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Alerus Financial Corporation Reports Second Quarter 2023 Net Income of $9.1 Million

Alerus Financial Corporation (Nasdaq: ALRS), or the Company, reported net income of $9.1 million for the second quarter of 2023, or $0.45 per diluted common share, compared to net income of $8.2 million, or $0.40 per diluted common share, for the first quarter of 2023, and net income of $9.3 million, or $0.52 per diluted common share, for the second quarter of 2022.

CEO Comments

President and Chief Executive Officer Katie Lorenson said, “During the second quarter, we continued to evolve Alerus into a high performing commercial wealth bank and a national retirement and benefits provider through strategic talent acquisitions and infrastructure optimization. The foundational strength and unique business model of our Company allowed us to continue to attract experienced professionals who will continue to build our commercial banking segment in addition to doubling the size of our treasury management team. More recently, we lifted out a highly regarded and seasoned team to lead the launch of our private banking franchise. We believe that the addition of these professionals coupled with our tenured talent will drive continued new client acquisition and existing client expansion throughout our growing markets.

While the macroeconomic environment remains uncertain, our diversified business model shined in the second quarter as fee income represented 53.7% of total revenues, an industry leading standard, driven primarily by our nationally scaled retirement services and growing wealth management business.

During the quarter, we continued to execute on prudent expense management as noninterest expenses declined 4% from the prior quarter. Our focus on a client-centric organizational structure has resulted in efficiency improvements across the organization. As of July, these improvements have allowed us to reduce total headcount by 10% over the past 12 months, even after taking account of the acquisition of Metro Phoenix Bank.

Despite ongoing industry and economic challenges, we believe Alerus is positioned to emerge stronger than ever. Our unique business model is anchored by durable and highly recurring fee income and our balance sheet is characterized by superior capital and reserves, a highly diversified loan and deposit portfolio, and a long history of strong credit performance. We remain optimistic about our continued ability to attract and retain the best talent and are seeing the benefits of our ongoing implementation of infrastructure optimization.

We are grateful for our Alerus team members whose ongoing collaboration and client focus are continuing to position the company’s future for top tier shareholder returns and performance.”

Second Quarter Highlights

  • Return on average tangible common equity(1) of 13.71%, compared to 12.58% for the first quarter of 2023
  • Return on average common equity of 10.14%, compared to 9.17% for the first quarter of 2023
  • Return on average total assets of 0.96%, compared to 0.88% for the first quarter of 2023
  • Repurchased $3.0 million of the Company’s outstanding stock, reducing common shares outstanding by 170,046 at quarter end
  • Increased quarterly dividend by 5.6% to $0.19 per share
  • Loan to deposit ratio as of June 30, 2023 was 88.8%, compared to 83.8% as of December 31, 2022
  • Common equity tier 1 capital to risk weighted assets as of June 30, 2023 was 13.30%, compared to 13.39% as of December 31, 2022
  • Noninterest expense was $36.4 million, compared to $37.9 million for the first quarter of 2023
  • Efficiency ratio improved to 72.79% compared to 74.53% for the first quarter of 2023
  • Noninterest income was 53.69% of total revenue, compared to 51.63% for the first quarter of 2023
  • Allowance for credit losses to total loans was 1.41% compared to 1.27% as of December 31, 2022
  • Net recoveries to average loans of 0.07% compared to net charge-offs to average loans of 0.03% for the first quarter of 2023

 

(1) Represents a non-GAAP financial measure. See “Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures.”

Selected Financial Data (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of and for the

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

March 31,

 

June 30,

 

June 30,

 

June 30,

 

(dollars and shares in thousands, except per share data)

 

2023

 

2023

 

2022

 

2023

 

2022

 

Performance Ratios

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on average total assets

 

 

0.96

 

%

 

0.88

%

 

1.14

%

 

0.92

 

%

 

1.20

%

Return on average common equity

 

 

10.14

 

%

 

9.17

%

 

11.93

%

 

9.66

 

%

 

11.85

%

Return on average tangible common equity (1)

 

 

13.71

 

%

 

12.58

%

 

15.25

%

 

13.15

 

%

 

14.97

%

Noninterest income as a % of revenue

 

 

53.69

 

%

 

51.63

%

 

56.20

%

 

52.65

 

%

 

56.91

%

Net interest margin (tax-equivalent)

 

 

2.52

 

%

 

2.70

%

 

2.98

%

 

2.61

 

%

 

2.91

%

Efficiency ratio (1)

 

 

72.79

 

%

 

74.53

%

 

74.72

%

 

73.67

 

%

 

73.50

%

Net charge-offs/(recoveries) to average loans

 

 

(0.07

)

%

 

0.03

%

 

0.07

%

 

(0.02

)

%

 

0.02

%

Dividend payout ratio

 

 

42.22

 

%

 

45.00

%

 

34.62

%

 

43.53

 

%

 

30.91

%

Per Common Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share - basic

 

$

0.45

 

 

$

0.41

 

$

0.53

 

$

0.86

 

 

$

1.11

 

Earnings per common share - diluted

 

$

0.45

 

 

$

0.40

 

$

0.52

 

$

0.85

 

 

$

1.10

 

Dividends declared per common share

 

$

0.19

 

 

$

0.18

 

$

0.18

 

$

0.37

 

 

$

0.34

 

Book value per common share

 

$

17.96

 

 

$

17.90

 

$

17.75

 

 

 

 

 

 

 

Tangible book value per common share (1)

 

$

14.60

 

 

$

14.50

 

$

14.93

 

 

 

 

 

 

 

Average common shares outstanding - basic

 

 

20,033

 

 

 

20,028

 

 

17,297

 

 

20,030

 

 

 

17,271

 

Average common shares outstanding - diluted

 

 

20,241

 

 

 

20,246

 

 

17,532

 

 

20,243

 

 

 

17,517

 

Other Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement and benefit services assets under administration/management

 

$

35,052,652

 

 

$

33,404,342

 

$

31,749,157

 

 

 

 

 

 

 

Wealth management assets under administration/management

 

$

3,857,710

 

 

$

3,675,684

 

$

4,147,763

 

 

 

 

 

 

 

Mortgage originations

 

$

111,261

 

 

$

77,728

 

$

269,397

 

$

188,989

 

 

$

456,159

 

 

(1) Represents a non-GAAP financial measure. See “Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures.”

