In Phoenix in the summer, you expect temperatures in the triple digits. But for Alerus, the Valley of the Sun isn’t just hot; it’s the current hotbed where it looks to grow its four business verticals — what CEO Katie Lorenson calls the bank’s “holistic” approach to banking: Commercial, mortgage, retirement and benefits, and wealth management.
That became clear in July when Grand Forks, N.D.-based Alerus closed on its acquisition of the $453 million, commercial lending-focused Metro Phoenix Bank. That deal follows a series of moves by Alerus in the last 18 months that signal a beefed-up focus on commercial lending. And those moves support a strategic growth plan that has led to 25 acquisitions in the banking and retirement space since the turn of the century.
Alerus first turned its head toward Twin Cities commercial lending in 2007. A series of bank acquisitions followed, leading to the bank’s IPO in 2019. Today, more than half of the company’s approximately 800-person workforce is based in the Twin Cities. The bank has made key hires in Minnesota’s economic hub, signaling that this market also remains pivotal to its growth.
Alerus is a diversified company with $3.3 billion in assets, $35.3 billion in retirement and benefits (assets under administration), $4.6 billion in wealth management (assets under administration) and, during Q1 2022, $186.6 million in mortgage originations.
For the 12 months ending March 31, Alerus’s noninterest income was $136.0 million and its net interest income was $86.7 million. Its revenue pie slices like this: 43 percent in banking services; 31 percent in retirement and benefits plan administration; 10 percent in wealth management; and 16 percent in mortgage lending.
During the company’s first quarter 2022 earnings call, Al Villalon, who joined Alerus from U.S. Bancorp to fill the seat Lorenson vacated, said market volatility is an expected headwind for the company’s retirement business. The acquisition of Metro Phoenix Bank, along with a spate of recent hires, reinforce the belief that Alerus is focusing on loan growth in the near term, something Lorenson confirmed to investors in that same earnings call.
The 42-year-old Lorenson joined Alerus at the end of 2017 as chief financial officer and spearheaded its initial public offering just two years later, raising $63 million. She succeeded longtime Alerus CEO Randy Newman at the beginning of 2022.
Lorenson grew up on a family farm in northwestern Minnesota. As a teen she worked at a small-town bank. After graduating from Minnesota State University-Moorhead with a degree in accounting, she launched her career with the financial institutions team at RSM. After a decade in public accounting, Lorenson signed on as CFO with what she called her “favorite” bank client: Golden Valley, Minn.-based Central Bank. MidWestOne Financial acquired Central Bank in 2015; Lorenson stayed with the Iowa City, Iowa-based public institution for two years before heading to Alerus.
Lorenson shared her thoughts on her path to the top job at Alerus, the position the bank holds in the market, and how she expects the bank to grow. The following has been edited for clarity:
You have been hyper-focused on managing your career and achieving at a young age. How does one get like that?
Katie Lorenson: I feel like I always have more to give and there’s more to do and I can always be better. I’m sure it is part of how I grew up — that work ethic. It’s not about the title: It’s really about contributing and having an impact on growing a company.
What did you learn during your time at Central Bank?
K.L.: I learned a great deal: To have the courage to think and do things differently … to be able to go out and be a buyer; to have strength when many financial institutions were struggling. Alerus was also one of the strong banks then.
Why did you make the leap from MidWestOne to Alerus?
K.L.: On paper, it looked like the right decision. Most CFOs pay attention to top performers and Alerus has always been on my radar because it was a top-tier, long-sustaining, high-performing company. Its business model truly differentiated itself.
The [1997 Grand Forks] flood and fire are huge in the company’s history. So when Randy reached out to me, I already knew of the company. He knew my name because of a conversation he had with [former Central Bank CEO] John Morrison.
As Randy educated me about how [Alerus] serves its clients, about its mission and purpose, which is deeply grounded in advice and guidance and always doing the right thing for the client, I was all in.
Alerus is a fiduciary, so it’s deeply rooted in our culture to bring value to the client relationship. That’s a differentiator because our goal is to be viewed as a trusted advisor to that individual, that family or that business owner — and knowing their business by gaining an understanding of their goals and helping them to reach those goals.
When you talked to Randy, was succession a part of the conversation?
K.L.: Certainly not from day one. But age is age, right? I was focused on doing the right thing and learning as much about the company as I possibly could and helping the company continue to be successful.
Our board and Randy did an exceptional job with succession planning. It was years of very diligent, thoughtful timelines and execution. It’s been seamless to our employees, our clients and our shareholders, which to me is a clear indication of a well-run, thoughtful and diligent process.
