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Alerus Financial Corporation Reports Third Quarter 2023 Net Income of $9.2 Million

Alerus Financial Corporation (Nasdaq: ALRS), or the Company, reported net income of $9.2 million for the third quarter of 2023, or $0.45 per diluted common share, compared to net income of $9.1 million, or $0.45 per diluted common share, for the second quarter of 2023, and net income of $9.6 million, or $0.47 per diluted common share, for the third quarter of 2022.

CEO Comments

President and Chief Executive Officer Katie Lorenson said, “Alerus’ fundamental execution of key strategic initiatives continued during the third quarter with strong deposit retention and acquisition while maintaining noninterest-bearing deposits at 25% and a loan to deposit ratio of 90% without the utilization of brokered deposits. We remain focused on building a valuable commercial wealth bank and continued to attract high-performing revenue producers while prudently managing expenses. In our National Retirement Services division, we exited the ESOP trustee business to invest in our scaled key service lines where Alerus is currently ranked as a top 25 provider in the country. Throughout the Company our teams continued to work together with urgency on process improvement with a constant focus on speed and responsiveness to deliver an exceptional client experience while driving increased capacity and resulting efficiencies.

As the industry continues to face headwinds, we believe Alerus is well positioned for the future. We have a best in class diversified business model that is non-spread dependent with over half of our revenues derived from retirement and wealth management which deliver durable, recurring, and annuitized revenues on minimal capital allocation. We have strong capital, reserves and liquidity levels allowing us to be strategic and opportunistic while holding steadfast to our financial disciplines. In addition, we have a dedicated and loyal team who is focused on adding value to our clients. We thank our team members for their hard work as we continue to build upon our strong foundation.”

Third Quarter Highlights

  • Total deposits were stable at $2.9 billion compared to the end of the second quarter and as of December 31, 2022
  • Noninterest-bearing deposits remained constant at 25% of total deposits from the second quarter to the third quarter of 2023
  • Loan to deposit ratio as of September 30, 2023 was 90.7%, compared to 83.8% as of December 31, 2022, with no brokered deposits utilized
  • Noninterest income was 58.21% of total revenue, compared to 53.69% for the second quarter of 2023
  • Yield on interest earning assets increased 11 basis points from 4.55% in the second quarter to 4.66% in the third quarter of 2023
  • Noninterest income increased $2.6 million, or 10.2%, driven by a $2.8 million gain related to the sale of the ESOP trustee business in the retirement and benefit services division in the third quarter of 2023. Excluding the ESOP trustee business, noninterest income was up $0.4 million, or 1.6%, when compared to the second quarter of 2023
  • Core retirement and benefit services revenue, excluding the ESOP trustee business, increased $0.5 million, or 3.3%, when compared to the second quarter of 2023
  • Net recoveries to average loans of 0.09%, compared to net recoveries to average loans of 0.07% for the second quarter of 2023
  • Allowance for credit losses to total loans was 1.39% as of September 30, 2023, compared to 1.27% as of December 31, 2022
  • Repurchased $1.2 million of the Company’s outstanding stock at an average purchase price of $17.98, reducing common shares outstanding by 68,428 at quarter end
  • Common equity tier 1 capital to risk weighted assets as of September 30, 2023 was 13.01%, compared to 13.39% as of December 31, 2022

Selected Financial Data (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of and for the

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,

 

June 30,

 

September 30,

 

September 30,

 

September 30,

 

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

 

2023

 

2023

 

2022

 

2023

 

2022

 

Performance Ratios

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on average total assets

 

 

0.95

%

 

0.96

%

 

1.02

%

 

0.93

%

 

1.13

%

Return on average common equity

 

 

10.05

%

 

10.14

%

 

10.25

%

 

9.79

%

 

11.27

%

Return on average tangible common equity (1)

 

 

13.51

%

 

13.71

%

 

13.89

%

 

13.27

%

 

14.59

%

Noninterest income as a % of revenue

 

 

58.21

%

 

53.69

%

 

48.82

%

 

54.51

%

 

54.08

%

Net interest margin (tax-equivalent)

 

 

2.27

%

 

2.52

%

 

3.21

%

 

2.50

%

 

3.02

%

Efficiency ratio (1)

 

 

73.37

%

 

72.79

%

 

74.76

%

 

73.57

%

 

73.94

%

Net charge-offs/(recoveries) to average loans

 

 

(0.09)

%

 

(0.07)

%

 

0.07

%

 

(0.04)

%

 

0.04

%

Dividend payout ratio

 

 

42.22

%

 

42.22

%

 

