focused on their long term relationships and their long term reputations and segueing those relationships into fuller relationships over here at Alaris is really where we found most of the success and it's been broad. It's been all over in different industries in mid market and different segments in government nonprofit. But also I would say our retail team has done a fantastic job just sitting down with customers and gravitating more of the cash that they might have at other institutions into our institutions. So it's really broad based across all of our revenue streams, but the focus is and will continue to be in that mid market C and I deposit, large depositors and verticals that will add a lot more deposits as supplement our loan growth.

Speaker 5

That's great. Thanks everybody for all

Speaker 8

the color.

Speaker 6

I appreciate it.

Speaker 1

Thank you.

Speaker 2

Thanks David.

Operator

Thank you. The next question is from Nathan Race with Piper Sandler. You may proceed.

Speaker 5

Yes. Hi, everyone. Thanks for taking the questions.

Speaker 4

Good morning, Nathan.

Speaker 5

I apologize, I jumped on a little late, but we're just curious if you could provide additional color on the construction loan that moved to non accrual this quarter in terms of when it was originated, the underlying property type and so forth and any potential loss content expectations associated with this? And then also just curious to hear some background on the C and I loan as well that seems like it was reserved for going into the quarter in terms of when this loan was originated and any reasons behind why it deteriorated in the quarter?

Speaker 1

Sure, Nate. This is Karen. We'll start on the construction loans. It is a multifamily loan. It was originated in August of 2022.

Speaker 1

The issues with it are around construction management. The fundamentals in the market for multifamily remain very strong. And this is a well positioned project in terms of location to amenities, public transportation, major employers. And so the borrower has stepped up and injected equity at this point to cover the cost overruns. They continue to have those options available, but there's been a delay in terms of when we expect this next injection, which is why we moved it to non accrual when we did.

Speaker 1

That said, they do continue to have feasible options to bring equity in. I mentioned in response to an earlier question, our reserve on it at this point is about 25%. It happened late in the quarter, in fact, actually early Q3, just after quarter end. And so we're still working on assessing those options being presented by the borrower. With regard to the loan where we took a charge off, it is a C and I credit.

Speaker 1

It was originated back in 2020, shortly before the pandemic. When the loan was originated, it was part of a business repositioning. And unfortunately, it was impacted substantially by COVID.

Speaker 5

Understood. That's very helpful. Thank you, Karen. And just curious, as you look out over the next couple of quarters, what your expectations are just in terms of charge off levels. I imagine this quarter will prove to be fairly idiosyncratic, but just any thoughts on kind of what you're seeing in terms of a normalized level of charge offs in the current environment?

Speaker 1

Sure. Just generally speaking in terms of credit outlook, we've seen normalization. So this construction deal aside, our migration appears very typical to what it was prior to COVID. And as Katie mentioned in her comments, we actually had net upgrades, which reduced our overall levels of criticized compared to the Q1. With regard to charge offs, the one bit of uncertainty I would say for this next quarter is just as this company that we took the charge off on this quarter moved into liquidation, we're going to be getting updated valuations so we could see some further adjustments there.

Speaker 1

Remaining balance on that loan is about 2,500,000

Speaker 5

Okay, great. Maybe changing gears, Al, I apologize if you touched on it, but just is the expectation still that the BTP will remain on balance sheet at least through the end of 2024?

Speaker 2

Yes, that is correct, Nate. We expect that to maintain it through the end of the year.

Speaker 5

Okay, got it. Expenses were really well controlled in the quarter. Any thoughts on how we should think about the run rate in 3Q and 4Q?

Speaker 2

Yes, we do I did I gave a little bit of guidance saying that overall 2024 expenses should be up mid single digits now when you include merger related expenses. So when you compare on a reported basis to 2023, we'll have a little seasonal uptick here in terms of some tech spending we have that was that just typically hits us in the second half of the year. Altitude, incentive comp, as things are going well for us to do a pie see a tick up there. But overall, we're looking we continue to look at ways to manage expenses prudently and we're still looking at some of our mid single digits on a reported basis.

Speaker 5

And that includes HMNF potentially close in the Q4 or no?

Speaker 2

That is including HMF closing in the Q4, correct.

Speaker 5

Okay. Yes. And on that front, just curious if you could provide any other update in terms of how that integration is going, what the reception has been in Rochester among both clients and employees at HMNF and kind of how you're progressing on the approval front and kind of when you guys expect to close the acquisition in the Q4?

Speaker 4

I will jump in real quick on the employees and the customer standpoint. Everything is going, I would say, extremely well. The employees are very engaged and looking forward to rolling into our balance sheet and our product set. The customer feedback has been again very positive going with a local community bank with a lot of ties into Minnesota and the Northern Upper Midwest and looking forward to having a little bit better product mix and a little bit better reach. So very positive.

