Hello! And welcome to the Alerus Financial Corporation Earnings Conference Call. All participants will be in listen-only mode. 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.

Good morning, and thank you, Bailey. Thank you to our research analysts for joining our call this morning, as well as our investors, employees, and Directors for taking the time to listen in. We appreciate your interest and investment in Alerus. This morning, I will provide some commentary on Alerus's foundational strength in addition to our execution of our strategic evolution to a top-performing commercial wealth bank and a national retirement provider. Today, I am joined by Alerus’s CFO, Alan Villalon, who will discuss our financial performance and results for the quarter. Additionally, Karin Taylor, our Chief Risk and Operating Officer; and Jim Collins, our Chief Banking and Revenue Officer, will join us to answer any questions you may have about the quarter. Alerus is well-positioned to emerge from the current headwinds as a clear winner in value creation and returns for our shareholders. We are building on the unique strength of the company's diversified business model while optimizing our infrastructure to return the company to delivering strong profitability while continuing to grow tangible book value. Well, notably in our path to transformation is our continued and significant success in adding well-respected and widely sought-after bankers and professionals to our franchise. This momentum in attracting and retaining talent continues to build in the second quarter, as we added more experience in market and specialty commercial bankers. These team members join the dozens of professionals we've hired this year and our tendered team of SBA, CRA, and business banking professionals. In the last six months, we've doubled the size of our Treasury Management Team, and the team has hit the ground running as we've had early success in deposit wins, critical retention of relationships, and they continue to work closely with our mid-market and specialty commercial banking group. Last week, we listed out a seasoned team of bankers in Minneapolis, who will formally launch our private banking franchise. These team members will leverage our One Alerus business model and provide an integrated experience for clients with wealth, mortgage advice, and products. Along with the continued momentum in talent acquisition, we are balancing our investments by optimizing our infrastructure with urgency. We remain disciplined in our investments and our focus on talent and expense management. This was evidenced by our 4% linked quarter decline in non-interest expense. Today, we have reduced our total headcount in the company by 10% year-over-year, which includes the whole bank acquisition of Metro Phoenix Bank. Our fundamental strengths include our fortress balance sheet anchored by strong capital, credit, and reserve levels, and a strategic and fundamental focus on diversification. This diversification is across the enterprise and multi-faceted. Alerus's diversification is highlighted by our best-in-class business model with over 50% of revenues coming from fee income. Over 90% of those revenues are new ties and recurring in nature and require minimal capital allocation, along with virtually no balance sheet risk. The majority of these revenues are derived from our National Retirement and Benefits business, which was again ranked in the top 30 in the country. These durable revenue streams will continue to support capital build and shareholder returns despite the challenging operating environment faced throughout the banking industry. Diversification goes well beyond our business model as the portfolio diversification remains a critical strategy. Alerus's loan portfolio is diversified by loan types, geography, industry, asset class, loan size, and client. Throughout the second quarter, we continue to conduct ongoing stress testing of our credit portfolio. Given the current environment, it is worth noting our investor CRE as a percentage of capital is at 173% compared to the regulatory threshold of 300%. Alerus's exposure to office is limited to 3.9% of loans, none of which are secured by properties located in the central business district. Asset quality remains pristine with minimal non-performing loans and a year-to-date net recovery. Reserve levels remain robust, with 1.41% of total loans and $6.2 million of the remaining mark on the acquired Metro Phoenix portfolio. On the funding side of the balance sheet, our deposit portfolio remains well diversified among market, products, and clients. Our uninsured deposits are 23.6%, and a core of our deposits are stored synergistically through our retirement and wealth management areas. We continue to see good retention of deposit dollars driven by our relationship approach. In our commercial client base, 68% of our deposits are integrated with treasury management offering, with several key wins and retentions during the quarter within the consumer wealth bank, due to our holistic service model and constant collaboration between our wealth management and banking teams. During the second quarter, we experienced seasonal outflows from our public funds account. This activity was as expected, and we anticipate the second half of the year will follow their typical seasonal patterns. We are pleased to report several large wins and overall net new accounts to Alerus for $83 million higher in dollars of closed accounts. We consistently monitor our deposit portfolio and do not see any unusual or unexpected activities. However, generally speaking, clients are continuing to draw down incentive balances rather than utilizing their lines of credit. In our fee income business, we saw a rebound in originations and mortgage and market values in retirement and wealth. Strategically, we have engaged an experienced consultant as we look to prioritize and maximize the opportunities within our retirement business. This engagement is targeted at efficiency and operational enhancements, which will position us to take our large, nationally scaled business to the next level through organic growth and acquisitions. We believe we have significant embedded value in this new time cash flow business with the passage of SECURE Act 2.0, and we believe there is tremendous opportunity to continue to expand our client base and further improve margins and gain market share across the company, and across the country. From a capital standpoint, we continue to build on our strong capital level, but TCE is 7.72% and CET is 13.3%. During the quarter, we were active in share purchases, and we also continued our long history of paying dividends, and in the second quarter, we increased that dividend by 5.6%. While there continues to be near-term pressure on margins, we are prudently managing expenses with urgency across the enterprise. We're having significant success executing on our strategic plan, focused on key talent ads and restructuring. Each move we make is purposeful in positioning Alerus to bring expertise and value-added knowledge to our clients in a fast, frictionless, and highly responsive manner. The differentiated approach in our diversified business model is leading to a higher level of client acquisition and client expansion. We are continuing to build tailwinds and synergistic expansion in wealth management and retirement platforms and continue to believe the long-term embedded value in these businesses is substantial, as a differentiator in the Community Bank space. We are focused on client and talent acquisition and delivering top-tier shareholder returns. With that, I will turn it over to Al for our quarter’s financial performance.