38.30

%

 

43.08

%

 

33.33

%

Per Common Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share - basic

 

$

0.46

 

$

0.45

 

$

0.48

 

$

1.31

 

$

1.58

 

Earnings per common share - diluted

 

$

0.45

 

$

0.45

 

$

0.47

 

$

1.30

 

$

1.56

 

Dividends declared per common share

 

$

0.19

 

$

0.19

 

$

0.18

 

$

0.56

 

$

0.52

 

Book value per common share

 

$

17.60

 

$

17.96

 

$

17.25

 

 

 

 

 

 

 

Tangible book value per common share (1)

 

$

14.32

 

$

14.60

 

$

13.76

 

 

 

 

 

 

 

Average common shares outstanding - basic

 

 

19,872

 

 

20,033

 

 

19,987

 

 

19,977

 

 

18,186

 

Average common shares outstanding - diluted

 

 

20,095

 

 

20,241

 

 

20,230

 

 

20,193

 

 

18,431

 

Other Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement and benefit services assets under administration/management

 

$

34,552,569

 

$

35,052,652

 

$

30,545,694

 

 

 

 

 

 

 

Wealth management assets under administration/management

 

$

3,724,091

 

$

3,857,710

 

$

3,435,786

 

 

 

 

 

 

 

Mortgage originations

 

$

109,637

 

$

111,261

 

$

229,901

 

$

298,626

 

$

686,060

 

 
(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 third quarter of 2023 was $20.4 million, a $1.8 million, or 8.3%, decrease from the second quarter of 2023. Net interest income decreased $7.9 million, or 28.0%, from $28.3 million from the third quarter of 2022. Interest income increased $1.7 million, or 4.2%, from the second quarter of 2023, primarily driven by an 11 basis point increase in yield on interest earning assets mostly attributable to higher yields on new loans. The increase in interest income was more than offset by a $3.5 million increase in interest expense, primarily due to an increase in rates paid on interest-bearing deposits and an increase in the average short-term borrowings balance. 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 2.27% for the third quarter of 2023, a 25 basis point decrease from 2.52% for the second quarter of 2023, and a 94 basis point decrease from 3.21% for the third 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 higher yields on new loans and accretion of fair value marks from the Metro Phoenix Bank transaction.

Noninterest Income

Noninterest income for the third quarter of 2023 was $28.4 million, a $2.6 million, or 10.2%, increase from the second quarter of 2023. The quarter over quarter increase was driven by the divestiture of the ESOP trustee business where a $2.8 million gain was recognized in the quarter. Excluding the ESOP trustee business, core retirement and benefit services revenue increased $0.5 million, or 3.3%, when compared to the second quarter of 2023. Mortgage saw a $0.4 million decrease in mortgage banking revenue with mortgage originations of $109.6 million for the third quarter of 2023, compared to originations of $111.3 million in the second quarter of 2023. Retirement and benefit services revenue increased $2.7 million, or 17.1%, mainly due to the gain on sale as a result of the sale of the ESOP trustee business. Assets under administration/management decreased due to challenged equity and bond market returns. Similarly, wealth management revenue decreased $0.2 million, remaining mostly stable despite assets under administration/management decreasing due to challenging equity and bond markets.

Noninterest income for the third quarter of 2023 increased $1.4 million, or 5.2%, from $27.0 million in the third quarter of 2022. The year over year increase was primarily driven by a $2.0 million increase in Retirement and Benefit services revenue due to the divestiture of the ESOP trustee business and increased assets under administration/management. Assets under administration/management were higher due to an increase in overall plans and participants coupled with improved equity and bond markets. The increase in revenues was partially offset by a $0.2 million decrease related to the exit of the payroll business in 2022. In addition, mortgage revenue decreased $1.3 million due to decreased origination volume resulting from higher interest rates. Wealth management revenue increased $0.4 million driven by an increase in assets under administration/management over the prior year. Assets under administration/management increased over the prior year due to continued success in client acquisition coupled with improved equity and bond markets.

Noninterest Expense

Noninterest expense for the third quarter of 2023 was $37.2 million, a $0.9 million, or 2.4%, increase from the second quarter of 2023. Compensation and employee taxes and benefits expenses increased $0.4 million from the second quarter of 2023, mainly due to severance costs of $0.3 million and $0.3 million of talent acquisition costs, offset by decreased salaries and mortgage incentive compensation as overall headcount declined. Net of the $0.6 million severance and talent acquisition costs, compensation and employee taxes and benefits expenses decreased $0.2 million in the third quarter of 2023.