There are a lot of business-focused community banks in the Twin Cities. Why do you think Alerus is at the top?
K.L.: We can serve a client holistically because of our diversified business model and because of our business units. From a company standpoint, our goal and objectives are to understand the CEOs, presidents and owners, and what their goals are for their companies. If their goal is to grow or acquire, we can facilitate that by offering them credit and by helping them manage their cash flows. Then we go beyond that. Our wealth management advisors help them with their planning, help them achieve their personal goals. And then we serve the business in terms of their No. 1 asset: Their employees.
Our offering on the retirement side is differentiated in terms of offering solutions a company can offer to its employees, which differentiates them in the marketplace. We work with those employees. We believe that everybody should have a financial plan no matter where they are in their journey. Most [people] don’t consider themselves a wealth [services] client. Yet we believe that everybody should have a plan and everybody should have somebody to talk to. From a business perspective, it’s an incredible differentiator in a holistic offering.
You flood the whole organization, from leadership down to frontline workers, by offering them help. What can you tell me about how this developed?
K.L.: We were founded as a trust company. We’ve always been in the trust, in the fiduciary, wealth management space. But bringing that value to the business relationship as well as to individuals was really the root of moving into the retirement business. We’ve been in it since the year 2000. In 2002, our revenues were about $2 million and last year they were $71 million.
It has been a strategic focus for us to grow that business, and to acquire. We’ve done 25 acquisitions and about half of them have been in the retirement space and half on the traditional banking side. It’s a big part of our history and very integrated in what we deliver today.
What percentage of your overall business is retirement services/wealth management?
K.L.: It’s been about 50 percent or so for a long time. Sixty percent of our revenues come from fee income, but mortgage is a component of that. And that is cyclical. Retirement/wealth management is a huge part of our business.
We’re in a bear market now; what kind of challenges does that introduce to your business model?
K.L.: Asset valuations are down. Clients really want to talk to you when you’re in this type of environment. We know we’ve got to step up our game in terms of client outreach and communications because anxiety comes with volatility.
But our view has always been — for a long, long time now — that this is the best time to show clients the high level of service we deliver as well as acquire new clients. We’ve got incredible infrastructure and centralized investment services with a top-notch team. We can instill a level of confidence that you’re gonna get through this; it’s going to be OK. And show them the professional bench strength we have that gives them that confidence.
Are you implementing any fintech solutions?
K.L.: We have invested in technology for the past five years from an infrastructure standpoint. That’s allowed us to bolt on fintech [solutions] in a seamless way, which is not always easy to do. Our investments have been in reducing friction because we believe people want to talk to people, but we have to make it easy. In our mortgage division, we invested pretty heavily in terms of leadership: No. 1 was talent, and then technology.
Going to a completely seamless digital application that takes the consumer just minutes to complete and has decisioning at a very fast rate. Clearly that was well-timed. We’ve taken digital account opening, reducing friction, to our other offerings. That’s been a key part of our investments on the retirement side. We have invested in tools for employees/participants to have an online and a digital application to go in and set their goals as well as aggregate all their accounts. When they log into their Alerus accounts, it’s not just all of their Alerus relationships, it’s any credit card relationships, and any other investment accounts they have anywhere at any other financial institution. So it’s a full picture of their financial position.
And then there’s automated budgeting tools, which of course many apps offer. But ours has a financial fitness workout. [Users] can set goals and have a score and they can take action to increase their score. That’s a differentiator because many of the financial fitness apps don’t have that ability to take action.
We have a retirement score. How do you make that score better? Well, are you contributing at the highest level? Are you paying off the highest level of debt? Those of us in this industry know it’s fairly simple, but most consumers don’t know this.
Emergency savings, that’s something we have been promoting because most Americans don’t have $500 in savings. And of course we’ve all seen at times in the past and through the pandemic, as well as moving into a potential recession, that it’s very important for individuals to have those savings. That was a big part of our technology development and investment.
Did you invest in building proprietary software, or did you create partnerships with existing companies?
K.L.: We partnered with Envestnet and have a unique relationship with them … the tech was beta, so we built it together. We also are one of 66 banks that are members of a fintech fund, JAM FINTOP Capital. That forum gives us exposure to technology companies that have been vetted already that are right-sized for our companies.
Talk about implementing Salesforce. What is your hope for that?