Results of Operations

Net Interest Income

Net interest income for the second quarter of 2023 was $22.2 million, a $1.4 million, or 6.0%, decrease from the first quarter of 2023. Net interest income decreased $542.0 thousand, or 2.4%, from $22.8 million for the second quarter of 2022. Interest income increased $2.5 million, or 6.7% from the first quarter of 2023, primarily driven by a 24 basis point increase in yield on interest earning assets. Contributing factors to higher asset yields were higher new loan yields and accretion of fair value marks from the Metro Phoenix Bank transaction. The increase in interest income was more than offset by a $4.0 million increase in interest expense, primarily due to an increase in rates paid on interest-bearing deposits. The increase in interest expense paid on deposits was due to heightened deposit competition, the impact of rising short-term interest rates on indexed money market deposits and clients moving deposits out of noninterest bearing products into interest-bearing products.

Net interest margin (tax-equivalent), was 2.52% for the second quarter of 2023, an 18 basis point decrease from 2.70% for the first quarter of 2023, and a 46 basis point decrease from 2.98% for the second quarter of 2022. The decrease in net interest margin from the prior quarter reflected the impact of rising interest rates on our interest-bearing liabilities partially offset by slightly higher yields on new loans and accretion of fair value marks from the Metro Phoenix Bank transaction.

Noninterest Income

Noninterest income for the second quarter of 2023 was $25.8 million, a $525.0 thousand, or 2.1%, increase from the first quarter of 2023. The quarter over quarter increase was primarily driven by improvement across all fee-based business segments. Mortgage saw a $1.2 million, or 69.2%, increase in mortgage banking revenue due to a seasonal rebound in originations as mortgage originations grew 43% from the prior quarter. Retirement and benefit services revenue increased $408 thousand, or 2.6%, mainly due to increased administration, recordkeeping, and asset-based fees. Assets under management/administration grew due to improved equity markets and organic growth in plans and participants. Wealth management revenue increased $256 thousand, or 4.9%, as assets under management/administration grew due to improved equity markets and organic net inflows from new and existing relationships.

Noninterest income for the second quarter of 2023 decreased $3.4 million, or 11.8%, from $29.2 million in the second quarter of 2022. The year over year decrease was primarily driven by a $3.1 million decrease in mortgage revenue due to a $158.1 million decrease in mortgage originations as higher interest rates dramatically impacted demand. Retirement and benefit services decreased $403 thousand mainly from the exit of the payroll services business and one-time document restatement fees recognized in 2022.

Noninterest Expense

Noninterest expense for the second quarter of 2023 was $36.4 million, a $1.5 million, or 4.0% decrease from the first quarter of 2023. The quarter over quarter decrease was primarily driven by a $1.1 million decrease in employee taxes and benefits resulting from lower headcount and lower group insurance costs. Compensation expense decreased $311 thousand from the first quarter of 2023 due to a reduction in severance costs and salaries, offset by increased mortgage incentive compensation. Offsetting the improvement in compensation and benefits expense, professional fees and assessments increased $378 thousand due to higher Federal Deposit Insurance Corporation (FDIC) assessment fees.

Noninterest expense for the second quarter of 2023 decreased $3.6 million, or 9.0%, from $40.0 million in the second quarter of 2022. The year over year decrease was primarily due to a $2.4 million decrease in compensation, $1.1 million decrease in employee taxes and benefits, and $716 thousand decrease in professional fees and assessments. Compensation decreased primarily due to a decrease in mortgage related incentive compensation from lower mortgage originations. The decrease in employee taxes and benefits resulted from lower group insurance claims, reduced headcount, and lower compensation costs.

Financial Condition

Total assets were $3.8 billion as of June 30, 2023, an increase of $53.3 million, or 1.4%, from December 31, 2022. The increase was primarily due to an $89.5 million increase in loans, an $11.4 million increase in loans held for sale and a $7.2 million increase in cash and cash equivalents, offset by a decrease of $53.4 million in investment securities.

Loans

Total loans were $2.5 billion as of June 30, 2023, an increase of $89.5 million, or 3.7%, from December 31, 2022. The increase was primarily driven by a $122.2 million increase in commercial real estate and a $34.8 million increase in residential real estate loans, offset by a $32.0 million decrease in commercial and industrial, a $19.4 million decrease in real estate construction and a $16.1 million decrease in other consumer revolving and installment loans.