Noninterest expense for the third quarter of 2023 decreased $5.5 million, or 12.9%, from $42.8 million in the third quarter of 2022. The year over year decrease was primarily due to a $2.1 million decrease in compensation and a $1.4 million decrease in professional fees and assessments. Compensation decreased primarily due to a decrease in overall headcount and due to lower mortgage-related incentive compensation due to lower mortgage originations. The decrease in professional fees and assessments was due to merger-related expenses incurred in the third quarter of 2022, in connection with the acquisition of Metro Phoenix Bank.

Financial Condition

Total assets were $3.9 billion as of September 30, 2023, an increase of $89.5 million, or 2.4%, from December 31, 2022. The increase was primarily due to a $162.4 million increase in loans, a $6.9 million increase in loans held for sale and a $6.5 million increase in cash and cash equivalents, partially offset by a decrease of $96.0 million in investment securities.

Loans

Total loans were $2.6 billion as of September 30, 2023, an increase of $162.4 million, or 6.6%, from December 31, 2022. The increase was primarily driven by a $143.3 million increase in commercial real estate loans and a $38.2 million increase in residential real estate loans, offset by a $1.5 million decrease in commercial and industrial loans, a $0.1 million decrease in real estate construction loans and a $19.8 million decrease in other consumer revolving and installment loans.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

June 30,

 

March 31,

 

December 31,

 

September 30,

(dollars in thousands)

 

2023

 

2023

 

2023

 

2022

 

2022

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

582,387

 

$

551,860

 

$

553,578

 

$

583,876

 

$

564,655

Real estate construction

 

 

97,742

 

 

78,428

 

 

108,776

 

 

97,810

 

 

89,215

Commercial real estate

 

 

1,025,014

 

 

1,003,821

 

 

934,324

 

 

881,670

 

 

819,068

Total commercial

 

 

1,705,143

 

 

1,634,109

 

 

1,596,678

 

 

1,563,356

 

 

1,472,938

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate first mortgage

 

 

717,793

 

 

707,630

 

 

698,002

 

 

679,551

 

 

649,818

Residential real estate junior lien

 

 

152,677

 

 

157,231

 

 

152,281

 

 

150,479

 

 

143,681

Other revolving and installment

 

 

30,817

 

 

34,552

 

 

39,664

 

 

50,608

 

 

51,794

Total consumer

 

 

901,287

 

 

899,413

 

 

889,947

 

 

880,638

 

 

845,293

Total loans

 

$

2,606,430

 

$

2,533,522

 

$

2,486,625

 

$

2,443,994

 

$

2,318,231

Deposits

Total deposits were $2.9 billion as of September 30, 2023, a decrease of $43.3 million, or 1.5%, from December 31, 2022. Interest-bearing deposits increased $99.7 million, while noninterest-bearing deposits decreased $143.0 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 remained stable at 25% of total deposits. Time deposit balances increased as higher short-term CD rates attracted primarily new deposits to the Company with some internal transfers of money from current customers. The Company continued to have $0 of brokered deposits as of September 30, 2023.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

June 30,

 

March 31,

 

December 31,

 

September 30,

(dollars in thousands)

 

2023

 

2023

 

2023

 

2022

 

2022

Noninterest-bearing demand

 

$

717,990

 

$

715,534

 

$

792,977

 

$

860,987

 

$

905,228

Interest-bearing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand

 

 

759,812

 

 

753,194

 

 

817,675

 

 

706,275

 

 

653,216

Savings accounts

 

 

88,341

 

 

93,557

 

 

99,742

 

 

99,882

 

 

101,820

Money market savings

 

 

959,106

 

 

986,403

 

 

1,076,166

 

 

1,035,981

 

 

1,079,520

Time deposits

 

 

346,935

 

 

304,167

 

 

245,418

 

 

212,359

 

 

222,027

Total interest-bearing

 

 

2,154,194

 

 

2,137,321

 

 

2,239,001

 

 

2,054,497

 

 

2,056,583

Total deposits

 

$

2,872,184

 

$

2,852,855

 

$

3,031,978

 

$

2,915,484

 

$

2,961,811

Asset Quality

Total nonperforming assets were $9.0 million as of September 30, 2023, an increase of $5.2 million, or 135.6%, from December 31, 2022. This increase was primarily driven by one borrower relationship. As of September 30, 2023, the allowance for credit losses on loans was $36.3 million, or 1.39% 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

 

 

 

September 30,

 

June 30,

 

March 31,

 

December 31,

 

September 30,

 

(dollars in thousands)

 

2023

 