K.L.: It’s a great technology. From the fundamentals of seeing the entire client relationship to the integration, it has allowed an understanding of what’s happening with the clients and it’s all integrated with our client service center. So it gives our advisors a very clear line of sight into what just happened. We can understand what they need from us based on what we see here. Like all technology, the buildout will never be done. But it allows our business advisors to be much more efficient.
You just hired a new chief banking officer from Old National. You picked up a five-person SBA lending team from MidWestOne, and hired a five-person CRE team away from Bremer Bank. Do you have any friends left in Twin Cities banking?
K.L.: I’m not making a lot of new ones, that is for sure!
As a company, we’ve spent time and investment to build the infrastructure and the chassis to grow in a very unique way. The business model and the culture it’s created just resonates with professionals — to be able to serve clients holistically and bring that level of value in terms of advice and in terms of helping them reach their goals. That’s a clear differentiator. And then to just be in this position of incredible strength. Of course, from a capital standpoint, a business model standpoint, and from an earnings standpoint, talent attracts talent.
The momentum just builds; people want to be part of a special growth story. Those are the people and teams we’re attracting. Those who are builders, those who really want to be part of a unique opportunity in the marketplace join Alerus. I couldn’t be more proud of the professionals we’ve attracted as well as those that we’ve retained. Pride is on both ends: Retaining talent as well as attracting talent.
You came into the Phoenix market about two years before Metro Phoenix Bank was formed. I imagine they had been competitors. How did this deal come together and what are your goals in this market?
K.L.: It’s a great question. We had been in Arizona for some time. We wanted to grow, and it’s so tough to recruit talent when you’re the size that we are. And so we were focused on finding a partner and were grateful for the opportunity to meet with Metro Phoenix. What we found was a very strong commercial bank that was full of talented professionals who brought the same view in terms of serving the commercial clients and who were yearning for more than just the offering that they had. They frequently had clients who they were referring out for mortgages or for wealth management.
As we sat down with the leadership and talked about the opportunity, we grew even more excited about what we could do together in that market. Metro is a high-performing, high-growth company. Arizona market demographics are exceptional in terms of their growth on the business side, as well as the people side. Together, we’re now the fifth largest in terms of deposit market share in that market. And our goal is to reach $1 billion in that market. We won’t stop there. But this acquisition is a big step for us.
What are your growth goals?
K.L.: From the time period of 2009 to 2014, we tripled the size of our company. It’s our intention to do that again.
K.L.: That depends. We know that there are certainly headwinds. But the unique nature of our business model is the natural hedge. Obviously margins have suffered on the banking side the past couple of years, but our mortgage division was performing at exceptional levels. And so our company has a history of long-term strategic planning and we’ve always hit our goals before. We put our mile marker out there; how we got there was always different than how we had planned. But execution is something that this company has always been able to do. And you can have the best strategic plan on paper, but it’s all about execution at the end of the day. This company’s past performance is clearly an indicator of future success, with the team members that we have here leading the organization. I know we will be successful.
Will growth come in those same four verticals, or are you thinking about getting into something else?
K.L.: We always are exploring what more could we bring to the client relationship. Can we bring a solution that eliminates a pain point? And if so, that’s a place where we’ll make investments. As we look at our commercial client base — we’re not in equipment finance; we’re not in the leasing business — that’s certainly an avenue where we could go in terms of helping our clients by providing a solution that they need or that they’re getting elsewhere. We’re very much focused on growing our commercial relationships because that gives us the opportunity to grow the other parts of our business.
Bringing on Jim Collins [as chief banking officer] is a huge win for our company as well as our clients. He has been in this [Twin Cities] market for 25-plus years and has an incredible reputation. As a commercial banker, he has clearly demonstrated the ability to attract talent, as well as serve clients through all cycles. That’s the key to life, to have long, trusted relationships: Being there for clients through the challenging times and the good times.
You’re young and have reached this career pinnacle. What does one make of that?
K.L.: I always say the exposure you’ve had in your career is just as significant as the years of experience. And so my exposure to many different companies and different strategies will always be critical as I think about the future. The No. 1 thing for me is to always surround myself with professionals who are much smarter than me or have diversified experience. I think that’s the key part for any high-performing company. You need professionals who are aligned in their morals and values, but who also bring diversity of experience, of thought and background into the conversation so that you’re continuing to not ever rest. One of our sayings is: “Have a constant discontent for the status quo.” The minute we think we’re good is the minute somebody is passing us by.
What I’m hearing is that you will not be the same CEO a year from now as you are today.
K.L.: I learn something new every single day in this company. Every. Single. Day.