Thanks, Katie. I’ll start my commentary on Page 14 of our Investor Deck that is posted in the investor relations section of our website. Let's start with our key revenue drivers. On a reported basis, net interest income declined 6% on a linked quarter basis. The decline was driven primarily by a continued increase in funding costs. Net interest income now represents 46.3% of revenues. Switching to fee income, non-interest income increased 2.1% on a linked-quarter basis, as we saw improvement across all of the income businesses. Fee income continues to provide revenue stability despite interest rate challenges. I'll go into detail about each of our fee income segments in the later slides. Turning to Page 15, net interest income was $22.2 million in the second quarter. Net interest margin was 2.52%, a decrease of 18 basis points from the prior quarter. A 27 basis point increase in our asset yields was offset by a 46 basis point increase in our liabilities' rates. Impacting the net interest margin was about 7 basis points from the Metro Phoenix deal. Based on potentially more Fed hikes, which were not in the Fed dot plot at the beginning of the year, we continue to expect our net interest margin to compress in the third quarter. The magnitude of compression will be determined by whether the Fed hikes by another 25 basis points from here. When the Fed eventually pauses, we expect earning asset yields to continue to improve with mixed shift and loan re-pricing as our cost of funds stabilize. Let's turn to Page 16 to talk about our loan portfolio. Total loans grew 1.9% from the prior quarter, driven by growth in commercial real estate and residential real estate, offset by a decline in construction and consumer loans. For 2023, we continue to expect modest loan growth. Turning to Page 17, you can see a further breakdown of our deposit characteristics. On a period-ending basis, our deposits declined 5.9% from the prior quarter. As we guided to in the last earnings call, we experienced a seasonal outflow of public funds, which was the main cause of the decline in deposits. Despite this seasonal outflow, client retention remains very high, and we continue to attract new clients. For the remainder of the year, we continue to expect deposit balances to rebound from the second quarter, as we anticipate seasonal inflows from public funds in the back half of the year and continued client wins. Turning to Page 18, our synergistic deposits, which are sourced from our wealth and retirement businesses, grew 27% over the prior year and 7.5% over the prior quarter. The strong year-over-year growth in synergistic deposits was driven mainly by strong organic client growth within our wealth segment. Synergistic deposits sourced from our wealth businesses now account for 26% of our deposit base. Continued growth in our synergistic deposits shows the strength of a unique and differentiated business model. On this slide, you'll also see our uninsured deposit exposure. Our liquidity coverage to uninsured and uncollateralized deposits now exceeds 300%. Turning to Page 19, you'll see details about our investment portfolio. Currently, almost 69% of our securities are available for sale versus 31% held to maturity. Within the held-to-maturity portfolio, approximately 42% are in municipal securities, while the rest are in MBS. We continue to let the investment portfolio run down and remix the balance sheet towards commercial lending relationships, so we'll add higher-yielding loans and treasury management relationships. On Page 20, I'll start talking about our fee income businesses. On this page, I'll provide some highlights on our retirement business, which accounts for approximately 32% of our total revenues. In the quarter, assets under