2023

 

2023

 

2022

 

2022

 

Nonaccrual loans

 

$

9,007

 

$

2,233

 

$

2,118

 

$

3,794

 

$

4,303

 

Accruing loans 90+ days past due

 

 

 

 

347

 

 

 

 

 

 

1,000

 

Total nonperforming loans

 

 

9,007

 

 

2,580

 

 

2,118

 

 

3,794

 

 

5,303

 

OREO and repossessed assets

 

 

3

 

 

 

 

 

 

30

 

 

904

 

Total nonperforming assets

 

$

9,010

 

$

2,580

 

$

2,118

 

$

3,824

 

$

6,207

 

Net charge-offs/(recoveries)

 

 

(594)

 

 

(403)

 

 

170

 

 

(178)

 

 

405

 

Net charge-offs/(recoveries) to average loans

 

 

(0.09)

%

 

(0.07)

%

 

0.03

%

 

(0.03)

%

 

0.07

%

Nonperforming loans to total loans

 

 

0.35

%

 

0.10

%

 

0.09

%

 

0.16

%

 

0.23

%

Nonperforming assets to total assets

 

 

0.23

%

 

0.07

%

 

0.05

%

 

0.10

%

 

0.17

%

Allowance for credit losses on loans to total loans

 

 

1.39

%

 

1.41

%

 

1.41

%

 

1.27

%

 

1.34

%

Allowance for credit losses on loans to nonperforming loans

 

 

403

%

 

1,384

%

 

1,657

%

 

821

%

 

584

%

For the third quarter of 2023, the Company had net recoveries of $594 thousand, compared to net recoveries of $403 thousand for the second quarter of 2023 and $405 thousand of net charge-offs for the third quarter of 2022.

The Company did not record a provision for credit losses for the third quarter of 2023 due to strong credit quality indicators and net recoveries for the quarter. 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 $5.5 million and $7.1 million, as of September 30, 2023 and December 31, 2022, respectively.

Capital

Total stockholders’ equity was $349.4 million as of September 30, 2023, a decrease of $7.5 million from December 31, 2022. This change was driven by an increase in accumulated other comprehensive loss of $14.8 million. Tangible book value per common share, a non-GAAP financial measure, decreased to $14.32 as of September 30, 2023, from $14.37 as of December 31, 2022. Tangible common equity to tangible assets, a non-GAAP financial measure, decreased to 7.47% as of September 30, 2023, from 7.74% as of December 31, 2022. Common equity tier 1 capital to risk weighted assets decreased to 13.01% as of September 30, 2023, from 13.39% as of December 31, 2022.

During the third quarter of 2023, the Company repurchased approximately $1.2 million of its outstanding stock at an average purchase price of $17.98, which reduced common shares outstanding by 68,428 at quarter end.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

September 30,

 

 

 

2023

 

2022

 

2022

 

Capital Ratios(1)

 

 

 

 

 

 

 

 

 

 

Alerus Financial Corporation Consolidated

 

 

 

 

 

 

 

 

 

 

Common equity tier 1 capital to risk weighted assets

 

 

13.01

%

 

13.39

%

 

13.63

%

Tier 1 capital to risk weighted assets

 

 

13.30

%

 

13.69

%

 

13.94

%

Total capital to risk weighted assets

 

 

16.10

%

 

16.48

%

 

16.84

%

Tier 1 capital to average assets

 

 

11.14

%

 

11.25

%

 

10.82

%

Tangible common equity / tangible assets (2)

 

 

7.47

%

 

7.74

%

 

7.59

%

 

 

 

 

 

 

 

 

 

 

 

Alerus Financial, N.A.

 

 

 

 

 

 

 

 

 

 

Common equity tier 1 capital to risk weighted assets

 

 

12.68

%

 

12.76

%

 

13.01

%

Tier 1 capital to risk weighted assets

 

 

12.68

%

 

12.76

%

 

13.01

%

Total capital to risk weighted assets

 

 

13.86

%

 

13.83

%

 

14.11

%

Tier 1 capital to average assets

 

 

10.72

%

 

10.48

%

 

11.12

%

 

(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, October 26, 2023, to discuss its financial results. The call can be accessed via telephone at (833) 470-1428, using access code 328527. 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 the Company makes 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 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 risk, including the effects of recent and potential additional 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 the Company 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 the Company may become subject; potential impairment to the goodwill the Company 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 Israeli-Palestinian conflict and 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. The Company undertakes 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)

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

2023

 

2022

Assets

 

(Unaudited)

 

(Audited)

Cash and cash equivalents

 