The following table presents the composition of our loan portfolio as of the dates indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

March 31,

 

December 31,

 

September 30,

 

June 30,

(dollars in thousands)

 

2023

 

2023

 

2022

 

2022

 

2022

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

551,860

 

$

553,578

 

$

583,876

 

$

564,655

 

$

484,426

Real estate construction

 

 

78,428

 

 

108,776

 

 

97,810

 

 

89,215

 

 

48,870

Commercial real estate

 

 

1,003,821

 

 

934,324

 

 

881,670

 

 

819,068

 

 

599,737

Total commercial

 

 

1,634,109

 

 

1,596,678

 

 

1,563,356

 

 

1,472,938

 

 

1,133,033

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate first mortgage

 

 

707,630

 

 

698,002

 

 

679,551

 

 

649,818

 

 

568,571

Residential real estate junior lien

 

 

157,231

 

 

152,281

 

 

150,479

 

 

143,681

 

 

135,255

Other revolving and installment

 

 

34,552

 

 

39,664

 

 

50,608

 

 

51,794

 

 

53,384

Total consumer

 

 

899,413

 

 

889,947

 

 

880,638

 

 

845,293

 

 

757,210

Total loans

 

$

2,533,522

 

$

2,486,625

 

$

2,443,994

 

$

2,318,231

 

$

1,890,243

Deposits

Total deposits were $2.9 billion as of June 30, 2023, a decrease of $62.6 million, or 2.1%, from December 31, 2022. Interest-bearing deposits increased $82.8 million, while noninterest-bearing deposits decreased $145.5 million from December 31, 2022. The decrease in total deposits was due to both public unit depositor seasonality and clients using excess liquidity and paying down revolving debt. Noninterest-bearing deposits decreased from 29.5% of total deposits to 25.1% as higher interest rates continued a migration to interest-bearing accounts. Time deposit balances increased as higher short-term CD rates attracted both internal transfers of current deposits as well as new clients and deposits to the Company.

The following table presents the composition of our deposit portfolio as of the dates indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

March 31,

 

December 31,

 

September 30,

 

June 30,

(dollars in thousands)

 

2023

 

2023

 

2022

 

2022

 

2022

Noninterest-bearing demand

 

$

715,534

 

$

792,977

 

$

860,987

 

$

905,228

 

$

764,808

Interest-bearing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand

 

 

753,194

 

 

817,675

 

 

706,275

 

 

653,216

 

 

642,641

Savings accounts

 

 

93,557

 

 

99,742

 

 

99,882

 

 

101,820

 

 

97,227

Money market savings

 

 

986,403

 

 

1,076,166

 

 

1,035,981

 

 

1,079,520

 

 

914,423

Time deposits

 

 

304,167

 

 

245,418

 

 

212,359

 

 

222,027

 

 

200,451

Total interest-bearing

 

 

2,137,321

 

 

2,239,001

 

 

2,054,497

 

 

2,056,583

 

 

1,854,742

Total deposits

 

$

2,852,855

 

$

3,031,978

 

$

2,915,484

 

$

2,961,811

 

$

2,619,550

Asset Quality

Total nonperforming assets were $2.6 million as of June 30, 2023, a decrease of $1.2 million, or 32.5%, from December 31, 2022. As of June 30, 2023, the allowance for credit losses on loans was $35.7 million, or 1.41% of total loans, compared to $31.1 million, or 1.27% of total loans, as of December 31, 2022.

The following table presents selected asset quality data as of and for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of and for the three months ended

 

 

 

June 30,

 

March 31,

 

December 31,

 

September 30,

 

June 30,

 

(dollars in thousands)

 

2023

 

2023

 

2022

 

2022

 

2022

 

Nonaccrual loans

 

$

2,233

 

 

$

2,118

 

$

3,794

 

 

$

4,303

 

$

4,370

 

Accruing loans 90+ days past due

 

 

347

 

 

 

 

 

 

 

 

1,000

 

 

 

Total nonperforming loans

 

 

2,580

 

 

 

2,118

 

 

3,794

 

 

 

5,303

 

 

4,370

 

OREO and repossessed assets

 

 

 

 

 

 

 

30

 

 

 

904

 

 

860

 

Total nonperforming assets

 

$

2,580

 

 

$

2,118

 

$

3,824

 

 

$

6,207

 

$

5,230

 

Net charge-offs/(recoveries)

 

 

(403

)

 

 

170

 

 

(178

)

 

 

405

 

 

340

 

Net charge-offs/(recoveries) to average loans

 

 

(0.07

)

%

 

0.03

%

 

(0.03

)

%

 

0.07

%

 

0.07

%

Nonperforming loans to total loans

 

 

0.10

 

%

 

0.09

%

 

0.16

 

%

 

0.23

%

 

0.23

%

Nonperforming assets to total assets

 

 

0.07

 

%

 

0.05

%

 

0.10

 

%

 

0.17

%

 

0.16

%

Allowance for credit losses on loans to total loans

 

 

1.41

 

%

 

1.41

%

 

1.27

 

%

 

1.34

%

 

1.66

%

Allowance for credit losses on loans to nonperforming loans

 

 

1,384

 

%

 

1,657

%

 

821

 

%

 

584

%

 

718

%

For the second quarter of 2023, the Company had net recoveries of $403 thousand compared to net charge-offs of $170 thousand for the first quarter of 2023 and $340 thousand of net charge-offs for the second quarter of 2022.

The Company did not record a provision for credit losses for the second quarter of 2023 due to strong credit quality indicators and net recoveries for the quarter. The allowance for credit losses on loans to total loans increased from 1.27% at December 31, 2022 to 1.41% at June 30, 2023. Beginning on January 1, 2023 the allowance for credit losses on loans is computed under the current expected credit loss, or CECL, accounting standard and prior to that the allowance for credit losses was computed using the incurred loss method. The unearned fair value adjustments on the acquired Metro Phoenix Bank loan portfolio were $6.2 million and $7.1 million, as of June 30, 2023 and December 31, 2022, respectively.