management and administration increased 4.9% due to higher domestic equity markets in the second quarter and continued client wins. Participants within retirement have grown 2.5% year-to-date. Revenues increased 2.6% on a linked-quarter basis, mainly due to higher average assets and organic growth. Our retirement business continues to be a strong source of funding for the bank. Retirement now accounts for over 71% of our synergistic deposits. For the third quarter, excluding any market impact, we expect fee income for our retirement business to be up slightly. Turning to page 21, you can see highlights of our wealth management business. On a linked-quarter basis, revenues increased 4.9%, while our end-of-quarter assets under management and administration increased 5%. We continue to see strong client acquisition in our geographic markets and from retirement rollovers in our national and established markets as we execute on our One Alerus strategy. Life retirement will provide a strong source of funding for the bank as it now accounts for over 28% of our synergistic deposits. Excluding any market impact, we also expect fee income here for our wealth business to be up slightly. Turning to Page 26, I'll talk about our mortgage business. Mortgage revenues increased over $1.2 million or 69% from the prior quarter as originations rebounded from a seasonally low quarter. Mortgage originations increased over 43% from the prior quarter, which was slightly better than the MBA purchase index, which saw a 39% increase. For the third quarter, we expect mortgage originations to remain stable versus the MBA purchase index forecast of 1% growth as inventories of homes for sales remain low in the Twin Cities. However, we continue to expect seasonal declines in originations in the fourth quarter. Page 23 provides an overview of our non-interest expense. During the quarter, non-interest expense decreased 4% as we remain committed to improving our profitability. Compensation expenses decreased due to reduction in headcount, while professional fees increased due to higher FDIC assessments. Despite inflationary pressures, we do expect expenses to decrease low to mid-single digits for 2023 on a year-over-year basis. We continue to focus on improving our profitability by reducing expenses and increasing our capacity throughout our organization. We recently made progress on right-sizing our expense infrastructure through numerous initiatives. Some of these expenses will be reinvested into efficiency improvement and revenue production initiatives. Turning to Page 24, credit continues to remain very strong. We had a net recovery of 7 basis points in the second quarter. Our non-performing assets percentage was 7 basis points compared to 5 basis points in the prior quarter. Our allowance for credit losses on loans to total loans remains stable at 1.41%. This over-reserve currently provides over 1,300% coverage to non-performing loans, as you can see on the bottom left. I'll discuss our capital and liquidity in Page 25. Our capital remains well above regulatory loans, even after share repurchases made during the quarter. On the bottom right, you'll see the breakdown in the sources of the $2 billion in potential liquidity. Overall, we continue to remain well-positioned from both the liquidity and capital standpoint to weather any economic uncertainty. To summarize on Page 26, we remain committed to making fundamental improvements and improving returns for our stakeholders. Despite the challenging headwinds from our rapid rise in interest rates, our fee income businesses continue to provide stability to our revenues and continue to be a strong source of funding. Our capital remains strong, and we remain committed to returning capital prudently.