$

64,724

 

 

$

58,242

 

Investment securities

 

 

 

 

 

 

Available-for-sale, at fair value

 

 

640,001

 

 

 

717,324

 

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

 

 

303,268

 

 

 

321,902

 

Loans held for sale

 

 

16,346

 

 

 

9,488

 

Loans

 

 

2,606,430

 

 

 

2,443,994

 

Allowance for credit losses on loans

 

 

(36,290

)

 

 

(31,146

)

Net loans

 

 

2,570,140

 

 

 

2,412,848

 

Land, premises and equipment, net

 

 

17,182

 

 

 

17,288

 

Operating lease right-of-use assets

 

 

5,986

 

 

 

5,419

 

Accrued interest receivable

 

 

15,561

 

 

 

12,869

 

Bank-owned life insurance

 

 

33,012

 

 

 

33,991

 

Goodwill

 

 

46,783

 

 

 

47,087

 

Other intangible assets

 

 

18,482

 

 

 

22,455

 

Servicing rights

 

 

2,214

 

 

 

2,643

 

Deferred income taxes, net

 

 

47,978

 

 

 

42,369

 

Other assets

 

 

87,461

 

 

 

75,712

 

Total assets

 

$

3,869,138

 

 

$

3,779,637

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

Noninterest-bearing

 

$

717,990

 

 

$

860,987

 

Interest-bearing

 

 

2,154,194

 

 

 

2,054,497

 

Total deposits

 

 

2,872,184

 

 

 

2,915,484

 

Short-term borrowings

 

 

515,470

 

 

 

378,080

 

Long-term debt

 

 

58,928

 

 

 

58,843

 

Operating lease liabilities

 

 

6,286

 

 

 

5,902

 

Accrued expenses and other liabilities

 

 

66,868

 

 

 

64,456

 

Total liabilities

 

 

3,519,736

 

 

 

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: 19,847,706 and 19,991,681 issued and outstanding

 

 

19,848

 

 

 

19,992

 

Additional paid-in capital

 

 

151,875

 

 

 

155,095

 

Retained earnings

 

 

291,162

 

 

 

280,426

 

Accumulated other comprehensive loss

 

 

(113,483

)

 

 

(98,641

)

Total stockholders’ equity

 

 

349,402

 

 

 

356,872

 

Total liabilities and stockholders’ equity

 

$

3,869,138

 

 

$

3,779,637

 

Alerus Financial Corporation and Subsidiaries

Consolidated Statements of Income

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Nine months ended

 

 

September 30,

 

June 30,

 

September 30,

 

September 30,

 

September 30,

 

 

2023

 

2023

 

2022

 

2023

 

2022

Interest Income

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

Loans, including fees

 

$

34,986

 

$

33,267

 

$

25,379

 

$

99,187

 

$

60,659

Investment securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

6,146

 

 

6,125

 

 

5,939

 

 

18,222

 

 

17,447

Exempt from federal income taxes

 

 

182

 

 

186

 

 

209

 

 

558

 

 

638

Other

 

 

724

 

 

762

 

 

748

 

 

2,221

 

 

1,021

Total interest income

 

 

42,038

 

 

40,340

 

 

32,275

 

 

120,188

 

 

79,765

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

14,436

 

 

12,678

 

 

1,852

 

 

36,218

 

 

3,494

Short-term borrowings

 

 

6,528

 

 

4,763

 

 

1,516

 

 

15,684

 

 

1,794

Long-term debt

 

 

679

 

 

665

 

 

591

 

 

1,999

 

 

1,712

Total interest expense

 

 

21,643

 

 

18,106

 

 

3,959

 

 

53,901

 

 

7,000

Net interest income

 

 

20,395

 

 

22,234

 

 

28,316

 

 

66,287

 

 

72,765

Provision for credit losses

 

 

 

 

 

 

 

 

550

 

 

Net interest income after provision for credit losses

 

 

20,395

 

 

22,234

 

 

28,316

 

 

65,737

 

 

72,765

Noninterest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement and benefit services

 

 

18,605

 

 

15,890

 

 

16,597

 

 

49,977

 

 

50,536

Wealth management

 

 

5,271

 

 

5,450

 

 

4,852

 

 

15,915

 

 

15,726

Mortgage banking

 

 

2,510

 

 

2,905

 

 

3,782

 

 

7,132

 

 

14,751

Service charges on deposit accounts

 

 

328

 

 

311

 

 

377

 

 

940

 

 

1,152

Other

 

 

1,693

 

 

1,222

 

 

1,402

 

 