Capital

Total stockholders’ equity was $357.7 million as of June 30, 2023, an increase of $813 thousand from December 31, 2022. Tangible book value per common share, a non-GAAP financial measure, increased to $14.60 as of June 30, 2023, from $14.37 as of December 31, 2022. Tangible common equity to tangible assets, a non-GAAP financial measure, decreased to 7.72% as of June 30, 2023, from 7.74% as of December 31, 2022. Common equity tier 1 capital to risk weighted assets decreased to 13.30% as of June 30, 2023, from 13.39% as of December 31, 2022.

During the second quarter of 2023, the Company repurchased approximately $3.0 million of its outstanding stock, which reduced common shares outstanding by 170,046 at quarter end.

The following table presents our capital ratios as of the dates indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

June 30,

 

 

 

2023

 

2022

 

2022

 

Capital Ratios(1)

 

 

 

 

 

 

 

 

 

 

Alerus Financial Corporation Consolidated

 

 

 

 

 

 

 

 

 

 

Common equity tier 1 capital to risk weighted assets

 

 

13.30

%

 

13.39

%

 

14.19

%

Tier 1 capital to risk weighted assets

 

 

13.60

%

 

13.69

%

 

14.56

%

Total capital to risk weighted assets

 

 

16.49

%

 

16.48

%

 

17.95

%

Tier 1 capital to average assets

 

 

11.15

%

 

11.25

%

 

10.80

%

Tangible common equity / tangible assets (2)

 

 

7.72

%

 

7.74

%

 

7.96

%

 

 

 

 

 

 

 

 

 

 

 

Alerus Financial, N.A.

 

 

 

 

 

 

 

 

 

 

Common equity tier 1 capital to risk weighted assets

 

 

12.93

%

 

12.76

%

 

13.64

%

Tier 1 capital to risk weighted assets

 

 

12.93

%

 

12.76

%

 

13.64

%

Total capital to risk weighted assets

 

 

14.14

%

 

13.83

%

 

14.89

%

Tier 1 capital to average assets

 

 

10.59

%

 

10.48

%

 

10.12

%

 

(1) Capital ratios for the current quarter are to be considered preliminary until the Call Report for Alerus Financial, N.A. is filed.

(2) Represents a non-GAAP financial measure. See “Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures.”

Conference Call

The Company will host a conference call at 11:00 a.m. Central Time on Thursday, July 27, 2023, to discuss its financial results. The call can be accessed via telephone at (833) 470-1428, using access code 067281. A recording of the call and transcript will be available on the Company’s investor relations website at investors.alerus.com following the call.

About Alerus Financial Corporation

Alerus Financial Corporation is a diversified financial services company with corporate offices in Grand Forks, North Dakota, and the Minneapolis-St. Paul, Minnesota metropolitan area. Through its subsidiary, Alerus Financial, N.A., the Company provides innovative and comprehensive financial solutions to business and consumer clients through four distinct business segments—banking, retirement and benefit services, wealth management, and mortgage. The Company provides clients with a primary point of contact to help fully understand the unique needs and delivery channel preferences of each client. Clients are provided with competitive products, valuable insight and sound advice supported by digital solutions designed to meet the clients’ needs. The Company has banking, mortgage, and wealth management offices in Grand Forks and Fargo, North Dakota, the Minneapolis-St. Paul, Minnesota metropolitan area, and Phoenix, Scottsdale, and Mesa Arizona. Alerus retirement and benefit services plan administration hubs are located in Minnesota, Michigan, and Colorado.

Non-GAAP Financial Measures

Some of the financial measures included in this press release are not measures of financial performance recognized by U.S. Generally Accepted Accounting Principles, or GAAP. These non-GAAP financial measures include the ratio of tangible common equity to tangible assets, tangible common equity per share, return on average tangible common equity, net interest margin (tax-equivalent), and the efficiency ratio. Management uses these non-GAAP financial measures in its analysis of its performance, and believes financial analysts and investors frequently use these measures, and other similar measures, to evaluate capital adequacy and financial performance. Reconciliations of non-GAAP disclosures used in this press release to the comparable GAAP measures are provided in the accompanying tables. Management, banking regulators, many financial analysts and other investors use these measures in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, which typically stem from the use of the purchase accounting method of accounting for mergers and acquisitions.

These non-GAAP financial measures should not be considered in isolation or as a substitute for total stockholders’ equity, total assets, book value per share, return on average assets, return on average equity, or any other measure calculated in accordance with GAAP. Moreover, the manner in which the Company calculates these non-GAAP financial measures may differ from that of other companies reporting measures with similar names.

Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, statements concerning plans, estimates, calculations, forecasts and projections with respect to the anticipated future performance of Alerus Financial Corporation. These statements are often, but not always, identified by words such as “may”, “might”, “should”, “could”, “predict”, “potential”, “believe”, “expect”, “continue”, “will”, “anticipate”, “seek”, “estimate”, “intend”, “plan”, “projection”, “would”, “annualized”, “target” and “outlook”, or the negative version of those words or other comparable words of a future or forward-looking nature. Examples of forward-looking statements include, among others, statements we make regarding our projected growth, anticipated future financial performance, financial condition, credit quality, management’s long-term performance goals and the future plans and prospects of Alerus Financial Corporation.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in forward-looking statements include, among others, the following: interest rate risks associated with our business, including the effects of recent and anticipated rate increases by the Federal Reserve; our ability to successfully manage credit risk and maintain an adequate level of allowance for credit losses; new or revised accounting standards, including as a result of the implementation of the new Current Expected Credit Loss Standard; business and economic conditions generally and in the financial services industry, nationally and within our market areas, including continued rising rates of inflation and possible recession; the effects of recent developments and events in the financial services industry, including the large-scale deposit withdrawals over a short-period of time at Silicon Valley Bank, Signature Bank and First Republic Bank that resulted in the failure of those institutions; the overall health of the local and national real estate market; concentrations within our loan portfolio; the level of nonperforming assets on our balance sheet; our ability to implement our organic and acquisition growth strategies, including the integration of Metro Phoenix Bank which we acquired in 2022; the impact of economic or market conditions on our fee-based services; our ability to continue to grow our retirement and benefit services business; our ability to continue to originate a sufficient volume of residential mortgages; the occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents, including as a result of sophisticated attacks using artificial intelligence and similar tools; interruptions involving our information technology and telecommunications systems or third-party servicers; potential losses incurred in connection with mortgage loan repurchases; the composition of our executive management team and our ability to attract and retain key personnel; rapid technological change in the financial services industry; increased competition in the financial services industry from non-banks such as credit unions and Fintech companies, including digital asset service providers; our ability to successfully manage liquidity risk, including our need to access higher cost sources of funds such as fed funds purchased and short-term borrowings; the concentration of large deposits from certain clients, who have balances above current FDIC insurance limits; the effectiveness of our risk management framework; the commencement and outcome of litigation and other legal proceedings and regulatory actions against us or to which we may become subject; potential impairment to the goodwill we recorded in connection with our past acquisitions, including the acquisition of Metro Phoenix Bank; the extensive regulatory framework that applies to us; the impact of recent and future legislative and regulatory changes, including in response to the recent failures of Silicon Valley Bank, Signature Bank and First Republic Bank; fluctuations in the values of the securities held in our securities portfolio, including as a result of changes in interest rates; governmental monetary, trade and fiscal policies; risks related to climate change and the negative impact it may have on our customers and their businesses; severe weather, natural disasters, widespread disease or pandemics, such as the COVID-19 global pandemic; acts of war or terrorism, including the Russian invasion of Ukraine, or other adverse external events; any material weaknesses in our internal control over financial reporting; changes to U.S. or state tax laws, regulations and guidance, including the new 1.0% excise tax on stock buybacks by publicly traded companies; talent and labor shortages and employee turnover; our success at managing the risks involved in the foregoing items; and any other risks described in the “Risk Factors” sections of the reports filed by Alerus Financial Corporation with the Securities and Exchange Commission.

Any forward-looking statement made by us in this press release is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

Alerus Financial Corporation and Subsidiaries

Consolidated Balance Sheets

(dollars in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

2023

 

2022

Assets

 

(Unaudited)

 

(Audited)

Cash and cash equivalents

 

$

65,471

 

 

$

58,242

 

Investment securities

 

 

 

 

 

 

Available-for-sale, at fair value

 

 

677,454

 

 

 

717,324

 

Held-to-maturity, at carrying value (allowance for credit losses of $218 at June 30, 2023)

 

 

308,416

 

 

 

321,902

 

Loans held for sale

 

 

20,893

 

 

 

9,488

 

Loans

 

 

2,533,522

 

 

 

2,443,994

 

Allowance for credit losses on loans

 

 

(35,696

)

 

 

(31,146

)

Net loans

 

 

2,497,826

 

 

 

2,412,848

 

Land, premises and equipment, net

 

 

17,488

 

 

 

17,288

 

Operating lease right-of-use assets

 

 

6,440

 

 

 

5,419

 

Accrued interest receivable

 

 

13,587

 

 

 

12,869

 

Bank-owned life insurance

 

 

32,793

 

 

 

33,991

 

Goodwill

 

 

47,087

 

 

 

47,087

 

Other intangible assets

 

 

19,806

 

 

 

22,455

 

Servicing rights

 

 

2,351

 

 

 

2,643

 

Deferred income taxes, net

 

 

43,709

 

 

 

42,369

 

Other assets

 

 

79,657

 

 

 

75,712

 

Total assets

 

$

3,832,978

 

 

$

3,779,637

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

Noninterest-bearing

 

$

715,534

 

 

$

860,987

 

Interest-bearing

 

 

2,137,321

 

 

 

2,054,497

 

Total deposits

 

 

2,852,855

 

 

 

2,915,484

 

Short-term borrowings

 

 

492,060

 

 

 

378,080

 

Long-term debt

 

 

58,900

 

 

 

58,843

 

Operating lease liabilities

 

 

6,746

 

 

 

5,902

 

Accrued expenses and other liabilities

 

 

64,732

 

 

 

64,456

 

Total liabilities

 

 

3,475,293

 

 

 

3,422,765

 

Stockholders’ equity

 

 

 

 

 

 

Preferred stock, $1 par value, 2,000,000 shares authorized: 0 issued and outstanding

 

 

 

 

 

 

Common stock, $1 par value, 30,000,000 shares authorized: 19,914,884 and 19,991,681 issued and outstanding

 

 

19,915

 

 

 

19,992

 

Additional paid-in capital

 

 

152,673

 

 

 

155,095

 

Retained earnings

 

 

285,839

 

 

 

280,426

 

Accumulated other comprehensive income (loss)

 

 

(100,742

)

 

 

(98,641

)

Total stockholders’ equity

 

 

357,685

 

 

 