Thank you. Our first question today comes from Ben Gerlinger from Hovde. Please go ahead, Ben. Your line is now open.

Hey! Good morning.

Hey Ben.

In your prepared remarks, you said that non-interest expense should be down about single digits or so percentage. So my back-of-the-envelope math says that 2Q is probably the slowest, probably goes up a little bit from here. I was curious, is that more kind of compensation? But you also did talk about investment. I'm just curious if you can give it more granular. Is it technology? How should we think about where the money is going?

Yeah, so in the back half of the year, there will be some timing variations, especially in terms of compensation, mainly on the mortgage business. So that will be a little bit higher in 3Q versus 4Q. And it's also going to be some timing differences in Q2 when it comes to compensation as we progress through the year.

Got you. Okay, and then when you think about just the margin from here, deposit flows and non-interest bearing deposits were going to play a big factor. If you just kind of assume that the terminal rate is where we're at, I think that's a fairly safe assumption. I know you have another quarter here, but I don't think that we're going to see any material move. When you just think about the cadence of the re-pricing of both the left and the right hands of the balance sheet, I know it's early and I don't think you're going to have to hold your feet to the fire. But do you think it's probably like a six months until you hit the slower and then the re-pricing inflates to your favor of a margin expansion? I'm just trying to think about the magnitude of which each side is moving.

Yes, so the way we're thinking about it here is that we do have about 15% of our deposits that are indexed. Given the recent rate move yesterday, any rate movement this quarter will be re-priced in October. That will impact our money market funds. So, that timing will happen in 4Q. However, we continue to see very attractive spreads in our loans. As loans mature and we price them for higher rates, we are expecting to see margin uplift in the later months of this year.

Got you. And then finally, just kind of a big picture, Katie, or Jim, whoever wants to take it. When you think of just the banking environment today, it seems like the Minneapolis market is a bit more competitive than one would guess relative to some of the other Midwest areas. I think part of this is due to the amount of banks, especially small private ones. I think about just the lending in areas for growth. Are there any risk-adjusted returns that have become more appealing, because some banks have pulled out? Are there pockets of loan categories that are a little bit more appealing now that some competitors have stayed away or been priced out?

Yeah, thanks for the question. I would say it this way: We're focused on some very specific verticals, not only because some banks are retracting from offering credit, but also because they generally provide better spreads and come with a lot more deposits. Some of the verticals we're going after, such as government non-profit or professional services, would be areas where we can gain a lot of deposits and loans, as opposed to just going after regular mid-market C&I, which mostly consists of smaller loans with fewer deposits. As competition tightens, we are finding more activity and success in those specific areas. Does that help address your question?

Yeah, that's helpful, thank you. I’ll step back in queue.

Thank you. The next question today comes from the line of Jeff Rulis from D.A. Davidson. Please go ahead, Jeff. Your line is now open.

Thanks. Good morning. Checking in on the loan growth conversation. Al, I think you had mentioned kind of for the full year, maybe low to mid-single digits. I didn't know if I caught that, but I guess being that we're up 3% or 4% year-to-date, does that suggest kind of back half of the year is pretty muted or flattish?

Yeah, so the low to mid-single digits was on the expense side. But on the loan growth side, I've noted that we expect modest growth. What we're seeing is that as interest rates have risen, we’re experiencing a slowing demand for loans at these interest rate levels. So that’s contributing to the modest comments.

Okay. And I guess, how are payoffs trending as well? I mean, is that a net sort of benefit if that churn is slower, or are you seeing pretty consistent payoff activity as well?

Yes, we're seeing consistent payoff activity. There’s nothing really jumping out at us right now.

Okay, got it. Circling back to capital, you had the buyback going this quarter. You've hiked the dividends, and you're regularly well above regulatory minimums on capital. Just again, checking in on sounds like the appetite for the buyback is ongoing. And Katie, if there's any conversation about M&A, whether that be bank or within a product line, anything to touch on there?