5,475

 

 

3,541

Total noninterest income

 

 

28,407

 

 

25,778

 

 

27,010

 

 

79,439

 

 

85,706

Noninterest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation

 

 

19,071

 

 

18,847

 

 

21,168

 

 

57,076

 

 

61,467

Employee taxes and benefits

 

 

4,895

 

 

4,724

 

 

5,079

 

 

15,472

 

 

17,028

Occupancy and equipment expense

 

 

1,883

 

 

1,837

 

 

1,926

 

 

5,619

 

 

5,713

Business services, software and technology expense

 

 

4,774

 

 

5,269

 

 

5,373

 

 

15,367

 

 

15,082

Intangible amortization expense

 

 

1,324

 

 

1,324

 

 

1,324

 

 

3,972

 

 

3,430

Professional fees and assessments

 

 

1,716

 

 

1,530

 

 

3,126

 

 

4,397

 

 

6,913

Marketing and business development

 

 

692

 

 

648

 

 

890

 

 

2,026

 

 

2,304

Supplies and postage

 

 

410

 

 

406

 

 

588

 

 

1,275

 

 

1,806

Travel

 

 

322

 

 

306

 

 

291

 

 

876

 

 

826

Mortgage and lending expenses

 

 

689

 

 

215

 

 

409

 

 

1,401

 

 

1,577

Other

 

 

1,484

 

 

1,267

 

 

2,593

 

 

4,022

 

 

4,676

Total noninterest expense

 

 

37,260

 

 

36,373

 

 

42,767

 

 

111,503

 

 

120,822

Income before income taxes

 

 

11,542

 

 

11,639

 

 

12,559

 

 

33,673

 

 

37,649

Income tax expense

 

 

2,381

 

 

2,535

 

 

2,940

 

 

7,222

 

 

8,553

Net income

 

$

9,161

 

$

9,104

 

$

9,619

 

$

26,451

 

$

29,096

Per Common Share Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share

 

$

0.46

 

$

0.45

 

$

0.48

 

$

1.31

 

$

1.58

Diluted earnings per common share

 

$

0.45

 

$

0.45

 

$

0.47

 

$

1.30

 

$

1.56

Dividends declared per common share

 

$

0.19

 

$

0.19

 

$

0.18

 

$

0.56

 

$

0.52

Average common shares outstanding

 

 

19,872

 

 

20,033

 

 

19,987

 

 

19,977

 

 

18,186

Diluted average common shares outstanding

 

 

20,095

 

 

20,241

 

 

20,230

 

 

20,193

 

 

18,431

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

June 30,

 

December 31,

 

September 30,

 

 

 

2023

 

2023

 

2022

 

2022

 

Tangible Common Equity to Tangible Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Total common stockholders’ equity

 

$

349,402

 

$

357,685

 

$

356,872

 

$

344,839

 

Less: Goodwill

 

 

46,783

 

 

47,087

 

 

47,087

 

 

46,060

 

Less: Other intangible assets

 

 

18,482

 

 

19,806

 

 

22,455

 

 

23,779

 

Tangible common equity (a)

 

 

284,137

 

 

290,792

 

 

287,330

 

 

275,000

 

Total assets

 

 

3,869,138

 

 

3,832,978

 

 

3,779,637

 

 

3,691,253

 

Less: Goodwill

 

 

46,783

 

 

47,087

 

 

47,087

 

 

46,060

 

Less: Other intangible assets

 

 

18,482

 

 

19,806

 

 

22,455

 

 

23,779

 

Tangible assets (b)

 

 

3,803,873

 

 

3,766,085

 

 

3,710,095

 

 

3,621,414

 

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

 

 

7.47

%

 

7.72

%

 

7.74

%

 

7.59

%

Tangible Book Value Per Common Share

 

 

 

 

 

 

 

 

 

 

 

 

 

Total common stockholders’ equity

 

$

349,402

 

$

357,685

 

$

356,872

 

$

344,839

 

Less: Goodwill

 

 

46,783

 

 

47,087

 

 

47,087

 

 

46,060

 

Less: Other intangible assets

 

 

18,482

 

 

19,806

 

 

22,455

 

 

23,779

 

Tangible common equity (c)

 

 

284,137

 

 

290,792

 

 

287,330

 

 

275,000

 

Total common shares issued and outstanding (d)

 

 

19,848

 

 

19,915

 

 

19,992

 

 

19,987

 

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

 

$

14.32

 

$

14.60

 

$

14.37

 

$

13.76

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,

 

June 30,

 

September 30,

 

September 30,

 