356,872

 

Total liabilities and stockholders’ equity

 

$

3,832,978

 

 

$

3,779,637

 

Alerus Financial Corporation and Subsidiaries

Consolidated Statements of Income

(dollars and shares in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

June 30,

 

March 31,

 

June 30,

 

June 30,

 

June 30,

 

 

2023

 

2023

 

2022

 

2023

 

2022

Interest Income

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

Loans, including fees

 

$

33,267

 

$

30,933

 

$

17,988

 

$

64,200

 

$

35,280

Investment securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

6,125

 

 

5,951

 

 

6,068

 

 

12,076

 

 

11,508

Exempt from federal income taxes

 

 

186

 

 

190

 

 

213

 

 

376

 

 

429

Other

 

 

762

 

 

735

 

 

157

 

 

1,497

 

 

273

Total interest income

 

 

40,340

 

 

37,809

 

 

24,426

 

 

78,149

 

 

47,490

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

12,678

 

 

9,104

 

 

813

 

 

21,782

 

 

1,642

Short-term borrowings

 

 

4,763

 

 

4,393

 

 

278

 

 

9,156

 

 

278

Long-term debt

 

 

665

 

 

654

 

 

559

 

 

1,319

 

 

1,121

Total interest expense

 

 

18,106

 

 

14,151

 

 

1,650

 

 

32,257

 

 

3,041

Net interest income

 

 

22,234

 

 

23,658

 

 

22,776

 

 

45,892

 

 

44,449

Provision for credit losses

 

 

 

 

550

 

 

 

 

550

 

 

Net interest income after provision for credit losses

 

 

22,234

 

 

23,108

 

 

22,776

 

 

45,342

 

 

44,449

Noninterest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement and benefit services

 

 

15,890

 

 

15,482

 

 

16,293

 

 

31,372

 

 

33,939

Wealth management

 

 

5,450

 

 

5,194

 

 

5,548

 

 

10,644

 

 

10,874

Mortgage banking

 

 

2,905

 

 

1,717

 

 

6,038

 

 

4,622

 

 

10,969

Service charges on deposit accounts

 

 

311

 

 

301

 

 

412

 

 

612

 

 

775

Other

 

 

1,222

 

 

2,559

 

 

935

 

 

3,781

 

 

2,139

Total noninterest income

 

 

25,778

 

 

25,253

 

 

29,226

 

 

51,031

 

 

58,696

Noninterest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation

 

 

18,847

 

 

19,158

 

 

21,248

 

 

38,005

 

 

40,299

Employee taxes and benefits

 

 

4,724

 

 

5,853

 

 

5,787

 

 

10,577

 

 

11,949

Occupancy and equipment expense

 

 

1,837

 

 

1,899

 

 

1,737

 

 

3,736

 

 

3,788

Business services, software and technology expense

 

 

5,269

 

 

5,324

 

 

4,785

 

 

10,593

 

 

9,709

Intangible amortization expense

 

 

1,324

 

 

1,324

 

 

1,053

 

 

2,648

 

 

2,106

Professional fees and assessments

 

 

1,530

 

 

1,152

 

 

2,246

 

 

2,682

 

 

3,787

Marketing and business development

 

 

648

 

 

686

 

 

814

 

 

1,334

 

 

1,414

Supplies and postage

 

 

406

 

 

460

 

 

572

 

 

866

 

 

1,218

Travel

 

 

306

 

 

248

 

 

356

 

 

554

 

 

535

Mortgage and lending expenses

 

 

215

 

 

497

 

 

482

 

 

712

 

 

1,168

Other

 

 

1,267

 

 

1,268

 

 

904

 

 

2,535

 

 

2,082

Total noninterest expense

 

 

36,373

 

 

37,869

 

 

39,984

 

 

74,242

 

 

78,055

Income before income taxes

 

 

11,639

 

 

10,492

 

 

12,018

 

 

22,131

 

 

25,090

Income tax expense

 

 

2,535

 

 

2,306

 

 

2,725

 

 

4,841

 

 

5,613

Net income

 

$

9,104

 

$

8,186

 

$

9,293

 

$

17,290

 

$

19,477

Per Common Share Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share

 

$

0.45

 

$

0.41

 

$

0.53

 

$

0.86

 

$

1.11

Diluted earnings per common share

 

$

0.45

 

$

0.40

 

$

0.52

 

$

0.85

 

$

1.10

Dividends declared per common share

 

$

0.19

 

$

0.18

 

$

0.18

 

$

0.37

 

$

0.34

Average common shares outstanding

 

 

20,033

 

 

20,028

 

 

17,297

 

 

20,030

 

 

17,271

Diluted average common shares outstanding

 

 

20,241

 

 

20,246

 

 

17,532

 

 

20,243

 

 

17,517

Alerus Financial Corporation and Subsidiaries

Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures (unaudited)

(dollars and shares in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

March 31,

 

December 31,

 

June 30,

 

 

 

2023

 

2023

 

2022

 

2022

 

Tangible Common Equity to Tangible Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Total common stockholders’ equity

 

$

357,685

 

$

359,118

 

$

356,872

 

$

307,158

 

Less: Goodwill

 

 

47,087

 

 

47,087

 

 

47,087

 

 

31,337

 

Less: Other intangible assets

 

 

19,806

 

 

21,131

 

 

22,455

 

 

17,511

 

Tangible common equity (a)

 

 

290,792

 

 

290,900

 

 

287,330

 

 

258,310

 

Total assets

 

 

3,832,978

 

 

3,886,773

 

 

