Earnings call: Alerus Financial Corporation reports improved net interest margin and steady deposit balances

Alerus Financial (NASDAQ:) Corporation (NASDAQ:ALRS), in its recent earnings conference call, reported an improved net interest margin and steady deposit balances for the quarter. The company also highlighted its top-ranked national retirement services business as a significant contributor to their fee income, which accounts for 58% of their revenue. Amid net interest margin compression, this income mix helped stabilize revenue headwinds.

Key takeaways from the call include:

• Alerus Financial Corporation is focusing on efficiency improvement, expense reduction, and process optimization.
• The company has made strategic divestitures like exiting the payroll offering and spinning off the ESOP trustee business to concentrate on growth potential products and solutions.
• The corporation returned $5 million to shareholders via dividends and share repurchases during the quarter, with capital levels remaining robust. This is in line with Alerus’s history of maintaining dividend payments for 39 consecutive years, as pointed out by InvestingPro Tips.
• Despite near-term industry pressures, Alerus expressed confidence in building a stronger franchise and delivering shareholder value. This confidence is backed by InvestingPro data which shows a P/E Ratio of 9.5, indicating that the company is profitable.

During the call, the company reported over 3% increase in core retirement and benefits revenues on a linked quarter basis. Revenues in their wealth management business decreased by 3.3%, and assets under management dropped by 3.5% due to challenging markets. Mortgage revenues also saw a decrease of 13.6% due to fair value hedges.

Despite these challenges, Alerus remains optimistic about its financial future. The company anticipates a slight increase in fee income for both the retirement and wealth businesses in the upcoming quarters. They also expect to reduce expenses by low to mid-single digits for 2023. According to InvestingPro data, the company’s revenue growth for the last twelve months was -7.33%, but the company’s strategy aims to reverse this trend.

Alerus also discussed plans to remix its loan portfolio to include higher-yielding products, with 40% of their loans being floating or adjustable. The company remains open to potential acquisitions in the retirement space, expressing optimism about NII growth next year and potential for increased deposit growth.

Representative Katie Lorenson highlighted the company’s expectation for additional growth next year in their rollovers and potential acquisitions in the retirement sector. With an 8% current IRA roller capture rate, the company plans to increase this rate gradually through proactive initiatives and talent pool expansion. Alerus emphasized its strong and diversified business model and aims to deliver profitability, book value growth, and returns to shareholders while optimizing their infrastructure. This sentiment is echoed by InvestingPro Tips, which highlight that Alerus has high earnings quality, with free cash flow exceeding net income.

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