September 30,

 

 

 

2023

 

2023

 

2022

 

2023

 

2022

 

Return on Average Tangible Common Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

9,161

 

$

9,104

 

$

9,619

 

$

26,451

 

$

29,096

 

Add: Intangible amortization expense (net of tax)

 

 

1,046

 

 

1,046

 

 

1,046

 

 

3,138

 

 

2,710

 

Net income, excluding intangible amortization (e)

 

 

10,207

 

 

10,150

 

 

10,665

 

 

29,589

 

 

31,806

 

Average total equity

 

 

361,735

 

 

360,216

 

 

372,274

 

 

361,260

 

 

345,192

 

Less: Average goodwill

 

 

46,882

 

 

47,087

 

 

48,141

 

 

47,018

 

 

37,101

 

Less: Average other intangible assets (net of tax)

 

 

15,109

 

 

16,153

 

 

19,466

 

 

16,149

 

 

16,605

 

Average tangible common equity (f)

 

 

299,744

 

 

296,976

 

 

304,667

 

 

298,093

 

 

291,486

 

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

 

 

13.51

%

 

13.71

%

 

13.89

%

 

13.27

%

 

14.59

%

Efficiency Ratio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense

 

$

37,260

 

$

36,373

 

$

42,767

 

$

111,503

 

$

120,822

 

Less: Intangible amortization expense

 

 

1,324

 

 

1,324

 

 

1,324

 

 

3,972

 

 

3,430

 

Adjusted noninterest expense (g)

 

 

35,936

 

 

35,049

 

 

41,443

 

 

107,531

 

 

117,392

 

Net interest income

 

 

20,395

 

 

22,234

 

 

28,316

 

 

66,287

 

 

72,765

 

Noninterest income

 

 

28,407

 

 

25,778

 

 

27,010

 

 

79,439

 

 

85,706

 

Tax-equivalent adjustment

 

 

180

 

 

140

 

 

112

 

 

444

 

 

306

 

Total tax-equivalent revenue (h)

 

 

48,982

 

 

48,152

 

 

55,438

 

 

146,170

 

 

158,777

 

Efficiency ratio (g)/(h)

 

 

73.37

%

 

72.79

%

 

74.76

%

 

73.57

%

 

73.94

%

Alerus Financial Corporation and Subsidiaries

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

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Nine months ended

 

 

September 30, 2023

 

June 30, 2023

 

September 30, 2022

 

September 30, 2023

 

September 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

 

$

29,450

 

3.09

%

 

$

36,418

 

4.00

%

 

$

72,157

 

2.02

%

 

$

35,892

 

3.45

%

 

$

68,811

 

0.86

%

Investment securities (1)

 

 

971,913

 

2.60

%

 

 

1,007,792

 

2.53

%

 

 

1,116,458

 

2.20

%

 

 

1,004,436

 

2.52

%

 

 

1,165,414

 

2.09

%

Fed funds sold

 

 

 

%

 

 

 

%

 

 

21,893

 

2.37

%

 

 

 

%

 

 

7,378

 

2.37

%

Loans held for sale

 

 

16,518

 

5.55

%

 

 

14,536

 

5.22

%

 

 

27,032

 

4.14

%

 

 

13,822

 

5.29

%

 

 

27,864

 

3.31

%

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

 

555,649

 

6.61

%

 

 

545,357

 

6.90

%

 

 

566,987

 

5.41

%

 

 

553,460

 

6.53

%

 

 

488,771

 

4.87

%

Real estate construction

 

 

88,450

 

8.52

%

 

 

87,905

 

7.43

%

 

 

70,545

 

5.60

%

 

 

93,098

 

7.46

%

 

 

52,212

 

4.71

%

Commercial real estate

 

 

998,636

 

5.25

%

 

 

956,828

 

5.09

%

 

 

807,505

 

4.07

%

 

 

956,018

 

5.10

%

 

 

670,854

 

3.86

%

Total commercial

 

 

1,642,735

 

5.89

%

 

 

1,590,090

 

5.84

%

 

 

1,445,037

 

4.67

%

 

 

1,602,576

 

5.73

%

 

 

1,211,837

 

4.30

%

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate first mortgage

 

 

714,874

 

3.89

%

 

 

698,288

 

3.76

%

 

 

624,826

 

3.54

%

 

 

700,734

 

3.80

%

 

 

561,261

 

3.45

%

Residential real estate junior lien

 

 

154,939

 

7.69

%

 

 

156,276

 

7.44

%

 

 

140,664

 

5.41

%

 

 

153,664

 