3,779,637

 

 

3,295,065

 

Less: Goodwill

 

 

47,087

 

 

47,087

 

 

47,087

 

 

31,337

 

Less: Other intangible assets

 

 

19,806

 

 

21,131

 

 

22,455

 

 

17,511

 

Tangible assets (b)

 

 

3,766,085

 

 

3,818,555

 

 

3,710,095

 

 

3,246,217

 

Tangible common equity to tangible assets (a)/(b)

 

 

7.72

%

 

7.62

%

 

7.74

%

 

7.96

%

Tangible Book Value Per Common Share

 

 

 

 

 

 

 

 

 

 

 

 

 

Total common stockholders’ equity

 

$

357,685

 

$

359,118

 

$

356,872

 

$

307,158

 

Less: Goodwill

 

 

47,087

 

 

47,087

 

 

47,087

 

 

31,337

 

Less: Other intangible assets

 

 

19,806

 

 

21,131

 

 

22,455

 

 

17,511

 

Tangible common equity (c)

 

 

290,792

 

 

290,900

 

 

287,330

 

 

258,310

 

Total common shares issued and outstanding (d)

 

 

19,915

 

 

20,067

 

 

19,992

 

 

17,306

 

Tangible book value per common share (c)/(d)

 

$

14.60

 

$

14.50

 

$

14.37

 

$

14.93

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

March 31,

 

June 30,

 

June 30,

 

June 30,

 

 

 

2023

 

2023

 

2022

 

2023

 

2022

 

Return on Average Tangible Common Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

9,104

 

$

8,186

 

$

9,293

 

$

17,290

 

$

19,477

 

Add: Intangible amortization expense (net of tax)

 

 

1,046

 

 

1,046

 

 

832

 

 

2,092

 

 

1,664

 

Net income, excluding intangible amortization (e)

 

 

10,150

 

 

9,232

 

 

10,125

 

 

19,382

 

 

21,141

 

Average total equity

 

 

360,216

 

 

361,857

 

 

312,515

 

 

361,032

 

 

331,425

 

Less: Average goodwill

 

 

47,087

 

 

47,087

 

 

31,488

 

 

47,087

 

 

31,489

 

Less: Average other intangible assets (net of tax)

 

 

16,153

 

 

17,209

 

 

14,737

 

 

16,678

 

 

15,151

 

Average tangible common equity (f)

 

 

296,976

 

 

297,561

 

 

266,290

 

 

297,267

 

 

284,785

 

Return on average tangible common equity (e)/(f)

 

 

13.71

%

 

12.58

%

 

15.25

%

 

13.15

%

 

14.97

%

Efficiency Ratio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense

 

$

36,373

 

$

37,869

 

$

39,984

 

$

74,242

 

$

78,055

 

Less: Intangible amortization expense

 

 

1,324

 

 

1,324

 

 

1,053

 

 

2,648

 

 

2,106

 

Adjusted noninterest expense (g)

 

 

35,049

 

 

36,545

 

 

38,931

 

 

71,594

 

 

75,949

 

Net interest income

 

 

22,234

 

 

23,658

 

 

22,776

 

 

45,892

 

 

44,449

 

Noninterest income

 

 

25,778

 

 

25,253

 

 

29,226

 

 

51,031

 

 

58,696

 

Tax-equivalent adjustment

 

 

140

 

 

124

 

 

100

 

 

264

 

 

194

 

Total tax-equivalent revenue (h)

 

 

48,152

 

 

49,035

 

 

52,102

 

 

97,187

 

 

103,339

 

Efficiency ratio (g)/(h)

 

 

72.79

%

 

74.53

%

 

74.72

%

 

73.67

%

 

73.50

%

Alerus Financial Corporation and Subsidiaries

Analysis of Average Balances, Yields, and Rates (unaudited)

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

June 30, 2023

 

March 31, 2023

 

June 30, 2022

 

June 30, 2023

 

June 30, 2022

 

 

 

 

 

Average

 

 

 

 

Average

 

 

 

 

Average

 

 

 

 

Average

 

 

 

 

Average

 

 

Average

 

Yield/

 

Average

 

Yield/

 

Average

 

Yield/

 

Average

 

Yield/

 

Average

 

Yield/

 

 

Balance

 

Rate

 

Balance

 

Rate

 

Balance

 

Rate

 

Balance

 

Rate

 

Balance

 

Rate

Interest Earning Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits with banks

 

$

36,418

 

4.00

%

 

$

41,947

 

3.23

%

 

$

28,920

 

0.39

%

 

$

39,167

 

3.59

%

 

$

67,111

 

0.22

%

Investment securities (1)

 

 

1,007,792

 

2.53

%

 

 

1,034,288

 

2.43

%

 

 

1,164,625

 

2.18

%

 

 

1,020,967

 

2.48

%

 

 

1,190,298

 

2.04

%

Loans held for sale

 

 

14,536

 

5.22

%

 

 

10,345

 

4.98

%

 

 

31,878

 

3.15

%

 

 

12,452

 

5.12

%

 

 

28,287

 

2.90

%

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

 

545,357

 

6.90

%

 

 

559,416

 

6.09

%

 

 

463,215

 

4.38

%

 

 

552,348

 

6.49

%

 

 

449,014

 

4.52

%

Real estate construction

 

 

87,905

 

7.43

%

 

 

103,099

 

6.56

%

 

 

44,627

 

4.04

%

 

 

95,460

 

6.96

%

 

 

42,893

 

3.97

%

Commercial real estate

 

 

956,828

 

5.09

%

 