Speaker 1

Yes. I would add, just on the customer front, a number of their clients are very familiar with Alaris as they are retirement benefit clients already and so that was a positive. From an integration standpoint, the teams are working very well together. Obviously, as this is our 26th acquisition, we have a lot of experience and have learned a lot and are progressing very well in that regard. We are targeting a closed end conversion for the Q4.

Speaker 1

And it appears at this point from a regulatory standpoint that things are progressing well in terms of hitting those dates.

Speaker 5

Okay, great. And then one last one for Katie, just any update in terms of with the new Chief Retirement Officer on board, how things are progressing in terms of discussions with potential partners that you guys can potentially come to an acquisition arrangement with within retirements?

Speaker 8

Yes. Hi, Nate. This is Horace Wilson. Thanks for the question. Yes, so we've been fairly quickly able to establish a fairly experienced team.

Speaker 8

Myself and a number of others do have quite a bit of acquisition experience and also contacts within the industry. So our goal is growth, as you know, and we've kind of used these contacts to put feelers out so forth. Our goal is to look at as many acquisitions as we can. Experience has taught me and our team that we need to be very, very selective because they can send you in the wrong direction as quickly as they can help you grow. So you want to be very selective.

Speaker 8

So excited about kind of the start we're off to on this front. We're looking at a few right now. I would say that nothing is imminent, but we are actively looking and intend to be that way for some time and partnering with Katie and Al and others to execute here.

Speaker 5

That's great color. I appreciate that Forrest and all the other color in answering my questions. Thank you everyone.

Speaker 8

Thanks, Dave. Thanks,

Speaker 6

Dave. Thanks.

Operator

Thank you. The next question is from the line of Matt Rinck with KBW. You may proceed.

Speaker 7

Hey, everybody. Hope everybody is having a good day. My first question, just a follow-up to the balance sheet optimization questions. How high are you comfortable letting the loan to deposit ratio get to before maybe you pumped up for ex on growth a bit or is that not necessarily the way you're looking at it?

Speaker 2

I mean, right now, we've told a lot of what we have a target for is and what I said earlier in the call is we're looking at a 95% loan deposit ratio. That's kind of our internal target right now. But we're seeing really good activity right now, so there's nothing leading us cause us to think about pumping the brakes at the moment.

Speaker 7

Okay. Got it. Got it. And then just one question on deposits. I know you guys said you were focused on kind of the middle market commercial deposits, but with synergistic deposits up 17% year over year, I was just curious how rate cuts might have impacted growth rate of that deposit line item?

Speaker 2

So we don't see material impact there because a lot of those clients are synergistic side, they come from our wealth and retirement businesses. And those customers that we did a deposit study and those are very long tenured clients of ours. So unless there's a big remixing in the portfolio mix and we don't see a big shift in that. And typically what we've seen over time is that those as people continue to save for more retirement, we see those balances actually increasing. So hence why you've seen that consistency in synergistic deposit growth over the last several years for us.

Speaker 3

Okay. Yes.

Speaker 7

I'll step back now. Thank you.

Speaker 5

Okay. Thanks, Matt.

Operator

Thank you. This will conclude our question and answer session. I would like to turn the conference back over to Katie Lorentzon for any closing remarks.

Speaker 1

Thank you. And thank you to all for joining our call today. We appreciate your questions. We appreciate your feedback. Overall, very solid quarter from a fundamental operating standpoint.

Speaker 1

From a credit and lending standpoint, we will remain proactive. We will remain disciplined in our underwriting and committed to constant reviews, stress testing and timely identification of issues utilizing both internal and external resources. We believe we've turned the corner with NIM expansion and solid revenue growth across our differentiated business model, and we look forward to continued progress towards the approval and closing of our HMNF deal. We are positioned for sustainable growth and increasing profitability over time, which will lead to book and shareholder value creation. Thank you to all of our talented team members for your continuous hard work and making Alaris better every day for our clients, our communities and our shareholders.

Speaker 1

Thank you, everyone.

Operator

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

Powered by Quartr

Key Takeaways

  • Alaris Financial reported Q2 net income of $6.2 million (EPS $0.31) with pre-provision net revenue up 48% sequentially, net interest income growing 8% and net interest margin expanding 13 bps.
  • The bank achieved its fifth consecutive quarter of deposit growth, with total deposits rising despite seasonal outflows, maintaining a high-quality portfolio (loan-to-deposit ratio at 88% with zero brokered deposits).
  • Loan balances increased 4.2% as Alaris remained highly selective in credit underwriting and expanded its commercial offering by adding a veteran equipment finance team in Arizona.
  • Fee income, representing over 53% of total revenues, grew 8.1% driven by wealth and retirement services, with assets under advisory and management reaching $43.6 billion and achieving top-25 industry rankings.
  • Alaris took a $4.5 million credit provision for normalized reserves, kept its allowance at 1.31% with CET1 at 11.7%, raised its dividend by 5.3%, and expects to close the HMN Financial acquisition in Q4.
AI Generated. May Contain Errors.
Earnings Conference Call
Alerus Financial Q2 2024
00:00 / 00:00