7.45

%

 

 

132,968

 

4.86

%

Other revolving and installment

 

 

32,288

 

6.11

%

 

 

37,759

 

6.03

%

 

 

51,834

 

4.98

%

 

 

38,148

 

5.99

%

 

 

52,150

 

4.59

%

Total consumer

 

 

902,101

 

4.62

%

 

 

892,323

 

4.50

%

 

 

817,324

 

3.96

%

 

 

892,546

 

4.53

%

 

 

746,379

 

3.78

%

Total loans(1)

 

 

2,544,836

 

5.44

%

 

 

2,482,413

 

5.36

%

 

 

2,262,361

 

4.41

%

 

 

2,495,122

 

5.30

%

 

 

1,958,216

 

4.10

%

Federal Reserve/FHLB stock

 

 

28,761

 

6.83

%

 

 

23,724

 

6.76

%

 

 

18,449

 

5.35

%

 

 

25,403

 

6.81

%

 

 

11,877

 

5.04

%

Total interest earning assets

 

 

3,591,478

 

4.66

%

 

 

3,564,883

 

4.55

%

 

 

3,518,350

 

3.65

%

 

 

3,574,675

 

4.51

%

 

 

3,239,560

 

3.30

%

Noninterest earning assets

 

 

230,123

 

 

 

 

 

220,604

 

 

 

 

 

224,804

 

 

 

 

 

224,970

 

 

 

 

 

191,652

 

 

 

Total assets

 

$

3,821,601

 

 

 

 

$

3,785,487

 

 

 

 

$

3,743,154

 

 

 

 

$

3,799,645

 

 

 

 

$

3,431,212

 

 

 

Interest-Bearing Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand deposits

 

$

751,455

 

1.34

%

 

$

775,818

 

1.26

%

 

$

659,696

 

0.13

%

 

$

757,995

 

1.16

%

 

$

692,310

 

0.12

%

Money market and savings deposits

 

 

1,073,297

 

3.20

%

 

 

1,145,335

 

2.81

%

 

 

1,180,576

 

0.40

%

 

 

1,127,630

 

2.72

%

 

 

1,089,137

 

0.24

%

Time deposits

 

 

327,264

 

3.94

%

 

 

270,121

 

3.29

%

 

 

234,459

 

0.74

%

 

 

276,797

 

3.26

%

 

 

224,603

 

0.54

%

Fed funds purchased

 

 

312,121

 

5.50

%

 

 

360,033

 

5.31

%

 

 

84,149

 

3.71

%

 

 

320,861

 

5.23

%

 

 

55,527

 

2.47

%

Short-term borrowings

 

 

173,913

 

5.02

%

 

 

 

%

 

 

168,750

 

1.71

%

 

 

84,982

 

4.92

%

 

 

60,073

 

1.71

%

Long-term debt

 

 

58,914

 

4.57

%

 

 

58,886

 

4.52

%

 

 

58,843

 

3.98

%

 

 

58,886

 

4.54

%

 

 

58,875

 

3.89

%

Total interest-bearing liabilities

 

 

2,696,964

 

3.18

%

 

 

2,610,193

 

2.78

%

 

 

2,386,473

 

0.66

%

 

 

2,627,151

 

2.74

%

 

 

2,180,525

 

0.43

%

Noninterest-Bearing Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

 

692,742

 

 

 

 

 

748,942

 

 

 

 

 

920,340

 

 

 

 

 

743,253

 

 

 

 

 

845,375

 

 

 

Other noninterest-bearing liabilities

 

 

70,160

 

 

 

 

 

66,136

 

 

 

 

 

64,067

 

 

 

 

 

67,981

 

 

 

 

 

60,120

 

 

 

Stockholders’ equity

 

 

361,735

 

 

 

 

 

360,216

 

 

 

 

 

372,274

 

 

 

 

 

361,260

 

 

 

 

 

345,192

 

 

 

Total liabilities and stockholders’ equity

 

$

3,821,601

 

 

 

 

$

3,785,487

 

 

 

 

$

3,743,154

 

 

 

 

$

3,799,645

 

 

 

 

$

3,431,212

 

 

 

Net interest rate spread

 

 

 

 

1.48

%

 

 

 

 

1.77

%

 

 

 

 

2.99

%

 

 

 

 

1.77

%

 

 

 

 

2.87

%

Net interest margin, tax-equivalent(1)

 

 

 

 

2.27

%

 

 

 

 

2.52

%

 

 

 

 

3.21

%

 

 

 

 

2.50

%

 

 

 

 

3.02

%

 
(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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