 

911,634

 

4.95

%

 

 

601,765

 

3.80

%

 

 

934,356

 

5.02

%

 

 

601,397

 

3.72

%

Total commercial

 

 

1,590,090

 

5.84

%

 

 

1,574,149

 

5.46

%

 

 

1,109,607

 

4.05

%

 

 

1,582,164

 

5.65

%

 

 

1,093,304

 

4.06

%

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate first mortgage

 

 

698,288

 

3.76

%

 

 

688,754

 

3.76

%

 

 

543,023

 

3.29

%

 

 

693,547

 

3.76

%

 

 

528,952

 

3.39

%

Residential real estate junior lien

 

 

156,276

 

7.44

%

 

 

149,720

 

7.21

%

 

 

132,082

 

4.64

%

 

 

153,016

 

7.33

%

 

 

129,056

 

4.55

%

Other revolving and installment

 

 

37,759

 

6.03

%

 

 

44,531

 

5.86

%

 

 

53,919

 

4.40

%

 

 

41,126

 

5.94

%

 

 

52,311

 

4.39

%

Total consumer

 

 

892,323

 

4.50

%

 

 

883,005

 

4.45

%

 

 

729,024

 

3.62

%

 

 

887,689

 

4.48

%

 

 

710,319

 

3.67

%

Total loans (1)

 

 

2,482,413

 

5.36

%

 

 

2,457,154

 

5.10

%

 

 

1,838,631

 

3.88

%

 

 

2,469,853

 

5.23

%

 

 

1,803,623

 

3.91

%

Federal Reserve/FHLB stock

 

 

23,724

 

6.76

%

 

 

23,668

 

6.87

%

 

 

10,564

 

4.90

%

 

 

23,697

 

6.82

%

 

 

8,536

 

4.70

%

Total interest earning assets

 

 

3,564,883

 

4.55

%

 

 

3,567,402

 

4.31

%

 

 

3,074,618

 

3.20

%

 

 

3,566,136

 

4.43

%

 

 

3,097,855

 

3.10

%

Noninterest earning assets

 

 

220,604

 

 

 

 

 

224,134

 

 

 

 

 

184,037

 

 

 

 

 

222,358

 

 

 

 

 

174,799

 

 

 

Total assets

 

$

3,785,487

 

 

 

 

$

3,791,536

 

 

 

 

$

3,258,655

 

 

 

 

$

3,788,494

 

 

 

 

$

3,272,654

 

 

 

Interest-Bearing Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand deposits

 

$

775,818

 

1.26

%

 

$

746,660

 

0.87

%

 

$

703,365

 

0.12

%

 

$

761,319

 

1.07

%

 

$

708,888

 

0.12

%

Money market and savings deposits

 

 

1,145,335

 

2.81

%

 

 

1,165,269

 

2.17

%

 

 

1,041,898

 

0.14

%

 

 

1,155,247

 

2.49

%

 

 

1,042,660

 

0.14

%

Time deposits

 

 

270,121

 

3.29

%

 

 

231,959

 

2.23

%

 

 

211,787

 

0.43

%

 

 

251,145

 

2.80

%

 

 

219,592

 

0.44

%

Fed funds purchased

 

 

360,033

 

5.31

%

 

 

290,187

 

4.85

%

 

 

81,506

 

1.18

%

 

 

325,303

 

5.10

%

 

 

40,978

 

1.18

%

Short-term borrowings

 

 

 

%

 

 

80,000

 

4.69

%

 

 

9,615

 

1.59

%

 

 

39,779

 

4.69

%

 

 

4,834

 

1.59

%

Long-term debt

 

 

58,886

 

4.52

%

 

 

58,858

 

4.51

%

 

 

58,876

 

3.81

%

 

 

58,872

 

4.51

%

 

 

58,892

 

3.84

%

Total interest-bearing liabilities

 

 

2,610,193

 

2.78

%

 

 

2,572,933

 

2.23

%

 

 

2,107,047

 

0.31

%

 

 

2,591,665

 

2.51

%

 

 

2,075,844

 

0.30

%

Noninterest-Bearing Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

 

748,942

 

 

 

 

 

789,134

 

 

 

 

 

783,367

 

 

 

 

 

768,927

 

 

 

 

 

807,271

 

 

 

Other noninterest-bearing liabilities

 

 

66,136

 

 

 

 

 

67,612

 

 

 

 

 

55,726

 

 

 

 

 

66,870

 

 

 

 

 

58,114

 

 

 

Stockholders’ equity

 

 

360,216

 

 

 

 

 

361,857

 

 

 

 

 

312,515

 

 

 

 

 

361,032

 

 

 

 

 

331,425

 

 

 

Total liabilities and stockholders’ equity

 

$

3,785,487

 

 

 

 

$

3,791,536

 

 

 

 

$

3,258,655

 

 

 

 

$

3,788,494

 

 

 

 

$

3,272,654

 

 

 

Net interest income (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest rate spread

 

 

 

 

1.77

%

 

 

 

 

2.08

%

 

 

 

 

2.89

%

 

 

 

 

1.92

%

 

 

 

 

2.80

%

Net interest margin, tax-equivalent (1)

 

 

 

 

2.52

%

 

 

 

 

2.70

%

 

 

 

 

2.98

%

 

 

 

 

2.61

%

 

 

 

 

2.91

%

 

(1) Taxable-equivalent adjustment was calculated utilizing a marginal income tax rate of 21.0%.

 

Contacts

Alan A. Villalon, Chief Financial Officer

952.417.3733 (Office)

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