Sure. In regards to capital, I would say priorities remain the same. We’re very much focused on maintaining strong capital levels, maintaining strong balance sheets, and then organic growth, which includes the continuous list out of talent, as well as returning capital to shareholders via the dividend and repurchase where it makes sense and where it pencils out. And on the M&A front, I’d say the same sentiment as the first quarter regarding continuing to have conversations and expanding awareness across the country regarding our history of acquisitions and our reputation for strong execution in acquisitions, particularly in the fee income space.

Got it. And one last one if I could, with a little creep up in the non-performers. I guess maybe not much to tell there, but any segments or footprint that you're a little more cautious on that you could detail?

Sure, Jeff. We're not seeing a pattern in terms of any deterioration. I think we're beginning to see just a little normalization. The credits experiencing stress seem to be fairly specific and not indicative of any particular pattern. We still have historically strong credit metrics, so we expect over time that we'll begin to see some normalization of those metrics.

Okay, thank you.

Thanks, Jeff.

Thank you. The next question today comes from the line of Nathan Race from Piper Sandler. Please go ahead, Nathan. Your line is now open.

Yeah. Hi everyone, good morning? Hope everyone's doing well.

Hey Nate.

Katie, going back to your comments earlier on the engagement of consultants to look at the retirement platform. Just curious, as you look out longer term, does the opportunity or impetus behind this engagement lean more towards revenue growth side of things or are there maybe some expense synergies that you're looking to perhaps harvest down the road? Would love to just get any color on your expectations with that engagement going forward.

Sure. Absolutely. It includes both, on the revenue side as well as on efficiency and optimizing our infrastructure within that division. So really, as we look at the opportunity that existed prior to the passage of SECURE Act 2.0, it was already significant in the retirement space in terms of the number of new plans and new participants. The passage of SECURE Act 2.0 just takes that to the next level, and so our engagement is very much targeted at positioning us to continue to take market share and be highly successful in growing new plans and participants, given the amount of opportunity that exists. So it's really two-fold and will allow us to take on more new plans faster as well as grow those plans and that opportunity.

Okay, great. And then it sounds like you're having good sales momentum on the retirement platform lately. Is there any way to kind of parse out how much of the growth in 2Q was driven by new client wins versus just the appreciation in equity markets?

Hey Nate, thanks for that question. If you look at our revenues typically on the retirement side, about a third of it we think is market sensitive, and then you would attribute the rest to be organic.

Okay, great. Is that the same case in the wealth side of things as well?

Wealth would be a little bit higher there, but I would say though, wealth has been really performing well for us because we have seen a lot of organic client wins. As I noted in my commentary, we did see significant growth in synergistic deposits that largely came from the wealth side.

Got it, that’s great to hear. And just on funding, it looks like the short-term borrowings increased in the quarter. Any thoughts on this, how we should think about the wholesale funding levels going forward and just how you guys feel about loan growth which is up, but your expectations are for more modest growth in 3Q and 4Q?

Yes, we're continuing to utilize overnight borrowings to fund loan growth right now. With this seasonal outflow coming out, we would love to have more deposits. We're focused on that. We are also allowing our investment to fully mature and rolling that over to support loans. However, if we have to continue using overnight borrowings to fund loan growth, we’ll proceed as needed; we still have a lot of capacity in that area.

Okay, can you remind us how much cash flow has come out of the securities book each quarter?

So the way I think about it is that our investment portfolio has a duration of about five to six years. So, you could say maybe about 20% of our fold is rolling off in a yearly basis. The quarterly is going to be a little bit lumpy here and there, but I suggest looking at it in the yearly context and then you can take an average for the quarter.

Okay, great. And then just going back to some of the earlier comments about deposit growth expectations, I appreciate that a lot of the decline in same quarter was tied to public fund clients. But just kind of overall, any thoughts on deposit growth expectations and when you may see non-interest levels flatten out?

That's a bit difficult to predict right now given the risk-free rate in the short term is above five, and everybody's parking money into these high-rate accounts right now. I think there will still be more pressure on non-interest-bearing accounts, which is being felt not only by us but across the whole industry. I think we won't see that pressure subside in the near term until the rates come down significantly. However, we still expect public funds to return in the back half of this year, and hopefully, we can see some growth from where we were in the second quarter.

Okay, got it. And then, are you seeing any easing in deposit pricing pressures across the company footprint these days? We've heard from some other banks that it’s moderating to some extent more recently. Is that the case with you guys?

Yeah. We've seen some moderation there. But the one thing we've noticed in our footprint is a significant uptick in lower banks, where the loan-to-deposit ratio has exceeded over 100%. This puts more pressure on loan growth for them as they try to meet that by pricing up deposits more. However, we are indeed seeing moderation from Q1 to Q2.

Got you. And just maybe one last one for Karen. Is there a tail to the recoveries that we've seen periodically over the last several quarters now, or do you think that's largely run its course?

You know, I think the larger recoveries have run their course for now. We continue to receive some monthly payments on certain matters, but I would expect that level to decrease in the coming quarters.

Okay, great. I appreciate you guys taking all the questions and all the color. Great quarter.

Okay. Thanks, Nate.

Thank you. The next question today comes from the line of Eric Spector from Raymond James. Please go ahead, Eric. Your line is now open.

Hey, everybody. This is Eric on the line for David Feaster. I appreciate you guys taking the questions. Most of my questions have already been asked and answered. But just curious, with the loan growth in the quarter and obviously the outflows of public funds, the loan to deposit ratio ticked up quite a bit to almost like 89%. Just curious where you're comfortable with that going forward.

Yeah. I mean, we definitely want to target a ratio of probably a little bit south of 100%. Ideally, it would be 90% to 95%. But we know and also understand that there’s a lot of liquidity coming out of the system, which might shift a little bit higher from that range.

Yes, okay. Yes, makes sense. And then just can you provide more color just on the mortgage market? You did a little bit in the paper marks, but just kind of how volumes are trending early in the third quarter and how you think about portfolio versus gain on sale, and how margins are trending.

Yes. So margins are pretty stable there. I'd say they'll be similar in the third quarter as they are in the second, and I'd say volumes too. Our outlook is probably similar in the third quarter. But then again, when the snow comes in Minnesota, we're going to see a decline in the fourth quarter, and unfortunately, the snow sometimes comes early in Minnesota.

Yes, makes sense. And then just how are new yields—loan yields trending in CRE and other segments? Have you been able to push rates and what’s the competition for new loans there?

I would say that in general yields are trending up a little bit. More and more banks are pulling out or slowing down, allowing the banks currently in the market to have a little bit better pricing. This has likely been happening over the last month and a half, and it may continue to do so as banks tighten their production schedules.

Great, all right, that's it for me. Thank you and congrats on a good quarter.

Thank you.

Thank you. The next question today comes from the line of Damon DelMonte from KBW. Please go ahead. Your line is now open.

Hey, good morning everybody. Hope everybody's doing well today.

Hey Damon.

Hey Al. Just wanted to start off with a question for you, actually. On the margin, I think you noted that there was about a 7 basis points of accretion this quarter from the recent transaction. Should we just kind of model a similar level going forward? I thought first quarter was a little bit lower than that.

Yes. Yes, so the way I would think about it is that we've previously guided to about margin accretion around two to four basis points from the Metro Phoenix Bank acquisition. The difference this quarter was that we had about three or four basis points coming from loan payoffs.

Got it, okay so more like two or four basis points a quarter. Okay, that makes sense. And then, with regards to the direction of the margin here, it seems like it's still going to trend lower. And did you—did you say in your answer to one of your other questions that you think by the end of the last couple months of this year you could see the monthly margin stabilizing?

Yes, that's what we're expecting. We thought this quarter would be when we saw the rebound, but given the Fed’s expected future hikes, we now anticipate that rebound will be delayed until the fourth quarter.

Okay. And then can you just remind us how you're going to be positioned if the Fed were to cut rates in 2024? Given your position, would you see an immediate benefit to the margin?

Yes, typically when rates go down 100 basis points, we’d expect to see improvement in net interest income in the high single digits on an annualized basis, but it hinges on maintaining disciplined pricing on the asset side and addressing rates on the liability side.

Got it, okay. And then just one last question on the provision outlook. With the prospect that loan growth would probably slow a bit here in the second half and continued strong underlying credit trends, and limited visibility on any NPL formation, do you think you'll need to book any meaningful reserves in the next couple quarters?

Hi Damon. This is Karin. It will depend on what happens with the macro environment and related forecasts. If we see that loan growth moderates here in the second half, that would likely drive a need for significantly less provisioning.

Got it. Okay, that's helpful. Thank you very much.

Thanks, Damon.

Thank you. Our next question today comes from Ben Gerlinger from Hovde. Please go ahead. Ben, your line is now open.

Thanks.

Welcome back, Ben.

I figured – yeah, hi. I figured I wasn't going to ask this in kind of a follow-up call, but it’ll probably add some shareholder value. So, Karin, you took this role about a year and a half ago. I feel like the biggest and main task was enhancing core banking, more specifically the deposit franchise. The fee income opportunities you guys have in front of you are pretty phenomenal, especially relative to the bank you had. But the hires you've made and the people that you've put in place over the past year and a half seem to have done a good job. But then again, with rates moving up 550 basis points over the course of the past couple of years, are there any key performance indicators that we should be looking at to assess what you think the new relationships are core, rather than potentially just saying their core and could shop once rates get lowered?

Thanks, Ben, for the question, and I think your analysis is spot on in terms of where we are focused and the reason why. Building our commercial wealth bank is a strong priority. From an organic growth standpoint, we believe there's tremendous opportunity, even in this environment. We're focused on client selection and bringing over experienced bankers, as well as professionals to support those who are positioned to be responsive and add value to our client relationships that are long-term and not just transactional business. The way you can view the success going forward is by assessing the commercial wealth bank growth, full relationships across lending, deposit, private banking, and wealth sides, which we're already seeing early successes in. Certainly, in this rate environment, opportunities will arise from loans that are coming to maturity and needing refinancing. Those clients will follow their bankers they've been working with for a long time. Does that answer your question, Ben?

Yes, and just kind of following off that. It seems like the people you have, the culture is intact. In fact, we probably upgraded in terms of personnel. Are there any verticals that you could see additional hiring or any potential add-ons that you might not already have or deepening in the relationships?

I can handle that one. Yes, we've already started to build up the verticals. We're probably not going to expand into any more additional ones, but we will be adding talent in those verticals as we continue to find success. We’re not going to overstaff, but we're certainly going to keep our talent pool ready for more hires as we continue winning in various segments.

And I assume that's a continuous plan. It's not like a 12 or 18-month, correct?

Yes, that's continuous. As we continue our growth, we’ll strategically approach those verticals in our hires. Many of those verticals are key to deposit gathering, loans, as well as private banking wealth. Specifically, I'm referring to the mid-market verticals, where we've found a lot of success. Those relationships become core, not only in commercial C&I but also in private banking, wealth, and private mortgages. You will see that growth in those areas, clearly confirming their core growth.

That’s helpful color. Thank you.

Thanks, Ben.

Thank you. There are no additional questions waiting, so this concludes our question-and-answer session. I would like to turn the conference back over to Katie Lorenson for any closing remarks.

Thank you, and thank you to everyone for joining our call this morning. Thank you for listening, and thank you for the questions. Our unique and highly diversified business model is a substantial differentiator in driving long-term value for our shareholders, serving our clients, as well as attracting and retaining top talent. We thank our shareholders and clients for the trust they put in us, and we thank our team members for their service mindset and client focus for helping us evolve Alerus into a top-performing commercial wealth bank and a national retirement benefits provider, and ultimately delivering top-tier shareholder returns and performance. Thank you, everyone, and have a great day!

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